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"But these new entrants will face a challenge against the established companies till they gain scale

and size themselves," said Pawan Agrawal, director, corporate and government ratings at rating

agency, Crisil Ltd.

The move by NBFCs assumes significance because the Reserve Bank of India is currently drafting

norms on new banking licences and many NBFCs are willing to convert themselves into banks--

should they get the go-ahead.

India's home loan market is estimated to be around '5 trillion, 60% of which is controlled by banks and

the rest by housing finance companies, according to Crisil. Housing Finance Development Corp. Ltd

(HDFC) is the largest company in the space with '1.06 trillion assets in September.

Keki Mistry, vice-chairman and managing director at HDFC, does not think the new companies will

pose a threat to his firm.

"Our cost of funds is lower, cost of operations is among the lowest and cost-to-income ratio is alsocoming down.

Besides, the volume growth over the years and our large balance sheet has helped us offer rates at a

competitive cost which I don't think new players can offer," he said.

The Rashesh Shah-promoted Edelweiss Capital, which recently received approval from the National

Housing Bank (NHB) to set up a separate housing loan subsidiary under the name Edelweiss

Housing Finance Ltd, is targeting high-value customers. Edelweiss has started operations in Mumbai

and aims to expand operations in Delhi in January, Anil Kothuri, executive vice-president,

Edelweiss Capital, said.

With an initial capital of '100 crore, the firm has plans to scale up operations over the next two years

to 20 cities.

"The subsidiary will be targeting consumers seeking loans in the range of '50-75 lakh in the initial

stage. We are looking at the direct agency and online channels to reach out to clients. We will also

tap our existing 2.5 lakh customers to cross-sell the products," said Kothuri, who was earlier heading

the retail and small and medium enterprise (SME) asset financing business at Citibank.

The firm currently has a team of 30 executives and plans to expand this to 250-300 in next two years.

Recently, Edelweiss picked up a 5% stake in Kerala-based Catholic Syrian Bank Ltd, but Kothuri

ruled out any immediate plans to acquire any HFC to strengthen its presence in the home loan

segment.

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Muthoot Fincorp, a Kerala-based NBFC, plans to start its housing finance operations by early next

year. Its mortgage arm, Muthoot Housing Finance, expects to get NHB's nod in January, Thomas

John Muthoot, chairman and managing director of Muthoot Group, said.

"The subsidiary will cater to the low-income people who have monthly earnings of '6,000-15,000.

These people have regular income, but normally they find it difficult to secure loans from banks due to

collateral requirements," Muthoot added. The company is looking at loans between '150,000 and

'600,000.

Crisil's Agrawal said there is a huge opportunity in the low-cost housing space where borrowers do

not necessarily have proper documentation. "If new companies can adequately assess credit quality

and build processes for the same, they can tap this growing market."

Muthoot has plans to set up 25 branches in the initial phase of operations in the suburbs of major

metros such as Mumbai and Chennai.DHFL recently acquired Deutsche Postbank Home Finance Ltd for just over '1,000 crore, taking its

asset base to at least '20,000 crore by end-March.

Anil Sachidanand, chief executive of Dewan Housing, had earlier said that the buyout would provide

Dewan Housing access to customers in the upper income bracket. Currently, it is focusing on

customers in the middle- and low-income segments.

Analysts said the new companies have experience in financial services, but will need to sharpen their

skills.

"Properties have to be approved by the lenders and new companies will face challenges in approvals

because it will take more time for them to do the due diligence," said Adhil Shetty, chief executive of

personal finance website, Bankbazaar.com.