Please note that this conference is being recorded. I will now hand the conference over to Ms. Miti Gupta, Investor Relations Manager, for opening remarks. Thank you, and over to you.
Thank you, Ryan. Good morning, and welcome, everyone. We are here to discuss PNB Housing Finance Q1 FY 2026/2027 results. You must have seen our business and financial numbers in the presentation and the press release shared with the exchanges and are also available on our website. With me, we have our management team led by Mr. Ajai Kumar Shukla, Managing Director and CEO of the company. We will begin this call with the performance update by the management team, 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 45 of the investor presentation. With this, I will now hand over the call to our Managing Director and CEO, Mr. Ajai Kumar Shukla. Over to you, sir.
Thank you, Miti. Good morning, everyone, and thank you for joining us today. Before I discuss our performance for the quarter, let me briefly touch upon the industry environment. India entered financial year 2027 from a position of relative macroeconomic strength, although external risks increased materially during Q1. Domestic demand remained resilient, supported by government infrastructure spending, healthy banking system liquidity, and steady service activity. However, geopolitical tension in West Asia, volatile crude oil prices, and uncertainty around the monsoon led to a slightly more cautious growth outlook. The housing finance sector particularly continues to benefit from strong structural drivers, including rising urbanization, increasing homeownership aspirations, favorable demographics, and continued government focus on affordable housing. Demand remained healthy across retail mortgage segments during the quarter, particularly in affordable and emerging markets, which continue to offer significant growth opportunities.
During the quarter, the RBI maintained the policy repo rate at 5.25%, providing a stable interest rate environment for borrowers, while also announcing measures to support liquidity and funding access within the financial system. RBI revised its FY 2027 GDP growth forecast from 6.9% to 6.66% in its June 2026 policy review, reflecting concerns around higher energy costs, supply chain disruptions, and weaker external demand. India continues to be among the fastest-growing major economies, with private consumption and services providing key support. The quarter was also characterized by heightened global uncertainty arising from the US-Iran conflict, which led to higher crude oil prices, increased market volatility, and tighter liquidity conditions. Despite these external challenges, India's macroeconomic fundamentals remain resilient and housing demand continues to hold up well. Coming to PNB Housing Finance.
We have begun FY 2027 on a steady note, reflecting the strength of our retail-focused business model and disciplined execution. Kindly note that starting this quarter, disbursements are being recognized based on check realization rather than check handover basis. On a comparable check handover basis, disbursement delivered a strong 56% YoY growth, reflecting sustained business momentum. Disbursement growth should normalize from Q2 onward and should reflect a strong growth trajectory going forward. Post the one-time impact of this transition, disbursement for Q1 2027 grew at 18% YoY at INR 5,882 crore. At segmental level, prime and emerging markets have seen a double-digit growth at year-on-year level and stood at INR 3,083 crore and INR 2,029 crore for Q1 2027. We did disbursement of INR 555 crore in affordable segment, which is currently less than the target level.
We are actively focusing on increasing the productivity of affordable branches, while select prime and emerging market branches also started contributing to affordable business. This number which I quoted, INR 555 crore, is basically net. As I said, we have now transitioned from gross to net. Overall loan book grew by 15% YoY to INR 89,670 crore as on 30th June 2026. While the retail loan portfolio increased by 16% YoY to INR 89,178 crore, the affordable and emerging market segment continued to be our key growth engine, growing 27% YoY and contributing 41% of retail portfolio. We remain on track to increase the contribution to 45% by the end of 2027. I am pleased to share that as part of our new initiative to augment high yield portfolio growth, we disbursed INR 71 crore under emerging developer finance program.
We also started affordable business from selected prime and emerging branches, successfully disbursed in first month of the quarter, which was June, almost INR 30 crore in affordable business from these branches. As part of our growth strategy, we have commenced full buyout transactions and acquired loan assets aggregating to INR 146 crore during the quarter. These initiatives will support faster scale-up of the loan book while enhancing portfolio yield and maintaining portfolio quality. We are particularly pleased to have facilitated over 7,000 subsidies under the Pradhan Mantri Awas Yojana 2.0, reinforcing our commitment to affordable housing and supporting the government vision of housing for all. Our corporate loan book stood at INR 493 crore as on 30th June 2026, with disbursement of almost INR 215 crore during Q1 2027. We continue to accelerate our digital transformation agenda by reimagining customer journey and core operation with a digital-first mindset.
