Thank you very much. We will now begin the question and answer session. The first question is from the line of Renish from ICICI Bank. Please go ahead.
PNBHOUSING · Quarter ended Jun 2024
PNB Housing Finance Limited analyst Q&A
Sir, just two questions from my side. One on the spread or maybe NIM as well , r ight. So, incremental cost of borrowing is lower than the blended cost of borrowing. You know, we are growing let's say incrementally faster in the high lending segments. So, despite that, you know, why we see NIM or let's say NIM will be under pressure in near term?
So, the reason is, we have couple of reasons. One is the corporate book is degrowing. So, we will very shortly start corporate business. So, hopefully next three to four months' time, we will start corporate business. So, I think now the team is ready. We are ready with the blueprint. Very shortly we will start. So, why? You know, there is contraction in the yield because of the corporate book rundown. I think that will get solved in next three to four months' time because we start doing fresh corporate business, number one. Number two, we have a large prime book. So , certain amount of BT, even though we have set up a retention team, the BT as a percentage has come down drastically over last 1, 1.5 years time. So, there is some BT out where that would impact us on the book and eventually on the income. Third, there is also repri cing. So, on one side, there is yield contraction because of corporate book going down, BT out and foreclosure and repri cing. On the other hand, we are moving towards high yielding segments. In quarter one, typically, we saw most of the disbursements were a spill off from quarter four sanctions, which were at a lower rate and which is why in quarter one, we don't see spike in yield. But if you see the current trend, I think there is an improving trend both in affordable and emerging on the yield side, incremental yield is going up. So, you will see quarter two, the yields are going to be slightly higher. As a policy, you know, we had guided margin of 3.5% and we stick to that. I think we will have maybe 3.5 to 3.65 for next two to three quarters' time and then the NIM will start inching up.
No, sir, but again, if we look at the corporate book, as on June 24th, that book, you know, hardly anything. So, I don't think so there should be any drag because of the corporate book on the yield side. Maybe you are right that incrementally because of the BT out pressure on the prime segment, the repricing to retain the customers would be lower. Is that the fair understanding?
It is combination of all the three which I mentioned. One is corporate book de -growth, second is BT out, third is repricing and foreclosure. All as a combination, I think there is a contraction of yield to a certain extent. And on the other side, we are moving segments and trying to increase the yield, but that is on an incremental basis. So , in about two quarters ' time, I think we will reach to a point where there won't be any contraction of yield and it will start moving up. And that's when we will see the margin inching up.
And my next question is to Girish actually. So, sir, you know, given we are present in almost all the customer segments, whether it is Prime, Affordable, and if the PMAY scheme has to move things faster at the ground, as and when the fine print comes, do you foresee upside risks to our growth guidance of 17% in retail book?
Actually, PMAY is going to help us on bettering our growth rate.
So, would you like to revise our guidance of 17% now or maybe you would want to do it in Q2?
We would not want to revise for the simple reason if we had to grow at the same yield, we could have definitely done far better than 17%. Since we have a dual task, one is to grow, because last year with so many challenges, we grew at 14.1% on retail. And this year, we have said we are going to grow at 17% on book. So, this PMAY, we are ready to see how the scheme will get rolled out. And we believe that it will open up huge potential, not only on the Affordable side, even on Emerging and Prime because if you have to go by the last couple of times the scheme parameters, I think a lot of customers would qualify, even on the Prime and Emerging side. So, we feel opportunity of all the branches catering to this particular segment, whereas affordable focus purely on affordable and which would also consider part of PMA Y, but otherwise on the Emerging and the Prime side, largely income -based, we will have an opportunity. So , as we would not want to revise the guidance at this point in time, but we are very sure and confident of reaching 17% book growth what we have guided for.
Got it. And so just lastly, you did mention about this the margin improvement on the NHB borrowing side. So, could you please elaborate a bit on that?
