PNBHOUSINGNSEQ3FY23January 31, 2023

PNB Housing Finance Limited

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Management on call

Girish Kousgi

Key numbers — 40 extracted

21%

k further on it. So, if we basically talk about the numbers on a YoY, disbursements have grown by 21% for the quarter and, for the nine months have grown by 39%. So, Loan book growth last quarter, it

39%

on a YoY, disbursements have grown by 21% for the quarter and, for the nine months have grown by 39%. So, Loan book growth last quarter, it was negative 4%; this quarter we are at 0.3%. If you look

er and, for the nine months have grown by 39%. So, Loan book growth last quarter, it was negative 4%; this quarter we are at 0.3%. If you look at retail, because the focus is going to be on retail g

0.3%

have grown by 39%. So, Loan book growth last quarter, it was negative 4%; this quarter we are at 0.3%. If you look at retail, because the focus is going to be on retail going forward, the retail book

at retail, because the focus is going to be on retail going forward, the retail book has grown by 2% QoQ. And YoY it has grown by 7%. Corporate book, as I had mentioned earlier also, we are de-growi

going to be on retail going forward, the retail book has grown by 2% QoQ. And YoY it has grown by 7%. Corporate book, as I had mentioned earlier also, we are de-growing. So, on a YoY it has de-grown

20%

are de-growing. So, on a YoY it has de-grown by 39%. In terms of revenue, registered a growth of 20% YoY for the quarter, and 2.5% for the nine months. PAT is up by 43% YoY for the quarter and 15% f

2.5%

it has de-grown by 39%. In terms of revenue, registered a growth of 20% YoY for the quarter, and 2.5% for the nine months. PAT is up by 43% YoY for the quarter and 15% for the nine months. Yield is a

43%

venue, registered a growth of 20% YoY for the quarter, and 2.5% for the nine months. PAT is up by 43% YoY for the quarter and 15% for the nine months. Yield is at 11.38%, last quarter was 10.7%. The

15%

f 20% YoY for the quarter, and 2.5% for the nine months. PAT is up by 43% YoY for the quarter and 15% for the nine months. Yield is at 11.38%, last quarter was 10.7%. The cost of funds has slightly g

11.38%

or the nine months. PAT is up by 43% YoY for the quarter and 15% for the nine months. Yield is at 11.38%, last quarter was 10.7%. The cost of funds has slightly gone up; it was 7.32%, went up in last

10.7%

s up by 43% YoY for the quarter and 15% for the nine months. Yield is at 11.38%, last quarter was 10.7%. The cost of funds has slightly gone up; it was 7.32%, went up in last quarter and now it is 7.55

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Guidance — 20 items

Girish Kousgi

opening

“If you look at retail, because the focus is going to be on retail going forward, the retail book has grown by 2% QoQ.”

Girish Kousgi

opening

“To that extent, high ticket loans, I think it has come down drastically directionally, and going forward as well, we can see this in the book, what we are going to build in future.”

Girish Kousgi

opening

“So, probably this quarter, we'll be able to see some traction there and it will carry on going forward.”

Girish Kousgi

opening

“I had mentioned in the last quarter that incrementally going forward affordable will contribute about 25% of business which is let's say 12 months from now, it will start contributing about close to 20% - 25% of incremental business, that's our focus on affordable, it has started very well.”

Girish Kousgi

opening

“In terms of policy as I mentioned, we have done some tweaking just to ensure that the book whatever we build in future will be of very good quality.”

Abhijit Tibrewal

“Just a follow up question on the margins, the guidance was more around the margins of 3.2%, but finding it a little difficult to understand that until I think the first quarter of this fiscal year, margins were around 2.36% is what I'm seeing in front of me and they are about 4.68% now.”

Girish Kousgi

“But if I have to talk about the long term guidance on a steady state business, I think normalized NIM and Spread would be in the range what I mentioned.”

Sharaj Singh

“Despite the expansion we've taken, and the guidance is given, we require around Rs.5,000 crores of disbursements quarterly rate.”

