LETTER BY THE MANAGING DIRECTOR

Dear Shareholders,

We started FY 2024-25 on the backdrop of optimism and anticipation in the real estate sector triggered further by positive macro developments.

As one of the largest Housing Finance companies in India, we are proud to have reached out to millions of people over the last 37 years, and helping fulfil their aspirations and enabling people to fulfil their dream of owning a safe haven for themselves and their loved ones. Our mission continues to be to “provide secured housing finance at affordable cost, maximising shareholders value with higher customer sensitivity”.

We are well-positioned to cater to these evolving needs through product innovation, geographic expansion, and digital transformation. We believe that the long-term fundamentals of the housing finance industry remain intact, and the sector will continue to play a pivotal role in driving financial inclusion and home ownership in India.

Building on our strong fundamentals, we continue to surge ahead into a new orbit through a well-crafted strategy that focusses on all areas of operations with a near term and a long-term objective.

We are well entrenched to benefit tremendously from the demographic dividend, which mirrors the aspirations, consumption style and purchasing power of India. The greatest façade of India’s economic growth story continues to be nested within the rapidly expanding and dynamic middle-income segment. With an in-depth understanding of the housing market and with a keen understanding of this consumer segment and its purchasing power, we have chalked a robust roadmap ahead.

INDUSTRY OVERVIEW

India's real estate market witnessed robust performance under office demand as well as residential sales driven by economic stability and positive market sentiment. The housing market performed well in FY 2024-25, driven by economic stability and creation of physical infrastructure. Demand is emerging not only in Tier 1/2 cities, but across the country due to expansion of metro networks, enhancements to road networks, and improvement in connectivity. The residential real estate market scaled an 11-year high in sales volume in the first six months of 2024.

As per the Economic Survey 2024-25, housing demand in India is expected to touch 93 million units by 2036, with RERA and GST having brought several benefits to the real estate market and the housing sector. Stable economic conditions, robust infrastructure development, and growing market confidence have been key drivers for growth in housing.

With demand for housing increasing swiftly, we see a brighter future for housing finance companies. Especially after the Pradhan Mantri Awas Yojana (PMAY) 2.0, housing finance has started seeing a lot of traction and movement in demand. We expect the trend to accelerate further with interest rate easing and continued government efforts in urban infrastructure development.

The housing finance sector has been witnessing strong credit growth with tier-2 and tier-3 cities as main drivers. This has provided a momentum to our efforts towards deeper penetration and improving financial inclusion across the country. Our constant focus towards customer service, effective cost management and improvement in asset quality have contributed to stable margins and improved profitability. As we move into the next fiscal, we remain optimistic about our industry growth, especially in the affordable segment, giving us a positive roadmap over the upcoming 12 months.

The housing market, especially in the affordable and mid-income segments, continues to demonstrate robust demand, backed by urbanisation, government incentives (like PMAY), and improving income levels. This cycle enhances asset quality and supports consistent disbursement growth, reinforcing lender confidence.

The ongoing turn in the real estate cycle – marked by improved sales velocity, higher price realisations, and rising buyer confidence – has significantly enhanced the operating environment for previously stressed or delayed residential projects. This has created a favourable climate for resolution of projects that were earlier constrained by execution challenges and cash flow mismatches. As a housing finance company, we are actively leveraging this opportunity.

A LOW-INTEREST RATE REGIME

The Reserve Bank of India (RBI) enacted two successive 25 basis point reductions in the repo rate, lowering it from 6.5% to 6.0% in the months of February 2025 and April 2025. These interest rate cuts are in line with RBI’s decisions and the current market scenario. We believe this move will boost consumer sentiments and stimulate housing demand. The repo rate cut is a welcome step toward easing financial pressure on households. The RBI also introduced multiple liquidity boosting measures.

On the macro scenario, we are witnessing gradual lowering of interest rates, triggered by the containment of inflation. The declining interest rate regime induces affordability to our end-users by driving down the cost of owning their dream home. This, coupled with the fact that property prices have remained stable during the last couple of years has also helped improve home affordability, especially for the end-user middle income households who form the Company’s principal customer segment.

