In India, the ratio of mortgage to gross domestic product (GDP) is low at 7 percent indicating a huge potential in the housing sector in the coming years. This ratio stands at 12 percent for China, 41percent for Hong Kong and at least 80 percent for most developed countries.

While housing finance companies (HFCs), regulated by National Housing Board, were predominantly catering to the real estate sector, banks too have started increasing their exposure in the sector.

This is evident from the fact that market share of HFCs decreased from nearly 65 percent in 2001 to 55 percent today. Banks, on the other hand have been consistently increasing their share, thus intensifying the competition.

The pick up in real estate prices coupled with various low interest schemes have resulted in surge in real estate sector in the past few months.

SBI announced a special home loan scheme in February and was followed by other government -owned and private banks to ensure their presence in the sector. The housing sector has witnessed significant surge in volumes, especially in the "affordable housing sector".

Housing Finance Companies feel that increasing share of banks' in the home loan segment is a temporary phenomenon. They say that banks are likely to come across asset-liability mismatch as these loans have a long gestation period. Further, these loans are a zero-sum game in the initial period due to lower interest rates offered. HFCs, on the other hand, typically, raise money that match their requirements and thus reduce the asset-liability mismatch.