Girish Kousgi

“So, I think we will be able to hit that number, because now we are at about 7%, I think with Q4 we will be close to about 10%.”

Girish Kousgi

“And guidance from next year onwards, I had mentioned that disbursement will be 20% to 25% and book would be about 17%.”

Risks & concerns — 5 flagged

Just a follow up question on the margins, the guidance was more around the margins of 3.2%, but finding it a little difficult to understand that until I think the first quarter of this fiscal year, margins were around 2.36% is what I'm seeing in front of me and they are about 4.68% now.

— Abhijit Tibrewal

One is if we focus on slightly lower ticket size, which is very safe, for example, in Rs.1 crore, Rs.2 crores, ticket size, we will have book depletion pressure.

— Girish Kousgi

There won't be depletion pressure; today, if we look at all the housing finance companies, all the small banks, I think their focus is on this.

— Girish Kousgi

Now, this is a vast segment where on the private side, CAT-B, CAT-C employees would cater to, and on the government side this is a typical segment where the book is very good… the book depletion pressure is quite low, and this set of customers are not that rate-sensitive, and therefore it fits into our pricing strategy.

— Girish Kousgi

So, whatever the stress we are looking into restructured book that is getting slightly now.

— Girish Kousgi

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Q&A — 14 exchanges

So just two or three questions. Firstly, on the corporate book, have there been any NPA resolutions that you've seen in this quarter among those four or five large accounts? Secondly, during this quarter, I think you've talked about some impairments or provisions that you've taken on assets held-for-sale. So, if you could just kind of throw some more color on what is the quantum of these assets held-for-sale and what have we actually classified under assets held-for- sale? And sir, then on margins, just wanted to understand, last quarter, it seems like there is a one-off in the margins, and pr

Girish Kousgi

You see, resolution is both in NPA and non-NPA pool in the corporate. In terms of margins, I had mentioned that for a profile like PNB Housing we should look at NIM of 3.2% and Spread of 2.2%. Currently, NIM is at 4.68% and spread stood at 3.83%. In terms of assignment, basically this is a lag effect. So, sometimes it is plus, sometimes it is minus, and the only thing is it evens out in a year's time and therefore I think that is something part of business and we should continue with that. In terms of OPEX, I think whatever OPEX you're seeing now that is I think most of the OPEX of affordable

First question is on a disbursement. Despite the expansion we've taken, and the guidance is given, we require around Rs.5,000 crores of disbursements quarterly rate. How do we look at that?

Girish Kousgi

I can only say that in last two months, we have seen very good traction on disbursement and also on the closures. And I had mentioned last quarter that we are looking at a book growth of about close to 10% especially on the retail. So, I think we will be able to hit that number, because now we are at about 7%, I think with Q4 we will be close to about 10%. And guidance from next year onwards, I had mentioned that disbursement will be 20% to 25% and book would be about 17%. 17% of the Loan book? On a YoY, yes, correct on the loan book. Second question is on the yields. We've seen an expansion o

My question is in regards to our provisions. It's still remain high and hence we are not able to achieve good ROEs. How do we get to 15% ROE from here?

Girish Kousgi

So, basically, if you are leaving the one-off, it is quite less. So, in the last quarter, I had mentioned that for this year, credit cost will be about 1% and this is maybe from coming year onwards… I am just for a minute leaving the corporate book aside, I'm talking about retail, I think it will start normalizing because we have seen a lot of traction on the retail NPA. Also, on the corporate NPA we are seeing a good visibility. Only thing is that timeframe is little longer given the nature of those accounts and the size of the loans. So, basically when we talk about credit cost, we should id

I was intrigued about your opening comments and how your renewed focus is going to be on salaried and within salaried on government employees. So, two questions here. This is more or less the space where the PSU banks and the large commercial banks are very active in. And therefore from a strategy perspective, if you go back into the market, which is very keenly competed for, what is the edge that PNB Housing brings, because as a standalone housing finance company, your cost of funds are not as competitive as they are for the bank, so, why go there, why not focus on the self-employed category,

