Home loan segment private banks feel the pinch as psus hfcs come home

Home loan segment private banks feel the pinch as psus hfcs come home

Mumbai: Private banks are increasingly feeling the heat in the home loan segment as state-run banks and housing finance companies have ramped up competition by slashing interest rates. Traditionally seen as stable and offering high volume, the retail segment has become harder for private lenders to expand amid shrinking margins, said industry executives.

Currently, Union Bank of India, Bank of India, Central Bank of India, Bank of Maharashtra and Indian Overseas Bank offer the lowest home loan rate of 7.35% to customers with a credit score of 800 or more, while State Bank of India’s rates range from 7.50% to 8.45%. In contrast, private lenders such as HDFC Bank, ICICI Bank and Axis Bank offer home loans starting at 7.90%, 8% and 8.35%, respectively. Housing finance companies, including LIC Housing Finance and Bajaj Housing Finance, are also offering rates as low as 7.5%.

HDFC Bank reported a year-on-year growth of nearly 7% in its home loan book for the first quarter of this financial year, though growth remained flat on a sequential basis. Executives blamed the slowdown on ‘irrational pricing’ by peers, making it unviable for the bank to chase growth at the cost of profitability.

‘We continue to see that the rates are pretty low. In many top cities, mortgage rates are being advertised at 7.2%-7.3%, which hasn’t been seen in recent years,’ Srinivasan Vaidyanathan, chief financial officer at HDFC Bank, said during the bank’s post-earnings call. ‘We want the right kind of customer for a broad-based relationship, and so we have been selective and focused on that.’

ICICI Bank posted a 10.3% increase in its mortgage portfolio for the quarter, with home loans accounting for two-thirds of that. However, this was slower than the 14.2% growth it had recorded a year ago, reflecting the broader moderation in demand and competitive intensity.

Axis Bank, on the other hand, saw a year-on-year decline in home loans, a segment it has struggled to expand for several quarters.

‘The fact that some of the retail asset book has not grown should actually give you confidence that we can grow because there is that much more opportunity for it to grow,’ said Amitabh Chaudhry, managing director, Axis Bank.

For 2024-25, ICICI Bank reported an 11% growth in its home loan book, higher than private sector peers HDFC Bank (8%) and Axis Bank (6%). However, state-run lenders fared better on this count, with State Bank of India expanding its home loan book by 14%, while Bank of Baroda and Punjab National Bank posted growth of 18% each.

Some lenders are also pulling back from low-margin retail loans, choosing instead to focus on more profitable segments.

‘On the retail side, we have had a cautious approach. We are not growing those asset products where the margins are very thin,’ Prashant Kumar, managing director of Yes Bank, during the bank’s earnings call. ‘Where the interest yields are better, we are growing, but in a calculated manner.’