According to the CareEdge Rating report, following a period of subdued growth in FY20 through FY22, Affordable Housing Finance Companies (AHFCs) experienced a resurgence in growth during FY23, expanding by 27% year-over-year. This growth trajectory is expected to continue, with CareEdge Ratings forecasting a 29% growth in FY24 and a further 30% in FY25 for AHFCs. The asset quality is also expected to remain comfortable with a GNPA ratio of around 1.2%, as on March 31, 2024.
Share of the non-housing segment is expected to further increase to 27% by March 31, 2024, amidst the high competition, to mitigate margin pressures. With elevated cost of funds and higher operating expenses, profitability is expected to moderate with the RoTA expected to normalise at 3.2% in FY24. The capital structure for the AHFCs is expected to remain comfortable with a gearing of around 2.9x as on March 31, 2024. Although, with the AHFCs catering majorly to the self-employed customers, they remain vulnerable to higher credit risk.
The share of PSL loans in the home loans mix as well as in the overall PSL portfolio for banks is on a declining trend over the past two years. To some extent, it can be attributed to rising ticket sizes of home loans whereas PSL thresholds have remained fixed at up to ?35 lakh in metropolitan cities and Rs 25 lakh in other cities.
In terms of classification based on product type, AHFCs continue to have the majority of their loan book in the form of housing loans, owing to its mandate, which contributed to 74% of the total loan book share as on March 31, 2023.
Also, while the prime HFCs diversify their loan book through builder book/ construction finance, the AHFCs tend to lend towards LAP only under the non-housing segment. Consequently, the share of housing loans reduced from 79%, as on March 31, 2019 to 74%, as on March 31, 2023, in the AHFCs loan portfolio. CareEdge Ratings expects the non-housing share to further increase to 27% in FY24 and FY25, in the pursuit of sustaining the margins.
With the impact of increased cost of funds getting visible in FY24, net interest margin (NIM) is expected to come under pressure in FY24 and FY25, alongside an increase in operating expenses attributed to the expansion phases of AHFCs. With interest rates expected to soften in the second half of fiscal year 2025, AHFCs might encounter an increased likelihood of balance transfers.
Considering the higher operating expenses ratio and the contraction of NIM, the RoTA is projected to moderate to 3.23% in FY24 and further to 3.04% in FY25, down from 3.8% in FY23.
From FY20 to FY22, AHFCs experienced a gradual deterioration in their asset quality metrics. The improvement in collection efficiency and write-offs led to enhanced asset quality metrics in fiscal year 2023. This culminated in a reduction of the GNPA ratio to 1.19% as of March 31, 2023. This positive trend in asset quality metrics is expected to continue into fiscal years 2024 and 2025, with the GNPA ratio projected to stabilize at approximately 1.2% and 1.1%, respectively.
As on March 31, 2023, the borrowing mix of the AHFCs had 59% of the overall borrowings from banks, followed by the National Housing Bank (NHB) and capital markets.
During the Covid period, the share of NHB loans in the borrowing mix of AHFCs increased from 12%, as on March 31, 2020, to 20%, as on March 31, 2023. With NHB again moving back to its regular refinance schemes, there has been a gradual normalization in NHB share. Garnering low-cost resources will continue to be significantly important agenda item of all HFCs including AHFCs.
Capital structure, for the sector, continues to be comfortable with gearing at 2.8x as on March 31, 2023. Though loan book growth has picked up, healthy internal accruals supported the gearing profile. Going forward, CareEdge Ratings expects gearing to slightly increase to 2.9x, as on March 31, 2024.
