Synopsis:
- Growth Projections for AHFCs: Following a period of subdued growth in FY20 through FY22, Affordable Housing Finance Companies (AHFCs) experienced a resurgence in growth during FY23, expanding by 27% year-over-year. This growth trajectory is expected to continue, with CareEdge Ratings forecasting a 29% growth in FY24 and a further 30% in FY25 for AHFCs.
- Increase in Non-Housing Portfolio Share: Amidst intense competition and the imperative to maintain margins, the share of the non-housing portfolio among AHFCs has risen from 17% as of March 31, 2019, to 26% as of March 31, 2023. This trend is anticipated to persist, with the non-housing portfolio share projected to reach 27% by March 31, 2024.
- Trend in Priority Sector Lending (PSL): The proportion of PSL-compliant home loans within the overall banking sector portfolio has been declining over the past two years, creating opportunities for AHFCs to expand their portfolios through co-lending or direct assignment transactions.
- Moderation in Profitability: With the impact of increased cost of funds getting visible in FY24, net interest margin (NIM) are expected to come under pressure in FY24 and FY25, alongside an increase in operating expenses attributed to the expansion phases of AHFCs. Consequently, the Return on Total Assets (RoTA) is projected to moderate to 3.23% in FY24 and further to 3.04% in FY25, down from 3.8% in FY23.
- Stable Asset Quality: The improvement in collection efficiency and strategic write-offs have contributed to enhanced asset quality metrics in FY23. These metrics are expected to remain robust in FY24, with the Gross Non-Performing Assets (GNPA) ratio anticipated to be around 1.2% as of March 31, 2024.
- Exposure to Vulnerable Borrower Segments: AHFCs predominantly serve self-employed customers who may be more susceptible to income volatility due to economic downturns, thereby posing a higher credit risk.
- Robust Capital Structure: The sector’s capital structure is anticipated to remain robust, supported by healthy internal accruals, with a gearing ratio of approximately 2.9x expected as of March 31, 2024. Banks are likely to continue being a primary funding source for AHFCs.