India’s Home Loan Market Set to Double in Next 5 Years

BY Realty+

India’s home loan market, currently valued at about Rs 24 lakh crore, is expected to double in the next five years, mirroring the overall trend in the country’s aspirations to become a $5 trillion economy by then, State Bank of India said in a report.

The share of housing loans in bank credit increased to 14.4 percent in June from 13.1 percent in March 2020, with the maximum number of disbursements in tier-3 and tier-4 cities, according to the SBI report.

Analysts said that the fear of further rate hikes and losing out the opportunity to buy properties will drive the customers to invest in homes. SBI, PNB Housing Finance and Bank of Baroda are among those that recorded significant growth in their home loan portfolios, according to their latest quarterly results.

Analysts said once the interest rate hike cycle starts, people tend to take home loans faster because they anticipate further hikes and fear that the longer they wait, the more expensive home loans will become.

The Reserve Bank of India has increased the benchmark interest rate by 140 basis points since May to curb inflationary pressures in the economy. Disbursal of housing loans rose significantly in the April-June quarter and contributed almost half of the total personal and retail loans disbursed, according to SBI’s data. When the RBI announced the rate hikes, analysts predicted that credit growth in the housing sector might get affected. However, the rate hikes created a positive impact in the last quarter. 

“Firstly, it takes around three to four quarters to reflect the real impact of rate hike on loans. Now, banks have become more proactive as housing loans performed well in the last few quarters. Moreover, after COVID, people are now looking for safety and having his/her own house gives a sense of safety,” said Prakash Agarwal, director & head financial institutions at India Ratings & Research.

Moreover, analysts pointed out, banks convince customers to take loans at the earliest, before the interest rate goes up further, and this resulted in the rise in home loan disbursals. The report showed that growth in loans disbursed was primarily in non-metropolitan areas.

The total home loan portfolio (outstanding) grew by more than 10 percent in FY22, with tier-3 and tier-4 areas growing at a faster rate than tier-1 and tier-2 districts after the COVID-19 pandemic, according to the SBI report.

The average loan size increased more in the smaller towns. The report noted that growth of loans in the Rs 30 lakh to Rs 50 lakh and the Rs 50 lakh to Rs 100 lakh brackets was higher in tier-3 areas than in tier-1 districts.

Tags : India Home Loan Market State Bank of India Analysts PNB Housing Finance Bank of Baroda Reserve Bank of India