Housing finance companies struggle as mortgage rate war intensifies

Housing finance companies (HFCs) are facing significant pressure due to aggressive pricing of mortgage rates by public sector banks, with the rate war squeezing their margins. Despite reporting growth in loan disbursals, many HFCs are not seeing a proportional increase in their assets under management (AUM), largely because several borrowers are shifting their home loans to competitors.

In the June 2025 quarter, Bajaj Housing Finance saw a 0.5% decline in net profit, while Aadhar Housing Finance and LIC Housing Finance reported 10% and 5% growth, respectively. Lower lending rates following the Reserve Bank of India's 100 basis points repo rate cut this year have brought down their net interest margins.

Bajaj Housing Finance currently charges one of the lowest mortgage rates at 7.35%, according to its website. In comparison, public sector lender Canara Bank interest rate on home loans starts at 7.40%.

The rate war is affecting even the largest housing finance company, LIC Housing Finance.

"As far as the competition is concerned, it is intense. And unfortunately, at LIC HF, we are competing with banks because we are largely into the prime segment, into which banks are present," said Tribhuwan Adhikari, managing director of LIC Housing Finance. "So, there is a rate war going on. And as far as the rates are concerned, we have also come down to the bank level."

LIC Housing Finance charges 7.50% on loans up to ₹5 crore for those with a CIBIL score of 800 and above, its website shows. The company's disbursements rose 2% in the fiscal first quarter ended June to ₹13,116 crore. In the first quarter of FY25, its disbursements had grown 19% year on year to ₹12,915 crore. Atul Jain, managing director of Bajaj Housing Finance, expects the pressure on margins to continue in the next two quarters.

"There is intense competition due to rate cut pressure in the segments that we operate in," he said in the analyst call. "We estimate that this pressure will still flow through for one or two more quarters. After that we are expected to come back to the normal trajectory."

Jain highlighted the disparity between disbursement and AUM growth amid pricing pressures.

Bajaj Housing Finance reported a 22% increase in disbursements to ₹14,651 crore in the first quarter. However, its AUM rose only 0.6% to ₹5,736 crore from ₹5,701 crore.

"This is because of very intense competition," Jain said.