In the bustling city of Mumbai, the landscape of affordable housing finance is undergoing significant transformation. The sector is currently grappling with a myriad of challenges, primarily driven by increased credit costs, which have surged to levels not seen in recent years. According to Elara Securities, credit costs could remain elevated at 35-50 basis points, a stark contrast to the historical range of 20-30 basis points. This shift has put a strain on lenders, particularly impacting those catering to the sub-Rs 10 lakh borrower segment, where repayment behavior is increasingly volatile.
The second challenge is the notable slowdown in disbursement trends across the sector. As lenders navigate through Q2FY26, originations have moderated significantly, with many reporting uneven income cycles among borrowers, leading to higher rejection rates during the screening process. This evolving landscape is markedly different from the stable years that once supported robust growth. Borrowers are now showing heightened sensitivity to local economic fluctuations, resulting in increased variability in new accounts despite stringent filters employed by lenders.
Moreover, the financial health of individual companies within the sector is revealing alarming signs of stress. For instance, Aadhar Housing Finance reported a dramatic rise in its 1+DPD (one day past due) rate, climbing to approximately 7% in Q2FY26. This marks a pivotal shift for a company previously known for its stable early-bucket performance. Similarly, India Shelter has seen its 30+DPD increase to 4.7%, raising concerns about long-term sustainability. These trends underline the necessity for lenders to recalibrate their strategies and strengthen credit risk management frameworks.
In conclusion, the affordable housing finance sector in India faces a confluence of challenges, from escalating credit costs to declining growth rates. As the market adjusts to these realities, it is imperative for stakeholders to innovate and adapt their approaches to financing. By doing so, they can navigate through these turbulent waters and potentially emerge stronger in a post-recovery scenario.
