Good Time to Invest in Housing and Housing Finance Companies

In the recent months, stakeholders connected to banks, insurance companies and financial institutions have witnessed some turbulent times. With nil or failed resolution plans in place, a significant percentage of admitted companies have been served liquidation orders by Indian courts. Investor confidence has been further wavered with bad loans coming to the fore and companies being dragged to bankruptcy courts.

Fortunately, the BFSI sector in India is now holding some promise for investors. In the backdrop of favorable regulations, banks and financial institutions are implementing strategic changes for the sake of increasing shareholder wealth and stoking the confidence of investors.

Even in this otherwise grim scenario, companies like HDFC Ltd., LIC India, PNB Housing Finance Ltd (PNBHFL), etc. have managed to hold firm ground with their sound fundamentals seeing them through. They continued to thrive and notch high profitability figures despite industry odds. The challenges faced by them could be overcome courtesy experienced management, sound financials, Balance Sheet results, helpful brand linkages, upward rising profitability profiles and adequate liquidity positions.

For instance, PNBHFL could keep itself afloat courtesy its strong brand linkage with PNB, a growing loan portfolio, highly-diversified resource profile, adequate capitalization maintenance and lucrative asset quality numbers. The key rating sensitivities of PNBHFL lay in the Company's ability to maintain profitability, liquidity, asset quality and capital adequacy.

On 2nd May, 2018, CARE Ratings has flagged PNB Housing Finance Ltd. and kept it on watch for developing implications. This action was attributed to the increasing component of corporate loan book in the total loan portfolio of PNBHFL. The consistent vulnerability caused by the uncertainties in the real estate sector has also contributed to the cause.

According to a statement released by CARE, it will continue to monitor the developments related to the Company's capital raising - critical for the maintenance of gearing levels and capital adequacy - in its process of attaining target growth. In the absence of any questionable performance metrics to worry about, PNB Housing Finance plans to procure up to $1 billion (around Rs 6,954 crore) from overseas borrowings. Additionally, it plans to float secured/unsecured NCDs worth Rs 10,000 crore in multiple tranches.

As on 30-Sep-18, as per the figures provided by ICRA Indian Mortgage Finance Market Update, H1FY2019, PNB Housing Finance Ltd. ranked 5th in terms of loan assets and 2nd largest in terms of deposits. The Company's consistent growth in loan book, an impressively low GNPA at 0.47 as on 31st Dec 2018, consistent product mix, and a cost-effective and diverse borrowing mix boasting of an average cost of borrowing of 7.97% for 9M FY18-19, has placed PNBHFL ahead of many others in the housing finance industry. The bad loans pertaining to its wholesale loan book was nil on 31st Dec 2018.

With economic fundamentals finding firmer grounds in the 1st quarter of 2019, the time has certainly become ripe for powerful and accessible transformations to take over. This is true for industry leaders like PNBHFL along with many others in the BFSI sector.

By Our Special Correspondent