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Demand for home loans is strong in India and is expected to pick up further over the next few months, the head of major housing finance firm Housing Development Finance Corporation said on Monday.

"The economy is buoyant, the feel good factor is high, affordability is better so people are comfortable buying houses even if rates are slightly higher," Keki Mistry, chief executive of HDFC, told Reuters.

India's central bank has already raised rates three times by a total of 140 basis points in this financial year to tame stubbornly high inflation, which has remained above the central bank's tolerance band for several months.

Lenders have passed on the interest rate rises but Mistry said that there are no signs of stress among home buyers and collections on loan dues remain robust.

Interest rates are expected to rise further with economists expecting at least another 60 basis points by March 2023, according to a Reuters poll.

"The economy feel good factor is so strong that (we) expect that festival season will be very strong," Mistry said, referring to the September to December period.

"I don't think we will see too much of a rise in interest rate going ahead, some increase will be there but don't think that will deter the buyers," he said.

Economists concur, with Madan Sabnavis, chief economist of Bank of Baroda saying in a report late last month that home buyers would be prepared for fluctuating rates.

Housing loans have grown by 16% as of end July compared to same period last year, according to the latest central bank data.

Demand is likely to be particularly strong from India's larger cities, where sales had slowed between 2016-2020 but where a revival is now visible, said Mistry.

HDFC-HDFC BANK MERGER

HDFC's impending merger with country's largest private lender HDFC Bank, in which it owns 21% stake, to create a financial services behemoth could be completed before the anticipated timeline of 15-18 months, Mistry said.

A no-objection certificate from the Reserve Bank of India is already in place, signalling that the merger process can move forward.

The merger, announced in April, will mark the largest banking sector M&A globally since April 2007, according to Refinitiv data.

Mistry said growth opportunities from the deal were huge.

"There are a lot of cross selling opportunities, we now have to generate enough liabilities and that the bank is already working on by opening new branches and trying to garner deposits," he added.

(This story corrects to reflect the nature of approval received for the merger)