Will L&T Finance’s 98% retailisation push pressure other NBFCs to pivot faster to secured lending?

L&T Finance Limited (NSE: LTF, BSE: 533519) reported a near-complete retailisation of its loan book in Q1 FY26, with retail assets accounting for 98% of its total consolidated book, as per its July 18 regulatory filing. The non-banking financial company (NBFC) also posted a consolidated Profit After Tax (PAT) of ₹701 crore, marking a 10% sequential rise and a 2% year-on-year growth. Its highest-ever consolidated book size of ₹1,02,314 crore included a retail book of ₹99,816 crore, up 18% year-on-year, highlighting the success of its Lakshya 2026 strategy to build a granular, retail-focused franchise.

The strong retail disbursement of ₹17,522 crore in Q1 FY26, up 18% from a year earlier, was led by housing loans, gold loans, and personal loans, with farmer finance contributing to secured rural growth. Market observers believe this retail-centric strategy reflects a broader industry shift toward secured lending as NBFCs navigate rising credit costs and tighter liquidity conditions.

How could L&T Finance Limited’s retailisation strategy influence other NBFC players focusing on unsecured or corporate lending portfolios?

The pivot to secured retail lending is being viewed as a potential industry benchmark. Secured loans in categories such as housing finance, gold loans, and loans against property offer greater repayment predictability compared to unsecured personal loans or corporate lending, which are more sensitive to economic downturns. According to L&T Finance Limited’s press release, housing loans and loans against property disbursements rose 24% year-on-year to ₹2,780 crore, while the book size expanded by 33% to ₹26,464 crore. The integration of a gold loan portfolio further added a high-yield yet secured component to its mix.

This retailisation model may put competitive pressure on peers with significant corporate or wholesale exposure. Bajaj Finance and Mahindra Finance have already increased their focus on secured retail loans, while Muthoot Finance continues to dominate the gold loan market. In contrast, NBFCs such as Shriram Finance and Cholamandalam Investment, which still carry meaningful commercial and corporate exposures, may need to recalibrate their books faster to maintain investor confidence.

Institutional investors have increasingly started viewing high retailisation levels as a proxy for balance sheet stability, especially as delinquencies in unsecured personal loans rise. L&T Finance Limited’s credit costs in Q1 FY26 fell to 2.23% from 2.37% a year earlier, while the weighted average cost of borrowing declined by 16 basis points sequentially to 7.68%, suggesting that liability repricing has already started delivering operational benefits.

L&T Finance Limited’s management emphasized that risk-calibrated growth and strong credit guardrails remain central to its retailisation strategy. Sudipta Roy, Managing Director and CEO, stated in the earnings announcement that the NBFC’s digital underwriting systems and advanced collection analytics have been key to maintaining asset quality despite expanding its retail base. Gross stage 3 (GS3) assets rose marginally to 3.31% from 3.14% a year earlier, while net stage 3 (NS3) moved to 0.99% from 0.79%. Analysts believe this level of stress is manageable and largely reflects a conservative provisioning approach, with ₹300 crore allocated to rural business finance in Q1 FY26.

The growth in secured lending segments underscores how NBFCs are rethinking their product mix in response to regulatory and investor scrutiny of unsecured books. For example, personal loan disbursements at L&T Finance Limited jumped 65% year-on-year to ₹1,942 crore, but the management has stressed that underwriting remains tightly governed by its proprietary risk models.

Market observers also suggest that the successful integration of the gold loan portfolio places L&T Finance Limited in closer competition with specialist players like Muthoot Finance and Manappuram Finance. Gold loans are increasingly being used by NBFCs as a strategic hedge due to their secured and short-tenure structure, which helps protect margins even during periods of liquidity stress.

However, replicating this retailisation success may not be straightforward for every NBFC. Shifting away from corporate lending could take multiple quarters, given long-tenure loan commitments and slower redeployment of capital into granular retail assets. Analysts caution that aggressive retailisation without robust digital infrastructure could backfire if underwriting and collections do not scale efficiently.

Looking ahead, industry experts believe that L&T Finance Limited’s retailisation strategy will likely push other NBFCs to accelerate their transition toward secured retail loans by FY27. Whether they can achieve similar operational efficiency remains to be seen. L&T Finance Limited’s Return on Assets stood at 2.37% in Q1 FY26, while Return on Equity was 10.86%, demonstrating that retailisation can be profitable if combined with cost control and digital innovation. The success of Project Cyclops, its AI-driven underwriting engine, could further widen the competitive gap, making retailisation not just an option but a necessity for NBFCs aiming to retain investor trust in a high-interest-rate environment.