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Growth for affordable housing finance companies (AHFCs) is increasingly likely to depend on expansion into new catchments as mature branches face stagnating growth, while competition intensifies across smaller cities and higher-ticket loans, Systematix Research said in a report.
The report published on Monday, is based on an evaluation of 42 branch-level interactions and checks across Maharashtra, Karnataka, Tamil Nadu, Telangana and Rajasthan, and suggests that the affordable housing opportunity remains intact, but the growth equation is changing. Branches with more than Rs 500-600 million in assets under management (AUM) are increasingly seeing growth stagnate as their existing catchments become more penetrated. The report said this could make continued branch additions and entry into newer markets increasingly important for lenders to sustain growth, rather than relying only on productivity improvements from existing branches. Own sourcing, faster turnaround times, field-based underwriting and customer retention are also becoming more important as lenders compete for the same borrowers. Demand, however, remains healthy. The channel checks indicate expectations of around 3-7 per cent quarter-on-quarter improvement in disbursements across several markets, with monthly momentum suggesting that recent weakness is more related to seasonality than a structural slowdown. Monsoon disruptions and an inauspicious period had delayed transactions in some markets, the report said. Specialist lenders continue to have an advantage in the lower-ticket segment, with more than 60-65 per cent of customers covered in the checks falling in the Rs 1-1.5 million ticket range. Cash-salaried borrowers form a meaningful part of the customer base in Tier-2 and smaller markets, requiring field-level income and employment verification. Competition is rising, particularly from unlisted affordable housing finance companies in Tier-2 and Tier-3 markets and larger NBFCs at higher ticket sizes. The report said higher top-up offers from competitors, rather than pricing alone, were emerging as a key reason for balance transfers. Employee attrition is another emerging challenge. Branch checks suggest departing sales staff can potentially take 10-15 per cent of their customer pool with them, while new employees take time to establish sourcing relationships and reach full productivity. The report said collection trends improved in the second quarter across several markets, with reported defaults and NPAs generally remaining below 2 per cent in the branches covered. The report added that the channel checks broadly validated its view of the sector, while the need for new catchments, stronger sourcing and faster execution is expected to shape lenders' growth as competition increases. (ANI)
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