PNB Housing Finance Ltd

NSE:PNBHOUSING

Earnings Call Analysis

Earnings Highlight Improved PAT and Challenges

In Q3 FY '24, the company reported a Profit After Tax (PAT) of INR 338 crores, marking a 26% increase year-on-year, with a 39% increase to INR 1,069 crores over 9 months. Revenue slightly decreased to INR 1,752 crores from INR 1,795 crores last year. A strategic shift towards retail resulted in flat year-on-year Net Interest Income (NII) of INR 622 crores, excluding one-offs, while there was a 19% year-on-year decline reported. The Net Interest Margin (NIM) stood at 3.49%, with operational expenses up 35% due to investments in branding and IT infrastructure. Credit costs were stable, the ROA increased to 2.08%, and ROE was reported at 10.5% for the nine months. The company's capital adequacy was strong at 29.53%.

Quarterly Financial Overview and Key Metrics

The company reported a robust 26% year-on-year increase in Profit After Tax (PAT) to INR 338 crores for the quarter, with a 39% surge over the nine months to reach INR 1,069 crores. However, total revenue slightly declined from the previous year to INR 1,752 crores, with a modest 7% uptick in net interest income after excluding securitization one-offs. Attention was drawn to a strategic shift towards retail over corporate lending, which affected yields and led to a flat net interest income of INR 622 crores compared to the previous year.

Strategic Initiatives to Improve Spreads

The shift from corporate to retail lending impacted the net interest margin (NIM), which, excluding one-offs, stood at 3.49%. Executives outlined strategies to combat pressures on yields and the cost of borrowing, including taking advantage of improved credit ratings and National Housing Bank (NHB) funding. These steps are intended to improve spreads and optimize net interest margins in upcoming quarters.

Expansion of Roshni Brand and Yield Uplift Plans

The company is expanding its retail operations into new segments with a planned yield increase in the Roshni brand from 11.5% to over 12.5%. The benefits from lower NHB borrowing costs could enhance interest margins significantly, reflecting a comprehensive strategy to balance growth and profitability.

Maintaining a Prudent Growth Approach

While the loan book’s retail segment is forecasted to grow by 17%, analysts questioned the relatively conservative target given the strong balance sheet and market opportunities. The management stressed the importance of balancing growth with profitability and highlighted their cautious approach due to changing market dynamics, further evidenced by the decision to reduce FY '24 retail loan growth guidance to 15%, while maintaining FY '25 projections at 17%.

Interest Income and Cost One-offs Explained

Executives clarified that the quarterly one-offs included an INR 16 crore negative impact from MCLR changes on securitized pools, and an additional INR 12 crore on interest costs due to an operational delay at the time of maturity of certain External Commercial Borrowings (ECBs).

Favorable Outlook on Credit Cost and Expansion

Credit cost guidance remains at a steady 30 to 35 basis points for the current and next fiscal year. With the intention to add 85 to 88 branches in the fourth quarter, reaching a network of 300 branches, the company is positioning itself for strategic growth and remains optimistic about its ability to leverage its pool of assets for write-backs in the coming quarters.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Q3 and 9 Months FY 2023 Earnings Conference Call of PNB Housing Finance Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepika Gupta Padhi, Head Investor Relations and Treasury. Thank you, and over to you.

[Deepika Padhi, executive]

Thank you, Yashashri. Good evening, and welcome, everyone. We're here to discuss PNB Housing Finance Q3 and 9 month FY '23/'24 results. You must have seen our business and financial numbers and performance in the presentation and the press release, which was shared with the stock exchanges and is also available on our website. With me, we have our management team led by Mr. Girish Kousgi, the MD and CEO.

We'll begin this call with the performance update by the Managing Director and CEO, followed by an interactive Q&A session. Please note, this call may contain forward-looking statements, which exemplify our judgment and future expectations concerning the development of our business.

These forward-looking statements involve risks and uncertainties that may cause actual development and results to differ materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. A detailed disclaimer is on Slide 31 of the investor presentation.

With that, I'll now hand over the call to Mr. Girish Kousgi. Over to you, sir.

[Girish Kousgi, executive]

Good evening to all the investors. Welcome to earnings call. Considering the transformational journey since quarter 3 of last year, I must say this is a good quarter. In last 4 years, that is 16 quarters, last 3 out of 4 quarters have been the highest in disbursements and also good growth on retail. 3 out of 4 quarters have been about INR 4,200 crores to INR 4,400 crores of disbursement. Book growth of about -- so we were at about INR 1,000 crore book growth 1 year back. So quarterly book growth was about INR 1,000 crores. Now we have reached to a level of about INR 1,600 crores. Last year, quarter 4 was an exception where we had grown the book price over INR 2,500 crores.

So I had guided book growth of about 17% in retail. I think that has to be moderated. In YTD, we are at about -- if I have to compare on YoY December end, we are at about 13.2%. So it looks like we will -- this year, we will end up with a book growth of around 15%. However, for coming years, the guidance on book growth is at 17%.

On disbursement, we will be near to 22% in terms of growth over last year. There were certain challenges now, which is all resolved. Of course, in quarter 3, we had a few challenges. One, of course, in terms of Chennai floods. So both are Prime and affordable business has with our dependency on business from Tamil Nadu. So that had a bit of challenge, a bit of an impact. So we also had some internal challenges in West one in terms of the portfolio. So we had to tweak the policies. We had to rejig the team, and now all of those things are resolved. So if you also look at west incremental share used to be about 35% had gone down to 28%. While we were quite bullish on South. South, which was about 31% has gone up to 37%. So now all of those are sorted. So we expect West one to come back. So we will see growth coming back in quarter 4, more than what was discussed.