So, if you look at the scheme which was there till about March 2022. The funding which comes from NHB, especially for Affordable segment, which is under the CLSS subsidy, so there that funding would come at a lower cost. So, one, it will help us in the borrowing cost and number two, there is a lending gap. So, the discussion was to increase that lending gap. So, that would definitely help us to improve our margins.
It was 5.5%, right sir, last time?
No, I think that rate kept on changing over a period of time, but however the margin was fixed at about 3.5%. I think this time there are some talks, I think this is purely our assumption and expectation. We feel that this 3.5% could go up, maybe to 4% or 4.5%, which is going to help us on all the three segments, meet Roshni, Emerging and Prime, because our margin on the Emerging and Prime is less than 4% or 4.5%. So, any incremental business we do from this PMAY scheme will lead to incremental margin.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
First of all, I mean congratulations on a good quarter. So, first thing I wanted to understand is, I mean, this Fair Practices Code for Lenders charging of interest in the circular that came out from RBI on 29th April. How have we handled this circular? Ba sically, this circular talked about recognizing interest income only after a DD or Cheque was handed over to the customer. So, I mean, the disbursements and the loan advances that we are showing today and the recognition of interest income. Is there any component of interest income reversal in our interest income that you have reported?
So, we are fully complied No, I think there were a couple of other reasons. One was, I think there were elections during quarter one and also heat wave. I think despite the regulation what you mentioned, despite election, quarter and heat wave we were able to show growth of 19% on disbursements and book growth of 14.4%. I think, else we would have probably been 2% -3% higher.
I think my question was around, I mean, recognition of interest income after that 29th April circular, which talked about recognizing interest income only after a Cheque or a DD was handed over to a customer.
We had a very strong process even in the past. So, the alignment required was very less for us. The gap was very less for us to cover. So, in terms of interest it was hardly about Rs. 4 crores –Rs. 4.5 crores.
Got it. The second thing was on OPEX when Vinay sir was giving his opening remarks, he spoke about OPEX also including the impact of annual performance appraisals which were done for FY 2024. So, I mean, was this just in the nature of increments that happened or also the variable payouts? Just trying to understand how the quarterly run rate is going to be now for the next couple of quarters.
Yes, Abhijit, this was largely the annual increments. Variable payouts in any case is provisioned. So, there is no such impact on that.
Got it. So, basically now, I mean, is this the new kind of a steady state that we can keep building on for OPEX?
That’s right. This is our new steady state number.
And Vinay sir just one related question. I mean, while you covered liabilities in a greater detail, just trying to understand after this credit rating upgrade, I mean, how are conversations progressing? I mean, incremental cost of borrowing is already down to 7.75, How are you looking at cost of borrowing trending going ahead?
In digits in this quarter itself we have seen the improvement. It has gone down by around 6 basis points and the incremental cost of borrowing has come down to 7.75 % while the environment is still volatile, it will still move slightly. But some more benefit is expected to come in the few quarters. And once the PMAY is announced, as sir mentioned, there could be further benefits which can come on account of PMAY.
Got it. But this PMAY is going to help us more on the growth side as well as on the spread or margin side because we are expecting the spread cap, which was earlier 3.5% to be increased when the details of the scheme come out.
It is going to help us on three counts, one is on the cost of borrowing, second on the growth, third on the margin.
Girish, last question for you. I mean, obviously, this quarter there was benefit from recoveries on the corporate side. During the opening remarks, I also heard that out of the total recoveries of Rs. 80 crores from the written-off pool almost around Rs. 23 crores were recovered from retail, if I heard you right. Just trying to understand, going forward while you spoke about a pool of both corporate and retail written-off pool how are you looking at basically credit cost trending? They are expected to remain benign for the next couple of quarters at least?
I think, yes, credit cost will be muted. Just to give you some numbers, for quarter one, retail recovery was Rs. 28 crores and corporate was Rs. 53 crores, total Rs. 81 crores. And quarter one being cyclical, I think the write back amount was quite low. I think this number will only improve in the quarters to come both on retail and corporate.
