Ladies and gentlemen, good day, and welcome to the Q3 and nine months FY 2023 earnings conference call of PNB Housing Finance Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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.
Thank you, Yashashri. Good evening, and welcome, everyone. We are here to discuss PNB Housing Finance Q3 and nine-month FY 2023-2024 results. You must have seen our business and financial numbers and performance in the presentation and the press release, which was shared with these stock exchanges and is also available on our website. With me, we have our management team, led by Mr. Girish Kousgi, our 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 developments 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.
Good evening to all our investors. Welcome to earnings call. Considering the transformational journey since quarter three of last year, I must say this is a good quarter. In last four years, that is 16 quarters, last three out of four quarters have been the highest in disbursements and also book growth on retail. Three out of four quarters has been about INR 4,200-INR 4,400 crores of disbursement. Book growth of about INR 1,000 crore one year back. Quarterly book growth was about INR 1,000 crores. Now we've reached to a level of about INR 1,600 crores. Last year, quarter four was an exception, where we had grown the book by over INR 2,500 crores. I had guided the 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 a YoY, in 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 year, the guidance and book growth is at 17%. On disbursements, we will be near to 42% in terms of growth over last year. There were certain challenges now, which is all resolved. Of course, in quarter three we had few challenges. One, of course, in terms of Chennai floods.
Both our Prime and affordable , business has bit of dependency on business from Tamil Nadu, so that had a bit of a challenge, bit of an impact. W e also had some internal challenge in West 1 in terms of the portfolio, so we had to tweak the policies, we had to rejig the teams, you know, all of those things are resolved. I f you also look at West, you know, West incremental share, which 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, all of those are sorted, so we, we expect West 1 to come back.
We will see growth coming back in quarter four, more than what was expected. On corporate, as per plan, we wound down the book from INR 18,000 crore to about INR 2,200 crore. In terms of restart, it is not a priority for us as of now, so that we will see in future. We also had tactically taken few calls in terms of de-risking portfolio. N ow if you see out of the overall portfolio, retail is 96.5%, and the balance being corporate. T here was a bit of focus on the profile mix, so there was slight skewness towards salaried. We moved away from high value to low value and mid-size value ticket size. T here was also a bit of tweak in the product.
Our focus was slightly more on home vis-a-vis compared to non-home. And, even now we are focusing up to INR 1 crore. As you are aware, there has been a rating upgrade by India Ratings from AA to AA+. N ow our focus is completely on retail, no high-value sourcing, little skewness towards salaried, and little skewness towards home. We have been strengthening geographical mix. I had spoken to you that South is a good market, you know, which will get us good business and also at a little higher yield. W e have been focusing on increasing our, you know, South contribution in the overall mix. We were also trying to be future-ready, and before we had, you know, taken a call to increase the branch network.
Both in Roshni as well as, Prime. A s 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. A lso 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 yields, we are also now planning to come up with Emerging Markets. This will be dedicated about 40-50 branches, which will start from April, and these branches would focus on higher-yield business. This is by design. We will have three 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 40-50. This, by design, would be focusing business at a higher yield. The yield could be about 35-40 bp s 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.
Now, in last two quarters, we are growing, so we'll be focused 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 to November 23. This obviously means, you know, stability and motivated teams. On the cost of borrowing, there has been an upgrade in rating, as all of you are aware. We have got sanction of INR 3,000 crore from NHB, and we have drawn the first tranche, so this would help us, in bringing down the cost. Deposit book is growing, and deposit comes at a slightly lower cost, so that would also aid in terms of bringing down the cost of borrowing, total cost.
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. W e have a good pool in auction bucket. So quarter three, there was a lot of, you know, focus on auctions, so that will now materialize in quarter four. So quarter three saw maximum number of auctions, so this was the highest ever. Effort is now on sale of property and, whatever the auction we've done in quarter four and some bit of auction what we have done in January, we will try to realize that in quarter four.
