The growth of assets under management (AUM) for affordable housing finance companies (AHFCs) is projected to remain robust at 22-23% in the current and next financial years. However, this marks a slowdown from the approximately 31% expansion seen last fiscal, according to analysts.
Home Loans to Benefit from Government Policies
The home loan segment is expected to receive a boost from government policies, particularly the new interest subsidy scheme. While the scheme is still being fully operationalised, it differs slightly from the earlier Credit Linked Subsidy Scheme. Lower interest rates could also enhance affordability for borrowers, supporting growth.
Subha Sri Narayanan, Director at Crisil Ratings, highlighted the positive outlook: “For the home loan segment, supportive macro and policy factors augur well, especially with the launch of the interest subsidy scheme. That and likely lower interest rates should improve affordability for borrowers and provide a fillip to AHFC growth next fiscal.”
Despite a slight slowdown this year, home loan growth is expected to rebound to around 24% in the next fiscal.
LAP Growth Expected to Normalize
In recent years, loans against property (LAP) have been a major growth driver, with a cumulative annual growth rate of approximately 32% over the past three years. However, growth in this segment is expected to moderate from 45% last fiscal to around 22-23% over this and the next fiscal year.
The LAP segment has benefited from strong demand from micro, small, and medium enterprises (MSMEs), improved underwriting standards, and better access to borrower information. However, more stringent principal business criteria (PBC) and monthly reporting norms are expected to limit sell-downs after origination. This could curb rapid expansion, especially as many of the top 16 AHFCs have little cushion in their PBC compliance.
Asset Quality Remains Stable
Despite concerns over moderating growth, asset quality in the AHFC sector is expected to hold steady. A modest increase in gross non-performing assets (NPAs) is likely as loan portfolios mature. However, analysts suggest that delinquency trends should remain similar across home loan and LAP segments, given that customer profiles do not differ significantly.
Impact of Interest Rate Changes
As interest rates decline, yields on AHFC portfolios could come under pressure, as a significant portion of their asset book operates on floating rate contracts. However, Aesha Maru, Associate Director at Crisil Ratings, believes the impact could be mitigated.
“AHFC customers are typically less sensitive to interest rate changes, so the downward pressure on yields may be lower than in the prime lending segment. Additionally, since around 60% of their funding comes from banks on floating rates, borrowing costs could also decrease if there is a rate cut. However, this depends on banks lowering their cost of funds as well,” she explained.
Despite the expected slowdown, AHFCs continue to benefit from rising urbanisation, relatively lower competition from banks, and government support for affordable housing. With strong fundamentals and policy tailwinds, the sector remains poised for steady growth in the coming years.
