ICRA forecasts a significant expansion in retail mortgage-backed loans provided by non-banking financial companies (NBFCs) and housing finance companies (HFCs).

The rating agency has projected a rise in loans to Rs. 20 trillion by FY2028 from approximately Rs. 13 trillion as of March 2025.

The report further reveals that, within this growth, the share of affordable housing finance companies (AHFCs) is expected to reach Rs. 2.5 trillion, up from Rs. 1.4 trillion.

According to ICRA, mortgage loans by NBFCs and AHFCs are anticipated to grow at a Compound Annual Growth Rate (CAGR) of 17-19 per cent and 20-22 per cent respectively, over the next three years.

A.M. Karthik, Senior Vice President & Co-Group Head - Financial Sector Ratings, ICRA Limited, highlighted that, "Over the next three years, retail mortgage loan growth will be driven by robust demand and the restricted availability of alternative credit options due to ongoing issues with unsecured lending. This sector has traditionally demonstrated strong performance, marked by low loan losses and healthy business returns."

According to the report, as of March 2025, HFCs accounted for approximately two-thirds of the total mortgage loans, with AHFCs making up 11 per cent of the overall AUM (Rs. 13 trillion).

AHFCs typically cater to a higher proportion of self-employed borrowers and offer more loans against property compared to prime HFCs. They also have a substantial share of smaller ticket loans, experiencing steep AUM growth recently, which has led to lower portfolio seasoning.

Karthik further noted that, "given their borrower characteristics, the AHFCs will have an operationally intensive business model compared to prime HFCs. This would require an extensive network of branches and staff to manage loan origination and handle collections in case of overdues. While they mitigate the credit risks arising from this with a conservative loan-to-value (LTV) and have higher business yields, sustained stability in operations and prudence in credit policies would be crucial for operating at a larger scale."