LIC Housing Finance Ltd (LICHF) plans to foray into rural housing loan market with a ticket size of Rs 4-5 lakh. The mortgage lender, which is expected to float a separate subsidiary company for this purpose early next year, sees huge potential in rural housing to expand business.

According to a source, the LIC Housing Finance management sees surge in growth potential in rural areas where virtually there is no competition.

Analysts suggests, house loan penetration is pegged at 37% in urban areas while it is only 7-8% in rural belts.

The regulatory norms are also different for giving housing loans in rural areas which forms around 70% of the country?s population.

Loans in rural areas can be disbursed under relatively liberal rules. For example, income statement is compulsory for a salaried borrower in cities and towns but in rural area does not require such a provision. Further, locational advantages like water supply, electricity and road ways are pre-requisites while providing loans for a particular house location in urban area but is not applicable in rural areas.

?Doing housing loan business in rural area requires completely different business model. Complexities are relatively less. You don?t need high infrastructure cost. Office set-ups have to be rural-oriented wherein rural masses feel comfortable to interact with officials,? said the LICHFL source who refused to be quoted.

LICHFC, according to the source, would roughly spend Rs 1 lakh in setting up a single office in such areas for doing its business.

?The management, which finds the volume generation as the only hurdle in this venture will aggressively use its age-old popular brand of LIC to market the product. The company is hopeful to generate enough credibility among rural people through the brand. It will help them get good business. In line with growing focus on financial inclusion rural housing business is anticipated to add more prospect to the company,? said the source.

When contacted by FE, the director and chief executive R R Nair, however, did not divulge anything saying ?we do not comment on market speculations?.

LICHF has posted a 71% rise in net profit to Rs 212 crore for three months ending June, 2010. Profits were driven by a 36% increase in the loan book which now stands at Rs 40,030 crore.