Girish Kousgi

A very good question, sir. I think we have seen for last many decades in this industry, a) self- employed as a profile compared to salaried is highly delinquent; b), also the book attrition is higher in the self-employed segment. Now, when we talk about retail, we are looking at increasing the salaried profile. Now, in salaried, there are two things. One is if we focus on slightly lower ticket size, which is very safe, for example, in Rs.1 crore, Rs.2 crores, ticket size, we will have book depletion pressure. And therefore, let's say we focus on 30-40 lakh ticket size, which is basically from

Question regards to the rights issue you said in your press release that the draft letter was filed back in November any updates on when we can expect further clarity and what are we planning in terms of quantum of pricing etc.?

Girish Kousgi

We are awaiting confirmation from SEBI to take this forward. Any idea sir as to how long that might take any internal planning anything you can throw light on? I think there was some queries which were resolved and our overall timeframe is by end of March or so or it might just slip to let us say first week or second week of April and at this point in time we are awaiting SEBI’s approval. One last question sir I did not come across specific cost-to-income number, do you all disclose that you all share that? So, I think we probably sort of missed out so let me give you this, so for 9 months it

My question was related to fee income if we see fee income as a percentage to disbursements so last four quarters we have been disbursing around 3,500 crore, but if we see that as a percentage of disbursements it has reduced from 3% from Q1 of this year to now 2%, so can you throw some light on whether fee income has reduced for last two quarters?

Girish Kousgi

Actually, the fee income related to disbursements is actually deferred so it is accounted in the interest income line itself. So, it is accounted at a yield level. The fee income that you are seeing here is more like a P&L income and some other charges which are recovered.

I was going through the Draft letter of offer in there it is mentioned that the retail loans about 21.7% is under moratorium I mean can you tell how much is it as of end of December and when do you think it will end?

Girish Kousgi

Actually, morat and restructuring, I think it is almost for the entire industry, it has almost come to an end or maybe it is in the final stages. So, today what NPA pool we are seeing I think most of it is already taken into account because this moratorium started in the year 2020 from March 2020. It was basically for Quarter 1 and Quarter 2 of 20-21 if I am not wrong. So, then of course we had a slightly higher moratorium rate. So, now all those things are budgeted and all those things are taken into account and now what we see is the NPA pool whatever had to flow from morat pool or the restr

My first question was that credit cost run rate since last couple of quarters it has inched up, but it is quite high at about 170-180 so while on margins you mentioned it is 4.7, but steady state we would like to see at 3.2-3.3 and maybe that is a conservative guidance and maybe would be around 3.7-3.8, but that is a big drop so on and we are making ROA of say 150-160 bps as of now so on, let we say compensate in credit cost somewhere when it normalizes over 24-25 what are the kind of average that we are seeing and are we seeing credit cost normalizing to say 50 bps-70 bps in FY24 or FY25?

Girish Kousgi

So, if we look at H1 credit cost it is 0.94, 9 month is 1.13 and if I remove one off it is 0.72. So, this year leaving one off the credit cost will be 1%. Now on the retail side very clearly we can see credit cost normalizing at about 0.6 so I am very sure on that. On the corporate side, I am very sure about resolutions, but if there is one off obviously the credit cost is going to be slightly more. So, I think the way I would want to see credit cost is that with one off, without one off. So, definitely if not coming year next year we can see credit cost of about 0.6 to 0.65, that is for sure.

So, in the opening comments you mentioned that there has been a control on the run out and pre- closures, what has been change in strategy here I mean what has been the key difference that led to this lower BT out and if you can also quantify what is the BT out percentage maybe a year back same quarter year back and what is it today?

Girish Kousgi

What I was saying was I think our overall run off in a month was close to about 1,000 crores. So, that 1,000 crores we are able to control it to less than 800 crores so that we were effectively able to manage which means this is largely coming out of BT out and also for closure and part closure. This also includes normal run off. So, in terms of percentage if we just have to step out the BT out and for closure not the normal run off how much would that be a year back? It has come down drastically. Of course, even though these are early days but we have seen very good traction in last couple of

What are the incremental yields on affordable housing segment and the prime home loan segment which we have got in Q3 or we are getting in the month of January?

