PNB Housing Finance Ltd

Ready to leap beyond

Dear shareholders,

I am excited to present our 36^th Annual Report to you, as we enter the growth era of the Indian economy, driven by favourable policy interventions by the government, growing manufacturing and services sectors, increasing income levels, and rising investments in the infrastructure sector by the government of India. Ranked as the fifth largest economy in the world, the country is expected to emerge as a USD 5 trillion economy in the next 3-4 years.

Girish Kousgi

Managing Director and CEO

The housing sector is considered a key pillar of economic growth, driving the economy through its extensive forward and backward linkages. Investments in housing can significantly multiply income and employment generation nationwide. Recognising housing as a fundamental human need, the government has launched multiple initiatives to drive this critical sector of the economy. For Indians, investment in housing is considered one of the largest in their lifetime.

Growing population, housing shortages, increasing urbanisation, growing aspiration levels driven by increasing income, and increasing number of nuclear families are some of the key drivers of the housing sector in the country. By 2047, India's population is projected to surge to 1.7 billion, with around 51% residing in urban centres. Additionally, rural and small towns are expected to transform into mini-urban hubs. Estimates suggest that India will need 230 million housing units by 2047 to accommodate this growth. Changing income profiles will fuel housing demand across all segments. According to a recent report unveiled by NAREDCO, the proportion of lower-income households is expected to drop from 43% to 9%, with a significant shift towards lower and upper-middle-income categories, driving substantial demand for mid-segment housing. The estimated residential demand has the potential to generate an output equivalent to USD 3.5 trillion by 2047.

Mortgage penetration in the country continues to be one of the lowest among the major economies and will be a critical driver of the sector going forward. Key factors to drive the penetration include increasing affordability, ease of financing, enhanced use of digitalisation, and the emergence of tier 2 and 3 cities. Housing finance companies are attractively positioned to ride on this growth due to immense potential in mortgage underserved by banks, increasing government focus through PMAY CLSS schemes in both rural and urban regions, and better network penetration beyond urban centres. The Government, to boost housing, announced assistance for the construction of an additional three crore rural and urban houses under the Pradhan Mantri Awas Yojana (PMAY) as a first major policy decision in its third term.

Our performance in FY24

This year marked the fruition of our collective efforts to lay the foundation for the next phase of our growth. We have achieved significant strides across all parameters: growth, asset quality, liability mix, liquidity, credit rating and profitability.

With multiple priorities driving our retail business, we reported a 14% growth in the retail loan book during the year under review, now contributing 97% of our portfolio. To bring undivided focus to the retail segment, we established different verticals—Affordable, Prime and Emerging Markets —with dedicated teams for sales, credit, operations, and collections for each vertical. The Emerging Markets segment was carved out at the start of FY25 to align our strategies better towards profitable growth. This newly launched vertical will focus on tier 2 and 3 cities. We now have 50 branches in 12 states in this segment, to provide higher yields. The affordable business, under the brand Roshni, started in the last quarter of the previous financial year and saw a significant uptick in disbursements. Within 15 months of starting the vertical, we achieved a loan book of Rs. 1,790 crore, making us the fastest-growing player in the segment. We have 160 dedicated branches catering to the affordable segment, primarily in tier 2 and 3 cities and beyond.

Overall, disbursements for the year stood at Rs. 17,583 crore, reflecting a growth of 17.5% over FY23. With a focus on the retail, 99% of the disbursements were made in the retail segment. The disbursements in the affordable segment formed about 10% of retail disbursements in FY24. The Company closed the Financial Year with Loan Asset of Rs. 65,358 crore, a growth of 10% on the overall book and 14% on the retail book. The corporate loan book was reduced by 46% in FY24, now standing at Rs. 2,052 crore. Our assets under management as on 31^st March 2024 is at Rs. 71,243 crore. We reported a gross NPA of 1.50% at the end of the year against 3.83% at the end of FY23. The Gross NPA reduced by about 660 bps from its peak of 8.13% at the end of FY22. The Net NPA declined below 1% and stood at 0.95% at the end of FY24. We will continue to work towards achieving best-in-class asset quality in the years to come. The improvement in asset quality is due to our focused approach on bucketisation of assets and early resolutions aided by technology, data, and analytics. We also emphasised collections using various legal tools, including extensive use of SARFAESI and auctions. We sold 282 properties in FY24 through auction compared to 98 properties in FY23. The Corporate book also witnessed reduction in the Gross NPA driven by resolutions, sales to ARC, and write-offs. We recovered about 100 crore from the write-off pool and we continue to work on the same.

The last quarter of the year was particularly special as we secured three consistent credit rating upgrades to ‘AA+' from ‘AA' with ‘Stable' outlook, from the country's leading credit rating agencies, India Ratings, ICRA, and CARE. This is testament to our improved business performance, reduced NPA, strong market position, diversified resource profile and efficient capital management.

We reported a 44% growth in net profit from Rs. 1,046 crore in FY23 to Rs. 1,508 crore in FY24. Our return on assets improved to 2.2% in FY24 from 1.61% in FY23, and return on equity was 10.9% at the end of FY24. The Company is well capitalised with CRAR at 29.26% and leverage at 3.68x as on 31^st March 2024.

