Introduction to Housing Finance in India

Housing finance, a key pillar in the Indian economy, plays a crucial role in the housing market. With a rapidly growing demographic and rising income levels, the demand for affordable and comfortable housing has surged. This has led to the establishment of various housing finance companies (HFCs) and banks that cater to this burgeoning demand.

The Rise of Housing Finance in India

By the turn of the century, the Indian housing finance business experienced a remarkable surge, with compounded annual growth rates exceeding 30% in house financing. This growth was fueled by both banks and specialized housing finance companies (HFCs). Banks, in particular, have gained significant market share, reaching over 80% by the start of 2008. However, despite this impressive growth, organized sector financing accounts for less than 30% of total housing investment in India, and the mortgage debt-to-GDP ratio was only 6% in 2008, indicating a comparatively weak market compared to other nations.

The Current Market Situation

During the fiscal years 2019 and 2020, the expansion of housing finance firms saw a decline. This was largely due to the nationwide lockdown imposed by the pandemic, which significantly impacted total construction activity. Additionally, the return of migrant labor to their respective communities, accounting for 80% of the construction workforce, exacerbated the situation. This led to a dip in demand among end-buyers, especially self-employed borrowers, who faced dwindling job prospects and stagnant income growth.

Recent Developments in Housing Finance

In 2018, State Bank of India (SBI) held a 34% share of the entire sector, making it the largest provider of housing credit. ICICI Bank followed closely with a 22.3% share, while HDFC Limited led HFCs with a 10% market share. LIC Housing Finance held a similar 10% share. In 2019, a significant event involving non-banking financial company (NBFC) ILFS led to delayed repayment obligations, causing a liquidity crisis in the housing finance industry. This event was followed by a series of regulatory measures by the Reserve Bank of India (RBI) aimed at stabilizing and strengthening the industry.

The RBI reduced the repo rate to 4.4% in March 2020, further supporting the housing finance sector. By linking risk burdens to loan-to-value (LTV) ratios, the goal was to make home buying more attractive and sustainable for both borrowers and lenders. Many banks have taken steps to minimize revenue on housing advances, aiming to make home buying more profitable. Data from the RBI suggests that the All-India House Price Index (HPI) grew by 2.7% annually in the fourth quarter, down from 3.9% the previous year. This indicates a slight deceleration in the housing market.

Institutions and Agencies Involved in Housing Finance

A variety of institutions and agencies contribute to the Indian housing finance system. Major players include HDFC Bank, State Bank of India, Housing and Urban Development Corporation (HUDCO), Can Fin Homes Limited, GIC Housing Finance Limited, PNB Housing Finance Limited, IDBI Home Finance Limited, and LIC Housing Finance. Each of these institutions offers a range of housing finance solutions tailored to meet the unique needs of their clients.

HDFC Bank, as a leading player, has a nationwide network and serves over 38 lakh customers. It also provides customized financial solutions and reported a net profit of Rs 4,528.41 crore in FY 2010-11. State Bank of India, another significant player, offers a wide range of home loan schemes and achieved a net profit of Rs 24.63 crore in the fiscal year ending March 31, 2009. HUDCO, Can Fin Homes Limited, and other institutions provide loans for various purposes, including new house purchases, renovations, and extensions.

Conclusion

The Indian housing finance market continues to evolve, with both challenges and opportunities. Regulatory measures and strategic initiatives aim to strengthen the sector, making it more resilient and sustainable. As the market moves forward, it is expected to offer more innovative and accessible financial solutions to home buyers.