Affordable housing finance non‑banking financial companies (AHF NBFCs) cater to self‑employed and low‑income borrowers who often fall outside the reach of mainstream mortgage lenders. Northern Arc’s FY‑25 sector report analyses 19 such partners, providing a rich view of portfolio distribution, growth patterns, asset quality, funding mix and profitability. This article presents the slide deck into an accessible narrative while preserving key data points, charts and maps from the original report. Click here to access the deck.
Snapshot of Northern Arc’s AHF NBFC partners
The network covered by Northern Arc consists of 19 AHF NBFCs spread across India. Collectively they managed around ₹82,797 crore of assets under management (AUM) by March 2025, up from ₹34,882 crore in Q1 FY22. The map below shows how the portfolio is distributed across states; Tamil Nadu (14.6 %), Gujarat (13.4 %) and Maharashtra (13.0 %) were the largest contributors in FY22 and remained prominent in FY25. Other states such as Uttar Pradesh, Rajasthan, Madhya Pradesh and Andhra Pradesh each accounted for 6–9 % of the portfolio, while Delhi represented less than 1 % yet exhibited one of the highest delinquency rates.
The partner universe skews towards larger institutions: seven entities manage portfolios greater than ₹2,000 crore, seven fall in the ₹500–2,000 crore band and five operate below ₹500 crore. Rating distribution is relatively strong with eight entities rated A and above holding around ₹77,469 crore of AUM, while eleven entities in the BBB category hold around ₹5,328 crore.
Portfolio growth and disbursements
Despite macro headwinds, affordable housing finance companies sustained strong growth. The chart below illustrates how AUM climbed steadily from ₹34,882 crore in Q1 FY22 to ₹82,797 crore in Q4 FY25, implying a compound annual growth rate (CAGR) around 26 %. Growth moderated slightly in FY24–FY25 compared with the previous two years, but quarterly momentum stayed positive. Disbursement volumes followed a similar trajectory, rising from about ₹2,130 crore in Q1 FY22 to ₹8,507 crore in Q4 FY25. YoY disbursement growth peaked at 38.6 % in Q3 FY23 before normalising to around 11 % by Q4 FY25.
Asset quality and provisioning coverage
Housing finance portfolios generally have low delinquencies because loan tenures are long and collateralised. The FY‑25 report nonetheless flags a mild deterioration: across the sector the gross non‑performing asset (GNPA) ratio rose to about 1.4 % while the net NPA (NNPA) ratio reached 1.0 %, slightly above the “through‑the‑cycle” averages of 1.3 % and 0.8 % respectively. Provisioning coverage weakened to around 31 % in FY25 from 38 % in FY22, suggesting that NBFCs used some buffers amid rising stress. The chart below breaks these metrics down by AUM category: small lenders (<₹500 crore) experienced the biggest increase in GNPA (from 1.3 % to 1.5 %), whereas mid‑sized entities (₹500–2,000 crore) saw NNPA jump from 0.5 % to 1.0 %.
Asset quality remains comfortable when viewed through broader risk measures. PAR90 plus write‑offs as a share of AUM averaged around 1.3 % in FY25, up slightly from 1.0 % two years earlier. PAR90 as a percentage of tangible net worth (TNW) rose across all size bands but stayed below 5 % for most categories. These ratios indicate that even with the uptick in NPAs, the sector retains adequate buffers relative to net worth.
Collection efficiency and portfolio performance
Collection efficiency (CE) remained high throughout FY24–FY25. Monthly CE for the aggregate book hovered between 97 % and 99 %, dipping briefly to 97 % in April 2024 before recovering to 99.1 % by March 2025. PAR90 over the same period crept up from 1.0 % to 1.4 % before easing back to 1.3 %. The combination of high CE and low PAR90 suggests that borrowers continue to prioritise mortgage repayments despite general stress, though rising delinquency bears watching.
State‑wise concentration
Affordable housing portfolios are heavily concentrated in a handful of states. In FY25 Tamil Nadu (12.2 %), Gujarat (12.2 %) and Maharashtra (13.0 %) remained the largest exposures. The next tier included Uttar Pradesh (8.2 %), Rajasthan (8.2 %), Madhya Pradesh (8.2 %) and Andhra Pradesh (7.7 %). Smaller states such as Haryana and Delhi contributed less than 5 % of AUM but reported higher delinquency rates; Delhi’s PAR90 reached nearly 1.9 % compared with sub‑1 % levels in states like Madhya Pradesh and Karnataka. The state‑level chart below highlights these concentrations.
Such concentration requires careful monitoring, especially where PAR90 is structurally higher (e.g., Delhi). The diversity across top states—ranging from southern manufacturing hubs to northern agrarian economies—helps mitigate risk but does not eliminate it.
Managed book and product mix
About 16 % of the aggregate AUM was off‑balance‑sheet (“managed book”) in FY25, modestly higher than 15 % in FY22. Larger NBFCs (>₹2,000 crore) tend to originate a bigger share for partners (around 16.8 % managed vs 83.2 % own), whereas smaller entities (<₹500 crore) keep most loans on their own balance sheets. The mix between home loans (HL) and loan‑against‑property (LAP) shifted slightly towards LAP; LAP’s share rose from 27.6 % in FY22 to 29.1 % in FY25 while HL’s share slipped correspondingly.