Augmenting our funding mix

One of the Company's key achievements during the year was the successful capital raise through the rights issue, which provided us with the required growth capital. Our stronger credit ratings, along with enhanced asset quality, helped us reach wider debt market participants, further diversify our borrowing mix, and raise debt from multiple sources at competitive rates. We received refinance of Rs. 3,000 crore from NHB at a lower cost after a gap of 2 years. Furthermore, we restarted raising funds from the wholesale debt market, raising close to Rs. 1,500 crore through Non Convertible Debentures (NCDs) and 10,000 crore via Commercial Papers (CPs) during the year under review. Additionally, deposits saw good momentum as we mobilised Rs. 6,263.56 crore through public deposits and raised bank borrowings from 19 banks/financial institutions during the year.

Ready for the next phase

Over the past three years, we focused on strengthening our fundamentals—increasing the share of retail in the overall portfolio, strengthening systems and processes, enhancing asset quality, and focusing on target markets. As I mentioned earlier, we have made significant progress across these parameters, helping us create a stronger foundation for growth in the coming years.

Retail will continue to remain our focus area, and we will concentrate more on high-yielding segments, leading us to create focused segments for affordable and emerging markets. We will continue to expand our physical presence with newer branches in the coming year. With our pan-India presence and ability to cater to different segments across the pyramid, i.e., Prime, Emerging and Affordable, along with the available opportunity in the mortgage space, we look forward to generating profitable growth. On the corporate book, we aim to restart the business in the coming year with clear guidelines towards select builders and geographies, smaller loan ticket size, focus on construction finance. Given the restart of the corporate book lending, we intend to keep the corporate book at less than 10% of the total loan asset. One of the key differentiators for PNB Housing Finance has always been its technological edge. Over the years, we have made significant investments in digitalisation to create a seamless customer experience, robust risk management and credit underwriting processes, drive employee productivity and optimise operating expenses. During the year, we embarked on our tech transformation journey with a vision to make PNB Housing Finance a major digital player in the HFC ecosystem, collaborating with fintech, banks, and market aggregators to leverage synergy and scale. Through these platforms, we aim to offer personalised products and seamless services, promoting high levels of technology adoption. We are strengthening our core technology foundation by implementing and leveraging cloud workloads and amplification of micro capabilities and services for seamless digital integrations. We have implemented Salesforce CRM for frictionless customer experience. Cybersecurity remains a key priority, and we have implemented AI/ML-based security monitoring, events correlation, and zero-trust security systems. We are a responsible housing finance company, maintaining transparency and the highest level of ethical standards across all spheres of the organisation. Furthermore, we have created a robust risk management framework to navigate challenges effectively.

Leveraging decades of experience to bring advantages

We leverage our extensive experience in the prime segment to fuel growth in emerging markets and affordable housing. We have a rich legacy spanning 30 years across 20 states and UTs in India and we are renowned for our strong brand recall and trusted PNB parentage. With over a decade of proprietary data, we possess a deep understanding of customers across various market and credit cycles. While we have dedicated teams consisting of sales, underwriting, collections and operations for each of our business verticals (Prime, Emerging and Affordable), our ONE PNBHF platform allows us to integrate shared resources and expertise across the breadth of the organisation, ensuring efficient and comprehensive service delivery to meet evolving customer needs and drive sustainable growth.

Strengthening our human capital

Our human capital is pivotal to driving our growth forward. I want to thank our dedicated team of over 5,500 exemplary individuals who tirelessly work together to turn our organisation's & customer's aspirations into reality. We prioritise creating an ecosystem that promotes equality and diversity, offers ample learning opportunities for career progression, and provides best-in-class benefits. Our Great Place to Work certification received this year is a testament to our efforts to make a meaningful difference in the workplace.

Making ESG a priority

As a top 1,000 listed entity and responsible corporate citizen, we recognise that sustainability involves addressing various intangible ESG risks while seizing numerous opportunities. The regulatory focus has rapidly shifted to emerging ESG material aspects, including climate change, highlighting the financial sector's exposure to climate risks that could evolve into systemic threats. At PNB Housing Finance, we approach all endeavours with a sustainability mindset. Our efforts include supporting low and medium-income groups through Roshni loans in the affordable space, promoting climate literacy and a carbon-conscious culture, emphasising diversity, equity, and inclusion (DE&I), implementing robust governance measures and cybersecurity protocols, and engaging in community programmes under CSR. Under the guidance of the Board and its committees, we continually seek innovative ways to leverage ESG principles, striving to become a ‘Forever Sustainable Business' and deliver long-term value to our stakeholders.

In conclusion

I take this opportunity to thank our entire universe of stakeholders – customers, lenders, regulators, vendors, rating agencies, investors and the employees – for their resolute trust in us. With the country's housing sector slated for strong growth and having built a robust foundation to drive our next phase of growth, we expect to create significant value for our stakeholders in the years to come. I would also like to thank the Board for their continued guidance. I am confident that we are ready to leap beyond and unlock significant value together.

Warm regards,

Girish Kousgi

Managing Director and CEO