PNB Housing Finance to Boost Funding for Small-Scale Real Estate Developers

Kolkata: PNB Housing Finance, the third-largest mortgage lender in India, plans to fund new, small-scale real estate developers. These developers have traditionally relied on informal financing or risk-taking non-bank lenders. The government’s focus on boosting the supply of affordable homes provides PNB Housing Finance with an opportunity to enhance margins beyond what prime borrowers offer.

The lender has also started sourcing business for financing larger developers with a good track record, a practice it halted four years ago due to asset quality stress. Construction finance on the corporate side and the affordable and emerging markets in the retail segment yield better returns compared to the prime segment, which currently accounts for 60% of the lender's business.

“The idea is to grow volume while improving the margin,” said Ajai Kumar Shukla, the new managing director of PNB Housing Finance, who joined the company last month. The lender aims to achieve an overall business growth of 17-18%.

As part of the strategy to re-enter construction finance, PNB Housing Finance has established a new team of zonal managers and relationship managers to target developers in major cities and select state capitals. “We have started sourcing the business for construction finance, with loan disbursal 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 explained.

The emerging developer segment includes smaller or mid-sized real estate firms that typically build housing projects for middle-income buyers. Banks are often hesitant to lend to these developers due to their limited track records.

PNB Housing Finance ceased financing large developers four years ago after facing adverse experiences. Its existing corporate portfolio shrank to Rs 272 crore at the end of December last year, representing a 78% year-on-year decline following a deliberate scale-down. Currently, the corporate book has no non-performing loans.

Lending to developers yields higher returns than lending to individuals. Among the retail segment, lending to the affordable housing and emerging markets segments provides better yields compared to the prime segment.

“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. His 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 7,140 crore portfolio in affordable housing, which grew 86% year-on-year. The emerging markets portfolio grew 20% year-on-year to Rs 24,998 crore, while the prime segment portfolio increased 8% to Rs 49,793 crore. The lender’s gross non-performing assets ratio stood at 1.04% at the end of December.