Efficiency across buckets in collection, starting from X bucket, SMA 0, SMA 1, SMA 2, has improved. On recovery, especially in corporate, so we have one account, which is an NPA, and we had mentioned that, you know, we will resolve in that. As per the plan, we are expecting a complete resolution in quarter four. W e have a few accounts which are in write-off, so we have a good amount of write-off pool. W e are in discussion, and some of the accounts are in final stage of discussion. T here could be a possible write-back, which will start from quarter four onwards on the corporate side. Even on the retail, we have a good pool, you know, from where we can expect write-backs.
This also would start from quarter four onwards, and it will continue for next few quarters. In terms of credit cost, we had guided 60 bp s for the year. For H1, it was 31 bp s. I think first nine months, it is 32 bp s. Quarter four will be in line with the existing credit cost. So I had mentioned 60, I think it will be about 31-32 bp s. I think even for next year, it will be on similar lines. I would request Vinay, our CFO, to cover the performance highlight, and then we can open up for Q&A.
Good evening, ladies and gentlemen. I'm pleased to present an overview of our financial performance for the Q3 and nine months ended FY 2024. You must have seen our PAT reported is around INR 338 crore for the quarter. It has grown 26% year-on-year. For the nine months, the PAT is INR 1,069 crore, which has grown 39% year-on-year. Our total revenue is INR 1,752 crore, as against INR 1,795 crore last year and INR 1,777 crore in Q2. For the nine months, it is INR 5,233 crores versus INR 5,485 crores. Net interest income declined 19% year-on-year and 10% quarter-on-quarter to INR 595 crore.
However, during both Q3 FY 2023 and Q3 FY 2024, there were one-offs in the securitization income line, excluding one-off, net interest income is at INR 622 crore, 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 rate. On the nine month basis, though, our net interest income has grown by 7% at INR 1,882 crore. 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 to 10.3% and 7.98%, and the spread is at 2.12%.
Excluding one-off, spread is 2.3%, and the NIM is 2.349% for the quarter. We have given a walk also, reported our net one-off in our investor deck, which will be 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 branch expansion and the upgradation of IT infrastructure, and royalty expense is 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 nine months is at 32 basis points. ROA has improved for the nine months at 2.08% versus 1.61% in the last financial year.
ROE is 10.5% for the nine months of FY 2024. Capital adequacy remains strong at 29.53%, as on 31st December, with Tier 1 at around 27.97%. Thank you. This is a brief on the financial performance.
Should we open for question and answer session?
Yes, please.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Ashwini Agarwal from Demeter Advisors LLP. Please go ahead.
Hi, good evening team. So my first question is with, you know, the Net Interest Income jaws, right? You have the yield 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 salary. But, you know, so multiple questions there. 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 the, 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, you know, both for the fourth quarter as well as for the fiscal year 2025? That's my first question.
As you rightly mentioned, yes, there are certain impacts of the corporate book running off and, you know, moving towards the safer segments. Going forward, there are two reasons , why the spreads side can improve. One is on the cost of borrowing front. As you mentioned, the ratings have improved, plus we have also got access to the NHB funding now. So these two 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 one-two quarters.
Even on the rating part, now that we have got an upgrade, we will be working with most of the banks, you know, 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. Secondly, as Girish mentioned, we will be moving towards Prime Plus or an Emerging Market segment within prime, you know, to get or target higher yield segments. T hat will also give a kicker over the next few quarters. T his is how we are trying to manage.
Just to add to what Vinay said, on Roshni, as I mentioned, we will be operating in lot other, you know, a lot of the segments which we have not till now. T hat will start from April. So we expect to take the yield up from 11.5% in Roshni to about 12.5%+.
I f I, if I think about, you know, could you quantify the benefit on cost of borrowing, both from the NHB refinancing that become available to you, as well as the rating upgrade? I mean, quarter-on-quarter, the cost of borrowing declined by one basis point. I mean, what do these two events mean to cost of borrowing?
