SBI's Dinesh Khara says hiking cap under PMAY scheme will benefit more borrowers

Khara anticipates that this adjustment will stimulate demand for an additional 50-60 lakh home loans over the next few years, potentially increasing the housing and home loan market.

Furthermore, an interest subvention scheme for urban housing is reportedly in the advanced stages of consideration, pending cabinet approval. This scheme aims to provide an annual interest subsidy ranging from 3% to 6.5% on loans up to Rs 9 lakh, with a focus on housing loans below Rs 50 lakh with a 20-year tenure. Its objective is to offer affordable housing options to urban families, particularly those residing in rented houses, slums, chawls, and unauthorised colonies.

A recent report by Incred Equities suggests that the demand for affordable housing loans remains robust in the second quarter of FY24, despite challenges such as high interest rates and uneven monsoons.

Key players in this market include Bajaj Finance, IDFC First Bank, AU Small Finance Bank, Ujjivan Small Finance Bank, Cholamandalam Investment and Finance Co., Shriram Finance, and Home First Finance. The report highlights the competition among lenders, who are not only competing on lending rates and processing charges but also on factors such as loan-to-value ratios, cross-sales of unsecured products, and flexible payment structures.

The competitive landscape varies by region, with private banks like Bajaj Finance concentrating on salaried customers, while self-employed individuals find multiple options among small banks and NBFCs, including Aavas Financiers, Home First Finance Company, PNB Housing, and CanFin Homes. The report also notes differences in lender strategies, such as private banks focusing on building a liability franchise, while public sector banks prefer public sector undertaking employees or co-origination arrangements for their affordable housing loan portfolios.

Despite these competitive pressures, the report indicates that asset quality remains stable among housing finance companies (HFCs), with lower credit costs expected in the coming quarter. However, it also raises concerns about increased employee attrition due to the fierce competition, highlighting the continued importance of personnel in the lending business, particularly in semi-urban and rural areas. This attrition challenge may result in higher operating expenses for lenders, despite technological advancements in the industry.