New Delhi: The competition among the country's home loan providers is relatively mild, in comparison to many other businesses, and has remained largely unchanged in the last seven years, a report has said.
Financial services firm Avendus Securities said in the report that competition in housing finance market had risen in fiscal year 2000-01 after entry of new lenders, mainly commercial banks, but has remained unchanged since 2004-05.
Given a significant decline in the country's home loan to GDP ratio in the past few years, there is a large potential for expansion in the market without an adverse impact on profitability, Avendus said.
The mortgages, as a proportion of GDP, are estimated to have declined from 7.5 per cent in fiscal 2006-07 to 6.8 per cent in FY 2010-11.
Globally, this ratio is as high as 101.4 per cent in Denmark, 87.1 per cent in Poland, 41.2 per cent in France and 22.7 per cent in Italy.
The report further said that the market was also impacted by the global finacial crisis of 2007-08, which led the Indian and foreign commercial banks scaling down their plans in home loan market.
Post-2008, some erstwhile aggressive lenders settled down to stable or low growth, the report noted.
"While there have been instances of aggressive pricing by a few domestic lenders, the simultaneous withdrawal of other lenders have kept overall competition levels steady," it said.
Other reason for the low competition levels was the lower scope in product innovation particularly given the fallout of the sub-prime housing loan bubble in developed economies compared to a decade ago.
The report has also highlighted long-gestation periods (with the average duration of a loan at 10 years) and a highly regulated environment as entry barrier for new players.
Noting that the hyper-competition of the last decade was unlikely to return to the market, Avendus said that large new lenders might not enter this business for now.
The major players currently in the market include HDFC, State Bank of India (SBI) and LIC Housing Finance.
First Published: Friday, June 15, 2012, 14:49