Private lenders work on winning back home loans as a growth driver

MUMBAI: Private sector banks have begun focusing on home loans as a growth driver, intensifying competition to regain market share lost to state-owned rivals. This is partly to offset the impact of growth normalisation in loans to the small and medium enterprises (SME) segment, experts said.

Public sector banks’ share of new home loans by value stood at 43% in FY25, up from 34% in FY22. In contrast, the share of private banks declined to 29.8%, from 42.6%, with executives often cited “irrational pricing” by competitors as the reason for the slowdown.

Over the last six months, ICICI Bank has slashed its home loan rate by more than 105 basis points to 7.7%, while HDFC Bank has cut it by 80 bps to 7.9% over the same stretch. ICICI Bank’s rate, currently the lowest among private lenders, is available to existing customers who have pre-approved digital home loans and strong credit scores.

“ICICI Bank has ceded some market share in home loans over the past few years due to higher pricing. However, it has now realigned its product pricing and hopes to benefit from some pick-up in the mortgage segment and, thus, partly offset the expected growth normalisation in SME,” said Anand Dama, head of BFSI research at Emkay Global.

Kotak Mahindra Bank, which had lowered its rate by 66 bps in the last six months, reported one of the strongest expansions in its home loan book in the June quarter.

PSBs Moderate Moves
Last month, however, it raised it by 10 bps to 7.99%.

“We remain committed to offering competitive and customer-centric lending solutions, balancing affordability with prudent risk management,” said Manu Singh, business head of housing finance at Kotak Mahindra Bank. “Our offerings, including balance transfer options and special rates for women and government employees, are designed to support diverse borrower needs.”

The growing competition in the home loan market comes in the backdrop of the Reserve Bank of India cutting the repo rate by 100 basis points this year to 5.5%.


Meanwhile, state-run banks that had driven growth through aggressive pricing are now showing restraint amid margin pressures. Last month, State Bank of India ( SBI), the country’s largest lender by assets, reduced its home loan rate by 75 bps to 7.5% and raised its maximum rate by 25 bps to 8.7%, while Union Bank hiked its minimum rate by 10 bps to 7.45%.

Aggressive pricing has nonetheless helped SBI clock more than 15% year-on-year growth in its Rs 8-lakh crore mortgage book.

“We are seeing a good amount of sourcing of applications, sanctions and disbursements, and we probably have historically high levels of sourcing going on now,” SBI chairperson CS Setty said during a post-earnings call last month.

Executives of private banks argue that chasing growth at the cost of profitability is not sustainable.

“We continue to see very low rates. In many top cities, mortgage rates are being advertised at 7.2% to 7.3%, levels not seen in recent years,” HDFC Bank CFO Srinivasan Vaidyanathan said at the bank’s post-earnings call in July. “We want the right kind of customer for a broad-based relationship, so we’ve been selective.”