On corporate, as per plan, we ran down the book from INR 18,000 crores to about INR 2,200 crores. In terms of restart, it is not a priority for us as of now so that we will see in the future. Also tactically taken few calls in terms of the deals portfolio. So now if you see out of the overall portfolio, retail is 96.5% and the balance being corporate. So there was a bit of focus on the profile mix. So there were slight skewness towards salaried. We moved away from high value to low value and midsized value ticket size. So there was also a bit of tweak in the product. So our focus was slightly more on home vis-a-vis compared to nonhome, and even now, we are focusing up to 1 crore.

As you are aware, there has been a rating upgrade by India Ratings from AA to AA+. So now our focus is completely on retail. New high-value sourcing, little skewness towards salaried and little skewness towards homes. We have been strengthening geographical mix. I had spoken to you that South is a good market, which will get us good business and also at a little higher yield. So our -- we have been focusing on increasing our South contribution in the overall mix. We were also trying to be future ready. And therefore, we had taken the call to increase the branch network, both in resi as well as prime. So as I had indicated earlier in the various interactions, Roshni by March, we will be at 160 branches and Prime will be close to 140. So overall, total branch network by March will be around 300 branches.

And also on Roshni, since we had started this business about a year back, we -- I think, consciously, we were operating with certain product suites. Now we will expand that. And there will be an upside in yield, which is currently about 11.5%, 11.6%. So this yield will go up to 12.5% from April onwards because we are now opening up all the product suites which was by design.

In addition to our initiative of starting Roshni to scale-up business and also to get better yield, we are also now planning to come up with emerging market. So this will be dedicated about 40 to 50 branches, which will start from April. And these branches would focus on higher-yield business. So this is by design. So we will have 3 verticals. We will have Prime. We have Prime. We have Roshni. From April, we will have Emerging Markets and number of branches could be about 40 to 50. So this by design would be sourcing business at a higher yield. The yield could be about 35 to 40 bps higher from our current prime yield.

On deposits, earlier, it was a call to manage the concentration risk, so which used to be about 1/3 of our entire liability profile. So now in last 2 quarters, we are growing. So there will be focus on deposit growth in future as well. Happy to share that PNB Housing now we are a great place to work. So this was the last year, November '22 until November '23. This obviously means stability and motivated team.

On the cost of borrowing, there has been an upgrade in rating, as all of you are aware, we have got a sanction of INR 3,000 crores from MHP. And we have drawn the first tranche, so this would help us in bringing down the cost. Deposit book is growing and deposits comes at a slightly lower cost. So that would also aid in terms of bringing down the cost of borrowing, total cost. And now we are more active in wholesale debt market, both in terms of CP as well as NCD, and we are in continuous negotiation and discussion with banks for a possible repricing.

On collection, the focus has been on cash collections and OTS. So we have a good pool in auction bucket. So quarter 3, there was a lot of focus on auction. So that will now materialize in quarter 4. So quarter 3 saw maximum number of actions. So this was the highest ever. Our effort is now on sale of property. And whatever auction we have done in quarter 4 and some bit of auction what we have done in Jan, we will try to realize that in quarter 4.

Efficiency across buckets in collection starting from X bucket SMA0, SMA1, SMA2 has improved. On recovery, especially in corporate, so we have one account, which is an NPA. And we had mentioned that we will be resolving that. As per the plan, we are expecting a complete resolution in quarter 4. And from -- we have a few accounts which are in write-off. So we have a good amount of write-off pool. So we are in discussion and some of the accounts are in final stage of discussion. So there could be a possible write-back, which will start from quarter 4 onwards on the corporate side.

Even on the retail, we have a good pool from where we can expect write-back. So this also would start from quarter 4 onwards, and it will continue for next few quarters. In terms of credit costs, we had guided 60 bps for the year. For H1, it was 31 bps. I think first 9 months, it is 32 bps . Quarter 4 will be in line with the existing credit cost. So I had mentioned 60 -- I think it will be about 31 bps, 32 bps, and I think even for next year, it will be on similar lines.

I would request Vinay, our CFO, to cover the performance highlights, and then we can open up for Q&A.

[Vinay Gupta, executive]

Good evening, ladies and gentlemen. I'm pleased to present an overview of our financial performance for the Q3 and 9 months ended FY '24. You must have seen our PAT reported is around INR 338 crores for the quarter. It has grown 26% year-on-year. For the 9 months, the PAT is INR 1,069 crores, which has grown 39% year-on-year. Our total revenue is INR 1,752 crores as against INR 1,795 crores last year and INR 1,777 crores in Q2. For the 9 months, it is INR 5,233 crores versus INR 4,885 crores.

Net interest income declined 19% year-on-year and 10% quarter-on-quarter to INR 595 crores. However, during both Q3 FY '23 and Q3 FY '24, there were one-offs in the securitization income line. Excluding one-off, net interest income is at INR 622 crores, which is flat year-on-year due to gradual shift in our mix towards retail. Since the corporate mix is coming down, so there is a gradual shift in the overall yield mix, which is causing this hit. On a 9-month basis, though, our net interest income has grown by 7% at INR 1,884 crores.

Yield and cost of borrowing is at 10.2% and 8.07%, respectively, for Q3. Excluding one-offs in yield and cost of borrowing, the numbers stood at 10.3% and 7.98%, and the spread is at 2.12%. Excluding one-off, spread is 2.3. And the NIM is 3.49% for the quarter. We have given a walk also, reported our next one-off in our investor deck, which is there on the Page 21 to clarify the numbers reported as well as ex one-off. In Q3, OpEx has grown 35% and remained flat quarter-on-quarter. We continue to invest in Roshni brand expansion and upgradation of IT infrastructure and royalty expenses, the incremental spend that has come in the current financial year.