Okay. So one is the, on the NHB, there is a sanction of INR 3,000 crore, 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 some energy, which is blended for refinance and affordable housing. So there, now there will be a gap, you know, of about.
O ut of 60-70 bps. So that is the gap, because earlier this gap used to be slightly higher. Now with repricing, the gap is going to be around 60-70 bps. T hat's number one. N umber two, as we mentioned, now we are engaging with all the bankers, and it's a constant effort, you know, to get the rate repriced on the lower side. O n the business side, the mix will keep changing because we just started Roshni about a year back, and now we are going to start the Emerging Markets vertical. T hese two would operate at a very different yield. On Roshni, as I mentioned, we have a plan to take the yields up minimum by 100 bps, and this is from April.
Even this Emerging Market, you know, 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, on the other side, on the cost of borrowing, there is some, you know, scope there for us to bring down the cost.
Girish, if I recall, you know, what you had said almost a year ago, was that over a period of time, the spreads would definitely come down from where they were, but you were Very confident of keeping them at around 275 basis points, give or take, and net interest margin, 3.75%-4%. But, you know, you're running much lower than that, especially on the spread part. Where do you think you want to be one and one in a half years from now?
Okay, it's like this. See, if I have to talk about margins, so I think NIM, 3.5%-- we'll be around 3.5%. And, let's say, on the fee, it will be about, let's say, around 30 bp s. It will be about 30 bp s on the fee. In terms of yield, you know, by changing the mix and getting into new, and starting a new vertical, getting into new segments, so this will keep changing. The mix will keep changing. So on, on NIM, we'll be around 3.5%. O n the spread, you know, it, it depends on the, movement, but on NIM it will be around 3.5%, and the fee, today it's about 25 basis points, so that will be about 30-odd bp s.
The yield, because we are now focused on retail, and within retail now we will be operating in three different segments: Prime, Emerging Markets, and Roshni. Emerging Markets and Roshni will give us a kicker on the yield.
On the spread, do you think 2.5% is an unrealistic target?
See, it all depends on how the interest rate market, you know, pans out, you know, in next couple of quarters. Obviously, yes, you know, at that point in time, obviously we were at a much higher, and even today, if you look at ex one-off, we are about 2.32%. See, today we should also look at one more thing. See, corporate book is dwindling, right? Even if you have to compare with last quarter and this quarter, there has been a drop of about 22%.
Okay.
If you take standalone If you take standalone, I think, see, if you have seen, you know, even for quarter three, some of the companies which have announced their results, so there has been a contraction on the spread and yield, right? Now, for us, the impact was because of, you know, whatever it is we mentioned earlier. I think the point to take away is that, you know, we had guided for 60 bp s of credit cost for the year, and that now looks like 31, 32 for the whole year and beyond, and this would also continue for the years, at least, you know, for next year and next to next year. That's number one. N umber two, we have a large pool, you know, where we have a write-back opportunity, both on corporate and also on retail.
Okay.
If you look at the ROE profile, I think it will be 2+.
Okay. S econd thing is on the growth. I mean, at the end of the day, you know, for sustainable ROE to emerge of, say, mid-teens or slightly higher than mid-teens to 16%-17%, we need to see a much better leverage on the book and therefore growth. T his corporate reducing even, when the retail is going up, has been holding down growth. You mentioned that for fiscal 2025, your desire is to grow the retail loan book by 17%. M y question is that, you know, why not more? Because the market leader has vacated the lower-end space of INR 50 lakhs or less. That's what we hear from the street and from your competitors. F rom whatever we can observe, there is a lot of real estate activity.
What's holding down growth, or why are you growing only at 17% and not higher, given how strong your balance sheet is?
Very good question. A ctually, if you see where we were a year back, so obviously we had to move a lot of pieces. You know, we did a rights issue, raised capital, we brought down corporate, GNPA, we brought down, retail GNPA, you know, as a strategy, both by collection, OTS, sale of property and, and one-off, right? So, it, this is a transformational journey, and now we are almost about one year, you know, 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, you know, obviously we need to work on a lot of things, and that's the reason 17% growth.
