Growth in the assets under management (AUM) of affordable housing finance companies (AHFCs) is expected to remain solid at 22-23% this fiscal and the next, though lower than ~31% last fiscal, as per Crisil Ratings.
The loans against property (LAP) segment, a key contributor to overall performance in recent years, is likely to see growth normalise, while home loans should benefit from government policies, especially the interest subsidy scheme.
Asset quality is expected to remain under control compared with the past. With credit costs rangebound, return on managed assets (RoMA) should be healthy despite some moderation as the interest rate cycle turns.
Historically, AHFCs have seen AUM grow faster than overall mortgage finance2 for four reasons: relatively lower competition from banks compared with the prime lending segment; a low base; high growth potential due to rising urbanisation; and supportive policies for affordable housing construction and financing.
While home loan growth this fiscal will be somewhat lower than fiscal 2024, next fiscal should see a rebound to ~24%.
In recent years, the LAP portfolio has also been a growth driver, logging a cumulative annual growth rate of ~32% over the past three years, compared with an overall AUM growth of ~23% for AHFCs. This has been in a bid to manage yields, with competition intensifying among non-banks in the home loan segment.
The LAP segment has had three drivers: healthy demand from the micro, small and medium enterprises segment, easier access to information and better underwriting standards that have aided growth. But growth should normalise from ~45% last fiscal to 22-23% over this and next fiscal as AHFCs navigate more stringent principal business criteria (PBC)3 with monthly reporting norms limiting sell-downs after origination. As many as 10 out of the top 16 AHFCs have less than 5% cushion in their PBC.
Asset quality is seen holding up with a modest uptick in gross non-performing assets as portfolios season (chart 2 in annexure). Customer profiles don’t vary much between these segments, so their delinquency trends may be similar.
However, yields could come under pressure as interest rates decline because a large part of the asset book of AHFCs is contracted on a floating rate basis.
With credit cost manageable and net interest margins (NIMs) seeing a modest compression, RoMA should remain healthy at around 2.4% by fiscal 2026 despite compressing by ~20 bps from last fiscal.