Our focus on conversational AI and document intelligence is helping simplify processes, enhance service quality, improve responsiveness, and strengthen operational efficiency. During the quarter, we successfully completed voice AI proof of concept for the sanction but undisbursed pool and pre-due collections with encouraging results, while AI-powered policy and knowledge assistants are currently under evaluation. Wanted to share that 100% of our first dispersal are happening through our new LOS platform, which we call as SFDC. More than 70% of our business is now being onboarded through our in-house onboarding app, which is Infinity app. More than 2,600 e-sign executed through our Leegality platform. We also remain focused on building proprietary AI capabilities as reflected in our in-house competitive intelligence platform. Alongside enabling paperless operation and supporting our sustainability objectives, these initiatives are helping us deliver a more seamless customer experience and create long-term value for all stakeholders.
As far as geographical presence, on the distribution front, we added 12 new branches during the quarter, taking our network to 404 branches. We have also begun leveraging our selective prime and emerging markets branch network to expand our affordable business, and early results from the co-located branches models have been encouraging. As far as asset quality, asset quality continues to remain one of our key strengths. Gross NPA remains less than 1%, which is 0.95%. Minor increase seen in 30 and 90+ is cyclical in nature and are expected to come down in Q2. During the quarter, a legacy account was classified as fraud. The exposure had already been fully provided in the year 2022/2023 itself, and therefore, it has no incremental financial impact on the company. Recoveries remained healthy at INR 67 crore from write-off pool, resulting in a negative write cost of 12 basis points during the quarter.
The company is now left with write-off pool of around INR 340 crore in retail. As far as margin is concerned, our spread remained stable sequentially at 2.12%, while NIM moderated by 19 basis points QoQ to 3.50%, out of which 12 basis points is attributable to increase in leverage and 7 basis points in true-up impact of Q4 2026. Our portfolio yield improved marginally to 9.48% for Q1. We witnessed an improvement in incremental yield across all businesses vertical, which will support future margin performance. Marginal increase in cost of borrowing to 7.36% during Q1 financial year 2027, compared with 7.35% in previous quarter. Incremental cost of borrowing increased by 18 basis points, primarily due to higher, tighter liquidity condition and volatility in financial market.
As far as profitability is concerned, as a result, profit after tax for the quarter grew by 4% YoY to INR 557 crore, leading to ROA of 2.37% and ROE of 11.44%. Our capital position remains strong with a capital adequacy ratio of 28.26% and Tier 1 capital ratio of 27.87% as of June 2026. With a strong balance sheet, improving operating efficiencies, accelerating digital transformation and continued focus on portfolio quality, we remain well-positioned to deliver sustainable growth in the coming quarter. Just to conclude and summarize the conversation, let me again reiterate that what we expect that margin seems to be bottomed out, and from second half onward, gradually there should be improvement in margin. Yield is also bottomed out, and it would improve by change in mix.
As far as growth in quarter one, primarily, what worked well for us, improvement in productivity by use of technology and enhancement in distribution, strengthening of our team, particularly in affordable and emerging market segment. July over June is much better in affordable under new leadership team, particularly new CBO. Driving additional volume through existing prime and emerging markets, which has started contributing almost 15%-18% of affordable business in July itself. Focused approach on low-performing branches. Expecting Q2 to be much better than Q1, particularly in affordable business. Maintaining full year guidance of 18%-20% overall book growth. Also maintaining growth guidance of 50%-60% in affordable loan book. Thank you so much. Now I would like to hand over call to our CFO, Mr. Vinay Gupta.
Thank you, sir. Good morning, everyone. I would now like to talk about few key financial parameters. As mentioned by MD, after one time impact of change in disbursement recognition, our disbursements grew 18% year-on-year to INR 5,882 crore in Q1. We will catch up on our growth rate from next quarter onwards. Further, I am happy to share that our runoff rates have also stabilized to around 17% versus 19%-20%, which we witnessed in the last few quarters. Our retail portfolio also grew 16% year-on-year to INR 89,180 crore. As mentioned earlier, on check handover basis, we have delivered a very strong quarter. Our disbursements grew 56% year-on-year, and our loan book would have grown at around 18%, in line with our guidance. We should catch up on our guided numbers, guided growth rate from the next quarter onwards.