Thank you, sir. All the best. I'll be back to the queue for more questions.
Thank you. We have our next question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Thank you, and good evening, everyone. So first, things first, if you could help understand, what are the one-offs on the interest income line in this quarter?
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 crore in the interest income line.
Got it. So this was, I mean, a negative impact on your interest income?
Negative impact. Right. Right. O n the interest cost line also, there was a one-off of INR 12 crore, which we had to pay at the time of maturity of certain ECB, which was not amortized in this.
Good. So, Vinay, I mean, that was my second question. I mean, you've already given in your presentation number of INR 12 crore 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, this cost of INR 12 crore came in. Pl ease correct me if I'm wrong, from, 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 outflow of around INR 12 crore?
No, it was fully hedged. There was a minor difference of some paisa 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 got matured in this quarter.
I mean, in terms of guidance and, I mean, what you've said until now, from what I could make out, for FY 2024, you have moderated the retail loan growth guidance to 15%, but you've maintained, for FY 2025, the retail loan growth guidance at 17%. Likewise, on credit costs, you are suggesting that having seen nine months of this fiscal year, we could potentially be doing 31-32 basis points in this fiscal year. T hen for the next year as well, you're now guiding for a similar level of credit costs of 30-35 basis points. Is that correct?
Yes, it's correct.
Good. I mean, now there's these two questions that I have. The other thing I wanted to understand is this quarter, we have added 12 branches, and in the fourth quarter, we are planning to add another 85-88 branches to reach that guided number of 300 branches. So last part of the branch additions will come in the fourth quarter?
No, in fact, lot of work has happened in quarter three 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, you know, after intimating and once it is ready, and when we start the operation. B y March, will be at 300 branches. So a lot of work has happened in quarter three.
Got it. Thank you. And so the last question that I had was on the disbursement momentum that we saw during this quarter, sequential decline, something we, you know, we usually used to see among HFCs, 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. I f you can just briefly cover that again, what kind of led to, I mean, a sequential decline in disbursements?
T he other question, a related question. sure.
The related question I had was on, I mean, on slide number 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. W ere there, was this more in the nature of trying to retain customers so that the book run-off is lower, wherein you had to offer lower interest rates to customers? Because this is just one quarter that I'm talking about, not full year. W hat really led to this kind of a compression in margins and spreads, or yields for that matter?
Okay. So, I think let me take the first question. W hat I had mentioned was in this quarter, you know, in quarter three, we had certain challenges which were both internal and to a certain extent, external. I think it was more internal. I know, as I mentioned, that we had I, I spoke about West, how the market share is changing. I spoke about South, how it is changing. That had an impact. Now we are fixed, you know, in terms of leadership, in terms of team, in terms of credit qualities, all the tweaks, because we had to ensure that the portfolio what we build is of the same quality. That is one reason.
Second, we also had an impact in quarter three, because for us, you know, Chennai floods had a bit of impact, and to a certain extent, emphasizing what you said that, you know, in terms of retention, in terms of, book depleting, and also, I think to a large extent, you know, talking about the yield. As I mentioned, that corporate book is depleting, right? So, these are the reasons, and which is why, I was mentioning that, our directionally, we want to ensure that, A, there is growth. And see, if you look at one year back, we were at about zero or negative, and now on retail, we have reached to a stage of 13.2%. Right?
It looks like this year we'll end up with around 15%, maybe, you know, give or take, 25-30 bp s, 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. Please.
On the second question, Vinay, first is, with respect to the mix change. I f you see the last quarter, our average corporate book was around INR 3,500 crores, or sorry, INR 3,000 crores, which has now come down to around INR 2,200 crores. W hile we have resolved in one NPA account, last quarter, then that was also giving some income. T hat has led to a drop or change in mix, from corporate to retail. Second, with respect to, as you rightly said, due to, to address competition, in certain select geographies, we have built, business at a slightly lower yield in this quarter, to address the competition. These are the large two reasons, you know, for the drop that you see.
