Private sector lender, Laxmi Vilas Bank (LVB) has decided to venture into the housing finance business. The decision by the bank follows the bank's inability to match the rising home loan rates owing to high cost of funds.

The home loan portfolio of the bank currently forms only 3% of its total gross advances of Rs 6,413 crore at the end of first quarter of this fiscal.

According to Managing Director and Chief Executive Officer, Mr P.R. Somasundaram, as soon as the housing finance company (HFC) gains momentum in business, the bank will opt out of home loan segment and will only focus on subsidiary loans.

The bank has filed an application with banking regulator, RBI regarding this issue.

"HFCs can mobilise cheap resources via non-convertible debentures and get loans from banks. Moreover, they can also tap the National Housing Bank for refinance. Hence, HFC, in our case, is the best vehicle for undertaking the home loans business," said a senior official.