The gradual increase in managed book reflects greater use of co‑lending partnerships, securitisation and assignment transactions to free up capital. Meanwhile, the rising share of LAP indicates that lenders are comfortable using borrowers’ property as collateral for working‑capital or business‑expansion purposes, which carry slightly higher yields.
Leverage, equity infusion and capital adequacy
Leverage levels remain moderate despite a mild uptick. The debt‑to‑tangible net worth (Debt/TNW) ratio for the smallest entities rose from 1.1x in FY22 to 2.3x in FY25, while mid‑sized NBFCs saw leverage hover around 2.3x. The largest category (>₹2,000 crore) maintained leverage around 2.5–2.6x, well within comfortable bounds. Rating-wise, BBB‑rated entities ran at lower leverage (around 2.1x in FY25) than A‑and‑above peers (2.6x).
Equity infusion has played a significant role in supporting growth and maintaining capital adequacy. In FY25 large players (>₹2,000 crore) attracted ₹1,079 crore of fresh capital, compared with ₹260 crore for mid‑sized entities and ₹74 crore for small ones. As a result, capital adequacy ratios (CRAR), though declining, stayed robust; small NBFCs’ CRAR fell from 71 % in FY22 to 49 % in FY25, mid‑sized entities from 66 % to 56 %, and large players from 60 % to 51 %.
Funding composition and diversification
The sector’s funding mix has evolved. Bank loans remain the largest source of debt but their share declined from about 46 % in FY24 to 43 % in FY25. Non‑bank financial companies (NBFCs) filled much of the gap; NBFC borrowing climbed to 33 % of total funding while housing‑sector lenders such as the National Housing Bank (NHB) and development financial institutions saw their shares shrink. The product mix continues to be dominated by term loans and cash credit facilities (around 92 % of borrowings), though the share of non‑convertible debentures (NCDs) increased from 4.5 % in FY24 to 6.7 % in FY25 and securitisation volumes edged up. Diversification into debentures and securitisation reduces dependence on banks and lengthens liability tenors.
Liquidity profile
Liquidity buffers remain adequate but have declined. The ratio of free cash to next three months’ debt repayments fell from 3.5x in FY22 to 2.1x in FY25, while the six‑month coverage ratio dropped from 2.2x to 1.0x. The bubble chart on the right below plots each entity’s Debt/TNW against its free cash coverage; larger bubbles represent bigger AUMs. The data show that most entities still maintain free cash above one time their next three months’ repayments, though a few smaller NBFCs operate with tighter buffers.
Pre‑provisioning profits and credit‑cost buffer
Pre‑provisioning operating profit (PPOP) relative to credit cost is a key indicator of an NBFC’s ability to absorb losses. Large affordable housing financiers significantly strengthened their buffer over the past two years: in FY25 entities with AUM above ₹2,000 crore recorded a PPOP/credit‑cost ratio of around 27, up from 13.9 in FY22. Mid‑sized NBFCs improved to around 14.4 while small entities saw their buffer drop to 1.1, underscoring their vulnerability to credit shocks. Rating‑wise, A‑and‑above NBFCs achieved a ratio of 20.2, whereas BBB peers slipped to 9.2.
These improvements reflect stronger profitability and lower credit costs for larger and higher‑rated NBFCs, while smaller players continue to operate with thin buffers.
Profitability and return metrics
Profitability improved even as borrowing costs ticked up. The profitability tree in the report shows that average yield on the portfolio remained around 17–18 %, while the cost of debt fell from about 11.6 % in FY22 to 8.4 % in FY25. Operating expense ratios (OER) declined sharply from 8.2 % to 3.7 % owing to scale and technology investments. Meanwhile, credit costs dropped to roughly 0.5 % of AUM. Together these improvements lifted profit after tax to gross loan portfolio (PAT/GLP) to around 0.5 % in FY25.
Return on equity (ROE) improved accordingly. The sector’s ROE increased from 7.5 % in FY22 to 9.4 % in FY25, peaking at 9.9 % in FY23. Rating‑wise, A‑rated NBFCs enjoyed higher returns on assets (ROA) thanks to lower funding costs and operating expenses; their yields averaged 19.6 % compared with 14.9 % for BBB peers, and their PAT/GLP margin was 3.6 % versus 2.1 %.
Conclusion
Northern Arc’s FY‑25 review of affordable housing finance NBFCs paints a picture of a sector that continues to grow and professionalise. AUM nearly doubled over three years, backed by steady disbursement volumes and growing investor confidence. Asset quality remains comfortable, though GNPA and NNPA ratios ticked up slightly and provisioning coverage fell, signalling the need for vigilance. High collection efficiency and modest leverage underpin stability, while ample equity infusions have kept capital buffers strong despite robust growth. Funding sources have diversified beyond banks to include NBFCs, debentures and securitisation, and liquidity buffers remain adequate. Larger, better‑rated NBFCs enjoy strong profitability and credit‑cost buffers; smaller peers lag and may face more pressure as regulations tighten. Overall, affordable housing finance continues to be a resilient and attractive segment within India’s broader NBFC ecosystem.
Disclaimer
This article is based on Northern Arc’s FY-25 Affordable Housing Finance NBFCs sector report. It is intended for informational purposes only and does not constitute investment advice or a recommendation.