Banks and NBFCs

PNB Housing Finance: Something Cooking?

PNB Housing Finance Limited (PNB Housing), Country's fourth-largest housing finance company, is a registered Housing Finance Company with National Housing Bank (NHB). 

(A) About The Company

  • PNBHFL, headquartered in Delhi, commenced its Operations on November 11, 1988.
  • PNB Housing is promoted by Punjab National Bank (PNB).
  • The Company's got listed on the Indian stock exchanges on 7th November 2016.
  • Today, the company has a robust network of branches spread across the country and offers Home Loans, LAP, Builder Loans and Lease Rental Discounting.
  • PNB Housing Finance Limited also holds the license to accept Public Deposits.

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(B) Journey Since Inception

PNB Housing Finance stock research with detail of journey since inception
PNB Housing Finance stock research with detail of journey since inception

(C) Key Board Members

(i) Mr. CH. S. S. Mallikarjuna Rao (Non-Executive Director & Chairman)

Mr. Rao is currently the MD & CEO of Punjab National Bank (PNB). He is a Non-Executive Director and Chairman of PNB Housing Finance Limited, since December 20, 2019. He holds degrees in B. Sc, LLB and is a Certified Associate of Indian Institute of Bankers (CAIIB). He started his banking career as a Probationary Officer in Bank of Maharashtra in 1985. Prior to becoming MD & CEO, Punjab National Bank, he was the MD & CEO of Allahabad Bank.

Before this, he was an Executive Director of Syndicate Bank from September 15, 2016. Mr. Rao has served as General Manager & Chief Financial Officer at Oriental Bank of Commerce. In his career spanning three decades, he has gained vast exposure in credit, information technology, recovery, treasury, risk management, management information system, retail banking, marketing, publicity and alternative delivery channels. He is also a Certified Associate of the Indian Institute of Bankers.

Mr. Hardayal Prasad (Managing Director & CEO)

Mr. Hardayal Prasad is M.D. & CEO of PNBHFL with effect from 10th August, 2020 He is a seasoned banker with experience in banking, international operations and credit card industry. He holds Master’s Degree in Chemistry and is also a Certified Associate of Indian Institute of Bankers. Mr. Prasad has been part of State Bank of India, India`s oldest and largest banking group, for over three decades and has handled several assignments for the bank in various locations in India and abroad.

He was also the Managing Director & Chief Executive Officer of SBI Cards. Over the years, he has held multiple leadership positions at State Bank of India including Chief General Manager, LHO Hyderabad; General Manager, LHO Mumbai and Vice President (Trade & Systems), Los Angeles Agency USA among others.

He was also awarded the ‘Economic Times Most Promising Business Leaders of Asia, 2019-20’ award as part of the Economic Times Asian Business Leaders conclave, 2019, for demonstrating exemplary leadership qualities. Age of Mr. Prasad is 60 years.

(iii) Mr. Sunil Kaul (Non-Executive Director)

Mr. Kaul is the Non-Executive Director of the Company with effect from 05th March, 2015. He is post graduate in management from the Indian Institute of Management, Bangalore and also holds a bachelor’s degree in technology from the Indian Institute of Technology, Bombay. Mr. Kaul has served as president of Citibank Japan, overseeing the bank’s corporate and retail banking operations.

He concurrently served as the chairman of Citi’s credit card and consumer finance companies in Japan. He was also a member of Citi’s Global Management Committee and Global Consumer Planning Group. Mr. Kaul has over 25 years’ experience in corporate and consumer banking of which more than 15 years have been in Asia.

In his earlier roles, he has served as the Head of Retail Banking for Citi in Asia Pacific.  He has also held senior positions in Business Development for Citi’s Global Transaction Services based in New York, Transaction Services Head for Citi Japan and Global Cash Business Management Head for ABN Amro, based out of Holland.

Mr. Sunil Kaul is presently the Managing Director of the Carlyle Group, advising and providing oversight for its investments in the financial services sector across Asia and other emerging markets. He is based in Singapore.

(iv) Mr. Neeraj Vyas (Non-Executive Non- Independent Director)

Mr. Neeraj Vyas is a senior banking professional. He holds M.Sc. (Organic Chemistry) degree from Madhav Vigyan Mahavidyalaya, Ujjain from Vikram University, Ujjain, Madhya Pradesh.