During the quarter, our net interest income grew 6% and our gross margin grew 9%. As mentioned in the previous quarter, our yield should start improving from Q1 onwards. Accordingly, happy to share that this quarter we delivered a marginal improvement in yield at 9.48% versus 9.47% in previous quarter. However, due to ongoing global geopolitical uncertainty, our cost of borrowing also witnessed marginal increase to 7.36% from 7.35%. This is primarily due to increase in our incremental cost of borrowing by around 18 basis points. Despite the prevailing headwinds, we maintained our spread at 2.12%, demonstrating resilience in our business model and disciplined pricing approach. 19 basis points moderation in NIM during Q1 relative to Q4 was largely attributable to higher leverage and lower yield on total assets.
There was a true-up for Q4, which was basically due to monthly conversion versus our number of days conversion, as we saw our inverse relationship in Q4, which got trued up during this quarter. Going forward, we feel NIM has largely bottomed out and should start improving from second half of this financial year. Operating expenses increased 10% year-on-year to INR 237 crore from INR 216 crore in Q1 last year, primarily due to manpower addition and annual compensation reviews. However, operating efficiency continues to improve, with OpEx to ATA declining by nine basis points to less than 1% now versus 1.08% in Q4 FY 2026. Supported by healthy operating leverage, our pre-provision operating profit also grew 9% year-on-year to INR 689 crore. On asset quality, gross NPA continued to remain less than 1% mark and stood at 0.95% as of June 30, 2026.
Company continued to deliver healthy recoveries from its written-off pool, recovering INR 67 crore during the quarter, which translated into a negative credit cost of 12 basis points. PAT for the quarter grew 4% year-on-year to INR 557 crore. ROA stood at 2.37%, while ROE stood at 11.44% for the quarter. Balance sheet remains well capitalized. Capital adequacy ratio is at 28.26%. Our net worth is at INR 19,800 crore, with book value now increasing to around INR 760. With strong balance sheet, healthy capitalization, robust asset quality, and continued focus on operational efficiency, we remain confident in our ability to deliver sustainable and profitable growth. With that, I conclude my remarks. Thank you for your continued support. With this, we will now open the call for Q&A.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants who wish to ask a question, please press star and one. We take the first question from the line of Viral Shah from IIFL Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity to allow me to ask the question. Hello, am I audible?
Yeah.
Yeah.
You're audible.
Yeah. Good morning, team. I have three questions. One is first on the margins, right? Two parts over there. How should we look at, say, yields and cost of fund trajectory from here on? Say, of course, all of this is assuming the macro kind of remains stable in the near term. But more importantly, does the thesis of, say, the gradual NIM expansion as the book mix kind of changes, with the scale-up of your affordable, emerging CF, et cetera, more from a medium-term perspective, not the next two, three quarters, but, say, over the next two years. Does that thesis kind of still hold true? That was my first question.
Yeah. Thank you so much, Viral, for joining the call and asking. As I said in my conversation that we expect that margin are bottomed out and yield is also bottomed out. Cost of fund also, we strongly believe that it is also bottomed out. Gradually, maybe H2 onward, we will see some improvement. I would say medium to long-term perspective, I think this should help in the margin for the organization. As far as the mix is concerned, I think you rightly said that we are positioning ourself in right mix approach. construction finance portfolio, as I said earlier also, we will restricting to 3% of my book in this year, which is 2027, which will help us in overall improvement in my basically margin. Also the mix of affordable and emerging will improve.
Like we saw that currently we are placed at 41%, which used to be less than 40% earlier, and expecting to touch 45% by the end of this year. Which will further, if I talk about two-year horizon, it would be nearly 50% of my overall book in emerging and affordable.
Got it. No, that's very clear. On the second, I would say question is more with regards to growth. I know you and Vinay also pointed out that of course this quarter there was this recognition change. When I look at, say, the gross number. Gross number is a very strong number of 55%+ disbursement growth. This is not lost. This will come through in the second quarter. One is, if I look at, say, the second quarter with this kind of a trajectory, and of course there is also somewhat further growth that will come through on this number. Should we expect the gross number to be whatever it is currently in this quarter, plus the growth, and that trajectory to sustain in the near term?
Yeah, I think, if I talk about Q2, I'm sure that you're asking about next quarter, which is a running quarter from Q1. I think we will try to beat both the numbers, which is gross or net. I think net will also give us benefit of whatever hit we have taken in Q1 will give us fruit in Q2. Also we expect that our gross Q2 will also be much better than Q1. July already we have witnessed very good momentum in terms of gross and net.
Got it. With that kind of a trajectory, Ajai, your 18%-20% kind of loan growth guidance seems very conservative. Would that be a fair assessment?
I think.
Because rates are coming down.