Got it. S ir, I mean, I'm 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. B ecause it got resolved last quarter, this quarter there was no contribution from that corporate NPA account in interest income?
Yeah, correct.
Got it. This is very useful. Thank you so much and.
Because the recovery was, you know, both P plus I, principal plus interest, so there we had an upside on the interest.
Understood. Thank you so much, and also very good.
Thank you. We have our next question from the line of Renish Bhuva from ICICI Securities. Please go ahead.
Hi, there. Congrats on a great set of numbers. Ju st two questions from my side. One, on this, you know, the, write-backs, which you are expecting over the next two to three quarters. So can you please quantify, I mean, you know, what kind of a write-off we have and, how much of that, is on the block or let's say, very close to, resolution?
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. W e have very, we have an aggressive strategy for write-back, so, you will see that panning out from this quarter onwards. Why I'm saying this quarter is because on corporate, we've been working since last one year. On the retail side, you know, we had to move, all the accounts to a stage of auction, you know, and then, of course, we will start realizing that. T herefore, I'm saying it will start from this quarter, and it will pan out in next three-four quarters' time.
We have a good pool, both in corporate and retail, so there will be a good opportunity on write-back.
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, the?
No, it is not large. It is not large. What I mentioned is there is one NPA account in corporate, so that we are expecting resolution in quarter four. From the write-off pool, we have few accounts which we are working on, so which will materialize.
Got it. Got it, got it. W hen we, when we say this credit cost guidance of 35 basis point, this is after considering these write backs or, this is ex the write backs?
I had mentioned that, first nine months, we've seen credit cost of 32 bp s. Quarter four will be similar trend, and coming year also would be similar trend, and, this is not letting off from the write-back.
Got it, got it. So write-back will be the upside risk, or let's say downside risk to our credit cost guidance. Fair enough.
Yeah, correct.
Second.
That's right, that's right. I think to put in other words, that write back opportunity is not budgeted when we said that coming year, credit cost will be on similar lines.
Got it, got it. Sir, again, just circling back to the yield slide, you know, on 21. Wherein our said yield has moderated from 10.48% to 10.29%, which is sort of adjusted for the one-offs. T his entire reduction is purely because of the competition, or let's say, if there's something else also there. Let's say we are shifting from a sub-prime to prime or maybe prime to super prime segment. I mean, how one should read this reduction?
No, no. In, 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.
Right.
If you look at the yield, let's say on retail, it is actually comparable or slightly better. W hen we say that, you know, we will get, one is in terms of scale-up, there'll be a good, traction in Roshni, in quarter four 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 two will. There'll be a lift in yield. T he 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. O verall yield from Roshni will be 12.5% from current 11.5%.
Emerging Markets will give us a , yield upside from the Prime of about, let's say, 35-40 bp s.
I think directionally, I got you, but I'm just more specific for the quarter-to-quarter moment, you know, wherein our asset yield has dropped from 9.48% to 10.29%. So what is driving that? I mean, it is purely because of the competition, or is there something else?
No, there I mentioned one is corporate is de-growing. A s Vinay mentioned that, last quarter, average corporate book was INR 3,000 crore, and now it is INR 2,200 crore, 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 market, second is in terms of, book retention. So all these three as a combination, there was impact on it.
Got it. T hen the last.
Largely, but if you see, if you see largely, you know, it is the corporate de-growth. Since the book is now de-growing, the impact would keep reducing, you know, over a period of time.
Got it. Got it. T his last question from my side on the NIM side. So, you know, I just checked for one of our NIM stands at 3.65% in this quarter, wherein we are sort of not guiding, but maybe we are expecting NIM to settle around 3.5%, which is still 15%, 15 basis point lower than the current NIM. W hy do you see this NIM contraction happening? It is because of the cost of borrowing will reprice in coming quarters, or do you see the competition will keep on impacting banking as it is?
