Smaller towns driving growth in home loans

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MUMBAI: Despite the pandemic and a lockdown in the first half of the fiscal, outstanding home loans grew 9.6% to Rs 22.3 lakh crore in the first nine months of FY21. As the virus hit metros in the first wave, more people purchased homes in smaller towns, resulting in tier-2 and -3 centres recording the highest growth in home loans.
According to a report by CRIF, which operates a credit bureau in India, the smaller centres recorded a higher annual growth rate in home loan books compared to metros. A large part of the growth has come from the affordable and mid-market segment. The flip side of the development is that home loans have become riskier for banks as defaults are higher in the affordable category and in case of younger borrowers.
While metros accounted for Rs 11.2 lakh crore of outstanding home loans, their share came down to 7.3%. Among metros, Hyderabad and Ahmedabad saw the maximum growth in outstanding home loans at 11.3%, and Chennai the least (at 4%). Mumbai, Pune and Bengaluru grew by 7%, while Delhi and Kolkata grew by 6% and 9.8%, respectively. Tier-2 centres grew by 10.9%, while tier-3 and beyond grew 13.3%.

The fastest-growing tier-2 centres were Rajkot (16%), Guntur (14.8%), Vijayawada (13.7%), Thiruvananthapuram (11.4%), Coimbatore (11.3%) and Jaipur (10.5%). The tier-3 centres that topped the growth list include Chittoor (18.1%), West Godavari (15.7%), Karimnagar (17.1%), Tirunelveli (13.2%), Bharuch (12.1%), North Goa (10.4%) and Jalgaon (11.6%).
The growth is driven by lending by banks, particularly those in the public sector, who now dominate the mortgage business. As of December 2020, the top five public sector banks constituted nearly 30% of home loans by value, while the top five private banks contributed 15%. Housing finance companies, many of which faced liquidity pressures, now account for only 37% of outstanding mortgages. Public sector banks have been more aggressive in the mid-sized and premium segment where they have gained a market share of nearly seven percentage points in both segments over the last three years.
In absolute terms, Visakhapatnam and Coimbatore, among the top 10 cities, recorded the largest year-on-year growth of over 10% as of December 2020.