Vastu Housing Finance looks to deepen presence beyond metros ahead of IPO-OxBig News Network

“Going public is part of our journey in building a long-term institutional franchise. We want to do it patiently and in the right way,” Menon said, without disclosing a timeline for the IPO.

The company has been backed by leading institutional investors and senior bankers, including large domestic funds. Vastu was seeded by Renuka Ramnath-led Multiples PE, along with Pramod Bhasin, Vikram Gandhi and Samir Bhatia. Other prominent shareholders include IFC, Prosus (Naspers), Norwest Venture Partners (NVP), TA Associates, Faering Capital, 360 One Asset Management, and Creation Investments. 

“Vastu, over time, aspires to achieve high levels of productivity and operating leverage by backing its talent pool, strengthening technology capabilities, and sustainably building a customer-centric franchise that can thrive through cycles,” Menon said. Before joining Vastu, he had stints at Barclays, Standard Chartered Bank and GE Capital, among others.

Beyond the metros

Broadly, experts have said the next level of growth for the housing finance sector is likely to come from beyond the metros.

“The real opportunity lies in the next 40 to 200-300 cities, where the urban-rural divide blurs. The opportunities in these areas revolve around the self-employed segment for individual houses, self-construction, and resale. With new government schemes introduced, our addressable target market has only increased,” Menon said. 

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Government initiatives that have gained significant traction include the digitisation of land records, enhanced ease of doing business, and a surge in investments in the sector. “These are encouraging signs for us to execute and stay loyal to our target addressable market,” he added.

Challenges in affordable housing finance

However, while people in rural areas have become more aspirational, they continue to face difficulties in accessing credit. 

According to Manushree Saggar, senior vice president & sector head of the financial sector ratings at ICRA, the affordable housing finance segment has seen significant growth over the years, but its borrower base—typically with lower incomes and limited financial buffers—remains vulnerable. As a result, delinquencies in this sector could remain high. “Thus, the seasoning (age of mortgage) remains low. Hence performance of the loan book over economic cycles is monitorable,” she said. 

However, Saggar added that the segment is poised for steady growth, aided by factors such as a favourable demographic profile, housing shortage, government support, and expectations of good risk-adjusted returns for lenders. 

As a result of growing nuclear families and increasing urbanisation, with a larger share of the population between 25-60 years, companies are looking to set up bases in tier 2 and 3 markets, further widening the arena for affordable housing finance companies. They also stand to benefit from lower rents in these areas, which are seeing improved access to resources and facilities. 

According to National Housing Bank data cited by CII and Knight Frank, the affordable housing finance market in India is estimated to be worth around ₹13 trillion ($160 billion), with housing finance companies (HFCs) holding ₹6.9 trillion and banks ₹6.2 trillion.

Strategic expansion

Vastu currently operates in about 14 Indian states including Karnataka, Telangana, Rajasthan, NCR, Madhya Pradesh, and Uttar Pradesh where it has been present for the past three years. No single state contributes more than 15% of its revenues.

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Vastu reported consolidated revenue from operations of ₹1,254 crore in FY24, compared to ₹768 crore a year earlier, with a large share coming from tier 2 and 3 towns. Profit grew to ₹360 crore from ₹285 crore in FY23, according to its annual reports.

Over the past year, the company has focused on deepening its presence in semi-urban and rural areas to further bridge the housing gap. Vastu primarily offers two key products – housing and mortgage loans. 

The home loan product is used for the purchase of new residential properties, construction of new residential properties and the renovation, extension, and repair of existing ones. Mortgage loans are for loans against properties to finance the personal and business needs of customers. 

In recent years, the company has expanded its portfolio to include smaller-ticket micro-housing and microenterprise (MSME) loans for a wider set of customers. It is also working on entering government-backed public affordable housing projects. Menon believes there is a multi-decade opportunity in these areas, supported by enormous government backing.

These initiatives come on the back of a series of funding rounds for Vastu. The company raised $100 million in a funding round led by Prosus last month. Before that it raised $400 million from TA Associates and IFC in July 2023, and $75 million from Norwest Venture Partners, 360 One, Creation Investments and others in February 2023. 

Vastu is one of the few housing finance companies to have developed its own technology, making it an appealing choice even for venture capital investors, who typically steer clear of traditional sectors.

Historically, the housing finance space has largely had only private equity players. In recent years, venture capital firms such as Prosus, Elevation Capital and A91 partners have also invested in this sector as they look to diversify and improve their risk-reward ratio. From a portfolio perspective, these investments are more stable than typical tech investments. 

That said, Vastu has consistently focused on building its technology in-house, particularly with people from tier 2 and tier 3 towns. While this was often seen as a non-core area for the company, Menon was keen on developing it internally to streamline processes ranging from lead generation, loan origination, customer management, underwriting, HR, and accounting—all on Vastu’s proprietary technology platform, Pulse.

Founded by Sujay Patil and Menon in 2015, the company has served more than 66,000 customers , using data science and analytics to deliver affordable products and franchises.