The ratings agency, however, has revised the outlook on the instrument to 'negative' from 'stable'.

India Ratings said that the outlook revision reflects an added uncertainty around the timing and quantum of PNBHF's capital raising, which the agency believes could be critical in view of the stress in the loan portfolio, especially on the wholesale lending. This, if sustained, the agency believes, may require stronger stress absorbing buffers. The additional capital is also important to provide support for PNBHF's loan growth, without significantly raising leverage.

In its announcement dated 20 February 2021, PNBHF announced that its promoter Punjab National Bank (‘IND AAA'/Stable) will no longer infuse capital in the company, and that it will be looking to raise Rs 18 billion through a qualified institutional placement; preferential issue; rights issue or a combination thereof in one or more tranches. The promoter had previously indicated that it would infuse Rs5-6 billion and was awaiting an approval from the Reserve Bank of India to complete the same.

While the improvement in PNBHF's valuation augurs well, the promoter's decision to not infuse further capital raises the prospects of material dilution in its promoter's shareholding, which could have wider ramification.

Strengthened equity buffers in line with the asset profile; expansion in franchisee while maintaining strong asset quality; comfortable access to diversified funding avenues and the maintenance of adequate liquidity buffers would be positive for the ratings, the ratings agency said.

PNBHF is a deposit-accepting housing finance company, with second largest deposits outstanding within housing finance companies. The company provides housing loans to individuals for purchase, construction, repair, and upgrade of houses. It also provides loans against property, loans for commercial property, and loans for purchase of residential plots, and real estate development loans.

PNBHF reported 1.9% fall in consolidated net profit to Rs 232.40 crore on a 8.6% fall in total income to Rs 1896.35 crore in Q3 FY21 over Q3 FY20.