Mid-sized private banks are ceding ground in the home-loan market to larger public and private sector peers, as intense competition compresses yields and erodes their ability to price competitively. According to reports from The Economic Times, Axis Bank, Yes Bank, and Federal Bank saw their mortgage books register tepid growth or outright contraction year-on-year as of end-March 2026, even as the country's largest lenders continued to expand aggressively. Larger banks are leveraging lower funding costs, sharper pricing, and stronger distribution networks to crowd out smaller peers in what has traditionally been a relationship-driven segment.
State Bank of India grew its home loan book nearly 14% year-on-year, ICICI Bank expanded its mortgage portfolio by 13%, HDFC Bank grew its book by over 6%, and Kotak Mahindra Bank led the pack among private lenders with 18% growth. As reported by The Economic Times, these big lenders use lower funding costs and wider reach to build lasting customer relationships through home loans. The banking industry has capitalized on rising interest rates and strong loan demand, helping fuel a 9.7% gain for the banking sector over the past six months, which is 1.7 percentage points higher than the S&P 500.
Smaller banks are finding the arithmetic difficult to justify in the current market environment. According to The Economic Times, Axis Bank's home loan book grew just 4% year-on-year, Federal Bank's contracted 1.33%, and Yes Bank's shrank 1%. KVS Manian, MD of Federal Bank, noted that fifteen-year home loans are getting priced at 7.15% and deposits were going at higher rates than that last quarter. The competitive pressure is particularly acute as larger banks can offer more attractive pricing due to their lower funding costs and stronger distribution networks.
For the large banks, home loans are increasingly being viewed not just as a lending product but as a gateway to a deeper, long-term customer relationship. As reported by The Economic Times, Sashidhar Jagdishan, MD of HDFC Bank, emphasized that from a mortgage book perspective, it is not just the book, but the kind of primary relationship that they are focusing on and that is going to be a large, sustainable franchise over the long run. ICICI Bank said recent acceleration in mortgage growth reflects a more settled rate environment, indicating improved market conditions for lending.