Credit cost continues to be in the similar range at 34 bps for Q3 and for 9 months, it's at 32 basis points. ROA has improved for the 9 months at 2.08% versus 1.61% in the last financial year. ROE is 10.5% for the 9 months of FY '24. Capital adequacy remains strong at 29.53% as on 31st December, with Tier 1 at around 27.97%.

This is a brief on the financial performance.

[Operator]

Should we open for question and answer session.

[Deepika Padhi, executive]

Yes, please.

[Operator]

[Operator Instructions] We'll take our first question from the line of Ashwini Agarwal from Demeter Advisors LLP.

[Ashwini Agarwal, analyst]

So my first question is with the net interest income jaws right? You have the yields compressing and the cost of borrowing going up. Now I understand some of the yield compression is because of the change in mix, corporate going to retail and leaning towards salaried. But so multiple questions here. One is that how do you get the jaws back up? Or do you think that this is the new normal? Number two is linked to that -- this is the AA+ rating. What does that do to your cost of borrowing? I mean what should we expect the net interest margin or the spread to look like both for the fourth quarter as well as for the fiscal year '25. That's my first question.

[Vinay Gupta, executive]

So as you rightly mentioned, yes, there are certain impacts of the corporate book running off and moving towards the safer segments. Going forward, there are 2 reasons why the spreads can improve. One is on the cost of borrowing front. As you mentioned, the ratings have improved, plus we have also got access to NHB funding now. So these 2 factors should help us in improving the cost of borrowing.

Even if you see the incremental cost of borrowing, it has been declining. And we should see some benefit of this coming up in the next 1 to 2 quarters. Even on the rating part, now that we have got an upgrade, we would be working with most of the banks to revise the spreads and get some benefit on the existing borrowing as well as on the new borrowing. That is one. Second, as the Roshni mix improves, there is going to be a kicker on the yield. And secondly, as Girish mentioned, we will be moving towards a Prime Plus or an emerging market segment within Prime to get our target higher yield segments. So that will also give a kicker over the next few quarters. So this is how we are trying to manage.

[Girish Kousgi, executive]

Just to add to what Vinay said on Roshni, as I mentioned, we will be operating in a lot other -- a lot of the segments, which we were not till now. So that would start from April. So we expect to take the yield up from 11.5% in Roshni to about 12.5-plus percent.

[Ashwini Agarwal, analyst]

So if I think about -- could you quantify the benefit on cost of borrowing, both from the NHB refinancing that's become available to you as well as the rating upgrade. I mean quarter-on-quarter, the cost of borrowing declined by 1 basis point. I mean, what do these 2 events mean to cost of borrowing?

[Girish Kousgi, executive]

Okay. So one is, see on the NHB, there is a sanction of INR 3,000 crores, and we have taken the first tranche. So there the difference, if I have to compare now with my cost of borrowing and the rate at which we get from NHB, which is blended for refinance and affordable housing. So now there will be a gap of about 60 to 65, 70 bps. So that is the gap because earlier this gap used to be slightly higher, now with repricing, so the gap is going to be around 60 to 70 bps. So that's number one.

And number two, as we mentioned now, we are engaging with all the bankers, and it's a constant effort, to get the rate repriced on the lower side. And on the business side, the mix will keep changing because we just started Roshni about a year back. And now we're going to start in emerging market verticals. So these 2 would operate at a very different yield.

On Roshni, as I mentioned, we have a plan to take the yields of minimum by 100 bps, and this is from April. And even this emerging market, this vertical also will get started from April. So one, it will help us to grow. Number two, it will also help us to get a better yield. And it will -- on the other side, on the cost of borrowing, there is some scope there for us to bring down the cost.

[Ashwini Agarwal, analyst]

Girish, if I recall what you had said almost a year ago, was that over a period of time, the spread would definitely come down from where they were, but you were still confident of keeping them at around 275 basis points, give or take, and net interest margin 3.75% to 4%, but you're running much lower than that, especially on the spread part. Where do you think you want to be 1, 1.5 years from now?

[Girish Kousgi, executive]

Okay. It's like this. See, if I have to talk about margins. So I think NIM 3 point -- will be around 3.5%. And let's say, on the fee, it will be about, let's say, around 30 bps, it will be about 30 bps on the fee. In terms of yield, by changing the mix and getting into new -- starting a new vertical, getting into new segments, so this will keep changing. The mix will keep changing. So on NIM we'll be around 3.5%. And on the spread, it depends on the movement. But our NIM will be around 3.5%, and fee today, it's about 25 bps, so that will be about 30-odd bps. And the yield -- because we are now focused on retail and within retail now we will be operating in 3 different segments: Prime, Emerging Markets and Roshni. Emerging Markets and Roshni will give us a kicker on the yield.

[Ashwini Agarwal, analyst]

On the spread, do you think 2.5% is an unrealistic target?

[Girish Kousgi, executive]

See, it all depends on how the interest rate market pans out in the next couple of quarters. Obviously, yes, at that point in time, obviously, we were at a much higher. And even today, if you look at ex one-off, we are at about 2.32%. And this has -- see, today, we should also look at one more thing. The corporate book is degrowing, right? Even if you have to compare with last quarter and this quarter, there has been a drop of about 22%.