PERFORMANCE SCORECARD

In the Fiscal Year 2024-25, the Company delivered an all-round performance. For the year ended 31^st March, 2025, Total Loan Disbursements stood at ₹ 64,022 crore, growing by 9% YoY against ₹ 58,937 crore in the earlier fiscal year. The Individual Home Loan Segment registered disbursement of ₹ 51,614 crore vis-à-vis ₹ 49,103 crore, while disbursement under Project Loans stood at ₹ 3,776 crore vs ₹ 2,560 crore, rising 48% in the earlier fiscal year.

Revenue from Operations stood at ₹ 28,050 crore vis-à-vis ₹ 27,228 crore. Profit After Tax was up by 14% at ₹ 5,429 crore, from ₹ 4,765 crore in the earlier year. Our loan portfolio crossed the milestone of ₹ 3 lakh crore as it stood at ₹ 3,07,732 crore, vs ₹ 2,86,844 crore in the earlier year, and growing by 7% YoY. 7% CAGR since FY 2020-21. Net Interest Margin was 2.73% vs 3.08% in the earlier year. For the year under review, the Board recommended a 500% dividend – ₹ 10 per share on ₹ 2 face value.

Our asset quality is showing significant improvement for the last several quarters, and continues to be one of the best-in-class, true to our commitment to a “zero tolerance policy to NPAs”. Gross NPAs at the end of FY 2024-25 were 2.47%, as against 3.31% in the previous year. Net NPAs stood at 1.22%, as against 1.63% on corresponding dates. Our Cost to Income ratio too declined from 78% in FY 2023-24 to 76% in FY 2024-25, a reduction of nearly a percentage point for the year. The average cost of funds was lower at 7.73% vs 7.76% in the earlier year. Our focus on “Growth with Profitability” and our Asset side and Liability side strategies ensured that we were able to deliver a Net Interest Margin of 2.73%.

Despite a competitive market impacting assets under management (AUM) growth, we expect to maintain net interest margin (NIM) between 2.5% and 2.5% and a double-digit overall growth, with potential contributions from affordable housing initiatives under PMAY. We are eyeing low double-digit growth in AUM.

TARGETING SCALE

Our motto is to achieve SCALE – Service excellence, Connect, Accelerate, Leverage, and End-to-End Digitisation. By this, our aim is to further improve our service; maintain customer connect; accelerate further with 10-12% growth in AUM and 15% growth in disbursement; leverage our brand image, tech capabilities, reach and resources; and ensure end-to-end digitisation in our processes. To achieve our focus on growth, we need to scale up in every aspect of the business.

We are committed and passionate about the use of technology in every aspect of our business. We have taken several key initiatives to provide improved customer-centric services and aligned our workforce with technology. With digital transformation, our endeavour has been to improve service standards through ongoing digital transformation of our processes.

We continue to make significant investment into its IT infrastructure to advance to the next-generation scalable and flexible technology landscape. Since we started our digitisation journey a few years back, we have already emerged to deliver a new dimension of excellence which entails having enhanced market insight, better operating efficiencies and nurturing deeper customer centricity. We are not just targeting to meet their expectations, but surpassing them.

HOMY also lets our customers enjoy a differentiated treatment with timely resolution of loans, services and grievances. We also made digital signatures legally accepted, which not only saves time but is also environmentally safe.

MEASURED AND MONITORED

We are growing, but not at the cost of risk. We are building a robust, future-ready housing finance business. Today, LIC Housing Finance possesses one of the industry’s most extensive marketing network in India with 307 marketing offices, 44 cluster offices, 23 Back Offices in Tier 1-3 cities, and market intermediaries that help us further extend our marketing reach. We have spread ourselves fairly well in terms of distribution reach and now it is time to leverage this growing distribution reach.

Our emphasis is on improving business productivity of each branch/office by measuring, monitoring and tracking its performance. To achieve this, we are targeting branch optimisation by scaling up, making every single branch more productive and enabling that they can deliver to their full potential. This is aimed at freeing people from routine jobs due to technology. They can devote more time towards handholding of our agents and marketing our products better.

