Home lenders eye pot of gold in affordable loans

Higher returns from small-ticket loans, govt schemes tempt mortgage lenders

- Anshika Kayastha & Shayan Ghosh

India's mortgage lenders are increasingly looking to finance affordable homes, betting on higher returns and backing from government housing schemes.

The push comes at a time of stiff competition from banks in the prime housing space. Banks and traditional housing finance companies (HFCs) prefer borrowers with high credit scores to extend loans at relatively lower rates, while affordable housing finance focuses on new-to-mortgage customers, especially in semi-urban and rural areas, with the potential to charge higher rates.

"Loan yields are certainly healthy in the affordable housing space vis-à-vis prime housing," said A.M. Karthik, senior vice-president and co-group head of financial sector ratings at Icra Ltd.

"Secondly, there are competitive pressures in the typical larger-ticket prime housing loans from banks. Thirdly, there is a good amount of growth opportunity in the affordable space."

While 2024 saw a surge in private money into affordable housing companies, several traditional housing financiers (HFCs) are also investing in and expanding their affordable housing pie.

The share of HFCs in total credit to the housing sector, including banks, HFCs and other NBFCs combined, was 34.1% as of March 2023. Post the merger of erstwhile HDC with HDFC Bank in July 2023, their share fell to 19.9% as of March 2024, as per RBI's Report on 'Trend and Progress of Banking in India 2023-24' released on 26 December.