Yes. So it is -- if you take stand-alone, if we take stand-alone, I think -- if you have seen even for quarter 3, some of the companies which have announced results, so there has been a contraction on the spread and yield, right? Now for us, the impact was because of whatever reasons we mentioned earlier, I think the point to take away is that we had guided for 60 bps of credit cost for the year, and that now looks like 31%, 32% for the whole year, A. B, and this would also continue for the year, at least for next year, next to next year. That's number one. And number two, we have a large pool where we have a write-back opportunity both on corporate and also on retail. So if you look at the ROE profile, I think it will be 2 plus.

[Ashwini Agarwal, analyst]

Sir, second thing is on the growth. I mean at the end of the day, for sustainable ROE to emerge of say midteens or slightly higher than midteens, say 16%, 17%, we need to see a much better leverage on the book and therefore, growth, and this corporate reducing even when the retail is going up, has been holding down growth. You mentioned that for fiscal '25, your desire is to grow the retail loan book by 17%. And my question is that why not more because the market leader has vacated the lower-end space of INR 50 lakh or less. That's what we hear from the street and from your competitors. And from whatever we can observe, there is a lot of real estate activity. So what's holding down growth? Or why are you growing only at 17% and not higher given how strong your balance sheet is?

[Girish Kousgi, executive]

Very good question. So actually, if you see where we were a year back. So obviously, we had to move a lot of pieces. We did a rights issue, raised capital, we brought down corporate GNPA, we brought down retail GNPA as a strategy, both by collection, OTS, sale of property and one-offs, right? So this is a transformational journey, and now we are almost about 1 year since we started this journey.

Now to answer your question, I think the growth could be more, but we want to balance growth with profitability. So that is the whole point because end of the day, growth is important, profitability is important, so we need to manage both of these things given the fact that we are still through the transformational journey. Obviously, we need to work on lot of things, and that's the reason 17% growth.

[Operator]

We have a next question from the line of Abhijit Tibrewal from Motilal Oswal.

[Abhijit Tibrewal, analyst]

So first things first, if you could help understand what are the one-offs on the interest income line in this quarter?

[Vinay Gupta, executive]

Yes. Abhijit, one-off in the current quarter is on account of MCLR changes that have happened on the securitized pool. So that has given a one-off of around INR 16 crores in the interest income line.

[Abhijit Tibrewal, analyst]

Got it. So this was, I mean, a negative impact on your interest.

[Vinay Gupta, executive]

Negative impact. Right, right. And on the interest cost line also, there was a one-off of INR 12 crores, which we had to pay at the time of maturity of certain ECB, which was not amortized.

[Abhijit Tibrewal, analyst]

That was my second question. I mean you've already given in your presentation almost INR 12 crores on account of ECB hedging. So very clearly, in your borrowing mix, you can see that there are ECBs which have got retired in this quarter and because of this dispose of INR 12 crores given, but please correct me if I'm wrong from what we have always understood the ECBs, which are raised by NBFC and HFCs, they have to be fully hedged. So at the time of maturity, why was this outgo of around INR 12 crores?

[Vinay Gupta, executive]

It was fully hedged. There was a minor difference of some CASA in the rate at which it was taken versus the rate at which it was hedged. That was more of an operational delay which we had to bear at the time of maturity. This was only specific to one deal that was matured in this quarter.

[Abhijit Tibrewal, analyst]

And sir, I mean, in terms of guidance, I mean, what you've said until now from what -- I mean couldn't make out for FY '24, you have moderated retail loan growth guidance to 15%, but you maintained for FY '25, the retail loan book guidance at 17%. Likewise, on credit costs, you are suggesting that having seen 9 months of this fiscal year, we could potentially be doing 31 to 32 basis points in this fiscal year. And then for the next year as well, you're now guiding for a similar level of credit cost of 30 to 35 basis points. Is that correct?

[Vinay Gupta, executive]

Yes, it's correct.

[Abhijit Tibrewal, analyst]

I mean now just 2 questions that I have. The other thing I wanted to understand is this quarter, we have added 12 branches. In the fourth quarter, we are planning to add another 85 to 88 branches to reach that guided number of 300 branches. So large part of the branch additions will come in the fourth quarter.

[Girish Kousgi, executive]

No. In fact, a lot of work has happened in quarter 3 in terms of identifying the premises and all of those things are done. We declare branches open only when it is ready and when we -- after intimating and once it is ready, and when we start the operation. So we -- by March, we'll be at 300 branches. So a lot of work has happened in quarter 3.

[Abhijit Tibrewal, analyst]

Got it. And sir, last question that I had was on the disbursement momentum that we saw during this quarter, sequential decline, something we are not usually used to see among HFCs, the disbursements decline from the second quarter to third quarter. I think in your opening remarks, you were trying to talk about some disruptions that you've seen.

So if you can just briefly cover that again, what kind of led to, I mean, a sequential decline in disbursements. So the other question -- related question -- the related question I had was on Slide #21 where you have given your P&L reported as well as excluding one-offs.

I mean, very clearly, in this quarter, what really changed, which led to a 20, 21 basis points compression in margins or 20 basis points compression in spreads, where very clearly, we have not really accelerated disbursements. So were there -- was this more in the nature of trying to retain customers so that the book runoff is lower wherein you had to offer lower interest rates to customers because it is just 1 quarter that I'm talking about, not full year, so what really led to this kind of a compression in margins in spreads or yields for that matter?

[Girish Kousgi, executive]

Okay. So I think let me take the first question. So what I had mentioned was in this quarter, in quarter 3, we had certain challenges, which were both internal and to a certain extent, external. I think it was more internal. As I mentioned that we had -- I spoke about how the market share is changing. I spoke about South how it is changing, that had an impact.