I think 18%-20%, that's the guidance which we are going definitely. Team is focusing on better growth than what we have given guidance. I think we should do much better than what we have given guidance.
Got it. My last question is basically on the micro-housing. You have mentioned that you have started it from this quarter. Of course, in terms of say, the contribution and the P&L also, it will take quite some time. Just wanted to get a sense of about how are you going about building this book in terms of are there separate branches, how is the team, underwriting, sourcing, et cetera?
We did experiment and we got very good fruit in prime and emerging to source more affordable. We got very good number in the month of July in prime and emerging of affordable. We will also do currently micro-housing business from our affordable branches. I don't think at this point of time we need to open more number of branches. We will leverage our existing branches to contain our OpEx also because that's the key metrics to be watched. In Q2, the policy was already formalized. It is rolled out. People have started sourcing, but real fruit you will be able to see from H2 onward.
Got it. Thanks. That's very clear. I'll come back if at all I have other questions. Congrats and all the best.
Thank you, Viral.
Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to two questions per participant. We take the next question from the line of Sameer Bhise from Dymon Asia . Please go ahead.
Yeah. Hi. Thank you for the opportunity, sir. Just had a couple of questions. Firstly, on the leverage impact on margins for this quarter. Vinay, can you just guide us through how it has played out? Because if I see, debt to equity has moved just from 3.7x- 3.72x, but the NII impact looks a tad sharp. I think some sense there will be useful. Vinay.
Yeah. Sameer, those were the ending numbers, end of the quarter numbers. On an average, our leverage has gone up from 3.6x- 3.75x. That is one reason. Secondly, there is also a flow-through impact. If you see Q4 generally is very high on disbursements, and most of that got realized in the current quarter and hence it actually translated into higher borrowings during the current quarter. Plus there is an impact also on the overall yield being slightly lower while the loan book yield has improved, but overall yield has slightly moderated due to lower investment yields. These are two, three factors which has led to impact of higher leverage.
Secondly, the entire gap in the actual reported disbursement number and the gross, which is the adjusted number, is it entirely due to the affordable housing segment or there is some other segment as well, like emerging and all?
It's a combination of all the businesses. Whatever impact which we have witnessed is a combination of prime emerging and affordable. Because in retail business and wholesale, completely we are migrated from check handover to basically money debited from our account.
Can you still provide a mix on a gross basis? Because if I see affordable disbursement in the reported number look down on a YoY basis also, which is obviously not the case.
I think affordable, if we compare apple to apple, which is YoY growth, I would say it is growth of almost 11% in affordable.
On a check handover.
On check handover, since we have moved from check handover to realization, and that is where.
That's what exactly I'm asking. Yeah.
Sorry. Handover basis is 11% growth in affordable also.
Okay.
Yeah.
Finally, on credit cost, should one see that credit cost kind of turns to positive territory in second half? Just how would ROA kind of shape up, given that we have optimism on NIM, but we will also have normalization of credit cost. Some trajectory there will be useful, sir. That's all from my side.
No, Sameer. This year, I think we should continue to remain negative. We still have line of sight on good recoveries quarter-on-quarter this year, at least. This year, we should be able to maintain the negative credit cost.
Okay. Thank you. That's all from my side.
Thank you. We take the next question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Limited. Please go ahead.
Yeah. Good morning, everyone. Thank you for taking the question. First thing, for the benefit of all of us-
Abhijit, I do apologize. Sorry, sir. Please go ahead.
We can't hear you, Abhijit. Can you be a bit louder?
Is it better now, sir?
Yeah, much better.
Sir, I was just trying to understand for the benefit of all of us, if you could explain this true-up. Essentially, you did mention a couple of things that one was the monthly versus number of days during the quarter. What exactly happened, the seven basis points difference? Is it more to do with maybe Q4 having lesser number of days, so lesser interest income, and to that extent it got overstated and should have been lower by seven basis points? Is that the right understanding? Or is there some timing difference because of which this true-up that you pointed out?
As you rightly explained, I think that is the exact reason. Q4 being a shorter quarter, only 90 days. We get the benefit in NIM because there the annualization happens based on monthly annualization. It is monthly numbers which gets annualized for NIM calculations. Whereas that start getting normalized from Q1 onwards. Q4, you will get some benefit, but that is more like artificial, and hence ideally what should have been a Q4 number. Hence that is a seven basis points delta, which was purely on account of the calculation difference in Q4. Adjusted for that, the gap is only 12 basis points in the current quarter, which is on account of increasing leverage and lower yield on the overall total assets.
