New Delhi, Sept. 9 -- Anyone who has spent time in retail lending has seen this happen. A schoolteacher with 15 years of service and a clean repayment record applies for a home loan. She gets a sanction far smaller than she needs, or none at all. She is not a risky borrower. She is exactly the kind of customer a lender should want. Yet the system makes her wait.

Loan-to-value caps also tighten as loan size grows, so the very customers buying premium homes must bring the biggest share of their own money upfront. Many end up borrowing less than they easily could, or selling investments they wanted to hold.

Now look at the other end, the affordable segment, where housing demand is deepest. The borrowers here are a kirana store owner, a tai...