Affordable housing loans: PSU banks miss FY26 goal

The FY26 target miss, in one number

India’s public sector banks (PSBs) fell well short of their affordable housing lending goals for urban low- and middle-income borrowers in FY26. State-owned banks sanctioned 191,000 loans under the economically weaker section (EWS), low-income group (LIG) and middle-income group (MIG) urban housing categories. The target for the year was 643,000 loans. That translates to 29.5% of the goal, according to official data reviewed by Mint and two people familiar with the matter. The gap matters because small-ticket home loans are a key route for formal finance to reach households with limited savings and little access to credit. The shortfall also signals that policy intent is running into execution barriers in both lending and housing supply.

What held back sanctions: credit filters and friction

People familiar with the matter attributed the weak performance to a combination of demand-side and process constraints. One of the two persons cited said the poor performance may be attributed to stringent eligibility and documentation requirements. Delays in application processing were also flagged as a factor that slows the pace of sanctions across participating PSBs. Limited awareness among eligible beneficiaries adds another layer, especially where households are not fully informed about product terms or documentation needs. Affordability concerns also remain central, particularly when home prices and associated costs do not align with borrower income profiles. And weak last-mile mobilisation, which links eligible buyers to developers, projects, and bank branches, was cited as a practical bottleneck.

The supply problem: too few affordable homes to finance

The lending challenge sits alongside a deeper supply constraint in affordable housing. A report by Anarock Capital said over 450,000 affordable and mid-range homes across more than 1,500 stuck projects require around ₹55,000 crore in funding support. When projects remain stalled, buyers struggle to identify deliverable inventory that qualifies for bank finance, and lenders become more cautious about construction and title risks. The report also noted that financing is increasingly concentrated around higher-margin projects and top developers in metropolitan markets. That concentration, by definition, leaves affordable housing chronically underfunded. For PSBs trying to scale EWS, LIG and MIG loans, limited supply can translate into fewer eligible projects and fewer sanctionable cases.

Big capital needs, limited institutional focus

The same Anarock Capital report said India’s real estate sector is projected to require nearly ₹50 trillion (₹5,000,000 crore) of capital over the next 10 years to support its growth into a $1 trillion market by 2030. Yet the report also stated that the affordable segment remains outside the focus of formal capital and institutional lending. This mismatch is important because affordable housing typically needs lower-cost, patient capital and predictable policy support to remain viable for developers and financiers. When capital flows skew toward premium supply, the pipeline of affordable homes shrinks, reducing the pool of borrowers who can be served through formal home loans.

SWAMIH and PMAY: what the policy pipeline looks like

Government-backed funding windows have helped, but the article’s data shows they are not sufficient to offset broader constraints. The SWAMIH (Special Window for Affordable and Mid-Income Housing) Fund, launched in 2019 and later expanded to ₹15,530 crore, has enabled completion of 58,596 homes so far, with over 100,000 units expected in total. Budget 2025-26 also announced SWAMIH Fund 2.0, a ₹15,000 crore blended-finance vehicle targeting completion of an additional 100,000 stalled units. Separately, PMAY-Urban 2.0 aims to support 10 million additional urban homes. These programmes address supply and completion risks, but the FY26 PSB sanction numbers indicate the lending channel is still not scaling at the targeted pace.

Budget 2026-27: allocation cuts and no new incentives

Union Budget 2026-27 reiterated an infrastructure-led growth approach, while affordable housing drew criticism for limited support. PMAY Urban 2.0 saw its allocation dip by 5.9% to ₹18,625.05 crore in the 2026-27 Budget Estimates, compared with ₹19,794 crore allocated in Budget 2025-26. The revised estimates for 2025-26 had already reduced the PMAY Urban 2.0 allocation to ₹7,500 crore. The article also noted the absence of new measures for affordable housing in Budget 2026-27, including no announcements on interest subsidies, tax incentives, or a revision in the definition of affordable housing.

Industry reaction: launch mix and sales share have already fallen

CREDAI said it was disappointed by the lack of concrete measures to boost demand and supply in affordable housing. CREDAI National President Shekhar Patel was quoted saying the industry body was “deeply disappointed that the Budget offers nothing concrete for affordable housing.” Patel also cautioned that the segment’s share could fall from 18% to nearly 12% of total housing supply. The broader data cited in the article suggests the segment has been shrinking for years: ANAROCK data shows the sales share of affordable housing fell from over 38% in 2019 to 26% in 2022 and to around 18% in 2025. On the supply side, the contribution of affordable housing to new launches declined from over 52% in 2018 to 17% as of 2025 for large cities.

PMAY execution: sanctions are high, but utilisation is a challenge

The article also pointed to execution constraints in flagship housing schemes. As of end-2025, more than 118 lakh homes have been sanctioned under PMAY-U, with close to 76% of total homes completed. In rural India, PMAY-G showed stronger progress, with more than 2.82 crore homes completed against a total target of 4.95 crore. But underutilisation of budgeted funds remains an issue: PMAY-U’s budget underutilisation touched almost 55% in FY 2024-25. The article said actual spending has been consistently falling since the record high in FY22, indicating that constraints appear to be in execution rather than availability of funds.

Credit and funding context: where the loan book stands

On the broader housing finance side, the Anarock Capital report said outstanding individual housing loans stood at ₹38 trillion (₹3,800,000 crore) as of February 2026. Commercial real estate lending by banks exceeded ₹5.2 trillion (₹520,000 crore). The report also added that affordable housing finance companies are projected to grow assets under management by 20-21% in FY27, outpacing the broader mortgage sector. These figures underline that housing credit is large and expanding, even as the affordable segment faces persistent frictions.

Company lens: PNB Housing Finance on affordable segment momentum

The article also referenced PNB Housing Finance’s positioning in affordable and emerging markets. The Affordable and Emerging Markets segments constitute 39% of its retail loan book and grew collectively by 31% year-on-year, with a stated aim to increase this share to 45-50%. Under new leadership of Ajai Kumar Shukla, the company reaffirmed growth guidance of 17-18% for the retail book. Management addressed a temporary slowdown in the affordable segment in parts of Southern India, attributing it to local government ordinances, and expressed confidence in a rebound in Q4 FY26 as markets stabilise. The company also noted that the cumulative 125 basis points repo rate cut by the RBI in 2025 is expected to support housing demand.

Key figures snapshot

Why this matters for markets and policy

The FY26 PSB sanction gap shows that affordable housing is constrained by both the availability of suitable homes and the mechanics of delivering credit to eligible borrowers. When eligibility and documentation requirements are strict and processing is slow, the cost of acquisition rises and conversions drop, particularly for small-ticket borrowers. When affordable inventory is thin or projects are stalled, lenders face higher project risk and borrowers face fewer deliverable choices, reducing sanction volumes. Budget signals also matter because they shape developer and lender confidence around incentives, definitions, and subsidy support. Meanwhile, the broader credit base continues to grow, which makes the affordable shortfall more visible in the overall housing finance landscape.

Conclusion

PSBs sanctioned 191,000 affordable urban housing loans in FY26 against a target of 643,000, highlighting friction in credit delivery and a shortage of deliverable affordable supply. Policy mechanisms such as SWAMIH and PMAY-Urban 2.0 remain central, but the article’s data points to execution and prioritisation challenges. Industry bodies have also flagged the lack of new measures in Budget 2026-27 and warned about a shrinking affordable share in launches. The next set of signals will come from how PMAY-Urban 2.0 spending and completion progress evolve, and whether funding vehicles like SWAMIH Fund 2.0 can accelerate stalled-unit delivery at scale.