Actually, it is balance of both yield and cost. So, around 3.5% is what I mentioned. So, yield will definitely do because of change of mix, yield will better. And, also cost of borrowing, we expect that it will come down. So because of, as a combination of these two initiatives, you know, I had mentioned the yield.
No, sir. So basically, we are expecting NIM to contract, right? 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, it will remain where it is, not factoring, you know, the higher yields. So in that case, our NIM should sustain at current level, right? I mean, 3.65%. Why, why?
Yeah, You are right. You are right. So NIM will be around 3.5%.
Okay. Okay. Okay, that's it then. Thank you.
Thank you. We have our next question from the line of Kunal Shah from Citigroup. Please go ahead.
The question is on the borrowing side. I f you look at the deposits now, what would be the strategy with respect to deposit raising, given even in the harmonization it was highlighted with respect to the public deposits of that? Yeah. So that's particularly the question.
I n fact, as you might be aware, there is a draft circular issued by RBI, and, till 29th of February, there is time for all the companies to give their feedback and comment. This is that the circular will be finalized, and probably it might get, circularized maybe in a month or two, right? So as of now, we have to see that 1.5 down from 3 x. I think there is enough headroom for us to grow on deposits. H owever, 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.
Even our SLR is at 15 .5.
Even the SLR is at 15.5 against 30.
M aybe slight, we, we are marginally higher than the requirement. But still, in terms of incremental, irrespective of whatever comes out in the final guidelines, 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. H ow are we looking at the overall borrowing profile?
No, I'm only saying that the cost of deposits for us is now lower, so, the idea would be to grow our book.
Until when?
I t all depends on the final circular, but I think as of now, because the deposit is long-term sticky, you know, instrument where we can leverage. H owever, it all depends on the final circular. As of now, there is enough headroom. As of now, the plan is to grow deposits. Not very aggressively, but definitely to grow the book.
Sure. S econdly, 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. W as 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 leading to this?
No, it is a combination because balance transfer has been there, you know, 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 21% run off, now it is down to about 16%-16.5%. And out of the 16%, there'll be a combination of normal EMI, you know, payments, then foreclosure, part closure and balance transfer.
16%-16.5% is the overall repayment, which we could see from, f rom the AUM and the disbursement?
No, that is, that is the overall run off. BT is about, let's say around 7%.
7% is the BT. O kay. O kay. Good. Yeah. Thank you.
Thank you. We have our next question from the line of Sanket Chheda from DAM Capital. Please go ahead.
Yeah, most of the questions were answered. Just, I missed this INR 26 crore one-off on yield. What was that on account of?
That was on account of securitization and sales change in securitization, that's INR 16 crore.
Okay. S econdly, on the guidance for this year, about 15% on retail growth. So, so far in YTD, we have grown the retail book at about 8.5%. In Q4, to reach 15%, we might need about 6% potential growth, about INR 6,000 crore of disbursement. W e feel we will do that from, say, our current INR 4,100 or INR 4,200.
Two, 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 declining. So all the growth was on retail, so we had guided 17. So we are at 13.2% now, so this quarter we will cover up. It, we obviously have to moderate, so it will be around 15%.
Okay. Okay. I was talking YTD, but yeah, it's okay. Awesome.
I'm saying March to March.
Okay. Okay. Got it, sir. That was the only question.
Thank you. We'll take our next question from the line of Abhay Modi from Helios Capital. Please go ahead.
A couple of questions. First is, what is your incremental yield in the retail book?
Okay. I'm just making 9.96%.
How much? 12.6%?
9.6% on the retail book.
9.6%. Is this the incremental or this is the book yield?
Incremental.
Incremental. Okay, and, what is your, salary? What percentage is salaried loans for you?
On our book, it is 60%. On incremental, it is around 63%-64%.
Okay. Thank you.
Thank you. We have our next question from the line of Anusha Raheja from Dalal & Broacha. Please go ahead.
T hanks for taking my question. Y ou said that your prepayments are close around 16% down, and in that, BT outreach is 7% to 8% . So how are you seeing this number panning out in FY 2025?