Got it. Then, sir, on the margins we called out earlier during the opening remarks that margins have bottomed out. Should we now think about margins as maybe remaining stable in 2Q and then starting to expand from the second half onwards? I remember during your opening remarks, you also mentioned about this incremental cost of borrowing is being up about 18 basis points in the first quarter. Won't that have some bearing on cost of borrowings in the coming quarters? I'm just trying to understand how are things on the incremental cost of borrowing front. Have things cooled off a little bit in the last maybe one and a half months?
Yes, Abhijit, there is some improvement versus what it was, let's say at the beginning of the previous quarter. Still it remains elevated. The reason that we are positive about NIM bottoming out is because we see improvement in our yields now. It has started improving from Q1 onwards, and now Q2 onwards with higher contribution of affordable CF business and emerging business. We feel that we will be able to offset the impacts, if any, of cost of borrowing as well as of any further impact of leakage. Yields are giving that confidence, and we should be able to offset that. In case there is any positive movement on the ratings also, because we are yet to get two more upgrades from two rating agencies. That is another lever which will help us further on the cost of borrowing side.
Got it. The last question that I had was on the ROAs. You mentioned that at least this year we are confident that credit costs should remain negative, but at least the quantum of write-backs, the quantum of recoveries, they are naturally slowing down. From here, as we see this quantum of negative credit costs write-backs normalize over a period of time, maybe over the next few quarters, how should we think about the ROAs this year and next year?
As we guided, I think on a long-term basis, we are expected to settle around 2.3 kind of a ROA, 2.3%-2.35%. For this year, I think it should be in the range of 2.35%-2.4%. 2.4% is what largely we are targeting this year. It should remain in this range for the current year.
Got it. Thank you for answering all my questions. I wish you and your team the very best.
Thank you.
Thank you. We take the next question from the line of Renish from ICICI Securities. Please go ahead.
Hi, sir. Congratulations on a good set of numbers. First, on the credit cost side again. This quarter, we saw recovery from written-off pool at around INR 67 crore. When I look at ECL provision, it is roughly an increase of INR 23 crore. Ideally, the write-back should be around INR 50 crore, and we have recognized only INR 21 crore. Rest is explained by what? I mean, is it a write-off or something else?
There are some regular OTS settlements, et cetera, which we do. That has given some hit of around INR 10 crore- INR 12 crore.
Where does it reflect? Ideally, it should reflect in ECL, right?
It's a write-off. It is like if you are doing settlement, you are taking some hit while doing the settlement.
Okay. Basically it's a write-off.
Write-off, yes.
Yeah. In which segment, sir?
It is basically across prime and emerging on our legacy piece.
Okay. Got it. Just second question is on the asset yield movement. Obviously, I understand we are sort of working on changing AUM mix towards high-yielding product. When I look back and sort of track your last one year performance, especially on the AUM mix side. Naturally, your non-HL piece has gone up at least by 5% on YoY basis across the segment, whether it is prime, emerging, or affordable. Simultaneously, your share of affordable has also gone up from 9.5% to 7.4%. Somehow, despite this change over last one year, nothing is getting reflected on the asset yield. Like it is down almost 50 basis points YoY. How one should think about asset yield movement? I mean, obviously you guys are sounding more confident on yield trajectory going ahead.
At least when I look at last one year, somehow it is not getting reflected. Just wanted to understand why is that, and what are the, let us say, the key indicators, which is giving you that confidence that yield should improve from maybe second half onwards.
Renish, I think last one year, if you see, there is a change in the repo rate also, and the interest rate environment also was different. Right? Our incremental yields have gone down in line with the industry trend. Hence, you did not see that kind of a transition impact on the overall book yield. Now, as we know that there is no further drop expected on the yield perspective, it is only expected to go up. Hence the only positive impact that we see from now on is on account of mix change. With better mix coming in, I think we should be able to deliver an improvement quarter-on-quarter basis in our yields going forward.
Got it. Just last clarification, sir. It is right to assume that the disbursement yield in Q1 is higher than the book yield of 9.48%?
Yes. That's right.
Okay. That's it from my side, sir. Thank you, and best of success.
Thank you. We take the next question from the line of Sanket Chheda from DAM Capital Advisors. Please go ahead.