He was MD & CEO of PNB Housing Finance Limited from 28th April 2020 to 10th August 2020. Earlier, he was Independent Director on the Board of PNB Housing Finance Limited from 19th April 2019 to 27th April 2020. Prior to that, he superannuated as the Deputy Managing Director and Chief Operating Officer (COO) of State Bank of India (SBI) on June 30, 2018. He designed and conceptualized the scheme of merger of five associate banks and Bharatiya Mahila Bank with SBI.

He has 35 years of experience in the Indian Banking Industry across a range of diverse functions such as Retail Banking, Commercial Banking, Product Development, Human Resources etc.

(D) Shareholding Pattern of PNB Housing Finance

PNB Housing Finance stock research with detail of shareholding pattern

*Quality Investment Holdings - Unit of Carlyle Group (See the journey above for clarity)

PNB Housing Finance stock research with detail of key promoter shareholders
PNB Housing Finance stock research with detail of key public shareholders

(i) Mutual Fund Holdings

PNB Housing Finance stock research with detail of mutual fund holding

Holdings of Mutual Funds in PNB Housing Finance have been declining since September 2018. Mutual Funds have decreased their holdings from 9.68% in Sep. 2018 to only 2.08% in March, 2021.

(ii) Capital Raise

A consortium of investors, led by the Carlyle Group and former HDFC Bank Ltd chief executive Aditya Puri, will invest INR 4,000 crore in PNB Housing Finance Ltd. The capital infusion will make Carlyle the largest shareholder in PNB Housing.

The preference share allotment by PNB Housing Finance to Pluto Investments, a Carlyle affiliate (it will subscribe to 80% of the shares issued) and Puri’s Salisbury Investments, along with two other existing foreign investors, will leave PNB with just 20.3% stake in the housing finance major.

This capital infusion will make Carlyle the largest shareholder in PNB Housing. This despite the fact that both the government and PNBHF publicly committed to ensuring that PNB maintains a 26% stake.

A dip in holding below 26% will not only weaken PNB's stature on board but will also take away its Veto Power, which sources say would be of concern to the government.

Highlights Of Capital Raise

  • The Board of the Company approved a capital raise plan of INR 4,000 crore through preferential issue of equity shares and warrants.
  • The Capital Raise is led by Carlyle contributing 80% of the capital raise with the remaining amount coming from Company's other existing shareholders viz funds managed by Ares SSG and General Atlantic.
  • Salisbury Investments, family investment vehicle of Mr. Aditya Puri, former CEO & MD of HDFC Bank is also investing in the capital raise; Mr. Puri is expected to be nominated to the Board by Carlyle in due course.
  • The key objective of the Capital raise is to Augment capital adequacy, Reduce gearing and Accelerate growth in retail segment. It shall help achieve the ‘New Agenda’ set out by the Company in January 2021.

Capital Raise Structure

(E) Assets Under Management

PNB Housing Finance Limited offers -

  • Housing Finance Loan to individuals for purchase of homes and residential plots, as well as construction, repair, improvements and extension of homes and loans to real estate developers for residential construction.
  • Non-housing Loans provides against property, loans for non-residential premises, lease rental discounting and corporate term loans.
  • Fixed Deposits offer at competitive Interest Rates.

(i) Product-wise Break-up

PNBHFL's Total Loan Book mainly includes two Loan Segments - Retail Loans and Corporate Loan. During F.Y. 2021, Company's Individual Housing Loan Segment contribute maximum to the Total AUM of the Company i.e. 58%.

(ii) Segment-wise Break-up

The company’s target customers for its Loans are Salaried Customers, whose main source of income is salary from their employment, and Self-employed Customers, whose main source of income is their profession or their business.

(iii) AUM Mix

The Retail business focuses on the organized mass housing segment financing for acquisition or construction of houses. In addition, it also provides loan against properties and loans for purchase and construction of non-residential premises.

On the other hand, Corporate loans consist of loans mainly to developers for construction of residential and commercial properties, corporate term loans and lease rental discounting.

The Company is focused on increasing the share of its Retail Segment. PNBHFL's Retail Segment grew to 84% in the F.Y. 2021 from 80% in F.Y. 2018. This segment of the company has been grown at a CAGR of 2% over last 3 Fiscal years.

On the other hand, share of Company's Corporate Segment to the Total Loan Book has decreased over the years. This is because, the company has shifted its focus away from corporate loans due to prolonged slowdown in Corporate Real Estate Sector.

The Share of Corporate Loans decreased from 20% in F.Y. 2018 to 16% in the Fiscal year 2021.

(iv) AUM & Loan Assets

The Company's Total Assets Under Management grew at a CAGR of 6% over last 3 Financial years, showing a good growth.