I think, BT, generally, if you look at the trend for last two years, for any company for that matter, and then given our, you know, portfolio composition, I think, it should be in the same range, about 7%-7.7%.
The prepayments are also likely to be at around 16% up?
Yes. As I told you, it used to be higher a year back. So we had 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 is stabilized at about 16%-16.5%.
What's the outlook on the disbursement growth for next fiscal?
Disbursement growth, we are talking about 22% and, book growth around 17%.
In that scenario, if you know, disbursement growth is around 20%-22% and prepayments are around 16%, the loan book growth could be you know, just 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 the prepayments rates being on a higher end. So I mean, going for the next fiscal, if the prepayment rates are likely to be at the same levels, and the disbursement growth will be at around 20%-22%, then how come the loan growth will be on a higher end?
The 22% is disbursement growth, so that is compared to the previous year's disbursement. If you calculate on the book, it will work out to be slightly higher, 25% only.
The run-off which you're talking about, the run-off is taken on the loan asset, so that's the math which is done. W e can, connect offline after this, and we can tell you the math around it.
What is the strategy on the Emerging Markets, you know, side, like which target, you know, set of customers you are, targeting and some broad understanding there?
On Emerging Markets, the strategy is that we would be in Tier 2, Tier 3 type of markets. W e have branches already present there, and we would have some of the branches coming from the scale-up in the branch network that we're going to do from now till March. T he customer segment will be little different compared to Prime and also compared to Affordable. This is a segment which is, you know, in between both Roshni and Prime, and therefore, here the upside in yield could be about 35-40 bps from the Prime scheme.
Okay. And so lastly, on the write-back, which you said that there's a, corporate pool of around INR 1,700 crore and retail of, you know, INR 500 crore, 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?
No, it will be, it will be difficult to quantify, madam, but definitely, yes, from this quarter onwards, there will be opportunity on write-back, because on retail, you know, it is, still we can, take a number and do it, but on the corporate, because these are few, you know, fewer accounts. A ll I can say that is that we have a plan that, starting from this quarter, there will be write-back opportunity.
Okay, thanks.
Thank you. We have our next question from the line of Kishan Rungta from Emkay Global. Please go ahead.
Hi, sir. Thank you for the opportunity. So I had just one question around credit cost. As you said, like, going ahead, like, we'll be having, like, a mix of Prime, Emerging Markets and Affordable. So, like, and you guided for a credit cost trend similar to current trend, right? A m I, like, Is my understanding correct about this?
Your understanding is correct.
Despite, like, targeting higher-end customer, our credit cost is going to be the same, in the similar lines?
If you look at last one year, as I mentioned, we've been working on transformational journey, and this was in every single function, including the collection. I f you see all the metrics in collection starting from X bucket, SMA 1, SMA 2, NPA, early buckets, NPA, tech write-off buckets and recovery, I think across there has been an improvement in efficiency. A lso the book, what we are originating is of good quality. A lso it is important to note that Roshni business is new and emerging also. Emerging is not new, but as in terms of, you know, little focus on the segment and market is going to be little different, but still it will be new. And therefore, what I mentioned, the credit cost for coming year will be on similar lines compared to what we have seen this year is the guidance.
Okay, sir. Thank you. That was my question.
Thank you. We have our next question from the line of Omkar Ghugardare from Shree Investments. Please go ahead.
T he 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?
No, it is not. Actually, to be honest with you, when we had guided this a 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 the cost, we need to moderate this. I t is not because of the Chennai Floods . Chennai Floods is only, maybe for quarter three to some extent. Otherwise, even otherwise, let's say quarter three was as usual, still, I think 17%, having seen quarter three, would have been little difficult.
There's a lot of moving parts in last one year and especially this year, because we had to, we need to remember one thing, one year back where we were and where we are today, and what all has happened in last one year. So a lot of moving parts on corporate side, on corporate resolution, on the retail side, on the Roshni side, so a lot of things have happened. So we thought we will grow at about 17%, but looks like, you know, we will not be able to do that, so, therefore moderated to 15%. However, coming year, 17%, we are pretty confident.
