Affordable housing finance companies (A-HFCs) in India are poised for resilient growth, with assets under management (AUM) expected to expand at a steady 20-21% in the current fiscal (FY26) and the next (FY27), slightly moderating from the robust ~23% recorded last fiscal. This pace continues to outpace the broader mortgage finance industry’s projected 18-19% growth, according to a latest report by CRISIL Ratings.
The outlook reflects sustained momentum in the affordable housing segment, even as lenders adopt a more cautious stance on loan against property (LAP) amid early signs of asset quality stress in certain borrower sub-segments.
Key Growth Drivers & Segment Outlook
- Overall AUM: 20-21% growth expected in FY26 and FY27 (vs. ~23% in FY25).
- Home Loans: Expected to grow steadily at 18-20% in both fiscals, driven by:
- Lower direct competition from banks in the affordable segment compared to prime housing.
- Strong underlying demand from rising urbanisation.
- Supportive government policies promoting affordable housing construction and financing.
- Loan Against Property (LAP): Growth to moderate to 24-26% in FY26 and FY27 (from ~30% in FY25), as lenders recalibrate underwriting following asset quality concerns in specific sub-categories.
Subha Sri Narayanan, Director, CRISIL Ratings, commented: “LAP has been a key driver for A-HFCs in recent years due to attractive yields. Growth will moderate slightly to 24-26% this fiscal and next, largely driven by lender prudence in response to asset quality concerns in specific sub-segments.”
Particular attention is on small-ticket LAPs (sub-Rs 15 lakh category). Between FY24 and FY25, over 70% of A-HFCs reported a notable rise in 90+ days past due (dpd) loans in this bucket — up by ~25-30 basis points. The trend persisted into the first half of FY26.
The uptick is attributed partly to portfolio seasoning and partly to higher borrower leverage, along with spillover effects from asset quality pressures in adjacent microfinance segments in certain geographies.
Asset Quality & Credit Costs
While overall asset quality metrics for A-HFCs are expected to slip marginally, they should remain under control. Delinquencies will drive a modest increase in credit costs, leading to slightly lower — but still healthy — profitability.
Return on managed assets (RoMA) is projected to stay steady at ~2.5% in both FY26 and FY27, reflecting a modest decline of ~10 basis points from the previous fiscal.
Profitability to Remain Resilient
Despite the slight uptick in credit costs, profitability is expected to hold up well due to several supportive factors:
- Customers in the affordable segment are relatively less sensitive to interest rate changes, helping yields remain firm.
- Greater reliance on bank funding should lower overall funding costs, especially as bank loans reprice downwards with a lag after repo rate cuts.
- Some A-HFCs offer hybrid products with an initial fixed-rate period, reducing vulnerability to falling interest rates.
Aesha Maru, Associate Director, CRISIL Ratings, noted: “From a profitability perspective, customers in this segment are less sensitive to interest rates and thus yields are expected to hold. Additionally, greater reliance on bank funding is expected to lower funding costs… Furthermore, some A-HFCs offer hybrid products with an initial fixed interest rate period, which makes them less susceptible to falling rates.”
Emerging Competitive Dynamics
While A-HFCs have enjoyed relatively lower competition from banks in the affordable housing space, this edge may narrow. As banks deepen their presence in the prime home loan market, traditional housing finance companies (HFCs) are likely to pivot more aggressively toward affordable housing to capture growth and higher yields.
The report cautions that the impact of this rising competition on A-HFCs’ growth trajectory will be monitorable in the coming quarters.
Bottom Line for Investors & Borrowers
Affordable housing financiers remain a resilient growth story in India’s mortgage landscape, with AUM expansion comfortably outpacing the broader industry. While LAP moderation and a slight delinquency uptick will nudge credit costs higher, strong home loan momentum, sticky yields, and favourable funding dynamics should keep profitability healthy at ~2.5% RoMA.
The segment’s performance continues to benefit from structural tailwinds — urbanisation, government support, and demand for entry-level homes — making it a key focus area for lenders and investors alike.