During F.Y. 2021, Company's Total Assets Under Management decreased to INR 62,255 Crore From INR 67,571 Crore in the previous year. This is mainly due to the reduction in Company's Corporate Book by 19% in FY21 on account of sell down/accelerated payment/scheduled repayment.

Over the years, Company's Loan Assets has shown an average growth. During the Fiscal Year 2021, Company's Loan Assets decreased by 11%.

*Loan Assets represent only the principal amount of loans recognized in financial stataments

(v) Disbursements

With the focus of expanding the Retail Segment, Company's has increased the share of Retail disbursements over the years i.e. 72.5% in 2018 to 96% in the year 2021. Consequently, the Corporate disbursements of the Company decreased.

During the F.Y. 2021, 96% of the Total Disbursements are made to Retail Segment as compared to 92% in F.Y. 2020. This is mainly because of 50% reduction in lending rates. On the hand, share of Corporate Disbursements to Total Disbursements decreased to 4% in the year 2021 from 8% in the previous year.

(F) Retail Loan Book

The Retail Book consists of Individual Housing Loans, Retail Loan Against Property (LAP) and Retail Non-residential Property Loans (NRPL).

(i) Individual Housing Loans

Salaried Customers has been contributing maximum to Individual Housing Loan segment of the Retail Book of the Company from many years. During F.Y. 2021 Salaried customers accounted for 70% of the individual housing loans against 72% in F.Y. 2020, while self-employed contributed 30% as compared to 28% in the previous year.

(ii) Loan Against Property

Retail LAP Book of the company has maximum contribution by the Self-employed customers. On the other hand, share of Salaried Segment has also increased over the year i.e. from 17% in Fiscal year 2018 to 20% in the year 2021.

During F.Y. 2021, The self-employed segment accounts for 80% of the retail LAP book, while Salaried Segment contributed 20%.

Housing Finance Sector - India Outlook

The Housing Finance Sector In the country witnessed a rebound and registered a year-on-year growth of 9.6 % in terms of portfolio outstanding in the third quarter of FY2021, despite theCovid-19pandemic, says a Report.

The portfolio outstanding of the sector stood at INR 22.26 Lakh Crore as of December 2020, as compared to INR 20.31 Lakh Crore as of December 2019, according to a quarterly report released by credit information bureau CRIF High Mark.

Moreover, ICRA Ratings in a report said with revival in demand for housing credit in the industry in the last two quarters, most of the HFCs have already reached near pre-Covid level disbursements and are targeting to achieve further higher disbursements in Q4 FY2021. "This is expected to push up the growth rate for FY2021 to 6-8%. Thereafter, we estimate the growth of 8-10% for on-book portfolio of HFCs in FY 2022," the agency said.

(i) Portfolio Composition

Portfolio Composition of Housing Finance Companies as of December, 2020 -

(ii) Total HFC's Loan

Total Housing Finance Company Loans has increased over the years.

(iii) Companies Share

Share of PNB Housing Finance Limited to the Housing Finance Sector has shown a good growth till FY19. The same declined in FY20 and FY21.

On the other hand, Can Fin Homes Limited contribution to Housing Finance Sector has shown a Constant growth over the years.

(G) Borrowing Mix

PNB Housing has maintained a healthy and diversified resource profile. Company raised Funds through various market instruments, deposits, external commercial borrowings as well as loans from various banks and financial institutions including NHB.

Over the years, Company has increased its Borrowings from Banks i.e. from 7.70% in F.Y. 2018 to 22.20% in the year 2021. Also, the share of Funds from NHB has increased to 10.90% in 2021from 6.50% in 2018.

On the other hand, Company has reduced its Funding from Non-convertible Debentures and Commercial Papers over the years. Funding from NCDs reduced to 16.50% in F.Y. 2021 from 37.50% in the year 2018. Also, borrowings from CPs reduced from 17.50% in 2018 to 1.60% in F.Y. 2021.

The company's Share of borrowings through Deposits has increased from 19.50% in the year 2018 to 23.70% in 2021. On the other hand, Company's External Commercial Borrowings increased to 8.30% in 2021 from 2.50% in F.Y. 2018. Also, funds from Direct Assignment from 8.80% in the F.Y. 2018 to 16.90% in F.Y. 2021.

(H) Interest

(i) Interest Income

Company's Interest Income comprises of Interest on Loans, interest on Investments, Interest on Deposits with Banks and Other Interest Income. During F.Y. 2021, Company's Interest Income de-grew to INE 7190 crore from INR 7688 crore in the previous year.

