Rationale
The rating reaffirmation
factors in PNB Housing Finance Limited's (PNBHFL) established track record in
the mortgage finance industry, its experienced management team, and diverse
funding profile. ICRA also notes that PNBHFL continues to reduce its wholesale
exposure, which declined by ~34% in last two years and its proportion in its
assets under management (AUM) declined to ~16% as on March 31, 2021 from ~18%
as on March 31, 2020. This was supported by sell-down and accelerated
prepayments of around Rs. 1,880 crore in the corporate book in FY2021. Further,
ICRA expects that the company will continue to benefit from the shared brand
name with its promoter, i.e. Punjab National Bank (PNB; rated [ICRA]AA
(Stable)), which helps PNBHFL leverage its franchise and raise funds, thereby
supporting its financial flexibility. On the other hand, the rating factors in
the significant increase in PNBHFL's gross non-performing assets (GNPAs) to
4.4% as on March 31, 2021 from 2.8% as on March 31, 2020, given the Covid-19
induced disruptions. The deterioration in the asset quality was witnessed in
the retail as well as the corporate book. In addition, the company restructured
certain accounts (2.28% of its AUM) under the one-time Covid-19 restructuring
package announced by the Reserve Bank of India (RBI). ICRA notes that PNBHFL
did manage to see some recoveries without any losses in its corporate book in
FY2021. ICRA also notes that the company was not able to initiate legal
proceedings due to asset classification standstill as per the honourable
Supreme Court's order, which also caused low recoveries. With the lifting of
the asset classification standstill, PNBHFL has started such proceedings and
expects to witness an increase in recoveries. Nevertheless, the impact of the
recent surge in Covid-19 infections and the resultant regional
lockdowns/restrictions on operations and borrowers' cash flows remains to be
seen. The risks are partly mitigated by the good collateral cover maintained by
the company for such exposures and the healthy increase in its provision
coverage ratio (PCR) in FY2021. Its overall provision to total assets increased
to 4.1% as on March 31, 2021 from 2.6% as on March 31, 2020. Though this
provides comfort and the cushion to absorb further losses, it has adversely
impacted the profitability, which remains moderate despite improving from
FY2020. ICRA notes that with the decline in its scale of operations, PNBHFL's
gearing declined to 6.7 times as on March 31, 2021 from 8.6 times as on March
31, 2020 (9.8 times as on March 31, 20191 ), though it remains moderate. PNBHFL
had been in the process of raising equity to reduce its leverage, however,
there has been a significant delay in the same, given the challenging
environment. In February 2021, PNBHFL stated that PNB would not be participating
in the equity raise round. Nevertheless, PNBHFL is committed to raise further
equity and expects the process to get completed in FY2022, which would further
reduce its leverage and support its growth plans. The operating environment for
non-banking financial companies (NBFCs) and housing finance companies (HFCs)
with sizeable real estate exposure and self-employed borrowers in the housing
loans (HL) and loan against property (LAP) segments continues to be
challenging.
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