And sir, later during the call, if you could just explain this corporate account that you have resolved using customer settlement, what was the nature of that? A nd what was the outstanding and how much have we recovered?
So, we had sold to ARC, so it was cash and SR. We recovered the cash portion in quarter one and the rest would be, the SRs will be redeemed in this year, so this is on this particular account. And on the retail, I think it is quite regular in nature, so we will keep recovering. And we had one NPA in corporate, I think that is now resolved, now on corporate NPA is zero.
Thank you. The next question is from the line of Shubhranshu Mishra from Phillip Capital. Please go ahead.
Girish, two questions. The first one is around the PMAY Scheme. My fair understanding is that the scheme has to be implemented at scale as far as self-construction then it can be implemented. However, if the builders have to recover their inventory it will take a longer period of time because that supply itself has come off. I just wanted your thoughts on that, how long will a developer take to recover their inventory for Affordable housing? And when do we get that benefit in terms of certification of disbursements at scale? Well, I understand for self -construction houses this could have immediate benefit. The secon d is around the ARC sale, h ow much of provision are we carrying on the SRs right now on the ARC sales? Thanks.
So, on the ARC sale, the one that we have done during the quarter, it ’s 100% provided. And for the other one, we are carrying around 70%.
On the PMAY, I think we are yet to get the details , it is still not announced. But we feel that it ’s going to be big one. And if you look at the composition of products under PMAY, in terms of whether it is self -construction, whether it is self -construction with the plot purchase and construction, depending on the nature of product, I think the opportunity is going to be huge. I think once we get the scheme details, we will be able to rework on that and if need be then we will be ready to take that opportunity forward.
So, will we change our disbursement growth guidance once we get the final print?
17% is the book growth guidance, what is the disbursement?
Book growth, yes. Retail book growth is 17%.
And what is the disbursement growth guidance for retail?
That will be about 25% plus.
Thank you. The next question is from the line of Viral Shah from IIFL. Please go ahead.
Thank you and congrats on good set of numbers. Actually, I have few questions. Girish, if you can help me understand. So, first of all, in your Affordable book, what is the share of disbursements that are done for either a purchase or a construction to the borrower versus what is the business transfer?
Sorry, could you please repeat the question?
In the Affordable segment, the disbursements that you do, what would be the share of the BT -ins that you would have got?
Yes, I think, on the BT-in would be close to 20% and BT-out is negligible.
Next is on the Affordable side, I remember in the analyst meet also you had mentioned that incrementally we are looking at a different customer mix and product mix which is going to ensure that the yields are going to go up by 100 basis points immediately from next year. So, from when should we see that? Because I see that the disbursement yields are flat QoQ.
I mentioned that it has already started. The only thing is in Q1 most of the disbursements were from the sanctions which happened in Q4. So, you will see a very marginal spike in quarter one. It has already started. So, you will see yields improving on incremental disbursements quarter-on- quarter.
Okay. So, we should see that at least on reported first decimal numbers from next quarter only?
This is on incremental. Let’s say from now onwards till this year end , so this year whatever to originate that would carry a yield of 12.6% on Affordable.
Got it. And if I have to basically look a bit deeper in your cost of funds reduction of 6 basis points in this quarter, what further room do we have in terms of reduction given that, again what was the share of the mixed change in this quarter? Because there was some increase in the CPs as well. So, is this entire reduction just because of the credit rating update or there is some more benefit yet to come through because of that?
See, it is a combination of various things. So, one is you mentioned CP, definitely yes, CP is one instrument and second is the cost of deposit , for us it is coming down. While we are growing our deposit book our cost of deposit is coming down. Number three, we are renegotiating with all the bankers on the existing lines and all the new lines we are able to get slightly at a better rate. I think it is combination of all these things is resulting in slight reduction in the cost of borrowing , both incrementally and on book.
