Home loans, used to be considered one of the safest lending segments, are now seeing pockets of stress, leading to financial institutions selling those to asset reconstruction companies (ARCs), people in the know said.
Spike in stressed retail assets
“During the quarter ended June 2025, ARCs issued security receipts worth Rs 1,713 crore for acquiring retail stressed assets, a growth of more than 245% over the year-ago period. Retail loans included mortgages, particularly in affordable housing,” Hari Hara Mishra, chief executive officer at Association of ARCs in India, said.
According to a report by CRIF High Market, public sector banks (PSBs) witnessed a significant rise in home loan delinquencies, with 2.85% of the outstanding amount not being paid for between 31 and 90 days. These were mainly observed in ticket sizes of below Rs 35 lakh, the report said.
“Since the past 1-1.5 years, there has been a spike in home loans, and we are getting loans mainly from non-bank finance companies and private sector banks. However, public sector banks are not disposing of home loans, causing a higher stress on their books,” a senior official at an asset reconstruction company said.
Moderation in loan growth
Over the past two years, the home loan growth for banks has gradually moderated to nearly 10%, compared with 13-17% seen over FY22-23, Emkay Global said in a recent report. “Private sector banks have lost some market share to PSBs and NBFCs over the past two years, they are now looking to retrieve some market share and have realigned their lending rates,” the report said.
Overall volumes have been subdued, and larger ticket size is primarily contributing to the growth, the report said. While policy rate cuts have reduced home loan rates to 7.5-8.5%, the demand recovery is yet to materialise, the report said.