Affordable Housing Finance Firms’ AUM to Grow 20–21% in FY26–27: Crisil Ratings

Affordable Housing Finance Firms: Assets under management (AUM) of affordable housing finance companies (A-HFCs) are expected to grow at a healthy 20–21% annually during FY26 and FY27, according to a recent report by Crisil Ratings. While this growth is marginally slower than the previous fiscal year’s expansion, it continues to outpace the broader mortgage finance industry, highlighting the sector’s resilience and long-term growth potential.

The rating agency noted that affordable housing finance companies recorded around 23% AUM growth in FY25, driven by strong demand for housing loans in lower- and middle-income segments, attractive yields, and supportive policy measures. In comparison, the overall mortgage finance sector is projected to grow at a more moderate 18–19% over the next two fiscal years.

Growth Moderates but Remains Strong

Crisil Ratings expects the pace of expansion to normalize after the strong post-pandemic rebound, but emphasized that the outlook remains robust. Home loan growth is projected to stay steady at 18–20%, supported by rising urbanisation, increasing household formation, and sustained demand for affordable housing in tier-II and tier-III cities.

However, growth in the loan against property (LAP) segment—one of the key growth drivers for affordable housing finance companies in recent years—is expected to moderate slightly.

“LAP, a key driver for A-HFCs in recent years due to attractive yields, will see growth moderating to about 24–26% in the current and next fiscal, compared with nearly 30% growth last year,” said Subha Sri Narayanan, Director at Crisil Ratings.

The moderation reflects greater prudence by lenders, particularly in response to emerging asset quality concerns in select borrower categories.

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LAP Segment Under Closer Scrutiny

Crisil highlighted small-ticket loans against property, especially in the sub-₹15 lakh category, as an area requiring close monitoring. According to the agency, more than 70% of affordable housing finance companies reported an increase of 25–30 basis points in loans overdue by over 90 days in this segment between FY24 and FY25. The trend has continued into the first half of the current fiscal year.

While part of the rise in delinquencies can be attributed to seasoning of loan portfolios, Crisil pointed to other contributing factors, including higher borrower leverage and spillover stress from adjacent microfinance customers in certain regions.

Despite these challenges, the agency expects overall asset quality to remain under control, although some marginal slippage in metrics cannot be ruled out.

Affordable Housing Loans to Outperform the Broader Market

On the home loan front, Crisil expects affordable housing finance companies to outperform the wider housing finance industry over the medium term. Several structural factors continue to work in their favour:

• Lower competition from banks in the affordable housing segment
• Strong end-user demand, particularly in semi-urban and urbanising regions
• Government support, including incentives for affordable housing construction and credit-linked subsidy schemes

These factors have enabled A-HFCs to maintain strong disbursement momentum while keeping yields stable.

However, Crisil cautioned that competitive intensity could increase going forward. As banks deepen their presence in prime home loan segments, traditional housing finance companies may increasingly pivot towards affordable housing to sustain growth and tap higher yields.

Profitability Outlook Remains Stable

Despite the moderation in growth and some pressure on asset quality, Crisil expects the profitability of affordable housing finance companies to remain stable.

“From a profitability perspective, customers in this segment are less sensitive to interest rate changes, and therefore yields are expected to hold,” said Aesha Maru, Associate Director at Crisil Ratings.

In addition, A-HFCs are increasingly relying on bank funding, which is expected to lower their overall cost of funds. Bank loans typically reprice downward with a lag following repo rate cuts, offering a structural advantage compared to market borrowings.

While credit costs are likely to edge up slightly in line with higher delinquencies, Crisil projects return on managed assets (RoMA) to remain steady at around 2.5% in both FY26 and FY27.

Funding Environment and Capital Adequacy

The funding environment for affordable housing finance companies remains supportive, with adequate access to bank credit, refinancing institutions, and capital markets. Improved balance sheet strength and stable asset quality over recent years have enhanced lender confidence in the sector.

Most A-HFCs also maintain comfortable capital adequacy ratios, providing sufficient headroom to support future growth without immediate pressure to raise fresh equity.

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Long-Term Outlook: Structural Demand Drivers Intact

Crisil Ratings remains constructive on the long-term outlook for affordable housing finance companies, citing favourable demographics, rising income levels, and sustained urban migration. India’s affordable housing shortage, particularly in economically weaker sections and lower-income groups, continues to create a large addressable market.

At the same time, the sector’s performance will depend on disciplined underwriting, effective risk management, and geographic diversification, especially as competition intensifies and borrower profiles evolve.

Conclusion

While growth in affordable housing finance companies is expected to moderate slightly from last year’s peak, AUM expansion of 20–21% in FY26 and FY27 underscores the sector’s resilience and growth potential. With stable home loan demand, controlled asset quality risks, and steady profitability, A-HFCs remain well-positioned to outperform the broader mortgage finance industry.

However, evolving borrower risks, LAP segment stress, and rising competition will require lenders to maintain a cautious and selective approach. Those that balance growth with prudence are likely to emerge stronger in India’s rapidly evolving housing finance landscape.