The incremental changes in the Pradhan Mantri Awas Yojana and the updated interest subsidy scheme are seen benefiting affordable housing finance companies (AFHCs) in particular, as well as leading to more stable repayments, lower pre-payments and balance transfers, analysts feel.

Last week, the PMAY-Urban scheme got a facelift and the Union Cabinet approved financial assistance for 1 crore urban houses to be constructed, purchased or rented for urban poor and middle class families. An investment of ₹10 lakh crore and government subsidy of ₹2.3 lakh crore were also approved as part of the scheme.

In addition, the corpus fund of the credit risk guarantee fund trust was increased to ₹3,000 crore from ₹1,000 crore earlier that would be applicable on affordable housing loans from banks, HFCs, primary lending institutions to economically weaker sections and low income groups.

The management of the fund was also transferred to the National Credit Guarantee Company from National Housing Bank.

The interest subsidy scheme (ISS) - earlier called the credit-linked interest subsidy scheme - has undergone a major change with a reduction in the number of the income slabs for determining eligibility, uniform loan amount, interest rates across income slabs and the subsidy amount being spread over five years rather than being credited at once.

“This also means that the latest budgetary allocation to the ISS is lower compared to that in earlier years, but only optically,” said Nomura Securities.

The final Budget for FY25 had a subsidy allocation of ₹4,000 crore, compared with ₹12,000 crore in FY22 and ₹11,000 crore in FY23.

But this is only for approximately six months in FY25 and corresponds to only one instalment of the subsidy amount.

Earlier years’ allocation used to be for the entire subsidy amount which used to get credited at once.

The broker said the changes would be more beneficial for affordable housing finance companies compared with prime HFCs, as they had a higher share of low income group and economically weaker sections in the borrower mix.

“We also expect these changes to lead to lower volatility in repayment rates, lower pre-payments,” said the broker.

It said, the ISS would benefit at least 2.2 million borrowers.

Beneficiaries taking loans up to ₹25 lakh with house value up to ₹35 lakh will be eligible for 4 per cent interest subsidy on the first ₹8 lakh loan up to 12 years’ tenure.

A maximum of ₹1.8 lakh subsidy will be given to eligible beneficiaries in five yearly instalments.

Nomura explained that the spreading out of the subsidy over five years would be beneficial to AHFCs, since it would not lead to bulky drawdown from the AUM and repayment rates would be smoother.

This should also lead to lower pre-payments and balance transfers, as borrowers need to stay with a lender for at least five years to get the full benefit of the subsidy.

Earlier, there were instances reported where a borrower would get the subsidy at once and then close or prepay the loans soon after getting the subsidy.