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Home loan rates to remain low: ICRA

December 22, 2003 15:52 IST

Interest on home loans is likely to remain low and the share of banks in the overall mortgage market is set to rise in the medium term, while smaller banks and housing finance companies may be either marginalised or forced to exit, according to credit rating agency ICRA.

"The lending rates are likely to remain low in the short to medium term, given the abundant liquidity in the system and the prevailing competitive pressures," an ICRA report said.

Noting that HDFC, ICICI Bank, State Bank of India and LIC Housing Finance accounted for over 60 per cent of the outstanding mortgage loans, it said the competition among lenders was expected to remain "intense" as banks increase their presence and compete with standalone housing finance companies.

Viewing "banks as serious competitors for HFCs" because of their established network and access to low cost deposits, ICRA said the factors that were expected to hold the key to success for the mortgage players include the ability to match the service levels of the efficient players while controlling the operating expenses, maintaining asset quality and managing the interest risk effectively.

The report, however, said "lack of economies of scale is likely to marginalise some of the smaller banking and HFC players, or force them to exit the business altogether."

But the smaller players, which would be able to sustain growth, would either be bank subsidiaries or niche/regional players operating on smaller volumes, it added.

ICRA said the organised mortgage loan demand would continue growing owing to fresh housing demand and more people becoming eligible for home loan due to general rise in income levels.

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