India's Mortgage Finance AUM Expected to Surge by 16-17% in FY25 and FY26

New Delhi, Dec 16 (NationPress) The assets under management (AUM) for mortgage finance loans in India is anticipated to experience a strong growth rate of 16-17% during this fiscal year and the next (FY25 and FY26), according to a report published on Monday.

Variations in trends across sub-segments such as home loans, loans against property (LAP), and wholesale loans are expected. The report from Crisil Ratings projects that home loans will grow at a stable rate of 13-14% over the current and next fiscal periods.

This growth in home loans is underpinned by structural factors including increasing urbanization, enhanced affordability due to minimal housing price hikes in recent years, and anticipated reductions in interest rates.

The growth rate for loans against property (LAP) is forecasted to stabilize at 23-24% after reaching a high of 37% in fiscal 2024. Meanwhile, wholesale loans, which have been on a decline for the past five years, are projected to see a modest growth of 6-7% during the current and upcoming fiscal years, as noted in the report.

In terms of AUM distribution, home loans make up the majority at 60%, followed by LAP at 30%, and wholesale loans at 10%.

Housing finance companies (HFCs) account for 80% of the total mortgage finance market and 95% of all home loans.

According to CRISIL Ratings Director Subha Sri Narayanan, "Many HFCs have successfully met the PBC requirements despite significant growth in LAP, through subsequent portfolio sell-downs. However, nearly half of the 25 HFCs examined operate with a tight margin of less than 5%."

Policy measures, such as the reactivation of the interest subsidy scheme in a new format, are expected to bolster growth in the affordable housing finance sector.

Furthermore, as larger HFCs that focus on prime loans pivot towards affordable housing finance, competition in this area is intensifying, the report states.

Nonetheless, LAP is projected to remain the fastest-growing segment of mortgage financing for HFCs and non-banking finance companies (NBFCs) for several reasons.

"Firstly, this product caters to micro, small, and medium enterprises (MSMEs), and as economic activity remains robust, credit demand in this sector also stays strong. Secondly, lenders feel more secure in this segment due to improved access to information on MSMEs, thanks to a formalizing economy and the increasing number of data sources, which enables more thorough credit evaluations," the report elaborates.