The Indian non-banking financial sector is undergoing a significant transformation as institutions strategically pivot away from unsecured lending toward more secured loan products, particularly mortgages. This fundamental shift represents a response to mounting liquidity pressures, increasing delinquency rates, and evolving regulatory expectations. Market watchers are noting how established players like Kinara Capital, which had raised approximately $117 million from prominent international investors including British International Investment and Nuveen, are now confronting liquidity challenges that have forced them to temporarily halt repayments while restructuring their operations. This transition signals a broader industry-wide reassessment of risk profiles and business models, creating both challenges and opportunities in the mortgage financing landscape.
Kinara Capital’s recent financial difficulties highlight the vulnerabilities that emerged during an aggressive expansion phase in unsecured lending. According to industry reports, the company faced a liquidity crunch after certain lenders withdrew fixed deposits and recalled loans, prompting Kinara to implement a resolution plan that includes pausing repayments until October. This situation serves as a cautionary tale about the risks associated with overexposure to unsecured lending segments, particularly during economic uncertainty. For mortgage lenders, this development underscores the importance of maintaining adequate liquidity buffers and diversifying funding sources to weather unexpected market turbulence that could affect their ability to continue mortgage lending operations.
Meanwhile, Aye Finance demonstrates the strategic alternative to this challenging environment, as the Google-backed institution systematically reduces its exposure to unsecured lending while dramatically increasing its mortgage portfolio. Recent data reveals that Aye Finance has elevated its mortgage contribution to approximately 15% of total assets in the current fiscal year, representing a more than doubling from the 7% allocation in the previous period. This deliberate pivot reflects a sophisticated understanding of market dynamics and risk management principles, positioning Aye Finance to potentially capture increased market share in the growing mortgage segment while competitors navigate challenges in their unsecured loan portfolios.
The delinquency data from CRIF Highmark for June 2025 paints a compelling picture of why this strategic shift is both necessary and timely. Fintech lenders are experiencing significantly higher default rates in very small-ticket loans below ₹10,000, with 4.1% of these loans overdue by 31-90 days and 4.8% by 91-180 days. These figures substantially exceed the 1.7% and 1.8% delinquency rates observed among other non-banking financial institutions for comparable periods. This performance disparity suggests that smaller unsecured loans carry substantially higher risk profiles, making mortgage-secured loans appear increasingly attractive to lenders seeking more stable returns and better risk-adjusted performance.
The industry-wide retreat from unsecured lending reflects a fundamental reassessment of risk management practices and business sustainability. Financial institutions are recognizing that while unsecured loans may offer attractive growth potential during favorable economic conditions, they expose lenders to disproportionate credit risk when economic headwinds emerge. This understanding has prompted many non-banking financial companies to adopt more conservative underwriting standards while simultaneously reallocating capital toward secured loan products like mortgages. This strategic realignment positions the industry for greater stability and potentially more sustainable growth in the coming years, particularly as housing demand remains robust across many Indian markets.
Securitization through Participation Certificates (PTCs) has emerged as a critical tool for non-banking financial companies facing constrained funding environments. According to industry experts, slower equity inflows combined with limited bank funding have pushed NBFCs to securitize their loan portfolios, thereby unlocking capital to meet financial obligations without resorting to additional equity dilution. This mechanism allows mortgage lenders to maintain liquidity while continuing to originate new mortgage loans, creating a more efficient capital allocation process. For mortgage borrowers, this development could translate to more stable lending practices and potentially more competitive mortgage rates as lenders optimize their capital structures and funding sources.
The current cleanup of unsecured loan portfolios ahead of quarterly reporting periods and potential IPOs represents both a necessary adjustment and a strategic opportunity. Market participants note a significant increase in unsecured loan portfolio sales, driven in part by aggressive lending growth in previous years that led to some dilution in credit underwriting quality. This portfolio rationalization creates opportunities for asset reconstruction companies and institutional investors to acquire distressed assets at attractive valuations, while providing struggling lenders with immediate liquidity relief. For mortgage lenders, this environment of portfolio realignment may create opportunities to acquire specialized real estate assets while competitors focus on resolving legacy unsecured loan challenges.
For homebuyers and existing homeowners, this strategic shift in the lending landscape presents both challenges and opportunities. As non-banking financial institutions redirect their focus toward mortgage lending, borrowers may benefit from increased competition in the mortgage market, potentially leading to more favorable terms and innovative product offerings. However, the transition period may also involve some tightening of credit standards as lenders adjust to new risk parameters. Savvy borrowers should prepare for potentially more rigorous documentation requirements while remaining alert to new mortgage products designed to capture market share during this strategic repositioning of the lending sector.
The evolving mortgage rate environment deserves careful attention as non-banking financial companies restructure their business models. With reduced exposure to riskier unsecured lending segments, many NBFCs may have improved balance sheet stability that could translate into more competitive mortgage pricing. Additionally, the increased focus on mortgage lending may foster innovation in product design, potentially leading to specialized mortgage products tailored to different borrower segments. Market observers should watch for any changes in mortgage rate differentials between traditional banks and non-banking institutions, as this pricing dynamic could provide valuable insights into the changing competitive landscape in real estate finance.
The quality of credit underwriting practices in the mortgage sector is likely to benefit from the industry’s current reassessment of risk management principles. As lenders move away from unsecured products that may have experienced underwriting quality issues, they may apply enhanced scrutiny and more sophisticated risk assessment techniques to mortgage lending. This evolution could lead to more robust underwriting standards that better align borrower profiles with appropriate mortgage products and terms. For potential homebuyers, this development suggests a more carefully calibrated lending environment where mortgage approval decisions are based on comprehensive financial assessments rather than potentially superficial evaluations that might have characterized some segments of the unsecured lending market.
Looking ahead, the Indian real estate finance sector appears poised for a period of significant transformation as non-banking financial institutions complete their strategic realignment. This evolution could result in a more balanced financial system where mortgage lending plays an even more prominent role in supporting homeownership and real estate development. The consolidation of unsecured loan portfolios and the simultaneous expansion of mortgage operations may create opportunities for mergers and acquisitions, potentially leading to more concentrated mortgage markets in certain regions. Industry stakeholders should prepare for an environment where mortgage origination volumes may increase even as overall lending growth moderates, reflecting a more sustainable and risk-managed approach to real estate finance.
For mortgage professionals and real estate stakeholders, this period of industry transition offers both challenges and significant opportunities. Lenders should focus on enhancing their mortgage origination capabilities while maintaining rigorous risk assessment protocols. Mortgage brokers and real estate agents should educate themselves about the evolving product landscape and develop expertise in connecting borrowers with appropriate mortgage solutions. Potential homebuyers should take advantage of this strategic repositioning to secure favorable mortgage terms while remaining vigilant about documentation requirements and changing credit standards. By understanding these market dynamics and adapting accordingly, all stakeholders can navigate this period of industry transformation successfully and position themselves for long-term success in India’s evolving real estate finance ecosystem.
