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Affordable housing finance companies are projected to see their AUM rise from INR 1.4 lakh crore to INR 2.5 lakh crore by FY28, according to a recent ICRA report. The broader mortgage portfolio of NBFCs and HFCs could grow to INR 20 lakh crore. Growth is driven by strong housing demand and limited unsecured credit access. Affordable housing lenders, with low NPAs and steady returns, currently hold about 11% of the mortgage market. Their loan books largely serve self-employed borrowers and self-construction loans. While credit quality remains strong, high operational costs and rising competition may pressure margins, making efficiency and cost control key priorities.
A recent ICRA report suggested that affordable housing finance companies are likely to see a significant increase in their assets under management by the close of the 2027-28 fiscal year. The report stated that the AUM of these companies could expand from around INR 1.4 lakh crore to INR 2.5 lakh crore during this period. Additionally, it was projected that the overall mortgage portfolio of NBFCs and housing finance firms could grow from INR 13 lakh crore to approximately INR 20 lakh crore. Advertisement
A co-group head from the credit rating agency indicated that the sector's continued expansion was being driven by strong demand and restricted access to unsecured credit. It was noted that the performance of affordable housing lenders had remained stable over the years, with low delinquency levels and steady returns. At that time, affordable housing finance firms accounted for nearly eleven per cent of the mortgage market, and housing finance companies contributed to nearly two-thirds of the NBFC-HFC mortgage lending segment.
The report highlighted that the typical loan profile in this segment included a larger proportion of self-employed borrowers, smaller ticket sizes, and self-construction loans. Around forty per cent of the loan book was associated with self-construction financing, requiring extensive branch-level presence and human involvement to manage originations and collections effectively.
Regarding credit quality, it was observed that gross non-performing assets had remained between 1.1 and 1.3 per cent over the last three years. Credit cost averaged 0.3 per cent of managed assets, while the average loan-to-value ratio stood at about fifty-five per cent. Returns on average managed assets were approximately 3.5 to 3.6 per cent. However, the report cautioned that operational expenses were high and would need to be addressed to preserve margins, particularly as new entrants intensified competition.
As competition increases, operational efficiency will be critical to sustaining margins. Affordable housing finance firms must focus on optimising branch networks, reducing costs, and reinforcing customer servicing models to stay competitive in this evolving environment.
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