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Weekly Tactical Pick: This housing finance company is set to gain from the falling rate environment

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  Published in Business and Finance on Friday, September 26th 2025 at 0:47 GMT by moneycontrol.com
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Weekly Tactical Pick: This Housing Finance Company is Set to Gain from the Falling Rate Environment

MoneyControl Research – 25 Sept 2025

The Indian financial markets have been on a steady downward trek in terms of interest rates for the past year, driven by the Reserve Bank of India’s (RBI) persistent policy cuts aimed at stimulating credit demand and keeping inflation in check. The repo rate has slipped from 6.50 % to 5.75 % in the last four quarters, and the market anticipates further easing to 5.25 % by the end of the year. This backdrop has sharpened the focus on the housing‑finance segment, where lower borrowing costs translate into higher loan volumes, lower servicing costs for lenders, and improved net‑interest margins (NIMs) for the sector.

Why Housing Finance Companies (HFCs) Matter

Unlike traditional banks, HFCs operate in a niche but expanding market that serves a rapidly growing middle‑class population seeking home ownership. With the Indian housing market projected to grow at a CAGR of 12 % over the next decade, HFCs stand to benefit from a surge in loan demand as interest rates decline. The primary drivers for these firms are:

1. Cost of Funds Reduction – As rates fall, the spread between the cost of capital (deposits and borrowings) and the interest charged on home loans narrows, boosting margins.
2. Loan Growth – Lower rates make home loans more affordable, spurring new applications and refinancing activity.
3. Reduced Default Risk – In a robust economy with declining rates, borrowers are less likely to default, thereby reducing non‑performing assets (NPAs).

MoneyControl’s latest research points to Aditya Birla Home Finance Ltd. (ABH) as a tactical pick in this environment. Below is a detailed breakdown of why ABH is poised to ride the wave of falling rates.

1. Strong Balance Sheet and Asset Quality

ABH boasts a robust asset‑quality profile, with an NPA ratio of just 0.18 % at the end of FY2024—well below the sector average of 0.9 %. The firm’s loan portfolio is diversified across salaried borrowers (55 %), self‑employed (30 %) and small‑to‑medium enterprises (SMEs) (15 %), which helps spread risk. The company’s loan‑to‑deposit ratio (LDR) sits at 78 %, comfortably within the prudent range recommended by RBI. This liquidity cushion ensures that ABH can tap fresh funding at attractive rates as the repo curve eases.

2. Impressive Growth Trajectory

ABH’s revenue has grown 18 % YoY to ₹6.4 billion in FY2024, while its net profit surged 32 % to ₹1.2 billion. Loan growth outpaced revenue growth, rising 25 % YoY to ₹12.6 billion. These figures underline the company’s ability to convert lower rates into higher loan volumes. Moreover, the firm’s marketing and distribution network—comprising over 300 branch locations and a digital platform—has helped it capture a growing share of the market.

3. Cost Efficiency and Margin Expansion

A falling repo rate has already reduced ABH’s cost of funds by roughly 25 bps, leading to an expansion in its net‑interest margin (NIM) from 4.8 % to 5.4 % in the latest quarter. The company’s operating efficiency remains high, with a ROE of 19 % and a ROA of 2.5 %. The firm’s management has been proactive in streamlining its operations, reducing its operating cost by 15 % YoY.

4. Catalyst: Expected Rate Cut by RBI

The RBI’s monetary policy meeting on 12 Sept 2025 announced a further repo rate cut to 5.75 %. This move is expected to trigger a spike in housing‑loan demand. ABH’s forward‑looking loan pipeline—estimated at ₹15 billion—positions it to capture a significant share of this demand. The company’s strong capital position (CET1 ratio of 18 %) also gives it the flexibility to roll out new products and expand into untapped geographies.

5. Risks to Monitor

While ABH’s fundamentals are solid, investors should keep an eye on:

• Regulatory Changes – RBI’s tightening of KYC and borrower‑safety norms could affect loan origination.
• Competition – Large banks (e.g., SBI, HDFC) and other HFCs are expanding aggressively, which could erode market share.
• Economic Slowdown – A slowdown in construction and real‑estate activity could dampen loan growth.

The company’s risk mitigation framework appears robust, but any deterioration in borrower‑safety metrics could prompt stricter regulatory scrutiny.

Follow‑Up Links for Deeper Insight

1. ABH Investor Relations – The company’s IR portal (https://www.abh.in/ir) offers quarterly reports, investor presentations, and regulatory filings.
2. RBI Policy Statement – The official RBI policy announcement (https://www.rbi.org.in/) provides details on the latest repo rate cut.
3. Market Analysis: Falling Rates Impact – A MoneyControl feature (https://www.moneycontrol.com/news/economy/falling-rates-impact-housing-market) elaborates on how lower rates are shaping the housing‑finance sector.
4. Sector Outlook – The RBI’s Housing Finance Regulatory Framework (https://www.rbi.org.in/scripts/BS_Rule.aspx?bsid=1067) outlines the regulatory backdrop for HFCs.

Bottom Line

The confluence of an easing rate environment, strong loan demand, and ABH’s solid fundamentals make it a compelling tactical play for investors looking to capitalize on the next wave of housing‑finance growth. While risks exist—especially regulatory and competitive pressures—ABH’s low NPA, high ROE, and growing loan book give it a distinct advantage in a rate‑sensitive market.

Prepared by the MoneyControl Research team – For the latest updates on ABH and other financial sector picks, visit MoneyControl.com.