Digitization is imperative for the home loan industry as demand skyrockets: The Digital Fifth report

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Outstanding individual home loans grew 16.4% Y-o-Y in FY24 indicating growing demand for housing finance, but the lending process is riddled with inefficiencies, according to a latest report on housing finance released by The Digital Fifth.

Digital transformation is imperative for ironing out bottlenecks in the home loan industry, finds the report, which was launched today at the 3rd Edition of Bharat Fintech Summit.

The report titled ‘Re-imagining Home Loans: Unlocking Speed and Efficiency through Digital Transformation’ is a deep dive into the home loan industry in India and the potential of digital transformation to revolutionize it.

The report finds that the cumulative outstanding individual home loans has reached Rs 27.37 trillion but the lending process requires significant technology overhaul across the entire home loan lifecycle, from lead generation to disbursal and servicing.

The India Stack– a framework of digital public infrastructure (DPI) components that enables digital identification, payments, and data management– has transformed the country’s financial services with digital solutions such as Aadhaar-based eKYC, UPI and the Account Aggregator.

While these solutions have reduced the onboarding time, eased credit assessments and improved access to secured home loans, major bottlenecks prevail in legal verification, property valuation and land record digitization.

“The home loan sector is undergoing a major shift with players exploring technological avenues to improve customer experience, provide personalised services, ease the verification process and reduce time to disbursal. And yet, challenges persist. We believe the time is right for organizations to make a leap to provide digital-first solutions, create a system that is efficient, inclusive and future-proof,” said Sameer Singh Jaini, founder and Chief Executive Officer, The Digital Fifth, a firm that drives digital transformation for the banking, finance, services and insurance (BFSI) industry.

India currently has a severe housing shortage of 100 million and 95 million in the affordable housing category. To cater to the growing need for secured home loans, India needs a robust and seamless loan industry. Even as 80% of the secured lending processes can be automated, the remaining 20% involves complex, manual workflows that need to be digitized.

Laks Duraiswamy MD & CEO Sundaram Home Finance, said, “Digitization is set to transform the home loan landscape in India by enhancing transparency, accessibility and customer engagement across the ecosystem. By streamlining processes, reducing turnaround times and improving customer experiences, technology is simplifying the borrowing journey while empowering lenders to reach a wider audience with greater precision. This transformation will pave the way for a more robust, scalable and customer-centric housing finance market in the country.”

Digitization has been a low priority for home loans since they are infrequent. Emerging technologies such as artificial intelligence (AI), automation, analytics, machine learning, can help lenders not only increase their efficiencies but also offer more personalized services to customers.
The future lies in hybrid ‘phygital’ approaches that combine digital efficiency with human support to simplify due diligence and verification.

Across the home loan lifecycle, while the disbursal process is completely digitized, some aspects such as sourcing, personal discussion, property checks, credit health check, valuation report, sanction letter, etc have been partially digitized. However, processes such as title search report, legal verification report, original document verification and mortgage charge creation are barely digitized. Solutions proposed in the report include digital application forms, real-time lead generation, digital KYC, digital credit assessment, centralized fraud detection, virtual personal discussions, digital valuation practices, automated title search reports, risk management and loan recovery.