LIC Housing Finance has set its sights to expand its non-core loan book as it focuses on improving margins.

As of December 2023, the outstanding loan portfolio of the housing finance company was Rs 2,81,206 crore.

The share of individual home loans — its core business — was 84.9 per cent of the portfolio, with the rest of non-core loans comprising loans against property, project loans, builder loans etc.

“We are trying to change our product profile. Initially, we were heavily loaded in favour of IHL (individual home loans) and that is a very competitive market. Banks have the advantage of lower cost of funds because of their CASA deposits,” LIC Housing Finance MD and CEO Tribhuwan Adhikari said.

“While we will be there in IHL, in non-core business, margins are more. Next year the expectation is that this will increase to a minimum of 20 per cent,” he said.

The housing finance company has recorded an improvement in net interest margin (NIM) of 3 per cent in the third quarter of the fiscal against 2.41 per cent a year ago.

The increase in NIM is because of the pass-through of higher interest rates and the changing focus towards expanding the non-core portfolio.

The NIM expectations for next fiscal are in the range of 2.6-2.8 per cent, Adhikari
said.

The lender has seen a marginal increase in the cost of funds in the first nine months of the fiscal with the weighted average cost of borrowed funds at 7.70 per cent against 7.4 per cent in the corresponding period previous year.

NCDs constitute 52 per cent of the outstanding liability profile of LIC Housing Finance as of December 31, 2023, with banks at 35 per cent and the rest includes deposits, commercial papers, tier 2 instruments and NHB according to investor disclosure.

While the liquidity crunch is easing, managing the cost of funds is still a major area of focus for housing finance companies.

Higher term deposits of banks at 7.7-7.8 per cent is one of the reasons. At such a high rate, the banks are not keen to lend at lower rates.

LIC Housing Finance remains bullish on the housing demand in the coming year.

“We expect that the demand should be robust. If the economy is doing well, the housing sector should also do well,” Adhikari said.