MUMBAI: Assets under management of loan books of affordable-housing focused non-banks is expected to stay steady at 20-21% this fiscal and the next, outpacing the 18-19% growth expected for the overall mortgage finance industry. Last fiscal, their loans grew around 23%.
While growth in home loans is also anticipated to be steady at 18-20%, the loan against property (LAP) segment should see some moderation in growth as lenders recalibrate underwriting following asset quality pressure in some sub-categories of borrowers. As a result, credit costs will inch up leading to a minor cut in profitability but healthy in both fiscals, Crisil Ratings said in a report.
According to Subha Sri Narayanan, a director with the agency, “LAP, a key driver for affordable housing financiers recent years due to attractive yields, will see growth moderating slightly to 24-26% this fiscal and the next from 30% last fiscal. This will be largely driven by lender prudence in response to asset quality concerns in specific sub-segments.
Between fiscals 2024 and 2025, over 70% of these companies saw a notable increase in the 90+ days past due loans in the sub-Rs 15 lakh category by 25-30 bps and the trend continued in the first half of the current fiscal too, Narayanan said.
In home loans, affordable players have seen robust growth, outpacing the overall housing finance industry for three reasons: relatively lower direct competition from banks compared with the prime lending segment, high growth potential fuelled by rising urbanisation, and supportive government policies, Narayanan said, adding as a result, these companies are expected to see a steady 18-20% growth in home loans this fiscal and the next, too.
However, as banks increase their presence in the prime home loan market, traditional housing financiers are likely to pivot towards the affordable-housing segment for higher growth and better yields.
According to Aesha Maru, an associate director with Crisil Ratings, 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 because bank loans re-price downwards after repo rate cuts with a lag.
While overall credit cost is expected to increase slightly in line with delinquencies, return on loans is seen steady at 2.5% for both fiscals. That would mark a modest decline of 10 bps from the past fiscal.