In a strategic shift, banks are increasingly focusing on affluent customers by offering specialized loan products for luxury homes. This move comes as the premium housing segment experiences robust growth, contrasting with the overall slowdown in the mortgage market.

Luxury Housing Market Surge

The luxury housing market has shown remarkable growth, with high-end properties comprising a larger share of total sales. Luxury homes, defined as properties priced above ₹2 crore in Mumbai and Delhi and ₹1.5 crore in other metropolitan areas, now account for 34% of sales in the first quarter, up from 30% in the previous period.

The segment has witnessed an impressive 85% year-on-year growth, with nearly 7,000 high-end units sold across the top seven cities in India. This surge in luxury home sales has caught the attention of banks, who are now tailoring their offerings to cater to this lucrative market.

Competitive Loan Rates for Premium Borrowers

To attract high-net-worth individuals, banks are offering competitive interest rates ranging from 7.50% to 7.90% for top-tier borrowers. These attractive rates, combined with the growing demand for luxury properties, are helping banks offset the deceleration in the overall home loan market.

Overall Mortgage Market Slowdown

While the luxury segment thrives, the broader home loan market has experienced a slowdown. The growth rate of the home loan market has decelerated to 9.60% year-on-year, reaching ₹30.81 lakh crore in June, down from the earlier growth rate of 13%.

Strategic Advantages for Banks

Banks view affluent borrowers as more than just mortgage clients. These customers present opportunities for cross-selling a range of financial products and services over the typical 10-20 year loan tenure, including:

• Wealth management products
• Insurance policies
• Other financial services

This approach allows banks to maximize the lifetime value of their high-net-worth customers.

Future Projections for the Housing Market

The premium housing segment is expected to continue its strong performance, with projections indicating that luxury homes will account for 38-40% of new launches. In contrast, the affordable and mid-segment housing markets are anticipated to shrink:

• Affordable housing segment: Expected to decrease to 10-12% of new launches
• Mid-segment housing: Projected to reduce to 19-20% of new launches

These shifts are primarily attributed to rising land and material costs, making it increasingly challenging for developers to offer properties in the lower price brackets.

Implications for the Real Estate Sector

The focus on luxury housing and the shrinking affordable housing segment could have significant implications for the real estate sector:

1. Increased competition among developers in the luxury segment
2. Potential pricing pressures in the affordable housing market
3. Shift in urban development patterns, with more emphasis on high-end residential areas

As banks continue to adapt their strategies to market trends, the luxury home loan segment is likely to remain a key focus area, potentially reshaping the landscape of both the banking and real estate sectors in India.

India's banking sector is poised for robust growth in the coming years, according to a recent forecast by rating agency Crisil. The agency projects bank credit growth to reach 11-12% for the fiscal year 2025-26, slightly surpassing the 11% growth recorded in the previous fiscal year.

Accelerated Growth in Second Half

Crisil anticipates an acceleration in credit growth during the second half of the current fiscal year. This uptick is expected to be primarily driven by increased consumer loan demand, fueled by a combination of factors including tax cuts, lower interest rates, and improved liquidity in the market.

Segment-wise Growth Projections

The agency's report provides a detailed breakdown of growth expectations across various lending segments:

Retail credit is expected to lead the growth, with a projected increase to 13.00% from 12.00% in the previous year. This expansion in retail lending is anticipated to be driven by unsecured loans and gold loans.

In contrast, corporate loan growth is forecasted to experience a slight deceleration, dropping to 9.00% from 10.00% in the previous year. This slowdown is attributed to companies exploring cheaper funding alternatives.

Key Growth Drivers

Several factors are expected to contribute to the overall credit growth:

1. Regulatory measures to ease liquidity
2. GST cuts boosting consumer spending
3. Normal monsoons supporting rural incomes
4. Lower inflation potentially leading to softer interest rates

Asset Quality Outlook

Crisil maintains a positive outlook on asset quality, projecting that total Non-Performing Assets (NPAs) will remain below 2.50% even in a worst-case scenario. This compares favorably to the 2.30% NPA level recorded in the previous year.

Potential Stress Areas

While the overall outlook is positive, Crisil highlights potential stress in certain export-oriented MSME sectors:

• Gems and jewellery
• Textiles
• Seafood

These industries may face challenges due to higher US tariffs, which could impact their financial performance and, consequently, their ability to service loans.

Conclusion

The projected growth in bank credit, particularly in the retail and MSME segments, signals a positive trend for India's banking sector. However, financial institutions will need to carefully navigate potential risks, especially in export-oriented sectors, to maintain asset quality while capitalizing on growth opportunities.