TOWARDS SUSTAINABLE GROWTH

Growth in loan portfolio will be underpinned by deeper penetration into under-served geographies and a strong focus on self-employed and informal sector customers. While the near-term environment poses some headwinds, our long-term view remains strong. We are focussed on calibrated growth, backed by digital transformation, deeper market reach, and a disciplined credit approach.

As we go forward, our key growth drivers are clearly the lowering of interest rates and demand increasing; a stable economy with the government pushing growth; industry being well-placed with no liquidity issues; and urbanisation. With more youngsters coming into the job market and having a capacity of paying EMIs, they look for buying their own houses.

While we have a diverse range of products targeting every customer segment – from self-employed to the working class, we definitely feel there is a market for customers with undocumented income. We are looking at increasing the ticket size of this segment for them to get access to higher quantum of loan.

Another key strategy has been that of entering the mid-premium housing segment, which is growing rapidly. We are building relationships with top-rated builders to leverage this growth opportunity. We are also open to exploring the semi-luxury and luxury housing market, which is witnessing a remarkable surge driven by a growing preference for exclusivity, enhanced lifestyles, and premium living spaces, despite global economic uncertainties.

STRENGTHENING CAPABILITIES

We have mastered the art of knowing how to measure, manage and allocate risk in the home loans business, which are the key elements of this business. Moving further, we remain poised to unleash our true potential by scaling up and going measuredly in a calibrated fashion, assessing risk better, and training our employees.

On the recovery front, with the continuous and focussed efforts, we have witnessed a significant and consistent reduction in delinquency levels during the year. We further strengthened our recovery strategising and planning by introduction of Early Warning System and other pro-active measures. We have been initiating of timely legal measures through SARFAESI Act, IBC and other legal mechanisms, and these measures will be further intensified in the coming years.

Our efficient operating model, prudent risk management, and healthy asset-liability management (ALM) contribute to strong ROE metrics. This profitability assures stakeholders of the long-term viability of our business and further strengthens our ability to raise funds on favourable terms.

Going forward, we are aiming for double-digit growth in our loan book. Our gross NPA has already come down from 3.31% to 2.47%, and the remaining NPAs are mostly legacy issues being resolved through various means. During the year 2025-26, we are expecting further reduction in GNPA, which will offer leverage to maintaining our margins.

Our constant priority is to improve the quality of our assets. We are controlling NPAs with proper processes including thorough due diligence during loan disbursement and strong systems for managing receivables and delinquencies. Ideally, we would like NPA to be less than 1%, and we’re working towards that.

MOVING FORWARD

Despite current challenges in credit growth, we remain cautiously optimistic about our medium- to long-term outlook. The structural demand for housing in India – particularly in the affordable and mid-income segments – remains strong, supported by urbanisation, a young demographic, and government-backed initiatives like PMAY, interest subsidies, and infrastructure status for housing.

While macroeconomic factors such as interest rate volatility and tighter liquidity may temporarily slow down disbursement growth, we are positioning ourselves for steady, sustainable expansion.

As a housing finance company, we are well-positioned to cater to these evolving needs through product innovation, geographic expansion, and digital transformation. We believe that the long-term fundamentals of the housing finance industry remain intact, and the sector will continue to play a pivotal role in driving financial inclusion and home ownership in India.

Our strong technology-driven platform, a wide range of products and a pan-India reach differentiates LIC HFL superbly for value creation. Going forward, we are on a journey with a singular commitment to delight the customer with our cutting-edge products and new industry benchmarks. We remain geared to meet customer demand and give them a seamless experience.

By focussing on cost-efficient funding, disciplined credit practices, and operational scalability, we are well-positioned to enhance profitability and asset quality, while driving sustainable growth. We remain confident that our RoA will continue to improve as our business model matures.

IN CONCLUSION

I look forward to the continued support of all our stakeholders in taking your Company forward on this journey of sustainable and profitable growth.

On this note, I feel privileged and proud of our leadership team and employees who keep giving their best every single day to take the Company higher. On behalf of the management and the Board of Directors, I wish to thank all our employees for their continued commitment and support.

We appreciate the constant backing of our shareholders. Your encouragement and support are precious. We treasure it.

Lastly, I remain dedicated to our continued success and look forward to working with each one of you to take LIC HFL even higher, and create value for all.

With Best Wishes,