By Mahesh Nayak
The home loan industry, once a stable and lucrative asset class for banks, is experiencing a strategic slowdown – not a collapse, but a calculated pause.
A senior banker from a private bank said, “There is a slowdown, particularly among middle- and lower-income borrowers, while affluent buyers are moving ahead, capitalising on negotiable real estate and low interest rates.”
For FY25, home loan origination by volumes dropped 5.4% to 3.47 million, compared with 3.66 million in FY24, according to the latest report by credit bureau agency CRIF Highmark. In value terms, origination rose 2.7% to Rs 10.7 lakh crore (Rs 10.4 lakh crore in FY24).
Bankers feel the current pause in home loan disbursements signals a strategic wait, rather than a systemic weakness. “Value-conscious middle and lower-income borrowers are holding back, anticipating further rate cuts and festive-season incentives,” said a banker from a mid-sized private bank. Aggressive pricing by public sector banks — some offering rates as low as 7.35% – has added to this wait-and-watch mindset. Bankers believe this lull is transitory.
Industry observers feel one of the reasons behind the slowdown is the shift in banks’ focus towards high-yield products. Banks are increasingly prioritising loan against property (LAP), personal loans, used vehicle loans and other unsecured products over home loans. These products offer higher yields and are more attractive to banks looking to maximise their profits.
Despite being low-yielding, some banks have shifted the focus towards business loans. In a recent interview with FE, Virat Diwanji, national head – consumer banking at Federal Bank, said, “We are focusing on high-yielding businesses, and slowed the growth of home loans. Our focus is on businesses that can generate better returns on capital.” This strategic shift is driven by the desire to maximise profits and diversify revenue streams.
The shift towards high-yield products is also reflected in the unchanged employee headcount. For FY25, State Bank of India recorded a marginal 1.7% increase in headcount to 2,36,226 (2,32,296 in FY24). While employee headcount remained flat for Axis Bank and Bank of Baroda at 1,04,453 (1,04,332 in FY204) and 74,000 (74,000 in FY24), respectively, Bank of India reported a 1% fall at 50,564.
“Banks are reallocating resources to focus on other businesses like consumer durables and personal loans,” said a banker, adding that “Job stability has also been a concern in India, driven by the rise of the gig economy and layoffs. Home loans being long gestational, banks are shifting to high-yield products like LAP to mitigate risk and focus on more secure and profitable lending opportunities.”
In FY25, according to CRIF Highmark, the market share of home loan portfolios outstanding for PSBs and private banks stood at 39% (38.5%) and 34.8% (36.4%), respectively. The market share for active loans marginally declined, with PSBs banks at 41.7% (down from 41.9%) and private banks at 24.4% (down from 25.1%). The drop in active loans indicates that banks did foreclosures, prepayment closures, matured closures and settlements.
While the home loan growth remains in the slow lane, rising to 9% in May, compared to 38.7% a year ago, the government’s continued focus on affordable housing and initiatives like Pradhan Mantri Awas Yojana may not allow the segment to significantly slow down. With full rate transmission being expected soon and developers gearing up for the festive rush, bankers and analysts expect the home loan market to be poised for a rebound, driven more by timing than external factors.