Company's Interest Income grew at a CAGR of 13% over past 3 years.

(ii) Interest Expend

Company's Interest Expenses include Interest on Debt Securities, Interest on Borrowings, Interest On Deposits and Interest on subordinated Liabilities. During the F.Y. 2021, Company's Interest Expend decreased to INR 5100 crore from INR 5875.47 crore in the previous Fiscal year.

(iii) Net Interest Income

Company's Net Income grew at a CAGR of 11% over past 3 Fiscal years.

During F.Y. 2021, Company's Net Interest Income increased by 15% from INR 1812.74 crore in the year 2020 to INR 2020 crore in the F.Y. 2021.

(iv) Interest Spread

Company's Interest Spread has shown a good growth over the years. Interest Spread in F.Y. 2021 increased to 2.80% from 2.50% in the previous Fiscal year.

(v) NIM (%)

Company's Net Interest Margin has shown a volatile growth from year 2018 to Fiscal year 2021. During F.Y. 2021, PNBHFL's NIM (%) grew to 3.20% from 3% in the year 2020.

(I) Branch Network

PNB Housing has established a wide network of branches through which it offers its Financial Services seamlessly to customers across India. As of 31.March.2021, the Company has 94 branches with presence in 64 cities and 22 Hubs. Moreover, the Company also services the customers through 17 outreach locations.

(J) Group Structure

The Company has only 1 Subsidiary - "PHFL Home Loans and Services Limited".

PHFL Home Loans and Services Limited

The Company is a wholly owned subsidiary and is the distribution arm for PNB Housing, offering doorstep services to the prospective customers. The Company contributes nearly 66% of the Retail business for PNB Housing.

(K) Financial Parameters

  • PNBHFL's Net Sales has shown a constant growth over the years. Company's Net Sales grew at a CAGR of 36% over past 10 years.
  • The Company has delivered a Substantial Profit growth and grew at a CAGR of 30% over past 10 years.
  • On the other hand, Company's PAT and PBIDT Margin has shown a volatile growth over the past 10 years.
  • Company's Return On Assets (ROA) and Return On Equity (ROE) has shown an average growth over the years.

(L) Operational Ratios

(i) Average Yield (%)

Company's Average Yield has shown a good growth over last 4 years i.e. 10.20% in F.Y. 2018 to 10.70% in F.Y. 2021.

(ii) Capital Adequacy Ratio (%)

Company's Capital adequacy Ratio has shown an average growth over the years. During F.Y. 2021, Company's CAR (%) stands at 18.70%, out of which Tier I Capital capital was 15.53% and Tier II capital was 3.20%.

The Risk-weighted Assets as on 31.March.2021 stood at INR 47,068 crore.

(iii) Gross NPA (%)

(iv) Net NPA (%)

Company's Asset Quality has decreased over the years .

Also, the Company has identified 5 Accounts for voluntary Significant Increase in Credit Risk (SICR) having total outstanding of INR 875 crore. The company stated that the increase in GNPA in F.Y. 21 is primarily on account of COVID-19 pandemic and Company has created adequate provisions in the book for this.

(M) Management Discussion & Concall Highlights

Financial Highlights - F.Y. 2021

  • Total Revenue of PNHFL declined and stood at INR 7,624 crore in the year 2021 as compared to INR 8,490 crore in previous year 2020.
  • On the other hand, Profit after Tax is at INR 930 crore against INR 646 crore in F.Y. 2020, registering an increase of 44%.
  • Gross Margin, net of acquisition cost, is at 3.3% compared to 3.2% YoY.
  • Net Interest Margin stood at 3.2% compared to 3.0% in 2020.
  • During F.Y. 2021, Operating Expenditure at INR 455 crore against INR 552 crore in F.Y. 2020, registering a decline of 18%.
  • This is in conjecture with decline in scale of operations by PNB Housing Finance.
  • The ECL (expected credit loss) provision as on 31st March 2021 is INR 2,544 crore resulting in Total Provision to Assets Ratio at 4.1%.
  • The risk-weighted assets as on 31.March.2021 stood at INR 47,068 crore.
  • Gearing Ratio as on 31.March.2021 is 6.7x compared to 8.5x as on 31.March.2020.