Now we are fixed in terms of leadership, in terms of team, in terms of trade policies, all the tricks because we had to ensure that the portfolio what we build is of pristine quality. That is one reason. And second, we also had an impact in quarter 3 because for us, Chennai floods had a bit of impact, and to a certain extent on pricing, what you said that in terms of retention, in terms of book depleting, and also I think to a large extent, talking about the yield, as I mentioned that corporate book is depleting, right?

So these were the reasons, and which is why I was mentioning that -- our directionally, we want to ensure that, a, there is growth. See if you look at 1 year back, we were at about 0 or negative, now on retail we have reached to a stage of 13.2%, right?

So it looks like this year, we'll end up with around 15%, maybe give or take 25, 30 bps, right? Now which is why I'm saying that for the coming year, the growth is going to be 17, why not more? I answered that why not more because we need to manage both profitability and growth. Second question, I'll request Vinay to address.

[Vinay Gupta, executive]

So on the second question, Abhijit, first is with respect to the mix change. So if you see the last quarter, our average corporate book was around INR 3,500 crores -- sorry, INR 3,000 crores, which has now come down to around INR 2,200 crores. So while we have resolved 1 NPA account last quarter, that was also giving some income. So that has led to a drop of change in mix from corporate to retail.

Second, with respect to -- as you rightly said, to address competition, in certain select geographies, we have booked business at a slightly lower yield in this quarter to address the competition. These are the large 2 reasons for the drop that you see.

[Abhijit Tibrewal, analyst]

Got it. Sir, just trying to understand this, the first thing that you said about change in mix from corporate to retail. Last quarter, there was interest income that was booked from the corporate NPA accounts which got resolved. Because it got resolved last quarter, this quarter, there was no contribution from that corporate NPA account in interest income.

[Vinay Gupta, executive]

Yes, correct.

[Girish Kousgi, executive]

Because the recovery was both P plus I, principal plus interest. So there, we had an upside on the interest.

[Operator]

We have our next question from the line of Renish Bhuva from ICICI Securities.

[Renish Bhuva, analyst]

Congrats on a great set of numbers. Sir, just two questions from my side. One on this -- the write-backs, which you are expecting over the next 2, 3 quarters. So can you please quantify, I mean, what kind of write-off we have and how much of that is on the block call, let's say, very close to resolution?

[Girish Kousgi, executive]

So I won't be able to quantify. But yes, on the corporate side, we have a total pool of about INR 1,700 crores. On the retail, we have over INR 500 crores. So we have very -- we have an aggressive strategy for write-back. So you will see that the panning out from this quarter onwards.

Why I'm saying this quarter is because on corporate, we've been working since last 1 year. On the retail side, we had to move all the accounts to a stage of auction. And then, of course, we will start realizing that. And therefore, I'm saying, it will start from this quarter, and it will pan out in the next 3 to 4 quarters' time. So we have a good pool, both in corporate and retail. So there will be a good opportunity on write-back.

[Renish Bhuva, analyst]

And sir, you also mentioned about one large corporate account getting resolved. So this is from the write-off pool or this is from let's say...

[Girish Kousgi, executive]

No, it is not large. It is not large. What I mentioned was there is one NPA account in corporate, so that we are expecting resolution in quarter 4. And from the write-off pool, we have a few accounts which we are working on, so which will materialize -- yes, yes.

[Renish Bhuva, analyst]

Got it. Got it. Got it. And when we say this credit cost guidance of 35 basis points, this is after considering these write-backs or these ex write-backs?

[Girish Kousgi, executive]

So I had mentioned that first 9 months, we've seen credit cost of 32 bps. So quarter 4 will be a similar trend. And coming year also would be a similar trend, and this is not netting off from the write-back.

[Renish Bhuva, analyst]

Got it. Got it. So write-back will be the upside risk or let's say downside risk to our trade cost guidance, fair enough.

[Girish Kousgi, executive]

Yes, correct. That's right. That's right. So I think to put it in other words, that write-back opportunity is not budgeted when we said that coming year rate costs will be on similar lines.

[Renish Bhuva, analyst]

Got it. Got it. And sir, again, just circling back to the yield slide on 21, wherein our asset yield has moderated from 10.48% to 10.29%, which is sort of interest rate for the one-offs. So this entire reduction is purely because of the competition or let's say is there something else is also there, let's say, we are shifting from Sub Prime to Prime or maybe Prime to Super Prime kind of a segment? I mean how one should think...

[Girish Kousgi, executive]

In terms of segment change, the yields will improve. So today, if you look at our yield, it is comparable or maybe slightly better than some of the other companies. If you look at the yield, let's say, on retail, it is actually comparable or slightly better.

So when we say that we will get -- one is in terms of scale up, there will be a good traction in Roshni in quarter 4 and coming year, number one. Number two, as I mentioned, we'll be starting a new vertical called Emerging Market, that is from April. So these 2 will -- there'll be a lift in yield.

And the third thing is that on Roshni, as I mentioned that, we will also be focusing on certain segments, certain programs, which we are going to open from April. So that will -- so overall yield from Roshni will be 12.5% from current 11.5%. And emerging market will give us a yield upside from the Prime of about, let's say, 35 to 40 bps.

[Renish Bhuva, analyst]

No, I think, directionally, I got you, but I'm just more specific for the quarter to quarter movement, wherein our asset yield has dropped from 10.48% to 10.29%. So what is driving that? I mean it is purely because of the competition? Or is there something else?

