Ind-Ra revises PNB Housing Finance's NCDs to negative

India Ratings and Research (Ind-Ra) has revised the outlook on PNB Housing Finance's (PNBHF's) non-convertible debentures (NCDs) to negative from stable while affirming the rating at AA.

The size of issue is Rs 15,517 crore, down from Rs 21,897 crore earlier.

Ind-Ra said the outlook revision reflects an added uncertainty around the timing and quantum of PNBHF's capital raising, which could be critical in view of the stress in the loan portfolio, especially on the wholesale lending. This if sustained may require stronger stress-absorbing buffers.

The additional capital is also important to provide support for PNBHF's loan growth without significantly raising leverage.

On February 20, PNBHF said its promoter Punjab National Bank will no longer infuse capital in the company, and that it will be looking to raise Rs 1,800 crore billion through a qualified institutional placement, preferential issue, rights issue or a combination in one or more tranches.

The promoter had previously indicated that it will infuse Rs 500 crore to Rs 600 crore and was awaiting an approval from the Reserve Bank of India to complete the same.

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

PNBHF is among the top five players in housing finance segment with assets under management of Rs 77,700 crore at end-9M FY20. It has experience of managing the mortgage business for over three decades, which has seen multiple business cycles.

The company is geographically diversified with 94 branches in 64 cities across the country, though the four large states of Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh contribute 58 per cent of home loan portfolio.

Ind-Ra said the disruption in economic activities brought about by Covid-19 pandemic has resulted in rising delinquencies for PNBHF.

The proforma non-performing assets (NPAs) increased to 4.47 per cent at end-9M FY21. The pressure is higher in construction finance portfolio.

Besides, the sharp drop in bank lending rates have led to stiff competition for PNBHF in retail loan segment as outward balance transfer in its portfolio accelerated.