With normalisation of economic activity and a pickup in growth, demand for housing and housing loans is poised to grow, according to a Bank of Baroda report.

Though higher interest rates may deter some borrowers, this may be offset by the demand for housing as a safe investment.

“Besides, individual home buyers will be prepared for interest rates to move up and down during the tenure of their loan and, hence, may not be deterred from purchases,” said Aditi Gupta, Economist, BoB.

Gupta said the housing segment has shown resilience post the pandemic, as evident from the strong momentum in housing loans witnessed by public sector banks (PSBs) and other financial institutions.

The growing importance of home loans can be gauged from the fact that the ratio of outstanding individual home loans by scheduled commercial banks (SCBs) and housing finance companies (HFCs) in India’s GDP has grown  from 6.8 per cent in FY11 to 11.2 per cent in FY21, she said.

“Even in FY20, despite the adverse Covid-19 shock, which badly affected the housing sector, the ratio of housing loans (in GDP) rose to 9.8 per cent (from 9.5 per cent in FY19).

“In the succeeding year, the sector noted a remarkable recovery from the pandemic and the ratio of housing loans in GDP rose to 11.2 per cent,” Gupta said.

From ₹3.45 lakh crore in FY11, the housing loan portfolio of SCBs has increased to ₹15 lakh crore in FY21, registering a compound annual growth rate (CAGR) of 14.3 per cent.

Market share

Gupta observed that PSBs are the dominant players in the housing loan segment, accounting for 61.2 per cent of the housing loan portfolio of SCBs in FY21. However, PSBs’ share has seen a sequential dip from about 70 per cent in FY11.

On the other hand, private sector banks (PVBs) have gained market share from PSBs. From 21.3 per cent in FY11, the market share of private banks has increased to 35.2 per cent in FY21.

“It is also interesting to note that while housing loans by PSBs grew at 12.8 per cent CAGR in the period, PVBs registered a higher CAGR growth rate of 19.6 per cent,” Gupta said.

Foreign banks have a small share in the overall housing loan portfolio. These have also lost market share to PVBs. In FY11, foreign banks’ share in the overall housing loan portfolio was 6.4 per cent, which has declined to 1.7 per cent in FY21.

Regional rural banks (RRBs) account for a small portion of housing loans in India. From ₹5,000 crore in FY11, housing loans by RRBs swelled to ₹25,000 crore in FY21, registering a CAGR of 15 per cent.

More recently, small finance banks (SFBs) have entered the housing loan segment. At ₹3,000 crore in FY21 (0.2 per cent of overall housing loans by SCBs), they remain a minuscule player, the report says.

Gupta said outstanding individual housing loans from HFCs grew from ₹2.6 lakh crore to ₹6.6 lakh crore in FY19, and remained stagnant in FY20.

In FY21, outstanding home loans by HFCs rose moderately to ₹7.1 lakh crore as demand remained muted due to the Covid-19 pandemic.

With easing restrictions and a resurgence in demand, the housing loan portfolio of HFCs touched ₹7.4 lakh crore in H1FY22 alone, according to the report.

HFCs vs SCBs

SCBs’ market share has increased from 64 per cent in FY19 to 67 per cent in FY20 and 68 per cent in FY21.

On the other hand, HFCs lost market share — from 36 per cent in FY19 to 33 per cent in FY20 and 32 per cent in FY21.

“The housing loan segment may well be fast growing for PSBs. However, banks face competition from HFCs that provide a hassle-free experience to consumers,” Gupta said.

Referring to RBI data for the period FY14-22, which shows that the average outstanding ticket size of home loans has increased from ₹8.30 lakh to ₹15.34 lakh, she said the number of accounts increased by 7.2 per cent (CAGR) while the amount outstanding increased by CAGR of 15.7 per cent.

“It is possible to say that during the first phase of this period, higher growth in loans was aided also by a steady increase in home prices while in the second phase it was more due to a larger customer base, given that the housing price index does indicate a slowdown in growth,” Gupta said.