Yeah. Hi, sir. Two questions from me. One is just on the ROA thing which CFO, sir, alluded. We clocked 2.4% in this quarter, and it was versus negative and margin is up as well from here on. I believe it was for next year without the tailwind of negative credit cost that we said 2.35%-4%, and this year could be 2.4%-5%. Is that right? Is my understanding right?
Yeah, that's right, Sanket. This year, with the benefits still continuing, we expect ROA guidance around 2.4%. Next year, with credit cost normalizing, we expect it to be around 2.3%.
Okay. The second question was on disbursement. You alluded that Q2 disbursement would be strong, but this is what we would have locked in July, and we just extrapolated that for next two months. On net-to-net basis, that is Q1 net to Q2 net, roughly how much growth you would expect?
I think, if I talk about net to net, particularly if I talk about affordable segment, Sanket, if you're asking, the growth should be around. If you disburse INR 555 crore to be precise in net, I think it should be 2.5x-2.6x higher than what we did in Q1.
Oh, wow. Overall?
Overall should be also, if I talk about net, it should be near 60%-70% higher.
60%-70% higher than Q1 net?
Net to net. I'm talking about net to net, yeah.
Oh, that's roughly INR 9,500-INR 10,000. Okay.
Hopefully. We are expecting growth there because July is definitely a promising month for us, we have seen, I would say, green shoots in the month of July.
Okay. On rating upgrades, sir, just wanted to check, once we are doing more affordable, yields will be taken care of on the cost of funds. Now we have received a rating upgrade from CARE. Do we expect other rating agencies to follow the suit sooner, ICRA and CRISIL there?
I think, CARE Ratings is already done. ICRA Limited is underway. I think we are expecting very soon CARE Ratings and CRISIL Limited-- Huh? ICRA Limited. And CRISIL Limited is underway. That work is on. I think, whatever benefit which we were expecting to get off rating upgrade which will now translate now, because when the rating got upgraded earlier, the regime was higher rate of interest scenario. Now I think it will start giving us benefit.
All this, if it's a affordable momentum stays this year, next year, then the rating upgrades come through. Is there a upside risk to our ROA for next year, which we are assuming to be 2.35%?
I think it's a range we are talking. I think 2.4% is the range. We definitely would like to maintain that. That's how we are working on that direction. It would be near to 2.4% only. One thing in affordable, I would like to reiterate that July being promising under new leadership. The CBO has taken the charge and the entire month was under his leadership only, and I think we have got very good result out of that.
Sure. Apart from CBO, any other changes that you would have planned in the?
Yeah. Let me tell you, as I said in my commentary earlier, that we have strengthened our team. The major investment which this year we have done in affordable business only. Even N - 2, I would say. Under the CBO, we have strengthened our team all across geographies. We have two national-level resources also who are managing businesses who have vintage of almost more than 20- 25 years in mortgage industry, and more so particularly in affordable segment. The team has strengthened in affordable and emerging also. That is why we are very much confident that my emerging and affordable should contribute 45% of my overall book in 2027 and 50% in 2028.
Sure, sir. Those were my questions. Thanks a lot. All the best.
Yeah, thank you so much, Sanket.
Thank you. We take the next question from the line of Kunal Shah from Citigroup. Please go ahead.
Hi, sir. Thanks for taking the question.
Hi, Kunal.
Hi. Sir, firstly, in terms of the entire mix, still if you look at it, including the check disbursements, affordable is growing at 11%. Prime seems to suggest that it is growing at 66%, and emerging is still growing at 48%, and that is where the overall disbursement growth is 51%. Just to change the mix and pull up the affordable, it will require a significant traction. Otherwise, prime still seems to be growing faster compared to that of affordable and emerging. How would that mix change over a period? Because maybe it would require a recalibration, and if that happens, then would it have any impact on the growth side?
Let me tell you that, Kunal, the prime growth which you have witnessed, there also the mix has changed. Because there was very tough competition in salaried segment, much in prime, and that is why we have migrated from the composition of more salary to the, I would say risk-calibrated Self-employed segment. And also we increased our composition from home loan to non-home loan because we were having a good cushion in terms of PSL norms. Regulatory also, we were very much well within line. Whatever improvement we have seen in Prime largely, was because of change in mix to get that better. If you see my yield chart also from Q4 to Q1 this year, sequentially it has improved in Prime even. That is the reason, and that is why we got the opportunity to improve that business also.
