India's Home Loan Growth Shifts to Smaller Cities

India's next wave of home-loan growth is expected to come from smaller cities, driven by the expansion of digital lending. A recent report states that 92% of housing-finance applications will be processed digitally by 2024, up from 60% in 2020.

The report, released by advisory firm SGA PR, highlights the rapid growth of digital penetration in the housing finance sector. Nearly 42% of housing finance firms now receive the majority of their enquiries digitally.

Tier 2 and Tier 3 cities account for 64% of home-loan volumes, with volumes growing 81% year-over-year in 2025. This growth surpasses that of metropolitan cities, indicating a shift in the housing demand towards smaller cities and towns.

Rising incomes, infrastructure development, urbanization, employment creation, and the affordability gap in major metros are contributing to the growing importance of smaller cities in India's housing demand.

According to Rahul Jain, CEO of SGA PR, technology can help lenders address some of the friction around discovery, documentation, and underwriting as demand moves beyond metropolitan cities.

Amit Prakash Singh, Co-Founder and Chief Business Officer of Urban Money, notes that digital tools are making it easier to assess eligibility, match borrowers with lenders, and streamline documentation.

The report forecasts that the next phase of housing finance will be shaped by affordable housing, smaller-city demand, digital sourcing, Account Aggregator-led underwriting, and increasingly data-driven credit assessment.

By 2030, digital sourcing is expected to cross 70%, while AI-driven underwriting could become increasingly standard across the lending journey.

This shift towards digital lending and smaller cities is expected to make formal credit more accessible and transparent, particularly for first-time and self-employed borrowers.

As the housing finance sector continues to evolve, it is likely that we will see increased investment in digital infrastructure and a growing emphasis on data-driven credit assessment.

Overall, the growth of home loans in smaller cities is a significant trend that is expected to shape the future of India's housing finance sector.

The report's findings have significant implications for lenders, policymakers, and borrowers alike, highlighting the need for a combination of digital infrastructure and local understanding to drive growth in the sector.

In conclusion, the shift towards smaller cities and digital lending is expected to drive the next wave of growth in India's home-loan market, making formal credit more accessible and transparent for a wider range of borrowers.