PNB Housing Finance plans to fund new, small-scale real estate developers

Kolkata: PNB Housing Finance plans to fund new, small-scale real estate developers, which have hitherto relied on either informal financing or other risk-taking non-bank lenders, as the government’s focus on boosting the supply of affordable homes gives the mortgage lender an avenue to fatten margins beyond what prime borrowers offer.

The lender has also started sourcing business for financing bigger developers with good track record, something which it stopped doing in the last four years after facing asset quality stress.

Construction finance on the corporate side and the affordable and emerging markets in the retail side yield better than the prime segment, which accounts for 60% of the lender's business at present.


"The idea is to grow volume while improving the margin," new managing director Ajai Kumar Shukla told ET. Shukla joined the company last month.

The third largest mortgage lender after LIC Housing Finance and Bajaj Housing Finance aims to grow overall business by 17-18%.

As part of the plan to re-enter construction finance, the company has built a new team of zonal managers and relationship managers for targeting developers in major cities and select state capitals.

"We have started sourcing the business for construction finance while loan disbursal is expected in the fourth quarter. For the entry into the emerging developer segment, the first quarter of the next fiscal year is the target," Shukla said.

The emerging developer segment refers to a group of smaller or mid-sized real estate firms that typically build housing projects for middle income buyers. Banks hesitate to lend to these developers due to their limited track records.

PNB Housing Finance stopped financing big developers four years back after its experience turned bad. Its existing corporate portfolio shrank to Rs 272 crore at the end of December last year, representing 78% dip year-on-year following the conscious scale down exercise. The corporate book has no non-performing loans at present.

Lending to developers yields more than lending to individuals. Among the retail segment, the lending to the affordable housing and emerging markets yield more than the lending to the prime segment.

"The focus will be more on affordable and emerging markets business for higher yields. Our target is to raise the cumulative share of these segments to 45-50% by the end of FY28 from 39% at present," Shukla said.

Shukla's predecessor Girish Kousgi had projected raising the share of the affordable and emerging markets segments to 50% by FY27.

Separately, the lender has a Rs 7140 crore portfolio in affordable housing, growing 86% year-on-year. Its emerging markets grew 20% year-on-year to Rs 24998 crore while the prime segment portfolio rose 8% to Rs 49793 crore.

The lender's gross non-performing assets ratio stood at 1.04% at the end of December.