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 witness rapid growth in fiscal year 2023.png)
After a slow period from fiscal years 2020 to 2022, Affordable Housing Finance Companies (AHFCs) experienced a remarkable recovery in growth during fiscal year 2023. According to the most recent CareEdge Rating study, AHFCs grew by an incredible 27% year over year. This growth trend is expected to continue, with CareEdge Ratings estimating a 29% increase in fiscal year 2024 and an additional 30% in fiscal year 2025 for AHFCs. The asset quality remains strong, with a GNPA ratio of around 1.2% as of March 31, 2024.
In response to competition and margin pressures, AHFCs are expected to increase their focus on the non-housing segment, aiming for a share of 27% by March 31, 2024. However, profitability may moderate due to elevated costs of funds and operating expenses, with a projected RoTA of 3.2% in fiscal year 2024. Despite this, AHFCs maintain a comfortable capital structure, with a gearing of around 2.9x as of March 31, 2024, although they remain exposed to higher credit risks due to their clientele primarily consisting of self-employed individuals.
The report also highlights a declining trend in the share of Priority Sector Lending (PSL) loans in the home loans mix for banks over the past two years. This decline is partly attributed to rising home loan sizes compared to fixed PSL thresholds.
AHFCs predominantly allocate their loan portfolios to housing loans, constituting 74% of their total loan book share as of March 31, 2023. However, there has been a gradual shift towards non-housing loans, particularly Loan Against Property (LAP), resulting in a decrease in the share of housing loans from 79% in March 2019 to 74% in March 2023. CareEdge Ratings anticipates this trend to continue, with the non-housing share expected to increase to 27% in fiscal years 2024 and 2025.
The report warns of challenges ahead, including increased pressure on net interest margins (NIM) and operating expenses, particularly in the expansion phases of AHFCs. As interest rates are forecasted to soften in the latter half of fiscal year 2025, AHFCs may face heightened competition in balance transfers.
Asset quality metrics have shown improvement, with a reduction in the GNPA ratio to 1.19% as of March 31, 2023. This positive trend is expected to persist, stabilizing the GNPA ratio at around 1.2% and 1.1% in fiscal years 2024 and 2025, respectively.
Furthermore, the borrowing mix of AHFCs primarily consists of bank borrowings, followed by the National Housing Bank (NHB) and capital markets. Despite a gradual normalization in NHB's share, securing low-cost resources remains a key agenda for AHFCs.
Overall, while AHFCs exhibit strong growth prospects, they must navigate challenges posed by margin pressures, evolving borrower preferences, and regulatory dynamics to sustain their upward trend.
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