MSME Financing, Home Loans To Fuel Affordable Housing Finance Growth: Crisil

New Delhi, Jul 2 (KNN) Assets under management (AUM) of affordable housing finance companies (A-HFCs) are expected to grow 19-20 percent in the current and next fiscal, broadly matching last year's growth, supported by strong demand for affordable housing and MSME financing, according to a Crisil Ratings report.

Home Loans to Drive Portfolio Expansion 

The report projects home loans, which account for around 68 percent of A-HFCs' portfolios, to grow 17-18 percent during FY27 and FY28. Loans against property (LAP), the second-largest segment, are expected to expand at a faster pace of around 23 percent despite tighter underwriting for certain borrower categories.

Crisil said favourable macroeconomic factors, including rising urbanisation, demographic trends, low mortgage penetration and improved housing affordability, continue to support growth in the affordable housing finance segment.

Subha Sri Narayanan, Director, Crisil Ratings, said the moderation in launches and sales of affordable housing projects has largely been confined to metropolitan cities and is unlikely to significantly impact A-HFCs. 

She noted that over 75 percent of industry loans below Rs 35 lakh are concentrated in Tier-2 and smaller cities, while around 45 percent of A-HFC lending is towards self-construction and resale housing, which is less dependent on new project launches.

Smaller Cities Expected to Sustain Demand 

The report said demand in smaller cities is expected to benefit from sustained economic growth, infrastructure development and continued government support.

The loans against property segment, which recorded a compound annual growth rate of around 37 percent between FY23 and FY25, is expected to maintain strong momentum, driven by demand from micro, small and medium enterprises (MSMEs). 

Improved access to borrower data, wider use of analytics and stronger underwriting practices have also supported portfolio expansion.

Lenders Remain Cautious on Lower-Ticket Loans 

However, lenders have moderated disbursements in the sub-Rs 10 lakh loan category due to elevated borrower leverage and stress spillovers from the microfinance sector, resulting in slower growth in these segments.

Aesha Maru, Associate Director, Crisil Ratings, said lenders are expected to maintain a cautious approach in lower-ticket LAP segments to manage potential risks. 

She added that geopolitical uncertainties, including the conflict in West Asia, and inflationary pressures could affect borrower cash flows, leading to tighter credit filters and selective lending.

Asset Quality Expected to Remain Stable 

Despite these challenges, Crisil expects sustained demand for affordable housing and MSME credit, supported by prudent underwriting and stronger risk management, to help A-HFCs maintain healthy portfolio growth and stable asset quality. 

It added that any sustained rise in interest rates and broader macroeconomic headwinds will remain key risks to monitor.

(KNN Bureau)