Girish Kousgi

Basically, what yield we are seeing now is largely from prime and affordable is going to be at least about 125 to 150 high. What are the prime yields if you can share that level what is the yields in absolute percentage? So, it will be prime housing is about 9.00% and affordable will be in the range of 11%-12.00%. And secondly just one off that we are getting from our assignment income so I understand it is because of MCLR rate changes which led to this one-off, so as interest rate stabilizes then one off will not recur next year probably, is that the right understanding? Yes, absolutely you a

Just trying to understand little bit on the arrangement that you have on the assignment that you did, so is the rate fully pass through whatever the changes that bank will make or is it something that your cost of assignment from the bank will be linked to their MCLR what you are charging to the customers?

Deepika Gupta Padhi

In most of our cases it is linked with the MCLR of the respective financial institution. So, whenever there is a change in the MCLR of those financial institutions and accordingly it is passed on. So, if I have changed let us say the rate by 50 basis point however the MCLR changes by 20 basis points the pass on will be 20 basis point. So, you will end up kind of having a positive or a negative impact to that extent? Yes and that is how this assignment income which comes in our P&L. Just again when I am looking at the yield on loans and that has kind of gone up by almost around 200 odd basis po

So, my questions have already been answered earlier so I am just going to step back into the queue.

Management

The question is actually related to corporate book closure, sir since you have completed about 3 months in the organization you would have actually spent a good amount of time to go through all lumpy exposures, so you can you give a sense on the performance of corporate books in terms of do you expect any lumpy slippages near term or do you believe all stressed assets are already recognized and you do not expect any incremental repeated in the book?

Girish Kousgi

So, I have seen the entire portfolio at a close detail so I think we are adequately provided. All the accounts which are in Stage-1, very closely I have seen and I do not expect any slippages in next few quarters as of now we do not see any slippages and we are also looking at some resolution, only thing is the timeline for resolution might take some time and if we look at the entire NPA pool as well so there are close to 50% of the NPA pool Where we see very good traction on the resolution and therefore I do not see any slippages happening in the next few quarters. And sir how the Stage-2 wil

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 as well as the audio will be uploaded on our website which is www.pnbhousing.com. Thank you very much.

Management

Speaking time

Girish Kousgi

Moderator

Sharaj Singh

Sanket Chheda

Deepika Gupta Padhi

Nischint Chawathe

Abhay Modi

Sandeep Joshi

Nidhesh Jain

Abhijit Tibrewal

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Opening remarks

Deepika Gupta Padhi

Good evening and welcome everyone. We are here to discuss PNB Housing Finance Q3 & 9M FY'22-23 Results. You must have seen our business and financial numbers in the presentation and the press release shared with the stock exchanges and also available on our website. With me, we have our entire management team across verticals, led by Mr. Girish Kousgi -- Managing Director & CEO of PNB Housing Finance. We will begin this call with the Performance Update by the MD & 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 detail disclaimer is on Slide #

Girish Kousgi

Good evening, and welcome to the earnings call. I think we had a very good quarter. I think there were a lot of positives to take back and work further on it. So, if we basically talk about the numbers on a YoY, disbursements have grown by 21% for the quarter and, for the nine months have grown by 39%. So, Loan book growth last quarter, it was negative 4%; this quarter we are at 0.3%. If you look at retail, because the focus is going to be on retail going forward, the retail book has grown by 2% QoQ. And YoY it has grown by 7%. Corporate book, as I had mentioned earlier also, we are de-growing. So, on a YoY it has de-grown by 39%. In terms of revenue, registered a growth of 20% YoY for the quarter, and 2.5% for the nine months. PAT is up by 43% YoY for the quarter and 15% for the nine months. Yield is at 11.38%, last quarter was 10.7%. The cost of funds has slightly gone up; it was 7.32%, went up in last quarter and now it is 7.55%. We have improved spread from 3.38% to 3.83%. NIM from

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