[Girish Kousgi, executive]

Look, there I mentioned one is corporate is degrowing. So as Vinay mentioned that last quarter, average corporate book was INR 3,000 and now it is INR 2,200 crores, which is a significant drop, and that would have an impact on yield. So that is one. Coupled with we also -- I told you that it could be one is the market. Second is in terms of book retention. So all these 3, as a combination, there was impact on yield.

[Renish Bhuva, analyst]

Got it.

[Girish Kousgi, executive]

But largely -- but if you see largely, it is the corporate degrowth. And since the book is now degrowing, the impact would keep reducing over a period of time.

[Renish Bhuva, analyst]

Got it. Got it. And then just last question from my side on the NIM side. So adjusted for one-offs, our NIM stands at 3.65 in this quarter, wherein we are sort of not guiding, but maybe we are expecting NIM percent at around 3.5%, which is still 15% -- 15 basis points lower than the current NIM. So when do you see this NIM contradiction happening? It is because of the cost of borrowing? Will reprice in coming quarters? Or do you see the competition will keep on impacting the asset yields.

[Girish Kousgi, executive]

Actually, it is a balance of both yield and cost. So around 3.5% is what I mentioned. So yield will definitely because of change of mix, yield will be better, and also cost of borrowing, we expect that it will come down. So because of -- as a combination of these 2 initiatives, I had mentioned the yield.

[Renish Bhuva, analyst]

No, sir. So basically, we are expecting NIM to contract when we say 3.5 because our current NIM is 3.65. So if we are expecting our cost of borrowing will come down and maybe, let's say, in a base case scenario, yield will remain where it is, not factoring the higher yields, so in that case, our NIM should sustain at current level, right? I mean, 3.65...

[Girish Kousgi, executive]

I'm saying -- yes, yes, you're right. You're right. So NIM will be around 3.5%.

[Operator]

We have a next question from the line of Kunal Shah from Citigroup.

[Kunal Shah, analyst]

Sir, the question is on the borrowing side. So if you look at the deposits, now what would be the strategy with respect to deposit raising, even in the harmonization, it was highlighted with respect to the public deposits of that. Yes. So that's particularly the question.

[Girish Kousgi, executive]

So in fact, as you might be aware, there is a draft circular issued by RBI. And until 29th of February, there are -- there is time for all the companies to give their feedback and comment. This is that the circular would be finalized and probably it might get circularized maybe in a month or 2, right? So as of now, if you have to see that 1.5 down from 3x, I think there is enough headroom for us to grow on deposits. So however, we need to see what the final circular says, and then we need to align to that. But as of now, considering the current NOF, there is enough headroom to grow.

[Vinay Gupta, executive]

Given our SLR is at 15.5...

[Girish Kousgi, executive]

Even our SLR is a 15.5% against 13%.

[Kunal Shah, analyst]

Yes. So maybe slight, we are marginally higher than the requirement. But still in terms of incremental irrespective of whatever comes out in the final guideline, would there be a change in strategy in terms of bringing the mix of deposits down we have started to raise from the bond market as well, this time CPs were also raised. So how are we going to get the overall borrowing profile, yes?

[Girish Kousgi, executive]

No, I'm only saying that the cost of deposits for us is now lower. So the idea would be to grow our book. So it all depends on the final circular. But I think as of now, because the deposit is long-term sticky instrument where we can leverage but however, it all depends on the final circular. As of now, there's enough headroom. As of now the plan is to grow deposits, not very aggressively, but definitely to grow the book.

[Kunal Shah, analyst]

And secondly, in terms of the balance transfer, so just coming back to the question on yields in terms of the decline outside of the one-offs. So was there any balance transfer or maybe in terms of slightly downward repricing of the book, which would have happened? Or this is purely the mix change, which is linked to this?

[Girish Kousgi, executive]

No, it is a combination because balance transfer has been there in the past as well and it is on a continuous basis. The only change is that, let's say, a year back, we were at about the 21% run up. Now it is down to about 16%, 16.5%. And out of the 16%, there will be a combination of normal EMI payments, then foreclosure, part closure and balance transfer.

[Kunal Shah, analyst]

So 16%, 16.5% is the overall repayment which we could see from -- so from the AUM and the disbursement...

[Girish Kousgi, executive]

That is the overall runoff. So BT is about, let say, it's around 7%.

[Kunal Shah, analyst]

7% is BT. Okay.

[Operator]

We have a next question from the line of Sanket Chheda from DAM Capital.

[Sanket Chheda, analyst]

Most of the questions were answered. Just this INR 26 crore one-off on yield, what was that on account of?

[Deepika Padhi, executive]

That was on account of securitization, MCLR changes and securitization, that INR 16 crores.

[Girish Kousgi, executive]

Okay. And secondly, on the guidance for this year of about 15% on retail growth. So far in YTD, we have grown the retail book at about 8.5%. In Q4, to reach 15%, we might need about sequential growth of INR 6,000 crores of disbursement. So we think we will do that from, say, the current INR 4,100 crores or INR 4,200 run rate.

[Vinay Gupta, executive]

Two things. One is our retail book growth is now 13.2% because corporate, we are not doing corporate business now and corporate book is degrowing. So always the growth was on retail. So we had guided 17%. So we are at 13.2% now. So this quarter, we will cover up. Obviously, we have to moderate so it will be around 15%.

[Sanket Chheda, analyst]

Okay. Okay. I was talking YTD, but yes, it's okay.

[Girish Kousgi, executive]

I'm saying March to March.

[Operator]

We'll take our next question from the line of Abhay Modi from Helios Capital.

[Abhay Modi, analyst]

A couple of questions. First is what is your incremental yield in the retail book?

