Mortgages race past corp loans as lenders chase home buyers

This was a result not just of wooing home loan customers but also because corporate loan pickup was lower than initially expected. In fact, corporate loan growth at 5.7% in FY23 was lower than the previous year’s 7.5%. Meanwhile, home loans grew 15% in FY23, as against 12.9% in FY22, according to data from the Reserve Bank of India (RBI).

Most banks have been aggressively chasing home loan customers, resulting in incremental housing loans of ₹2.5 trillion in FY23, the highest in at least 15 years, RBI data showed. In comparison, loans to industries in 2022-23 stood at ₹1.8 trillion. Both numbers are net of loan repayments.

In FY22, the equation was somewhat different as incremental home loans were at ₹95,419 crore, while corporate loans were at ₹2 trillion.

Trends in the behaviour of home loan borrowers differed across banks. While some lenders said they saw little change in home loan demand, others saw some degree of postponement of purchases. Since May last year, RBI has raised the repo rate—the benchmark for home loans—by 250 basis points (bps) before pausing in April.

“Our home loan portfolio may even grow faster this year, and we have launched several initiatives to attract more borrowers. The sector is very attractive for Canara Bank, and we do not want to lose the opportunity,” K. Satyanarayana Raju, chief executive of Canara Bank, told reporters on Monday.

The state-owned lender reported a 14.3% growth in home loans in FY23, and Raju said the bank is not seeing any downward trend in demand. To be sure, Canara Bank saw a healthier growth in its corporate loans, at 21% in the same period, though contracting on a sequential basis.

It would be wrong to say that home buyers are entirely unaffected by rising rates. The impact is being seen more in the affordable housing segment, where borrowers are more sensitive to changes in rates. Those interested in mid-range and upmarket properties are queuing up for loans, with lenders making the most of the markup in mortgage interest rates.

“Mid-segment homes continue to drive housing demand in the real estate market, reflecting a growing preference for budget-friendly and comfortable housing among homebuyers,” said a report by industry body CII and real estate services company Anarock released in April, adding that developers are also catering to the demand for premium housing by launching projects in the segment, albeit at a lower rate.

Given the kind of demand, lenders are facing stiff competition from rival banks and even non-bank financiers. For instance, private sector lender Axis Bank was quite cautious on mortgages in the first couple of quarters in FY23 over loan pricing. Its home loan book grew 5%—without accounting for the portfolio of Citibank, which it has acquired —to ₹ 1.5 trillion in FY23.

“We saw intense competition. We saw people were cutting prices, and we were quite cautious in terms of just going out there and offering loans at a certain rate, which did not make sense to us,” Amitabh Chaudhry, chief executive of Axis Bank, told analysts on 27 April. Another private lender Kotak Mahindra Bank saw its aggregate home loan and loan against property (LAP) portfolio grow 22% in FY23.

“Last quarter, you saw some amount of demand plateauing in the mortgage segment. Second, you also saw a really sharp competition on rates, particularly in the month of March,” said Shanti Ekambaram, whole-time director, Kotak Mahindra Bank.

She added that demand for luxury—middle and higher segments—is still growing. “I think the lower end, to a certain extent, has got a little bit impacted by the rise in interest rates,” said Ekambaram.

Although opinions are divided on how home loan demand would pan out in FY24, consumers can expect to shell out more on their home purchases.