Affordable housing sector starting to show early signs of distress

With public banks dominating the segment, RBI's revised PSL cap may push banks towards higher-ticket loans, as underwriting costs stay the same regardless of loan size or risk

Is affordable housing (AH) finance turning out to be a matter of concern? While granular data on bad loans in housing finance is not publicly - even the National Housing Bank’s (NHB’s) annual reports don’t mention it - a Crisil report from December 2023 notes that in the low-income housing segment, which is a sub-segment of AH, gross non-performing assets (GNPAs) are higher than in the normal housing segment. This was because of the higher share of surrogate usage, difficulty in credit profile assessment, and more self-employed customers led to a higher GNPA ratio of 3.3 per cent in FY23