The home loan markets in India is growing at an annual rate of 22% per annum. There are total 20 public sector banks ,71 private banks and 1000+ co-operative banks in India. Besides bank’s lending loans to the customers there are total 10,000 NBFC’s [Non banking financial companies] being registered in India. The salaried segment accounted for 88% of the total home loan buyers in the country, while the rest constitute 12% of the self-employed class. The home loan market is further segmented into low cost housing scheme market, housing for middle income groups and luxury housing.
As there is intense competition in the market for home loan, companies need to spend immensely on branding and promotional activities like advertisements on television, print media, digital marketing campaigns. Many housing finance companies do tie-ups with real estate developers for distributing home loans to their customers. As the core banking organizations have their own set of customers the NBFC mostly need to depend on leads generated through various sources like real-estate sites, digital marketing leads for generating business. There are some incentives offered to customers as well as real estate developers if the customer opts for home loans with the specific firms tied up with real estate companies.
Know your customer [KYC]:
The banks and the financial institutions need to verify the customers background and profile in order to process the loan as the background verification check of the customer. The bank asks for documents like Pan card, aadhar card, salary slips of past three months, ITR returns [income tax] for last 3 years. Additional to that based on pan number of the applicant CIBIL score rated by Crisil company is taken into consideration which helps the financial institutions to know whether the client has defaulted on any credits previously like credit card bills, Emi’s taken from some other institution or any other post-paid bills.etc. The CIBIL score of an individual is rated on 1000 basis points. The higher the cibil score more are the chances the loan of the customer may get approved. Hence even customers need to assure that they pay bills on time and maintain a good cibil score. In case of non-payment of dues the financial services firms/banks have the authority to seal the assets of the customers by issuing a legal notice to the clients.
Trend of the Home loans rates:
As the interest rates on fixed deposits are decreasing year on year the lending rates are also decreasing for customers opting for loans. The interest rates on an average on fixed deposits in India came down from 8-8.5% in 2012-13 to an interest rates of 5-5.50% in the year 2020.While the borrowing rates of the banks as well as the financial institutions has come down to as low as 6.75% from 10.50%.Banks also give 25 basis or else 50 basis points i.e:0.50% concession to women for loans.
Following are the interest rates of leading financial institutions:
| Sr.no | Name of banks/financial institutions | Interest lending rates(%) |
| 1 | State bank of India | 6.80% |
| 2 | Kotak Mahindra bank | 6.75% |
| 3 | Bank of baroda | 6.85% |
| 4 | Icici | 6.90% |
| 5 | Idfc | 7.00% |
| 6 | Idbi | 7.40% |
| 7 | Hsbc | 7.45% |
| 8 | Pnb finance | 7.90% |
| 9 | Indiabulls finance | 8.99% |
| 10 | Yes Bank | 8.85% |
The major benefits of taking loans by the customers:
[1] Customers don’t have to end up their savings for buying properties, while they can use their savings for their other necessities like basic grocery & other essential goods, children’s education, daily routine expenses like electricity bills, maintenance, fuel & transport expenses.
[2] Customers can buy their future dream homes at an early stage rather than waiting for the savings to get accumulated.
[3] Depending on the age and income criteria people get time to repay their EMI for upto next 30 years for the loan they have taken.
[4] And foremost benefit is the customers can opt for income tax exemption on Emi’s thus helping individuals save money on tax liability.
Demands and trends for home loans:
For a country like India with a population of 1.3 billion people and an ever increasing population the demand for housing is about to grow. The migration from rural to urban cities in search of jobs is another factor which leads to increase in demand for housing. Even the trend of nuclear families is growing as people prefer to live independently and need privacy. The Government of India has launched a scheme called “Pradhan mantri awas yojana- a housing for all scheme” in which a first time buyer of house can opt for an interest benefit of Rs.2.67 lacks. Also banks have come up with special interest benefits for women home-buyers in order to increase the share of women owing their house on their own name. Out of the total flat buyers a majority of people opt for loans for buying, renovating & construction of houses. Thus the market for home loans stood at Rs.11.5 trillion as on march,2019. Thus due to the ever increasing demand for housing will lead to ever increasing demand for home loans in India. The more of a penetration is expected to happen amongst top 8 cities majorly Mumbai, Delhi Ncr, Chennai, Kolkata, Bangalore, Hyderabad, Pune & Ahmadabad as these cities lead in migration due to plenty of opportunities. Hence most of the new emerging or startup banks/finance companies focus more on gaining market share in the top 6 cities or majorly top 8 as these cities have got huge potential market. The tier 2 cities of Nagpur, Jaipur, Lucknow, Coimbatore, Mangalore, Raipur.etc. are amongst the emerging markets in India. While the tier 3,4 & rural still remain under-penetrated by most of the private firms but have strong hoard of the Public sector banks in lending.
The Fluctuations in Home loan finance markets:
Due to pandemic Covid-19 which began in India since March,2020 the real estate market was totally shut down thus leading to downtrend in buying homes indirectly affecting demand for home-loans. Because of the pandemic, markets were shut & had immense job losses due to shutdown thus reducing the buying capacity of the public. Demonetization was another set-back for real estate sector which indeed affected demand for housing as well as reduction in prices of properties as even home loan buyers also prefer to pay some amount exempted from loans in cash. With the cases of Covid reducing and reduction in stamp duty by government is again increasing the demand for housing. As affordability remains a major factor in buying decision amongst people the demand is extremely volatile in case of buying properties as well as opting for loans. Even during crisis defaulters amongst loans increases amongst existing customers as they are left with no income due to market closures & Job losses.
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