With a recovery in the economy, demand of houses is slowly picking up. This, along with various festive schemes offered by different banks has led to an increase in demand for home loans.

Recently, the country's largest lender extended its festive home loan offer till March 31, 2010. Another leading public sector lender PNB has extended its scheme till December 3. Axis banks and Bank of Rajasthan have also come out with special home loan schemes.

Albert Tauro, chairman and managing director of Vijaya Bank said, "There has been some pick-up in retail demand following the introduction of festival home and car loans at attractive interest rates which is improving the credit offtake scenario."

Leading banks like the State bank of India and ICICI bank are expecting a growth in retail credit, particularly home loans. For most banks, home loans account for 6-10 percent of the total loan portfolio.

The latest RBI data indicated that growth in banks' loans dipped to a single digit of 9.5 percent (as on October 30) as against 28.4%a year ago. However, many banks saw an increase of 20-25 percent in loans in the second quarter of the current fiscal and expect a similar trend in coming months.

According to HDFC joint manager director, Renu Karnad, the bank is already witnessing an increase in loan applications. She said, "The segment where we are seeing good demand is in the price range of Rs 30-50 lakh in metros and bigger towns and around Rs 20-25 lakh in smaller towns."

However, HDFC's managing director Keki Mistry feels that a rise in real estate prices can pose a threat to the home loan demand. She said that people do not look only at interest rates before buying a house and so real estate prices play a vital role.