Affordable Housing Finance Companies (AHFCs) Set for Robust Growth in Coming Years

Affordable Housing Finance Companies (AHFCs) are poised for significant growth in the coming fiscal years, with projections indicating a 29% surge in FY24 followed by another 30% in FY25. This positive outlook, as stated by CareEdge Ratings, is underpinned by various factors including their agility in tapping into underserved market segments and their adeptness in assessing credit risks.

After a period of sluggish expansion from FY20 to FY22, AHFCs witnessed a commendable 27% year-over-year growth in FY23. Despite intense competition and the need to preserve margins, AHFCs have seen a rise in their non-housing portfolio share, which is expected to continue growing.

Opportunities arise for AHFCs as the proportion of priority sector lending-compliant home loans in the overall banking sector portfolio diminishes, allowing AHFCs to explore avenues like co-lending or direct assignment transactions.

However, challenges loom in the form of increased funding costs impacting net interest margins (NIM) and operating expenses in the expansion phase. This may lead to a moderation in the Return on Total Assets (RoTA) over FY24 and FY25.

Nevertheless, asset quality metrics are anticipated to remain robust, with the Gross Non-Performing Assets (GNPA) ratio expected to hover around 1.2% by March 31, 2024. AHFCs primarily cater to self-employed individuals, posing a higher credit risk due to income volatility during economic downturns.

With a sturdy capital structure and continued support from banks as primary funding sources, AHFCs represent a niche yet rapidly expanding segment within the housing finance market, commanding approximately 6% of the total market share.

Although the growth trajectory faced hurdles in FY20 and subsequent years due to funding constraints and pandemic impacts, AHFCs have exhibited resilience and emerged as frontrunners in the housing finance landscape.