The segment of mortgage loans ranging from 10 to 15 lakhs remains critically important for affordable housing finance companies (AHFCs), especially for low-income clients with limited documentation. At the same time, competition in this market is intensifying from large non-banking financial companies and other housing finance organizations.
According to a report published by Systematics Research on September 28, an inquiry conducted across 42 branches revealed that over 60-65% of clients were found specifically in the 10-15 lakh loan segment. This survey covered branches in the states of Maharashtra, Karnataka, Tamil Nadu, Telangana, and Rajasthan.
The majority of clients in this segment are residents of second-tier and smaller cities. Many of these individuals receive a regular salary, but their formal documentation confirming income is limited. These clients often find it difficult to obtain loans from large and traditional banks.
The report indicates that when assessing the income of such clients, companies tend to be cautious. Even if the client's declared income exceeds 20,000–25,000, the income used for assessment during loan issuance is often set at this range. Clients who have been employed for a long time and repay current installments on time may receive certain additional benefits.
When providing loans to clients with informal income, companies issue an amount less than the full property value. In such cases, the Loan-to-Value (LTV) ratio typically ranges between 50–70%. The credit assessment considers both the client's own income and other sources of revenue. Furthermore, visiting the client and their workplace is an integral part of the lending process.
Due to the high demand for loans in the 10-15 lakh segment, competition is growing. According to Systematics, AHFCs not listed on the stock exchange are active in second and third-tier cities. Meanwhile, large NBFCs focus on clients with relatively strong credit profiles and larger loans.
The report mentions companies such as Piramal Housing Finance, Cholamandalam, Tata Capital, Mahindra Finance, Tiger Home Finance, Repco Home Finance, Star Housing Finance, and Finova Finance in the context of their competition in various markets.
Under these conditions, it is not enough for companies simply to offer low interest rates. It is crucial to properly verify clients with informal incomes and ensure they receive quick loan approvals. For companies, a strong local network of branches, the ability to conduct site visits, and the capacity to understand client needs are becoming important. Companies are also emphasizing direct client contact and attracting loans through networks.
The Systematics study also showed that it is becoming harder for long-established branches to increase business momentum. Growth rates in the number of clients in the current market slow down in branches with a total asset under management (AUM) of around 50–60 crore rupees or those operating for more than five years.
As a result, companies have needed to open branches in new cities and areas. Expansion into new markets allows companies to sustain business growth.
Despite the seasonal impact of the monsoon season on lending activity, further improvement is expected. According to Systematics branch checks, a 3–7% quarterly improvement in loan disbursement is forecasted in several markets.