There is an opportunity to expect the Indian affordable housing finance sector to grow with a moderate growth in the fiscal year 2025-26 (FY26) as there are structural changes in the mortgage and housing credit environment. Crisil recently released an asset under management (AUM) forecast of affordable housing finance companies that can be described as projected to grow at approximately 20 21 instead of 23% in FY25, a movement illustrating the changing tendency of the borrowers, credit quality, and rivalry components of the housing finance environment.
This paper will take a comprehensive discussion of the trends that are influencing the affordable housing finance situation in India, the reasons the asset growth has been carefully controlled, how the stakeholders are impacted, and an overall industry perspective — by utilizing the reliable data and market insights.
The facts about Affordable Housing Finance in India.
Affordable housing finance companies (AHFCs) and housing finance companies (HFCs) focus on offering comparatively small-ticket home loans: those below 25 lakh in most cases — and associated credit services to low and middle-income home buyers. These institutions are important in terms of filling the gap of credit among those who might not access formal banking avenues without any difficulties in semi-urban and rural markets.
In the past this segment has demonstrated a significant growth because of:
- Reduced threat of traditional banks competing on small-ticket segments;
- Government policy and government incentives to increase affordable housing;
- Increased urbanization and a growing middle-income population that demanded to own a home.
Key Growth Trends: FY26 Outlook
1.Greater and less aggressive increase in assets.
Crisil expects the FY26 AUM growth of the affordable housing finance firms to stabilize to an average of 2021 years, as opposed to 23 years in FY25. This slowdown is slight yet significant, given the elevated level of the recent growth. Moreover, it is estimated that this trend can be continuing in the same manner in FY27 also.
This is still a higher rate than the overall mortgage finance industry growth of 1819 at the same period meaning that affordable housing is still a relatively stable industry in the mortgage lending.
2. Growth in Loan-Against-Property (LAP) Segment Slackens.
The loan-against-property (LAP) sub-business segment which are mostly the liquidity credit products that have been used by small businesses or the self-employed individuals buyers is also expected to record a throttled expansion. According to Crisil report, the LAP growth is expected to be 24-26 in FY26, lowering the 30 or so in FY25 as lenders easily ease underwriting standards regarding the issue of asset quality in certain borrower groups.
3. Healthy Profitability amid Headwinds.
These finance firms are predicted to continue achieving the profitability measures in both FY26 and FY27 albeit at lower levels compared to the past years. The capacity to withstand this is determined by its restrained pricing policies as well as more formidable efficiencies in its operations despite the slight increases in overdue debts.
Asset Quality: The Increasing Attention.
Among the most essential factors of the moderated growth trend is the rise of overdue assets, and especially in the small-ticket LAP portfolio less than 15 lakh. In this segment, over 70 percent of affordable HFCs saw an observable growth of assets due over 90 days in more than a year in this segment with an increase of 0.25% to 30 percent in certain accounts. The trend was carried into the first half of FY26 indicating some new credit stress amongst the select groups of borrowers.
Factors Driving Elevated Stress Levels:
- Higher borrower leverage — borrowers taking on greater debt relative to income;
- Spillover credit pressures from adjacent microfinance customer segments in certain regions;
- The natural seasoning of loan books, revealing latent delinquency over time.
As a result, lenders are recalibrating their underwriting criteria to mitigate rising credit risk, which has contributed to the moderated credit growth, especially in LAP products.
Comparative Industry Dynamics
While AHFCs’ asset growth remains tempered, it continues to outpace broader housing finance trends. This is partly due to:
- Lower competitive pressure from banks in the small loan segment compared to prime home loans;
- Growing urbanization and supportive policy measures that boost demand for affordable housing;
- Shifting strategies among HFCs, with many pivoting toward affordable housing to capture higher yields and growth potential.
For example, India Shelter Finance Corporation — one of the notable players in the sector — reported a significant increase in assets under management at ₹9,252 crore in Q2 FY26, representing a 31% year-on-year surge, along with robust profitability metrics such as a 35% rise in profit after tax and a strong Return on Equity (RoE) of 17%.
Performance Snapshot: Affordable Housing Finance Firms (FY24–FY26)
| Metric | FY24 | FY25 | FY26 (Estimated) |
| AUM Growth (AHFCs) | ~20–22% | ~23% | ~20–21% |
| LAP Growth | ~28–30% | ~30% | ~24–26% |
| Mortgage Industry Growth | ~17–18% | ~18–19% | ~18–19% |
| Overdue Assets (90+ days) | Moderately low | Rising | Continued pressure |
| Profitability | Healthy | Healthy | Stable, slightly lower |
| Competitive Intensity | Moderate | Increasing | High |
Estimates based on Crisil guidance and industry analysis.
Strategic Implications for Stakeholders
For Lenders and Investors
The lenders have to strike the balance between the growth desires and sound risk management. The moderated expansion in asset growth reflects hesitation in the portfolio expansion, especially in the small-ticket and LAP segments in which credit pressures have been more evident. Meanwhile, investors are supposed to distinguish between companies that have superior underwriting discipline, diversified portfolios as well as companies whose credit quality has been enhanced.
For Borrowers
Potential house consumers and borrowers with small ticket sizes may face stricter credit requirements because lenders will have improved the process of filtering potential borrowers. Competitive prices and government assistance is still an advantage, but people with good credit history have a chance to get better terms.
For Policymakers
The assistance provided by the government in affordable housing such as incentives and favorable regulatory policies are still important in maintaining demand. The regulatory authorities and industrial bodies can also reflect on other provisions that can be taken to better securitization markets that could help in likening liquidity and risk sharing associated to AHFCs. The volume of securitization of AHFCs will also increase according to ICRA and the volume is projected to 8,500 crore-9,000 crore in FY26, and assist the lenders funding mix.
Long-Term Outlook: A Resilient Sector with Opportunities
Although there has been a leveling in the growth of the assets, the affordable housing finance sector is geared towards the consistent growth in the medium to long term. The demand is supposed to occur on the basis of key structural drivers, including urbanization, rising homeownership aspirations, and policy interventions targeted. Further, with bigger banks and smaller ticket credit moving into small-ticket business and the realignment of strategies among the traditional HFCs, competition is probably to increase, leading to innovation and better access to the customer.
The slight increase in the growth rates should be regarded as a growth maturity process as opposed to a recession stage and the industry settles in to sustainable and quality growth.
Conclusion
The future regulation of assets growth among the affordable housing finance companies in FY26 indicates that there will be a natural response in the changing housing finance industry in India. This rate might decrease relative to the past few years but the industry still shows strong performance and applicability due to the structural demand and tactical change in the lending business.
Having decent profitability, greater exposure to controls of risks and favorable macroeconomic aspects, affordable housing finance is a good piece of the bigger financial landscape in India, one that promises expansion as well as socio-economic influence as the country proceeds with the urbanization process.
Grow your business with Go Finance– get quick and custom finance and business loans to grow your business. We offer any form of finance and loan at an easy-approval and guaranteed assistance.