Can, in terms of NPA situation, how do you foresee NPA situation in next, maybe a year or two?
O ur idea is to bring down NPA on the retail side to a level which should be comparable with some of the best companies in the industry.
Okay, and that would be achievable within next one-two years?
Yeah, next, next few quarters, maybe four-five, six quarters, we should be able to achieve that.
What in terms of ROA and ROE?
Given the fact that we have raised capital recently and our leverage is less, so there it's a bit of drag on the ROE, but definitely, you know, with our growth, with ambitious growth in mind, I think this should improve. On ROA, on ROA, we will be 2+.
2%, and what kind of leverage you would be talking about then? Around four-five?
No, we would be comfortable, let's say, in next two years, we should be comfortable around 6-6.5 x.
6-6.5x. Okay, all right. Thank you.
Thank you. We have our next question from the line of Ravi Naredi, from Naredi Investments. Please go ahead.
Thank you very much. Thank you very much for giving me opportunity. Sir, you are saying only 15%, growth is possible, so it is in for our financial year 2025 also?
No, next year will be 17%.
17%. Sir, you have capital adequacy at 29.53%. Any plan to raise equity in next few years?
No, no, we have adequate capital to grow for the next three-four years time frame. We don't foresee anything.
Mr. Kousgi, you have clean balance sheet of PNB Housing in respect of improved in asset quality from 8.13% to 1.73%, and you have reached INR 60,000 crore to INR 60,000 crore from INR 50,000 crore, and you have done a remarkable job. W hat is your plan for next three years? Can you give some picture of the company?
Sir, as I mentioned, you know, now it is a journey. So what is the journey? Journey is that we actually moved away within retail, we moved away from Super Prime to Prime, but 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.
Right.
Now, and we also had, you know, the pressure on corporate book depleting, which also impacts—well, A, it impacts growth, B, it impacts, you know, the interest income as well, revenue. T herefore, although now we thought that there is an opportunity available on the Emerging Market, and this is where increasing on the Emerging Market. So if you see, we will have three vertical within retail, that is Prime, Emerging, and Roshni. Now, the idea is that this will help us in growth, A. B, we will, we will be able to raise books at a higher yield on Roshni and Emerging Market, right? O ur, 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, you know, 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.
Right.
That journey.
Okay. And sir, as Carlyle Group have big percentage of equity in our company, any plan to induct his representative in board of directors?
Sir, today, in our board, there is two board seats from Carlyle, two from PNB, so, it is already in place.
Okay. Okay. Thank you very much, sir. Thank you very much. Okay. Okay.
Thank you. We have our next question from the line of Mohit Mangal from BOB Capital. Please go ahead.
T hanks for the opportunity. A couple of questions from my side. First, I was looking at your borrowing profile, so I think, I mean, it's currently at around 71% is floating. two-three quarters back, it was around odd 67% . So just wanted to know your, I mean, color on this, that, are we, I mean, we settle at this 70/30 or, or this floating will go up again?
I think more or less it will be at the same level, you know, because since we have about 17,000 deposit base, and that is where you see this, you know, mix. I think this mix would be maintained. More or less it will be same.
All right, thanks.
Secondly, on this branch expansion, so just wanted to know any impact on the cost, by, I mean, as you have aggressive plans to open new branches. So anything on the cost to income, or, or something on that front will, I mean, will that increase?
T here 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.
All right. C ost to income can, can increase, right?
There could be some impact that—But [crosstalk] marginal.
The reason is, see, 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 of the cost, because we started Roshni while we were doing Prime business, so there is no incremental cost other than manpower and the branch, and the branch. As far as Emerging is concerned, I think, there will be no, 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. Only thing is the focus will be different.
All right. Yeah, thanks. That, that's clear. Thank you so much, and wish you all the best.
Thank you. 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.
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.
Thank you. On behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.