In an exclusive interaction with Thiruamuthan, Correspondent at Finance Outlook, Suzannah Muthoot, Executive Director, Muthoot Housing Finance Company, discusses how India’s affordable housing finance segment is at a turning point, where the core challenge lies not in access to credit but in structural barriers limiting home ownership. She highlights that as demand rises, the focus is shifting toward aligning financial innovation with on-ground realities to enable sustainable housing growth.

Suzannah Muthoot is a strategic leader in the NBFC sector with deep expertise across affordable housing finance, gold loans, auto finance, and microfinance. She specializes in corporate strategy, operational excellence, and customer-focused innovation, while actively championing inclusivity and advancing women's empowerment initiatives.

Read the full interview below to gain deeper insights into the realities shaping affordable housing finance in India.

Q - With rising urbanization and persistent housing shortages in lower-income segments, how is affordable housing finance evolving to bridge the widening demand-supply gap in India?

Suzannah - I think, the most important and least-discussed truth about this market: the binding constraint today is supply, not finance. We have built a financing model that can reach further and faster than the housing stock it's meant to fund. There is a growing gap between demand and supply, not because money is scarce, but because there aren't enough genuinely affordable homes in the sub- Rs 35-lakh segment.

The demand side is structural and only getting stronger. Urbanization, household formation, and rising incomes are pulling millions across the threshold where a home loan becomes serviceable and India's overall mortgage penetration, at roughly 11-12% of GDP against a global norm of 40-70%, tells you how much of that demand formal finance still hasn't touched.

What's encouraging is that the financing side is evolving exactly where it needs to, which is toward the underserved. Housing finance companies grew their share of affordable disbursements from around 24% in FY21 to 30% by H1 FY26, the highest of any lender category, and HFC disbursements in Tier 3 cities and beyond crossed 50% of their mix, up from 33% in FY21.

Banks anchor where documentation is clean; companies like ours go where the demand actually sits. The model itself has shifted from product-led to access-led surrogate underwriting, vernacular servicing, and a phygital presence in markets mainstream finance overlooks.

So, my answer to how finance bridges the gap is this: on the demand side, it already is. The evolution that matters next is upstream developer viability in the affordable ticket, construction-cost economics, and approval and titling friction. Until that's solved, we'll keep building the capacity to lend faster than the country builds the homes to lend against.

Q - As interest rate cycles remain volatile, how are housing finance companies recalibrating lending models to maintain affordability while managing credit risk in underserved segments?

Suzannah - The first thing I'd say is that recalibrating doesn't mean repricing. The easiest version of this question assumes the answer is the interest rate - but in our segment the rate is one of the smaller levers we actually pull. Affordability for a Tier-2 or Tier-3 borrower is about the EMI they can sustain.

The biggest lever is the cost of funds, because that's what genuinely passes through to the customer. The companies doing this well are diversifying their borrowing mix deliberately - leaning on lower-cost sources like NHB refinance, and increasingly on co-lending. For a company like ours, that partnership model is becoming central to keeping rates competitive without squeezing our own spread. Greater reliance on bank funding helps further, because those lines reprice downward with a lag after rate cuts.

The second lever is operating efficiency, and it's the quiet one. Every rupee taken out of cost-to-serve through digitization - faster login-to-sanction, lower field-verification cost, remote valuation - is a rupee you don't have to recover from the customer. In a thin-margin business, that's how you keep a loan affordable while protecting profitability.

Underneath both sits credit discipline, which is non-negotiable. I'll be candid: the rise in 90-plus-day delinquencies in sub-Rs 15-lakh loans across much of the sector, partly from borrower over-leverage and microfinance spillover, is real. The recalibration there is conservative LTV, ticket-size discipline, sharper early-warning systems, and a collections engine that works the field - not protecting growth by loosening filters. Affordability and asset quality aren't in tension if you treat them as one problem: the cheapest loan for a borrower is the one they can actually repay.

Also Read: India's Housing Sales Rise 16% to Rs 9.33 Lakh Crore in FY26

Q - With government schemes like PMAY driving demand, how sustainable is subsidy-led growth in affordable housing finance, and what structural gaps still remain unaddressed?

Suzannah - PMAY 2.0 is one of the most significant demand catalysts our sector has - a genuinely ambitious commitment to "Housing for All," and for an eligible first-time buyer, the interest subsidy is meaningful EMI relief. I'm firmly positive about the scheme and what it's trying to do. The question of sustainability, to me, is less about whether the subsidy should exist and more about how well we collectively translate it into homes on the ground.

And that's where the honest practitioner's observation comes in: uptake has been slower than the headline numbers suggest, something NHB itself has noted. Part of it is structural to how the benefit is now delivered. The subsidy comes as five annual installments rather than the earlier upfront credit, and is released only while the loan stays regular, which is a prudent design, but it makes the benefit harder for a first-time, informal-income borrower to feel at the point of decision.

Layer on documentation and awareness gaps, and you get a real conversion challenge between an eligible beneficiary and a disbursed, subsidized loan. None of this is a flaw in intent - it's the practical plumbing, and simplifying the delivery and turnaround would unlock a lot of the scheme's latent potential.

