Crisil Ratings projects that home loans, which constitute 68% of assets under management (AUM) for affordable housing finance companies (A-HFCs), will grow at a steady 17-18% in fiscals 2027 and 2028. The overall AUM growth for A-HFCs is expected to remain robust at 19-20% this fiscal and the next, matching the 19% growth recorded in the previous fiscal.
Key Growth Drivers and Segments
Loans against property (LAP), the other major business segment, are forecast to expand faster at around 23% over the same period. This growth comes as lenders strengthen underwriting in certain borrower cohorts. The steady expansion of A-HFCs is underpinned by strong macro fundamentals, including rising urbanisation, favourable demographics, and low mortgage penetration. Housing affordability has also improved in recent years as income growth has outpaced property prices.
Subha Sri Narayanan, Director at Crisil Ratings, noted that changes in major urban centers will not disrupt this momentum. “While headline data points to a moderation in launches and sales of affordable housing projects, this largely pertains to metros and is unlikely to materially affect the growth trajectory of A-HFCs for two reasons,” Narayanan said. “One, their portfolios are structurally skewed towards Tier 2 and smaller markets, which account for over 75% of industry-wide loans below Rs 35 lakh. Two, 45% of the lending by A-HFCs is directed towards self-construction and resale of houses, segments that are not dependent on new project launches.”
Demand in Tier-II Markets and LAP Segment
Demand in Tier-II and smaller markets is also being boosted by India’s economic growth, ongoing infrastructure development, and sustained government support. In the LAP segment, which experienced a compound annual growth rate of about 37% between fiscals 2023 and 2025, strong demand from micro, small, and medium enterprises (MSMEs) continues to drive activity. However, disbursements to the sub-Rs 10 lakh segments were curtailed last fiscal due to elevated borrower leverage and stress spillovers from microfinance cohorts.
Aesha Maru, Associate Director at Crisil Ratings, highlighted the strategic caution being exercised by lenders. “Over this and next fiscals, LAP is expected to grow at 23%, nearly in line with the 24-25% last fiscal. This reflects the cautious stance adopted by lenders in certain lower-ticket borrower segments to manage the potential stress there,” Maru said. “In addition, heightened global uncertainties and uptick in inflation stemming from the conflict in West Asia, and their potential impact on borrower cash flows, could further temper risk appetite in the near term, leading to tighter credit filters and selective disbursements.”
Outlook and Risk Factors
Despite these cautionary measures, sustained demand for both affordable housing and MSME financing, coupled with prudent underwriting and stronger risk controls, is expected to help A-HFCs maintain healthy portfolio growth and controlled asset quality metrics. Crisil warned that any sustained uptick in interest rates and other macroeconomic headwinds will remain key factors to monitor going forward.
