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ICICI Securities Report
Introduction of the credit-linked subsidy scheme by the government in 2015 improved affordability of home loans for economically weaker section and low income group population groups. This is reflected in CLSS-linked loans to the two groups accounting for 4% each of total home loan disbursements in FY21 and FY22.
Though the scheme was discontinued in FY22, demand for affordable home loans remained strong in both FY22 and FY23. Assets under management growth for housing finance companies was at 13% YoY in FY22 and 14% in FY23 (for select companies) despite increasing subsidy payouts under CLSS, which remained at 4% of total HFC disbursements in FY22.
While affordable housing finance companies continued to deliver robust growth in FY23, lower subsidy-linked payouts in FY24E are likely to ensure FY24E AUM growth outpacing FY23.
Repayment rates during FY22-FY23 remained at an average of 18% versus 15% during FY20-FY21 for Aptus Value Housing Finance India Ltd., Aavas Financiers Ltd., Home First Finance Company Ltd. and Repco Home Finance Ltd. due to increasing repayments under the CLSS.
Within the affordable housing finance companies space, Home First was the biggest beneficiary of the scheme as reflected in subsidy repayment of 5% versus 2% for Aavas Financiers and 0.3% for Aptus Value. Given that subsidy repayment would likely be lower / nil FY24E onward, Home First is likely to deliver highest AUM growth amongst peers Aavas Financiers and Aptus Value.
The HFC space has seen outperformance by affordable housing finance companies – Aptus Value, Aavas Financiers and Home First delivered ~28-40% AUM compound annual growth rates during FY18-FY23, thereby displaying their expertise in small-ticket housing finance.
Further, banks' aversion to the low-ticket (operationally intensive) informal segment housing finance paved the way for affordable housing finance companies to make inroads into the Rs 72 trillion housing finance space.
Over the years, affordable housing finance companies have carved a niche in financing unserved / underserved population segments due to deep distribution networks, better understanding of the demographics and expertise in underwriting loans to the segments and generally to self-employed borrowers.
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