HDFC Securities

Sep 14, 2024

Analysts expect even an incremental growth in corporate loans to help PNB Housing’s retail book too. “The company is expected to focus on growing its retail book primarily and any new loans in the corporate book would be to indirectly aid its retail book," HDFC Securities Ltd said in a note earlier this month, adding that PNB Housing has also enhanced its loan collections and introduced digital channels to streamline the process. PNB Housing Finance is India’s fifth-largest housing finance company, with total assets of ₹72,371 crore, as per March data from the sector apex regulator, the National Housing Bank. PNB Housing's shares, as of 13 September, had gained 45% since 1 January, while market leader LIC Housing Finance Ltd had gained about 28% and Aadhar Housing about 40% in the same period. A shrinking commercial segment PNB Housing began shrinking its corporate loan portfolio in 2020-21 and 2021-22 to reduce its exposure to high-ticket bulky wholesale loans and improve its asset quality.As a result, the share of its corporate book fell to 3% of its total assets under management (AUM) in March 2024 from 21% in March 2019. The lender’s back to building up its corporate book, although gradually. PNB Housing disbursed ₹34 crore in corporate loans in the April-June quarter, taking its total corporate portfolio to ₹1,829 crore as of 30 June. Importantly, the segment had zero non-performing assets, or loans turned sour, at the end of June, compared with a gross NPA ratio of 3.31% in the preceding March quarter and 24.99% a year earlier. PNB Housing’s overall gross NPA ratio was 1.35% and net NPA ratio 0.92% at the end of June. “The corporate book is a very small proportion, 2.5% of the entire portfolio. We plan to enter corporate in a small way; in the next few months we will be starting. But it would always be less than 10% of the loan book at any given point in time," Kousgi said. Commercial mortgage, commonly referred to as developer or project finance, is offered by most banks and housing finance companies. However, delays in project completions and builder defaults led to elevated bad loans for lenders prior to the pandemic years. Since then, most lenders including LIC Housing Finance, India’s largest housing finance company, have worked to, or were forced to, reduce their exposure to such projects. Sudipto Sil, chief financial officer of LIC Housing Finance, during the first-quarter earnings call with analysts said that the company’s loans to developers or builders had declined over the past three years. “Year-on-year there is a decline of almost 26-27% on the portfolio, and it has not increased significantly. Bottoming out has happened between December 2023 and March-June 2024," Sil said in the call, adding that LICHFL’s share of builder loans had dropped to around 2% of its total book. Big opportunity in small loans PNB Housing’s total retail assets under management were at ₹65,157 crore at the end of June, of which the prime segment was ₹50,825 crore, emerging markets was ₹11,971 crore, and affordable housing, 2,361 crore. Kousgi is working on flipping this around. PNB Housing’s average loan size in the affordable segment is ₹13 lakh, followed by ₹25 lakh in the emerging market segment, and ₹35 lakh for prime loans. “We have vacated super prime and are slowly reducing prime… Two years back, we were predominantly present in super prime and prime segments. Then we started affordable housing loans, and the book is now about ₹2,500 crore. We are scaling up that book fast," he said.