PNB Housing Finance: Amid Rising Delinquencies Raising Equity is Critical, says Ind-Ra
Moneylife Digital Team 19 August 2021
Equity infusion as planned is critical for PNB Housing Finance Ltd (PNBHF) to provide adequate buffers for growth and mitigate any possible asset-side stress, says India Ratings and Research (Ind-Ra).
In a note, the ratings agency says, "Although the company’s balance sheet has deleveraged (debt to equity: 6.4 times at end-first quarter (1Q) of FY21-22, end-1QFY21: 8.2 times), it was because of the decline in loan book. Hence, an increase in the retail book with the improvement in the operating environment would lead a rise to the leverage ratio unless accompanied by an equity infusion." 
In May 2021, PNBHF’s board had approved equity raising of Rs40 billion through a preferential allotment. However, the case is sub-judice with the lender appealing to the Securities Appellate Tribunal (SAT) and the final decision on this is awaited.
At end-1QFY21-22, PNB Housing Finance’s assets under management (AUM) fell 14% to Rs718 billion due to the challenging operating environment. Ind-Ra expects competitive pressure from banks and pandemic-led disruption could keep the growth in the assets under management under check for PNBHF.
PNBHF has adequate liquidity, in terms of cash and liquid investments of Rs70 billion and unutilised sanctioned bank lines of Rs55 billion at end-June 2021. In June this year, the lender issued non-convertible debentures (NCDs) aggregating Rs1.3 billion for three years at 6.5%. Debt repayment, along with interest, of the company stood at Rs88 billion for July – September 2021, of which Rs17 billion is working capital loans which could be rolled over.
In line with the industry, PNBHF reported a rise in delinquencies for 1QFY21-22 with gross non-performing asset (GNPA) of 6.0% as against 4.4% recorded in FY20-21, led mostly by the impact of the second Covid wave which has disrupted borrowers’ already weak cash flows.
Ind-Ra says, "The rise in NPAs is also because of a consistent decline in the loan portfolio especially the wholesale book since FY18-19. Stage 3 asset proportion of PNBHF is higher for the wholesale book at 15.9% than for the retail book at 3.8% in 1QFY21-22. The rise in retail NPA was due to slippages from the self-employed book that had taken moratorium. The increase in the corporate book GNPA is the movement from the identified Stage 2 and a significant increase in credit risk accounts." 
PNBHF has formed a dedicated team for the resolution of delinquent corporate accounts. PNBHF has also restructured its loan portfolio under the COVID-19 restructuring scheme. PNBHF increased the provision coverage on the entire portfolio to 4.5% of the assets at end-1QFY21-22 compared with 4.1% in FY20-21 and 2.6% in FY19-20, with stage 3 provisioning at 39.7%.
With the gradual unlocking of the economy and in the absence of a third Covid wave, collections for the lender could improve, the ratings agency added.
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