The other piece is that a subsidy works best when it accelerates demand that is already structurally sound. And the underlying demand here genuinely is, driven by urbanization and rising incomes. For it to convert fully, the supply side has to keep pace: developer viability in the affordable ticket, construction-cost pressures, and land and titling friction are still the harder constraints. Get the delivery simpler and the supply moving, and PMAY 2.0 does exactly what it's designed to and the growth that follows is durable, not dependent.

Q - As informal income profiles dominate Tier 2 and 3 borrowers, how are lenders innovating in credit assessment and underwriting to expand access without compromising asset quality?

Suzannah - This is the real craft of our segment. Banks underwrite to ITRs and salary slips; affordable housing lenders underwrite cash flow. That means reading surrogate signals - cash-flow patterns, business vintage, banking behavior, and local market knowledge - and building them into how you assess a borrower who simply can't produce a formal income document. It's a fundamentally different skill, and it's why HFCs carry a new-to-credit customer share of over 10% against under 6% for banks, and why self-employed borrower growth is now running at roughly three times that of salaried borrowers.

What's changed is that technology is now sharpening that judgment rather than replacing it. The Account Aggregator framework gives lenders a live cash-flow picture for borrowers who bank actively but can't show formal income proof. Valuation, historically a bottleneck in smaller towns, is being digitized too - geo-tagging, remote and desktop valuation for standard cases, though the physical site visit remains the norm in a segment with heavy self-construction. Increasingly, lenders are layering AI-led credit underwriting on top of all this, not to remove the human from the decision, but to make the field officer's assessment faster and more consistent.

And the discipline is holding up reasonably well. Across the sector, retail home loan books in affordable housing have historically run low delinquencies, well below what the informal-income profile might lead you to expect, which is the clearest evidence that this kind of lending, done with proper underwriting, doesn't force a trade-off between access and asset quality. 

Also Read: MOHFL Secures $100 Mn ADB Funding for Women Housing Loans

Q - With increasing participation from NBFCs and fintechs, how is competition reshaping pricing, distribution, and customer acquisition strategies in affordable housing finance?

Suzannah - The affordable segment is getting more crowded from two directions at once. Banks are deepening their presence in prime home loans, which pushes traditional HFCs harder into affordable loans to protect their margins. At the same time, NBFCs and fintechs are entering from below, with real strengths in distribution and technology. Most still don't bring the balance sheet or the collection muscle that secured mortgage lending demands, though the better-capitalized ones are steadily closing that gap. That two-sided squeeze is reshaping the business across pricing, distribution, and customer acquisition.

On pricing, the pressure is real but concentrated at the top of the affordable band, where our loans overlap with banks. Lower down in the smaller-ticket, informal-income segment, competition is much thinner because few new entrants want the underwriting and servicing costs that segment carries. You feel the pricing pressure most where you sit closest to the banks, and least where the lending is hardest to do.

On distribution, the model is going phygital, and competition is forcing the pace. Digital rails now handle speed and reach faster logins, quicker sanctions, wider coverage, but in our markets, the last mile is still physical. It's the branch and the field officer who assess a self-employed borrower, disburse the loan, and stay close enough to collect it. The winning model isn't digital or physical; it's using digital to widen the funnel and physical to close and service it, at a cost that still works for a small-ticket loan.

Customer acquisition is where the contest is sharpest, with fintech aggregators and digital channels all competing to own the first touchpoint with the borrower. But owning the lead isn't the same as owning the loan, and acquisition cost is the easiest part of this business to win and the hardest to make pay. The way you make it pay is by building a strong customer acquisition network. For us, that means leaning on a distributed sourcing network of DSAs and connectors, tie-ups with local sourcing partners, and community figures whom people in these towns actually trust, to feed a constant stream of qualified leads.

Through all of it, the lasting advantage in this segment hasn't changed; it's the ability to underwrite and collect well in markets you understand. And it's worth remembering who wins from this competition: the borrower. Sharper rivalry is producing faster approvals, better-priced loans, and access for households that the formal system has ignored for decades. The lenders who last will be the ones who deliver that without losing their discipline on credit.

LOOKING AHEAD: What will be the key enablers for scaling affordable housing finance in India... deeper capital access, policy support, or innovation in low-cost housing models?

Suzannah - All these three matters, and Innovation in low-cost housing comes first. The deepest constraint isn't financing demand; it's that there isn't enough genuinely affordable stock to finance. Construction technology that lowers the cost of building, and a real rental-housing market, change the economics of the home itself. Financing only matters once a house exists.

Policy support comes second, and the emphasis needs to shift from demand subsidy toward solving supply and land titling. That's where the gap actually binds, and where a lot of the scheme's potential is leaking today.

Capital access comes third. Not because it's the least important - it's the nearest-term lever any lender has. But it scales the model we already have rather than expanding the market itself. With the sector's AUM projected to reach Rs 2.5 trillion by FY28, the funding toolkit has to broaden well beyond what's open to only the highest-rated names. For a company of our size, co-lending partnerships are one of the most capital-efficient routes to scale - alongside direct assignment, NHB refinance, and credit-guarantee structures.

Ordered that way, the logic is simple: innovation creates the supply, policy unlocks it, capital funds it. For a sector this central to inclusive growth, getting all three to move together isn't really an opportunity - it's an obligation.