Affordable housing finance firms’ AUM to grow 20–21% in FY26–27: Crisil Ratings

Assets under management (AUM) of affordable housing finance companies are expected to grow a steady 20–21% in both the current and next fiscal, according to Crisil Ratings.

The growth would be marginally lower than last year’s pace but still ahead of the overall mortgage finance industry.

In a note on Tuesday, Crisil Ratings said affordable housing finance companies’ AUM had expanded about 23% in the previous fiscal, while growth for the broader mortgage finance sector is estimated at 18–19% over the next two years.

Home loan growth is projected to remain stable at around 18–20%, but expansion in the loan against property (LAP) segment is expected to moderate as lenders tighten underwriting standards following asset quality pressures in certain borrower categories.

“LAP, a key driver for A-HFCs in recent years due to attractive yields, will see growth moderating slightly to 24–26% this fiscal and next from around 30% last fiscal. This will be largely driven by lender prudence in response to asset quality concerns in specific sub-segments,” Subha Sri Narayanan, Director at Crisil Ratings, said.

The agency flagged small-ticket loans against property as an area to watch.

It noted that more than 70% of affordable housing finance companies reported a rise of about 25–30 basis points in loans overdue by over 90 days in the sub-₹15 lakh category between FY24 and FY25. The trend continued in the first half of the current fiscal.

While part of the increase reflects seasoning of loans, Crisil said higher borrower leverage and spillover stress from adjacent microfinance customers in some pockets have also contributed. Overall asset quality metrics could slip marginally but are expected to remain under control.

On the home loan side, affordable housing finance companies are seen outperforming the wider housing finance industry due to relatively lower competition from banks, strong demand driven by rising urbanisation, and supportive government policies for affordable housing construction and financing.

However, Crisil cautioned that competition could intensify as banks deepen their presence in prime home loans, prompting traditional housing finance companies to pivot towards the affordable housing segment to tap growth opportunities and higher yields.

“From a profitability perspective, customers in this segment are less sensitive to interest rates and thus yields are expected to hold,” Aesha Maru, Associate Director, Crisil Ratings, said. ‘Additionally, greater reliance on bank funding is expected to lower funding costs because bank loans reprice downwards after repo rate cuts with a lag.”

Crisil Ratings expects credit costs to edge up slightly in line with higher delinquencies, but return on managed assets is projected to stay steady at around 2.5% in both fiscals.