[Girish Kousgi, executive]

Okay. I'm just making...

[Vinay Gupta, executive]

9.6%.

[Abhay Modi, analyst]

How much, 12.6%?

[Vinay Gupta, executive]

9.6% on the retail book.

[Abhay Modi, analyst]

9.6%, is this is the incremental or this is the book yield?

[Vinay Gupta, executive]

Incremental.

[Abhay Modi, analyst]

Incremental, okay? And what is your salaried, what percentage is salaried loans for you?

[Vinay Gupta, executive]

On our book, it is 60%. And on incremental, it is around 63% to 64%.

[Operator]

We have a next question from the line of Anusha Raheja from Dalal & Broacha.

[Anusha Raheja, analyst]

So you said that your prepayments are close to around 16%, and in that BTR rates is 7% to 8%. So how are you seeing this number panning out in FY '25?

[Girish Kousgi, executive]

I think BT -- generally, if you look at the trend for the last 2 years for any company for that matter and given our portfolio composition, I think it should be in the same range, about 7% to 7.5%.

[Anusha Raheja, analyst]

And the prepayments are also likely to be at around 16% odd?

[Girish Kousgi, executive]

Yes. As I told you, it used to be higher a year back. So we had a lot of strategy around it. We have a strong retention team, and we have a very strong customer-focused retention policy. So with all of those things, we have brought down that from 21% to about 16%, 16.5%. So it will stabilize at about 16%, 16.5%.

[Anusha Raheja, analyst]

And what's the outlook on the disbursement growth for next fiscal?

[Girish Kousgi, executive]

Disbursement growth, you're talking about 22% and book growth around 17%.

[Anusha Raheja, analyst]

Sir, in that scenario, if disbursement growth is around 20% to 22% and prepayments are around 16%. The loan book growth could be hardly 5%, 6% the way the current scenario is, because I think disbursement growth is happening, but if I look at the outstanding loan book growth, that is just hardly 7%, purely because of your prepayment rates being on the higher end. So I mean, going for the next fiscal, if the prepayment rates are likely to be at the same level, and disbursement growth will be at around 20% to 22%, then how come the loan growth will be on a higher end?

[Vinay Gupta, executive]

22% is disbursement growth, so that is compared to the previous year disbursement. If you calculate on the book, it will work out to be slightly higher, 25% odd.

[Deepika Padhi, executive]

And the run-off which we're talking about, so runoff is taken on the loan assets. So that's the math which is done. So we can connect off-line after this and we can tell you the math around it.

[Anusha Raheja, analyst]

And what is your strategy on the Emerging Market side, like this target, set of customers you are targeting and some broad understanding there?

[Girish Kousgi, executive]

On emerging markets, the strategy is that we would be in Tier 2, Tier 3 kind of markets. So we have branches already present there, and we would have some bit of branches coming from the scale-up in the branch network, what we're going to do from now till March. So the customer segment would be a little different compared to Prime and also compared to Affordable. This is a segment which is in between both Roshni and Prime. And therefore, here, the upside yield could be about 35 to 40 bps from the time of yield.

[Anusha Raheja, analyst]

Okay. And sir, lastly, on the write-back, which you said that there's new corporate pool of around INR 1,700-odd crores and retail of INR 500-odd crores, and there can be some write-back opportunities there. So if you can quantify that, how much can we expect next quarter and next fiscal?

[Girish Kousgi, executive]

No, it will be difficult to quantify madam, but definitely, yes, from this quarter onwards, there will be opportunity on write-back. Because on retail, it is -- still we can take a number and do, but on the corporate because these are on a fewer accounts, and -- but all I can say that is that we have a plan that starting from this quarter, there will be write-back opportunities.

[Operator]

We have a next question from the line of Kishan Rungta from Emkay Global.

[Kishan Rungta, analyst]

I had just one question around credit costs. As you said, like going ahead like we'll be having like a mix of Prime, Emerging Market and Affordable. So like -- and you guided for a credit cost trend similar to current trend, right? So am I like -- is my understanding correct over this?

[Girish Kousgi, executive]

Your understanding is correct.

[Kishan Rungta, analyst]

So despite like targeting high-end customer, our credit cost is going to be the same in the similar lines?

[Girish Kousgi, executive]

See, if you look at last 1 year, as I mentioned, we've been working on transformational journey, and this was in every single function, including collection. If you see all the metrics in collection, starting from X bucket, SMA0, SMA1, SMA2, NPA early bucket, NPA deeper bucket and recovery, I think, across there has been an improvement in efficiency.

And also the book, what we are originating is of good quality. And also, it is important to note that Roshni business is new. And emerging also -- emerging is not new, but yes, in terms of little focus on the segment and market is going to be a little different, but still it will be new. And therefore, what I mentioned, the credit cost for the coming year will be on similar lines compared to what we have seen this year is the guidance.

[Operator]

We have a next question from the line of Onkar Ghugardare from Shree Investments.

[Onkar Ghugardare, analyst]

The guidance which you have cut from 17% to 15%, is it only because of flood situation? Or is there any particular other reason for that also?

[Girish Kousgi, executive]

No, it is not, actually, to be honest with you, when we had guided this year back or, let's say, beginning of this year, we thought that we -- because we would really achieve 17% of book growth and 22% of disbursement growth. Right. I think largely because of profitability and cost we need to moderate this. So it is not because of the Chennai floods.