We will grow in affordable, what we have given the guidance, we are strict to that. We said that we will have a growth of around 60% in affordable. Still we are holding that and we will do it. My guidance will not change. It will continue. As I said that my July is much promising than my any of the month of June, which is a clear-cut indication that under new leadership things have started improving drastically in affordable business. The second thing is that if I tell you my July affordable business contribution from Prime Plus emerging, it is almost double than what we delivered in Q1, in July itself.
In terms of disbursements?
In terms of disbursement of affordable business from even Prime and emerging vertical.
Okay, got it. When you look at it in terms of this INR 1,870 crores of check dispersal and maybe check realization, handover and the realization difference, would this get achieved in 2Q itself or maybe it will be spread over a period?
I think it generally spread across in two months forward. Maybe larger portion comes in next month and then some portion comes in second month. Third month is any minuscule business only flow forward. Because there is resale cases wherein sometime seller takes time to execute the transaction. Major portion covers in first month itself of the last month.
By September everything should get realized on an average.
It's a cycle now. Kunal, it's a cycle now. The cycle is maintained now. That's why I said that my July month realization is much promising than my any of the month of last quarter.
Got it. One last question in terms of the spreads. When we look at the overall incremental spreads, I would believe like maybe the disbursement incremental yield is closer to 9.4% and our overall incremental cost of funds is 7.4%. We are at like almost a 2% spread or so.
2.12% we have, yeah.
Sorry?
2.12% we have given.
Incremental is also same, Kunal, 2.12%.
Same. Q4 versus
I was just saying maybe the difference between, so book spread is 2.2%. Maybe just leaving aside the margins, okay, because margins would have the element of day count and the leverage. If I have to purely look at spreads, incremental spreads still appear to be lower than that of book spreads. Are you confident that mix change will take care of it in terms of the spreads itself, it can sustain or maybe improve from the current level?
I think we have already started seeing positive results in overall yield. If you see from Q4 versus Q1, my overall yield in affordable itself has grown by almost 50 basis points. In other product also the yield has improved from Q4, which gives us confidence that it will improve.
Okay. Spreads will improve or stay over here?
Yeah.
Okay, thanks. That answers all the question.
Thank you. We take the next question from the line of Gaurav Khandelwal from JPMorgan. Please go ahead.
Hi, good morning. Thanks for taking my question. I've got a few questions. The first question is on a follow-up to the last one. When the prime yields increased eight odd basis points, emerging was up eight basis points, right? Prime, does the mix shift on disbursement towards self-employed completely explain? And if you could help me understand, sir, what is the like for like increase or decrease in prime loan yields had we not done this mix shift? Any color on that, please?
I think if we would not have done that incrementally. Yeah. No, no, incrementally. You want to know incrementally, Gaurav?
Yeah, incrementally. Yep.
Incrementally, if I talk about, and particularly we're focusing on Prime, correct?
Yes.
Prime, if you see my Q4 was 8.92%. 8 basis points growth we have shown till now, okay, in Q1, and which has further improved in July. I think we would have been in the same range what it was in July. Around 10- 15 basis points, I would say benefit we have got by changing the mix, I would say.
Okay, got it. Had it not been for the mix shift, our Prime yields would ideally have gone down, which is also what has happened across most of the other banks.
Maybe not gone down. You can say stable. July has further improved my Prime yield. You have seen this, we have shown this 9% of yield in Q1, which is Q1 yield. July is further, it is better now. Okay. It would have been in the range of same 8.92%- 8.95%. That would have been the range. We got the benefit out of that.
Got it, sir. In this entire process of shifting towards more self-employed, how are you thinking about the risk control mechanisms and the risk framework?
Sure.
Are we moving towards a higher risk book and will it have a read-through on credit costs over next few years?
No. I think, let me tell you that the kind of team which we have created in monitoring, we have created in the system. If I tell you that while my yield has gone up, I would say sequentially even my delinquency in prime and emerging has improved from last quarter, because team is very seasoned, underwriting team. The monitoring is also, I would say, very well in place. The collection strategy is also working very well. Considering that and we have good seasoned expertise team in underwriting, especially in self-employed segment.
Got it. On cost of fund, following the credit rating, when do we start to see the benefits of those rating upgrades coming in numbers?
I think some benefit already started coming in terms of fresh borrowing, I would say. Maybe the fresh borrowing, I would say we are getting at a better rate now from if I talk about previous quarter. I think gradually it should improve.
Got it. Sir, can you quantify how much is this benefit? Five, 10 basis points or whatever that number is?
Yeah, around 10 basis points at least should come in, Gaurav.
