PNB Housing bets on micro loans, small developers to boost margins
After spending the past few years expanding its affordable housing business, PNB Housing Finance is now entering micro housing loans and financing for small property
After spending the past few years expanding its affordable housing business, PNB Housing Finance is now entering micro housing loans and financing for small property developers as it looks to improve loan spreads and support profitability. The lender expects its affordable and emerging businesses to account for about half of total assets by the end of fiscal year 2027-28 (FY28). “We are focussing more on emerging and affordable. Currently, my affordable plus emerging ratio is 41%, which should by the end of this year be around 45%. So that will give us an edge in the spread,” managing director and chief executive officer Ajai Kumar Shukla said. Also Read | RBI to standardize rules on loan rates to improve transparency The entry into micro housing is a natural extension of the company's affordable housing business, given the similarities in underwriting, distribution and operating capabilities. "The only thing is that we will go deeper into the market and there you will get maybe tier 4-5 cities, where we have the branches already placed. We see the opportunity to leverage those branches by way of offering or maybe acquiring those customers also," Shukla told Mint. The segment offers higher yields of 14-15%, compared with around 12% for affordable housing loans. PNB Housing has also launched an emerging developer finance vertical aimed at small developers undertaking reconstruction or expansion of individual homes, particularly in markets such as New Delhi, Ahmedabad, Bengaluru and Hyderabad.
These projects typically involve homeowners either selling their property to a developer or partnering with one to add additional floors while retaining part of the redeveloped building. The projects generally have turnaround periods of 18-20 months, with average ticket sizes of around ₹25 crore. Also Read | ICICI Lombard shifts focus from risk transfer to risk management “It's a very good product but the ticket size will be restricted. Delhi itself is a very big market,” Shukla said. About 60% of PNB Housing's customers are self-employed, while 30-35% are salaried borrowers. Around 50-60% of its financing is for self-construction or individual houses rather than flats or apartments. Having only recently rolled out both businesses, the lender expects volumes to gather pace over the coming quarters. "Gradually it will improve because the policy is in place, the processes are in place, the segments also have been identified. So, it should start giving us some good traction," Shukla said. Margins seen improving Margins for the housing financier have been under pressure owing to softer yields on advances amid intense competition and elevated borrowing costs caused by tight system liquidity and high market interest rates. The company's net interest margin (NIM) narrowed to 3.50% in the June quarter from 3.62% in the preceding quarter and 3.74% a year earlier. Overall yield on advances stood at 9.48%, up 1 basis point sequentially but below 9.99% a year ago.
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