Chennai floods is only maybe for quarter 3 to some extent. Otherwise, even otherwise, let's say, quarter 3 was as usual, still I think 17% having seen quarter 3 would have been a little difficult. There were a lot of moving parts in last 1 year and especially this year because we had to -- we need to remember one thing, 1 year back where we were and where we are today, and what all has happened in last 1 year.

So a lot of moving parts on corporate side, on corporate resolution, on retail side, on the Roshni side. So a lot of things have happened. So we thought we will grow at about 17%, but it looks like we will not be able to do that. So therefore moderated to 15%. However, coming year, 17%, we are pretty confident.

[Onkar Ghugardare, analyst]

And in terms of NPA situation, how do you foresee NPA situation in next maybe a year or 2?

[Girish Kousgi, executive]

So our idea is to bring down NPA on the retail side to a level which would be comparable with some of the best companies in the industry.

[Onkar Ghugardare, analyst]

Okay. And that would be achievable within the next 1 to 2 years?

[Girish Kousgi, executive]

Yes, next few quarters, maybe 4 to 5, 6 quarters, we should be able to achieve that.

[Onkar Ghugardare, analyst]

And what in terms of ROA and ROE?

[Girish Kousgi, executive]

Given the fact that we have raised capital recently and our leverage is less, so it's a bit of a drag on the ROE, but definitely with our growth -- with ambitious growth in mind, I think this should improve. On ROA, we will be 2 plus.

[Onkar Ghugardare, analyst]

What kind of leverage you would be talking about then, around 4, 5?

[Girish Kousgi, executive]

No, we would be comfortable, let's say, in the next few years, we should be comfortable around 6 to 6.5x.

[Operator]

We have a next question from the line of Ravi Naredi from Naredi Investments.

[Ravi Naredi, analyst]

You are saying only 15% growth is possible. So it is in financial year '25 also?

[Girish Kousgi, executive]

No. Next year will be 17%.

[Ravi Naredi, analyst]

And sir, you have capital adequacy at 29.53%. So any plan to raise equity in next few years?

[Vinay Gupta, executive]

No, no. We have adequate capital to grow for the next 3 to 4 year cycle. We don't foresee any such.

[Ravi Naredi, analyst]

Yes. Mr. Kousgi, you have seen balance sheet of PNB Housing in respect of improved in asset quality from 8.13% to 1.73%. And AUM right there, INR 60,000 crores from INR 50,000 crores. And you have done a remarkable job. So what is your plan for next 3 years? Can you give some picture of the company?

[Girish Kousgi, executive]

Sir, as I mentioned, now it is a journey. So what is the journey? Journey is that we actually moved our way within retail, we moved away from Super Prime to Prime that -- the idea was to increase the yield, A. B, we started Roshni because we wanted a higher yield and a profitable business we wanted to build. Now -- and we also had the pressure on corporate book depleting, which also impacts -- a, it impacts growth; b, it impacts the interest income as well, revenue.

And therefore, now we thought that there's an opportunity available on the Emerging Market and therefore, we are entering Emerging Market. So if you see, we will have 3 verticals within retail that is Prime, Emerging and Roshni. Now the idea is that this will help us in growth, A. B, we will be able to raise book at a higher yield on Roshni and emerging markets, right?

So our -- of course, I had mentioned this earlier, we would want to keep 17% as the guidance for next few years because we see good opportunity. One thing I want to mention here is that, see, last year, we saw a lot of -- we had a lot of things to work on. If you see this year, we will have fewer things to work on. Come next year, we would -- I think our focus would be completely on managing growth and profitability. I think that journey...

[Ravi Naredi, analyst]

Okay. And sir, Carlyle Group have percentage of equity in our company. Any plan to induct his representative in Board of Director?

[Girish Kousgi, executive]

Sir, today, in our Board, there is 2 Board seats from Carlyle, 2 from PNB. So it is already in place.

[Operator]

We have a next question from the line of Mohit Mangal from BOB Capital.

[Mohit Mangal, analyst]

A couple of questions from my side. First, looking at your borrowing profile. So I think -- I mean it's currently at around 71% is floating. 2, 3 quarters back, it was around 67-odd percent. So just wanted to know your -- I mean, color on this that are these -- will settle at the 70-30 or this floating will go up again?

[Girish Kousgi, executive]

I think more or less, it will be at the same level because since we have about 17,000 deposit base, and that is where you see this mix, I think this mix would be maintained, more or less it will be same.

[Mohit Mangal, analyst]

All right. And secondly, on this branch expansion. So just wanted to know any impact on the cost by -- I mean, as you have aggressively plans to open new branches. Anything on the cost to income or something on that front will -- I mean, will that increase?

[Vinay Gupta, executive]

Yes, there will be some additional investment that we will be doing for this expansion, which is for both Roshni and Prime vertical. However, with the growth in business, I think some of these productivity benefits should flow in will help us in absorbing some of that cost partly.

[Mohit Mangal, analyst]

All right. So cost to income can increase, right?

[Girish Kousgi, executive]

There could be some impact, but...

[Vinay Gupta, executive]

It will be marginal. The reason is, for us opening, let us say, Roshni branches would only mean that we need to -- it is basically the branch premises and investment in manpower. Rest, all the cost -- because we started Roshni while we were doing Prime business. So there is no incremental cost other than manpower and the branch. As far as Emerging is concerned, I think there will be no increase in cost at all because it is only culling out some of the branches and the team from the existing set of branches. The only thing is the focus would be different.

[Operator]

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you.

[Deepika Padhi, executive]

Thank you, everyone, for joining us on the call. If you have any questions unanswered, please feel free to get in touch with Investor Relations. The transcript as well as the audio of this call will be uploaded on our website. Thank you.

[Operator]

On behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.