Hi everyone,  

Welcome to the 160th edition of The Pattern, a weekly where we dive into the latest from the world of economy, technology and finance. Let’s get started!  

The Indian credit market is knocking on the door for housing finance for a new address.  

Once celebrated as robust and fast-growing, India's credit market is now growing at a moderate, almost sleepy pace. Personal loans, retail loans, and even credit cards are struggling to carry the baggage of being the golden child of India's credit revolution. Gold loans are trying to carry the baton, but for how long? 

Consumption-led credit is slowing, unsecured retail portfolios are under scrutiny, and lenders seem to be turning to housing finance as their next haven. 

A recent TransUnion CIBIL reports came in as a worrisome indictment. Loan originations hit a two-year low in the fiscal year ending March 2025. Credit inquiries from borrowers aged 30 and below are falling. The share of new-to-credit individuals? Shrinking fast. Adding to this plight, lenders are also burned out with a constant increase of NPAs, tightening RBI guidelines and opening floodgates to unsecured loans. 

That's where housing finance enters as a knight in shining armour! 

Why is housing finance the MVP? 

The shift was not random; it was growing slowly with the help of three strong pillars: low interest rates, government initiatives towards affordable housing, and a realignment of population back to Tier 2 and Tier 3 cities. 

1. Low interest rates: After months of policy tightrope walking, the RBI slashed 100 basis points off the repo rate. EMIs/loans are now manageable again. More salaried households are eligible for loans they couldn't touch a year ago. Even non-bank companies started offering home loans starting at 8% interest. 

2. Government policies: In addressing the basic need of 'Roti, Kapda aur Makan' (Food, Clothing, and Shelter), the government has attempted to solve the 'Makan' issue with 'Housing for All' initiative. Schemes like Pradhan Mantri Awas Yojana, Rajiv Gandhi Awas Yojana, and the DDA Housing Scheme offer financial support, easy access to land, and affordable loans to those in need. Even tax breaks for affordable housing developers. 

3. Boom of Tier 2 and 3 cities: We grew up hearing stories of families migrating from semi-urban towns to Tier-1 cities. However, the narrative is now shifting—high prices, high stress, and high-stakes jobs have taken their toll.  

Real estate rates have skyrocketed in the metro cities, with Bengaluru leading the way. Housing prices increased by 79% in 5 years, an all-time high, surprisingly leaving Mumbai and other metro cities behind. That's why due to improved connectivity and lower development costs, towns near the metro cities are becoming hotspots of affordable housing. 

EY estimates a 25% CAGR in affordable housing from 2022 to 2027, with Uttar Pradesh alone accounting for one-fifth of the national housing gap.  

The direction of demand is clear. The need for credit is obvious. And housing finance companies (HFCs) are positioning themselves accordingly. HFCs like Sundaram Home Finance just expanded to Madhya Pradesh, aiming for ₹300 crore in disbursals this year alone. 

Why are lenders favouring home loans? 

The Indian housing finance market is expected to double in size over the next five years, from ₹33 lakh crore to ₹81 lakh crore.  

Beyond the data and feel-good policy narrative and schemes, let's be honest—home loans are good business. 

Home loans are long-tenured, meaning lenders earn consistent interest income over time. Lenders have collateral to show, unlike credit cards or personal loans. Along with that, these loans offer cross-sell potential: insurance, top-ups, and even renovation loans. It's a win-win situation! 

Is RBI’s ‘night’s watch’ mode helping? 

With great growth comes great scrutiny. The RBI and NHB are now closely monitoring housing finance. 

While the RBI slashed the repo rate to make housing loans more affordable, it's also tightening the screws on how credit is given. Especially when it comes to affordable housing. The regulator is working to harmonise HFCs with NBFC. The aim? A level playing field and tighter systemic controls. 

From loan-to-value limits and risk weights to provisioning norms, the RBI is using all the tricks from the hat to ensure lenders can easily tackle when dealing with low-ticket, first-time borrowers. 

Recent National Housing Bank guidelines now dictate that refinance will only be provided for projects where less than 50% of construction is completed at the time of first disbursal. 

Why is this the right time? 

Retail credit is slowing. Personal loan growth is plateauing. Young borrowers are pulling back. BNPL isn't scaling the way we thought it would. But housing—especially affordable housing in Tier 2 and 3 cities—is seeing structured and organic demand. 

In a market flooded with volatility, housing finance offers the two things that lenders crave—stability and profitability. And players like Sundaram, and LIC Housing (reduced home loan by 50 basis points)—have already started ploughing the field. 

That's a wrap for this week! I’ll see you again next week. As always, leaving you with a few reads to explore. Have a great weekend! 

Reading List: 

1. 1. Indians with ticket to travel give credit card spends a boost 

2. 2. Loans to MSMEs increase to over Rs 40 lakh crore on back of policy push 

3. 3. India’s first maritime NBFC launched 

4. 4. All banks need to swiftly pass on 50-bps rate cut to customers: RBI Bulletin 

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to always get all updates. 

Cheers, 

Mayank