Okay. And lastly in terms of the recovery pipeline last time around you had mentioned that on an average around Rs. 50 crores every quarter for six quarters to eight quarters so that gave us a pool of say around Rs. 300 crores to Rs. 400 odd crores. Now that we have had Rs. 80 crores of recovery in this quarter, do you see the overall pool increasing? Or the remainder of the recovery pool, how will it look like for next few quarters?
On the retail book, we had told approximately about Rs. 170 crores to Rs. 180 crores we will be able to recover this year. So, if you look at quarter one , the amount was Rs. 28 crores. I think in next three quarters we will be able to cover up another maybe Rs. 150 crores to Rs. 160 crores. On the corporate, whatever books we have that is Rs. 1,250 crores that will span out in next three years.
Sorry next?
Three years.
Okay, next three years. And lastly, if we just go back to the NIM s piece in the near -term Vinay mentioned there may be some moderation. What is the like extent of it that we are talking about? Is it just 5 basis points - 6 basis points or is it going to be more like 10-odd basis points?
I think it will be in line, so we have guided 3.5%. So, 3.5% is the threshold and with this mix change and with reduction in cost of funds. A nd obviously, we will be able to maintain this for next two quarters to three quarters, there could be a few ups and downs, few bps. After that it will start inching up.
Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Thanks for the opportunity and congrats on a good quarter. Just wanted to u nderstand on the Affordable bit, so we have hit 160 branches right now, what is the plan there? Or do you think that we have expanded like meaningfully in last one year , so you would want to take it slow at this point in time?
So, we have 160 branches on the Affordable side, this year we will open 40 more branches. By this year end we will have 200 branches on the Affordable side. And this will be the plan for the next few years. So, we will keep opening about 40 to 50 branches every year at least for the next three years.
I think we are a national player so we would be focusing on predominantly three zones, South, West and North. We are scarcely present in East, more on the Prime side. So, our expansion would be in South, North and West . Largely our branch expansion is going to be on Affordable and emerging side.
And just quickly on the Stage-3 ECL change sequential, what could be the reason?
So, on Stage-3 ECL, one is since we have resolved corporate, so that has completely gone nil. And on the retail side there is a marginal drop, it was around 35%, it is now 32.5%. This is on account of certain one-offs that we have taken on the retail side and these were vintage accounts, which got resolved or we have taken a one-off where we had higher provision,. that got released and the new which got added, the requirement is on the lower side. So, hence, it is more of a mix change which is happening there.
Thank you. The next question is from the line Omkar, an Individual Investor. Please go ahead.
My question is with respect to the branch itself. Now you said that we will be adding 40 more branches in the current year and approximately 40 to 50 over the next three years to four years. So, can you please help me understand what will be the metrics with respect to the branch? How much time will the branch take to become a profitable branch? And what are the number of employees per branch and etc. with respect to understand how the branch will grow as it seasons?
So, the plan is to open 50 branches. So, this year we will open 50 and every year we will open 50 for next three years, that is the plan. So, this year 50, next year 50 and next to next year 50, that is the plan of branch expansion. In terms of breakeven on the Affordable and Emerging, both sides, it will take average about 9 to 10 months’ time to breakeven.
Okay, 9 to 10 months. And with respect to the technology transformation that you ’ve mentioned in the opening comments and also in the PPT, there is a mention of the reduction in TAT. So, what was the TAT earlier and what is it now? Can that be quantified?
On loan processing TAT, if you are talking specifically to LOF, our loan processing TAT is reduced by about 16% to 17%. A nd on the CRM side, the customer service request is seeing reduction in TAT because they will reduce self -service capabilities, almost 18% of requests by the customers are getting self -service without being assigned to any agent. That is improving the TAT on an overall basis.
Can we quantify the TAT in number of days , so like h ow much time does it take from log -in to sanction or disbursement with respect to days of file that has been reduced?
