The retail mortgage-backed loans offered by non-banking financial companies (NBFCs) and housing finance companies (HFCs) are set to expand to Rs 20 trillion by FY2028, rating agency ICRA projects.
As of March 2025, retail mortgage-backed loans by these entities stand at ~Rs 13 trillion. The HFCs accounted for about two-thirds of these overall mortgage loans, and within this, Affordable Housing Finance Companies (AHFCs) constituted 11 per cent of the overall assets under management (AUM) of Rs 13 trillion as of March 2025.
The report further said the share of affordable housing finance companies (AHFCs) would rise to Rs. 2.5 trillion from Rs. 1.4 trillion.
ICRA forecasts mortgage loans by the NBFCs and the AHFCs to expand at a CAGR of 17-19 per cent and 20-22 per cent, respectively, by FY2028.
Based on the ICRA sample of some leading AHFCs, accounting for close to 70 per cent of the AHFC industry AUM, non-performing assets (NPAs) have remained under control at 1.1-1.3 per cent over the last three years, with average credit cost as a proportion of average managed assets being around 0.3 per cent over this period.
The AHFCs have an average LTV of around 55 per cent and have a sizeable share of loans extended for self-construction of homes (~40 per cent of AUM), which is expected to keep their credit quality under control.
Speaking on the development, A M Karthik, Senior Vice President & Co-Group Head – Financial Sector Ratings, ICRA Limited, said, “Over the next three years, retail mortgage loan growth will be driven by robust demand and the restricted availability of alternative credit options due to ongoing issues with unsecured lending. This sector has traditionally demonstrated strong performance, marked by low loan losses and healthy business returns.”
Healthy business margins and low credit cost support AHFC earnings with their return on average managed assets at 3.5-3.6 per cent (based on ICRA sample of AHFCs), even as their operating costs remain elevated compared to their prime loans-focused peers.
Competitive pressures, however, will increase steadily going forward from larger players, making improvement in operating efficiency critical when yields moderate and margins shrink with a steady increase in leverage.
Nevertheless, the AHFCs appear well-positioned, given their current capitalisation (managed gearing of ~3.5 times) and earnings to support their growth plans over the next three years. In view of the above reasons, ICRA has a Stable outlook on the AHFC sector.