Banks and finance companies bullish on demand for home loans

Owing to Budget 2013-14's incentive to the housing sector, banks and housing finance companies are seeing a rise in the demand for home loans.

In his Budget speech, Finance Minister P Chidambaram had said those taking loans of up to Rs 25 lakh from a bank or a housing finance corporation for a first house would be entitled to an additional interest deduction of up to Rs 1 lakh. He had added the move would promote home ownership and provide a fillip to a number of industries such as steel, cement, brick, wood and glass.

Keki Mistry, vice-chairman and chief executive of HDFC, said, "With an average loan size of Rs 21 lakh, this would definitely have a positive impact on our business." Customers in Tier-II and Tier-III cities would benefit from this, he said, adding in metros, people in far-flung suburbs would benefit. He, however, said it would be premature to comment on the likely impact, in terms of absolute numbers.

Banks agreed the Budget announcement would aid first-home buyers. Ram Sangapure, general manager (retail), Central Bank of India, said, "Currently, the proportion of first-home buyers in our portfolio is 60 per cent; we expect it would rise to 65 per cent." He added the Budget announcement, along with a fall in interest rates, would raise growth in home loans from 16 per cent to 23 per cent next year.

"This announcement brings cheer to many potential home buyers, especially in the lower- and middle-income segments in distant suburbs of metros and tier-II and tier-III cities who have delayed their decision of home buying," said Kapil Wadhawan, chairman and managing director of Dewan Housing Finance.

In his Budget speech, the finance minister had also announced a grant of Rs 2,000 crore to set up an urban housing fund, on the lines of the rural housing fund, as well as Rs 6,000 crore towards the rural housing fund.