Got it. Thanks. My final question is on the fraud account of INR 420 crores, right? While this was written off and there's no incremental impact on the financial statements, how should one think about recoveries coming from these? How much were you factoring in recoveries for FY 2027, 2028, 2029? Just some color on that. Thanks.
Till now, the account which we have declared this year, we have not factored in any recovery this year because this entire legal process may take a time because, as per RBI, the declaration of fraud and recoveries are two different things and parallelly can go on. We have already started discussion with the borrower. He has also approached us. We are looking for either through someone will join hands and to solve the builder challenge or maybe he will start finding the customer to sell the project. There is no financial impact of this because 2022, 2023 only we declared that. The only thing which is pending is now recovery part, which we already have started working. All the remedial actions have been started now.
Sir, if you can just quantify how much recoveries were we expecting from this account, in 2027?
I can't comment at this point of time because it will depend on when I get the buyer and because now the buyer and seller meeting and they will meet, they will evaluate the entire project and then we will get the right picture.
Got it. Just to understand this better, over the years from your experience, once you classify an account as a fraud, is the recovery process actually expedited or does it take longer to get the money back?
No, generally it expedite because there are legal recourse because till the time you take this step, the customer will never come forward to discuss and close it because nobody would like to have a classification as a fraud. So definitely one would like to close it and settle it much faster than what is expected.
Got it. Okay. Thank you very much. Those were all my questions.
Thank you.
Thank you. We take the next question from the line of Nischint from Kotak. Please go ahead.
Thanks for taking my question. On the disbursement norm change, did it have any impact on the margins?
No, I think because disbursement norm change and margin doesn't have.
Interest income.
The only impact will be the interest income which we will book in our quarterly results. Which will definitely stabilize in the next quarter once your realization happens. As per the new norm, you cannot charge the interest from the customer until the money is debited from your account. The impact is only on interest income for the quarter.
Yeah, that won't be material. That is what you are suggesting.
Yeah.
I mean, since you spelled out margin walk within bits, that's why I was asking. Anyway, just trying to understand what is the share of BT-ins in your overall sourcing across segments?
BT-in has slightly reduced. I think if I talk about Q1 versus Q1. It is 5.4% now. 20 basis points reduction we have seen in BT-in.
This is at an overall level.
Sorry. It is 4.4% in Q1 2027 from 5% in Q1 2026.
This is at an overall level if we want to sort of split this between prime, emerging, and affordable?
If I talk about affordable, actually affordable has drastically, BT-in has down, which suggests that the team has started focusing on new customer. In Q1, it used to be 10.5% last year, which has gone down to 3.4%. It means whatever growth we have done in last quarter, the business, it is primarily new customer in the market. Overall at company level, the BT-in has down by 60 basis points almost.
Got it. Thank you very much.
Thank you. We take the next question from the line of Harshit Toshniwal from Premji Invest. Please go ahead.
Hi, sir. Am I audible?
Yeah, Harshit. Go ahead.
Sir, there were two questions. One was on the fee income. Obviously, what it seems like it's going to be a pretty strong year on disbursement, per se. One thing, obviously, the disbursement numbers were not seen, but, should we ideally expect the fee income to also grow at a reasonably fast pace in 2027 because of the fast dispersal which we have seen? Probably 1 Q might not be true reflection because it's more linked to the dispersal we are reporting. Is that true? Does it happen that way or the fee income does not get impacted by the recognition phase? Sir, the second question was on what Nischint was asking that, ideally, if I have a lower interest income being recognized, but on my cost of funds, there is no change in recognition. Mathematically, is it having any impact on the margin?
Is what I was trying to just understand that, or it should not be the case?
No, let me answer that. First of all, on the fee income side, the change in disbursement recognition will not have any impact because we still continue to get that amount or fee based on the committed disbursements. You are right, based on the good disbursement growth, solid performance, the fee income growth should also be in line with the disbursement growth going forward.
Okay. It's not as if this 1 Q number is also understated because of the disbursement recognition. Fee income goes in its own way of recognition.
Correct. That's right.
Okay.
On an interest income side, it should not impact because now the income you are booking is on the book itself. If you're not booking the underlying book, you are not booking that income also. It will not impact your yield. It will impact the absolute income, but it will not impact the yield.
Okay. Sir.
Thank you. Ladies and gentlemen, with that, we conclude the question-and-answer session. I now hand the conference over to Ms. Miti Gupta for her closing comments.
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 of the call will be uploaded on our website. Thank you.
Thank you. On behalf of PNB Housing Finance Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.