Non banking finance companies (NBFCs) were till now focused in areas like broking, advisory and wealth management. But now they are widening up their horizon and focusing on housing finance domain too.

The initiators are three NBFCs-Edelweiss Capital Ltd, Muthoot Fincorp Ltd and Dewan Housing Finance Ltd (DHFL) who are establishing their subsidiaries or acquiring business from banks to penetrate deeper into the home loan business of India.

"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.

Banks hold 60% of the total home loan market of India and the remaining goes to the housing finance companies. HDFC is the largest player amongst the housing finance firms. It however says that there is no expected threat posed by the new entrants, said Keki Mistry, vice-chairman and managing director at HDFC.

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

Muthoot Fincorp, a Kerala-based NBFC aims to set up 25 branches in the country in the initial phase of set up. "The subsidiary will cater to the low-income people who have monthly earnings of Rs.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 said.