PNB Housing must look at cost of funds, rising defaults, say experts

With the capital infusion issue put behind, the road is clear for PNB Housing Finance (HFC) to be back in the game as a formidable player.

But, for getting on to a sustainable growth path, it will have to address issues like reducing cost of funds, growth in times of pandemic and rising risk of defaults.

A former board member on PNB HFC said the company was hamstrung by bad loans in real estate and equity capital infusion. This had hit performance to the extent of forcing it to shrink its loan book. Now, both issues have been addressed and it can focus on growth. Now, it will need to deal with rating upgrade, funding cost and business environment shadowed by the intense second wave.

It stands out for strong digital backbone, quick service and diligent follow-up on proposals and recoveries from delinquent accounts, he added.

Analysts and executives with competing HFCS said capital infusion enhances profile, including reduction in leverage, and helps in rating upgrade. Rating upgrade would give a company strength to negotiate competitive rates for raising financial resources through market instruments and banks.

It factored in clarity around the equity fundraise in recent months and continued strong resourceraising ability at competitive rates. It, however, retained a negative outlook, given the deterioration and possible further slippages on the asset quality front.

Much of the bad loans have come from real estate exposure or developer loans. This has been addressed to a great extent. Now, rising default risks are from borrowers who are self-employed and impacted by the pandemic in 2020 as well as this year.

Its loan book expansion faces competitive headwinds. PNB HFC witnessed a decline in the loan portfolio since FY19 due to the Covid-led operational disruption; increased delinquencies in the retail and wholesale book.

It faces stiff competition from banks in the retail business. With low corporate demand, commercial banks have focused on housing loans, which have low default risks compared to corporate loans, analysts said.