Other Key Highlights

  • As per the Management, , the Company is in the process of further strengthening its management team through internal promotions and external hires as required for the execution of strategic priorities, which are the business growth, focus on digital initiatives, advanced analytics, cost saving, etc.
  • Management also stated that The Company has already hired a senior person to lead the strategic transformation, a Project called “IGNITE”, for which the Company has hired a Consultant also, an Advisor.
  • Management mentioned that PNB, the promoter of the Company informed PNBHFL on February 19 2021, regarding its inability to participate in the fund raise.
  • According to the Management, company is seeing a downward trajectory in the cost of borrowings quarter-on-quarter. The Company, during the financial year 2021, has worked aggressively on prepaying and renegotiating its higher cost of borrowings.
  • Management also stated that during the year Company identified INR 875 crores, cumulative of previous year and this year, is the part of Significant Increase in Credit Risk (SICR) for closing March 2021.

(N) Opportunities & Risk/concerns


(i) Well Diversified Product Portfolio

The Company has diversified Product offerings. Along with the Home Loans, PNBHFL also provides Non-Home Loans such as Commercial Property Loan, Loan against Property, Lease Rental Discounting and Loan For Real Estate Developers. Moreover, the company also holds the license to accept Public Deposits. Through this well-segmented Product Portfolio, company attract and cater the demand and requirement of various Customers group, especially middle and lower middle-income group.

(ii) Established Player In The Housing Finance Space

PNB Housing, one of India’s leading HFCs, has been serving the aspirations of prospective homeowners for the past 32 years. It is also the second largest deposit-taking Housing Finance Company in India. Moreover, PNBHFL has a long and profitable track record of operations of over three decades. PNBHFL is among the top five players in the housing finance segment with Assets Under Management INR 74,469 Crore.

PNBHFL has been the fastest growing asset finance company till 2019 in terms of AUM. Its AUM grew at a CAGR of 45% from FY16 to FY19. Then, the company reduced its scale of operations in order to improve leverage position as well as due to hit of reduced asset quality.

Also, the Company has Pan India presence and is increasingly focusing on digital channels to further widen its reach, improve operational efficiency and enhance customer experience.

(iii) Push for Affordable Housing by Central Government

Government of India continues to provide necessary impetus to the Real Estate industry, taking into consideration its linkage to other sectors. The Government has adopted various key policies and measures such as Alternate Investment Fund (AIF), Smart Cities Mission 2.0, Tax Benefits, Housing for All by 2022 to uplift the Housing Sector.

The Government’s Housing For All policy has shown healthy progress with incentives to push demand through Credit Subsidy Schemes for Low Income Group (LIG), and first-time homebuyers in the Middle Income Group (MIG) categories. The Government is also encouraging affordable housing by providing tax breaks, lower GST and Infrastructure Status.

(iv) Rapid Urbanization

Increasing population and swift migration of people from rural to urban areas have led to rapid urbanization of Indian metros. The number of Indians living in urban areas is expected to reach 543 million by 2025. This will result in massive demand for residential properties in urban areas, in the coming years.

According to a United Nations report, half of India’s population would be living in urban areas by 2030. By 2030, India needs an additional 25 million affordable housing units to cater to its growing urban population. Internationally, India remains among the top 10 countries to register significant price appreciation in the housing markets.

(V) Shared Brand Name And Benefits With PNB

PNB being the promoter of PNBHFL provides competitive advantage to PNBHFL by virtue of a common brand name, which supports its financial flexibility and deposit mobilization. Further, PNB provides Liquidity support to meet PNBHFL’s growth plans provide added comfort. However, as the Company has grown its reliance on PNB in the form of management and funding support has reduced.


(i) Delay In Raising Capital

PNB Housing last raised equity capital of around INR 3000 crores in fiscal 2017 during the initial public offering (IPO). The Company has not raised its Capital since then. Raise in substantial capital will help the company to fund its growth plans and reduce its leverage to provide cushion in view of the increased vulnerability of the corporate loan book and rising funding costs for housing finance sector in general. The weak ability of PNBHFL to raise capital in a timely manner and thereby sustain the growth would be crucial for its credit profile.

(ii) Concentrated Wholesale Book Exposures

There is high credit concentration in the wholesale loan book of PNBHFL with top 20 groups contributing to nearly 64% of the overall wholesale AUM of Rs.14,614 crore as on March 31, 2020. While PNBHFL maintains a security cover as a cushion to absorb losses, if any, arising from slippages in this segment, the slowdown in the real estate sector might impact the completion of the projects and actual sales. However, with corporate real estate sector in prolonged slowdown, PNBHFL shifted its focus away from corporate loans as reflected in its disbursement pattern wherein nearly 96% disbursements in FY21 being in retail segment.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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