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We hosted a call with Raoul Kapoor, CEO – Andromeda, Sales and Distribution (India’s largest DSA), to discuss the current and emerging growth trends in the mortgage, PL, and BL segments amid sharp rate-cuts, GST relief, and rising asset-quality concerns in the unsecured PL/BL segment. He indicated that macro uncertainty is clouding decision-making at both, the customers’ and lenders’ end which, in turn, is hurting growth. Recent government initiatives, including GST rate-cuts, could bring some cheer in the VF segment, though HL, PL, and BL are influenced by economic (business growth, salary hikes) and other (rates, borrowers/lenders’ risk appetite) variables, which shall take some time to improve. The macro situation is evolving every month, keeping lenders on the hook, though hopes of some revival in 2H are still high. KTAs:

Mortgage growth undershooting expectations despite rate cuts

Over the last two years, home loan (HL) growth has gradually moderated to ~10% for the banking system, well below the 13-17% levels seen over FY22-23. Overall volumes have been subdued and the growth is mainly contributed by rising ticket size (up 8% in FY24-25). PVBs have lost some market share to PSBs and NBFCs over the past 2 years; they are now looking to retrieve some market share and have thus re-aligned their lending rates (eg ICICIB). While policy rate-cuts have reduced HL rates to 7.5-8.5% with expectations of further easing around Diwali, demand recovery is yet to materialize. Developers too are expected to launch some schemes to attract customers which should help revive growth in the festive season. Low-mid-ticket housing demand remains soft, while premium housing growth is healthy, thus reflecting the wealth effect at the upper end of the strata. Stress in Karnataka was a regional issue caused by registration delays from process changes, albeit limited to the state and has, since, been resolved. The Micro LAP segment (ATS of Rs1.4-1.5mn) saw a spike in first-cheque bounce rates over the past 3-4M, limited to a few pockets in UP, UK, AP, and TL. However, lenders are reducing LTVs to manage risk, even as new players enter the affordable housing and Micro LAP space. Meanwhile, balance transfer has picked up in the easing rate cycle, typically rising 8-10% led by PSU banks, though their limited bandwidth, slower processing, and rigid transfer policies remain a drag.

Lenders turning slightly pro-growth in PL; cautious approach in unsecured BL, amid rising asset-quality noise

The over-leveraging risks in PL that once weighed on growth have been reined in by banks and large DSAs. Thus, after treading cautiously through FY25, lenders now seem ready to turn pro-growth on personal loans (PLs) in FY26. Leading banks—Axis Bank, Kotak Mahinda Bank (KMB), HDFCB, and ICICIB—have all signalled intent to scale their unsecured PL book, with greenshoots already visible in rising disbursements. PL flows rose 18% YoY in Q1FY26 for Andromeda, with nearly 3/4th concentrated in the Rs0.3- 2mn ticket range. KMB under its new leadership has notably shifted gear, moving from a narrow product-focused approach to a more diversified push across segments. Banks have not participated much in unsecured business loans, including Andromeda; this has of late been under the radar due to rising asset-quality noise. However, secured business loan growth remains healthy. The gold loan business has been logging strong growth since 2-3Y, with ticket size on the rise; thus Andromeda too has entered this business.

We prefer banks offering better growth, margin, and asset-quality resilience

We believe that the uncertain macro environment amid the ongoing trade war and the rising asset-quality noise in unsecured business loans/SMEs (given the persisting stress in unsecured retail loans) could constrain growth in the near-to-medium term. Sharper rate-cuts and slowdown in high-yielding SMEs, though partly offset by some acceleration in mortgages, could hurt margin and thus core profitability. Thus, we prefer banks—like ICICIB, HDFCB, SBI, BOB, Federal Bank, and Indian Bank—that offer relative growth, margin, and asset-quality resilience. Though KVB and CUBK have limited exposure to US exporters, any sharper correction in these stocks should be bought into, given their otherwise strong fundamentals. Within the MFI space, we believe Ujjivan and CREDAG are relatively better placed to play the recovery story.

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