Affordable Housing Finance Companies (AHFCs) which experienced a resurgence in growth during FY23 are expected to continue on the growth trajectory with a 29% growth in FY24 and a further 30% in FY25.
“The optimistic outlook for AHFCs is supported by several factors, including their relatively smaller base compared to traditional banking institutions and prime housing finance entities, their capacity to penetrate unorganised market segments, and their adept appraisal skills. These competencies enable AHFCs to effectively serve customers who may not meet the prime credit criteria,” according to CareEdge Ratings.
Following a period of subdued growth in FY20 through FY22, AHFCs expanded by 27% year-over-year in FY23.
Amidst intense competition and the imperative to maintain margins, the share of the non-housing portfolio among AHFCs has risen from 17% as of March 31, 2019, to 26% as of March 31, 2023. This trend is anticipated to persist, with the non-housing portfolio share projected to reach 27% by March 31, 2024, it said.
The proportion of priority sector lending-compliant home loans within the overall banking sector portfolio has been declining over the past two years, creating opportunities for AHFCs to expand their portfolios through co-lending or direct assignment transactions.
With the impact of increased cost of funds getting visible in FY24, net interest margin (NIM) are expected to come under pressure in FY24 and FY25, alongside an increase in operating expenses attributed to the expansion phases of AHFCs. Consequently, the Return on Total Assets (RoTA) is projected to moderate to 3.23% in FY24 and further to 3.04% in FY25, down from 3.8% in FY23.
Improving asset quality
The improvement in collection efficiency and strategic write-offs have contributed to enhanced asset quality metrics in FY23. These metrics are expected to remain robust in FY24, with the Gross Non-Performing Assets (GNPA) ratio anticipated to be around 1.2% as of March 31, 2024.
AHFCs predominantly serve self-employed customers who may be more susceptible to income volatility due to economic downturns, thereby posing a higher credit risk.
The sector’s capital structure is anticipated to remain robust, supported by healthy internal accruals, with a gearing ratio of approximately 2.9x expected as of March 31, 2024. Banks are likely to continue being a primary funding source for AHFCs.
AHFCs represent a niche yet swiftly expanding sector within the broader housing finance market, accounting for approximately 6% of the total market share. Despite encountering funding challenges in the past, AHFCs have consistently emerged as the most rapidly growing segment in the housing finance domain.
The growth trajectory for AHFCs experienced a deceleration in fiscal year 2020 due to funding constraints and a cautious approach adopted by these companies. These challenges were further compounded in fiscal years 2021 and 2022 by the adverse impacts of the Covid-19 pandemic.
