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Equity raising critical for PNB Housing amid rising delinquencies: India Ratings

The equity infusion as planned is critical for to provide adequate buffers for growth and mitigate any possible asset-side stress, India Ratings said on Thursday. PNB Housing Finance reported a rise in delinquencies with gross non-performing loan ratio of 6% at the end of June quarter, led mostly by the impact of second covid wave which has disrupted borrowers’ already weak cash flows.

“The rise in NPAs is also because of a consistent decline in the loan portfolio especially the wholesale book since FY19,” the rating agency noted. “Stage 3 asset proportion is higher for the wholesale book (15.9%) than for the retail book (3.8%) in 1QFY22.”

The rise in retail NPA was due to slippages from the self-employed book that had taken moratorium.

On the upside, India Ratings also noted that with the gradual unlocking of the economy and in the absence of a third covid wave, collections could improve.

The mortgage lender has also formed a dedicated team for the resolution of delinquent corporate accounts. The lender has also restructured its loan portfolio under the COVID-19 Restructuring Scheme and increased the provision coverage on the entire portfolio to 4.5% of the assets at the end of the June quarter with stage 3 provisioning at 39.7%.

The mortgage lender’s assets under management fell 14% YoY to Rs 718 billion at due to the challenging operating environment.

The rating agency noted that the competitive pressure from banks and pandemic-led disruption could keep the growth in the assets under management under check.

In May 2021, the board of PNB Housing Finance had approved equity raising of Rs 40 billion through a preferential allotment, however, the case is sub-judice with the mortgage lender appealing to the Securities Appellate Tribunal.

The mortgage lender has adequate liquidity in terms of cash and liquid investments of Rs 70 billion and unutilised sanctioned bank lines of Rs 55 billion at end-June 2021. It had also issued non-convertible debentures in June 2021 aggregating Rs 1.3 billion for three years at 6.5%. Debt repayment (along with interest) stood at Rs 88 billion for July – September 2021, of which Rs 17 billion is working capital loans which could be rolled over.

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