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Affordable Housing Booms: India's Hidden Lending Growth
12 Aug
Summary
- Affordable housing firms see strong loan disbursement growth.
- Government schemes like PMAY-U 2.0 drive demand for smaller loans.
- Niche lenders achieve higher Net Interest Margins than major players.
A segment of India's housing finance market, focused on affordable housing, is experiencing substantial unheralded growth. Companies in this niche have reported strong increases in disbursements for home loans and other retail loans during the June 2026 quarter. This momentum is largely driven by the government's push to promote homeownership among economically weaker sections.
The Pradhan Mantri Awas Yojana - Urban 2.0 scheme is a significant catalyst, targeting lower-income groups with loans up to ₹25 lakh. Consequently, affordable housing finance companies typically offer home loans ranging from ₹5 lakh to ₹12 lakh.
These firms also provide high-margin loans against property and SME loans. Notably, their Net Interest Margins (NIMs) for the June 2026 quarter ranged from 5.8% to 7.7%, surpassing established players like Bajaj Housing Finance, which reported 3.7% NIMs, despite the smaller loan portfolios of affordable housing financiers.
Aavas Financiers, for example, saw disbursements grow by 41% with 83% of its loans under ₹15 lakh, achieving a 7.7% NIM. Home First Finance Company India reported a 31% disbursement growth and a 6% NIM, while Aptus Value Housing Finance India achieved a 36% growth with a focus on tier-II and III towns, yielding a 9% spread.
These niche lenders are also outperforming larger competitors in capital efficiency, with higher Return on Equity (RoE) figures. Valuations for these companies, trading between 2.5x to 2.9x price-to-book value, suggest investor interest in their sustained growth potential compared to Bajaj Housing Finance's 3.2x P/B ratio.