See, wing-to-wing right from reference log -in t o sanction and including salaried and self - employed, this is around three working days. So, we have seen this coming down to close to four working days to gradually we are reducing it to three . And wherein salaried is decisioned in the second day itself.
And with respect to the cost to income and the Opex-to-AUM, as you are saying that we are going to be so aggressive on the branch expansion, Affordable Housing space as of what I have seen the Opex ratios are very high. So, how do we manage to overcome that and that would not make a drag on the profitability? Could you please share some light on that?
See, actually on the Opex side, most of the investments related to 160-odd branches now and 300 overall that we have for the business , investments are already done , so it’s both up fronted. So, whatever you see now would be a run rate. Rest would be in the BAU core that we would be adding. And it will be only the direct cost that we would be investing, which is mostly in terms of sales and underwriting people. Rest everything would be the shared infra. And plus, the economies of scale will kick in from other businesses, which will help in absorbing. So, we are pretty much confident that 1% kind of Opex we should be able to maintain.
Finally, with respect to the credit underwriting, since our overall portfolio mix is more tilted towards the salaried people and Affordable in the Tier-III, Tier-IV and beyond, will be more self- employed. So, how are we changing our underwriting practices and what will be the way that we make sure that the asset quality remains stable? Can you please share that?
So, I think the underwriting model for Prime and Emerging is similar . It is very little different between Prime and Emerging; I think broadly it is similar. When it comes to Affordable, it is totally different. So, we have a different vertical for these three businesses . We have a different vertical for Prime, different vertical for Emerging, different vertical for Affordable. Now, on the Affordable side, largely we are going to focus on both the income and assessment-based product, it will be 50-50 almost, 50% is going to be assessment, both on salaried and self-employed. And therefore, there the underwriting model what is required is very different. So, we have a different structure, different team, different head to drive this piece vis -a-vis compared to Prime and Emerging. On the Prime and Emerging, it is more rule based and largely the focus is on income side. On the Affordable it is 50-50 and therefore, it is more of assessment model. So, on the salaried side when we say informal it is cash salary . On the self-employed side when we say informal it is basically LIP and certain programs where the income is not there. So, there, we have developed models, we have developed various templates. For example, we have close to 35 templates depending on the sector, depending on the nature of business, all these are templatized, all these are automated. And this would support us in terms of standardization of the assessment. Having said that on the Affordable side, it is more of touch and see, so every b ranch we have a credit manager. Say credit manager meets the customer, does the personal discussion, assesses the income and then we use those templates to standardize our decisioning process. So, it is very different, on the Prime and Emerging it is different, it is more driven by rule b ased algo. On the Affordable side it is a mix of both personal touch, personal discussion and use of templates.
Just one last bit, I wanted to understand what would be the ROA guidance for the next 2 years to 3 years?
ROA guidance we are not giving on an annual basis, what we have laid out in our investor day is that we are working towards a range of 2.4% to 2.6% in next three years. So, we are committed to deliver that.
2.2% to 2.3%, did I get it right?
2.4% to 2.6%.
2.4% to 2.6%.
Thank you. The next question is from the line of Viral Shah from IIFL Capital. Please go ahead.
One last question is, so in this quarter you have had Rs. 80 crores of recovery and then there was around Rs. 45 crores of reversal of provisions on the corporate loans. And with an overall net write back of Rs. 12 crores, it means that the adjusted or ex of the recoveries, the credit cost would have been Rs. 113 crores, would that be a right understanding?
Viral, but that also includes some one -off that we have taken on the retail side. So, it is not our core credit cost that also had certain one-off that we have taken.
Okay. And when you mention one-off as in a charge to the P&L, right?
Yes, right, charge to the P&L.
Got it. Yes, that makes sense, because otherwise the implied credit costs were a bit higher.
Yes, right.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to the management for their 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 this call will be uploaded on our website as well as the audio of the call. 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. Thank you.