Street speaks: PNB Housing Finance, short term pain — long term gain with new strategy
PNB Housing Finance seems to be not only going through a transformational journey of restructuring its business but has also gone ahead and set a target to grow its retail loan book at a blistering 17-18% over the next few years. Centrum will also be a retail lender, as it plans to utilize its balance sheet and garner share in low development segments including affordable housing.
World Growth and Market Overview
This strategic shift of the company includes in itself the significance of the market, Now retail contributed just 10% in the overall PNB Housing’s book, While now retail lending contributes the most primarily 97% now to the overall portfolio of PNB Housing. The company, which has a loan book of ₹1,790 crore, also reported healthy growth in the affordable housing vertical, which it started only 15 months back. This step is aligned with the growing demand for affordable housing in tier-2 and tier-3 cities. PNB Housing will also expand its reach, as it plans to add 50 branches in the year, taking its branch total to 300. These branches will target primarily at low-cost also emerging segments with a conviction of high-ended yields.
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And its well-capitalized balance sheet — the capital adequacy ratio is at 29.3% (after a ₹2,494 crore rights issue in 2022) — has sufficient cushion for the growth plans. PNB Housing is fairly well-capitalized and can grow aggressively without needing any capital-raise over next few quarters. It was also supported by effective pruning of its corporate loan book (down 46% YoY in FY24) which further buttressed its balance sheet strength. It has also seen a sharp decline in its gross NPAs under loan schemes at present, at 1.5%, against 8.13% two years earlier.
Intelligent Bonding — Critical factors in planning your digital edge transformation
PNB Housing is also making large bets on digital transformation on customer experience and operational efficiencies. This shifts the company to focus on credit underwriting, risk management and smooth & seamless customer touch-points powered through fin-tech partnerships
Outlook and Challenges
While PNB Housing is bullish about its growth potential, it is also cautious that it does not land up in a position of unsustainable NIM (net interest margin at 3.5 per cent). The company also plans to slowly resume corporate lending, targeting specific builders and geographies for it to better assess risk. Despite this, PNB Housing is confident that its well-diversified portfolio, healthy capital base, and strategic target on certain demographic groups will deliver robust financial performance over the long term.