PNB Housing Finance Limited (PNBHOUSING) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to PNB Housing Finance Limited Q4 and FY '24-'25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Deepika Gupta Padhi, National Head, Treasury and IR. Thank you, and over to you, ma'am.

Thank you, Nirav. Good evening, and welcome, everyone. We are here to discuss PNB Housing Finance Q4 and FY '25 results. You must have seen our business and financial numbers in the presentation and the press release shared with the Indian Stock Exchanges and are also available on our website. With me, we have our management team led by Mr. Girish Kousgi, our Managing Director and CEO. We'll begin this call with the performance update by the management team, followed by an interactive Q&A session. Please note, this call may contain forward-looking statements, which exemplify our judgment and future exceptions concerning the development of our business. These forward-looking statements involve risks and uncertainties that may cause actual developments and results to differ materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statement to reflect future events or circumstances. A detailed disclaimer is on Slide #53 of the investor presentation. With that, I will now hand over the call to Mr. Girish Kousgi. Over to you.

Hi. Good evening to all the investors, and thanks for taking time out. It's my pleasure to address you today as we review the dynamic development in India's housing finance sector and share an update on our performance during the quarter and the year. Housing finance industry has shown remarkable resilience and growth. While regional disparities remain, there lies a tremendous opportunity in expanding deeper into underserved regions. Further, government support has been a strong enabler with initiatives like PMAY 2.0 injecting momentum into the affordable housing space. Housing finance companies have responded proactively, offering customized products and flexible solutions to meet the aspirations of the broader spectrum of customers. As per ICRA, the housing finance industry is expected to continue its growth momentum with 13% to 15% on book growth expected for FY '25-'26. The profitability of the HFCs is projected to remain healthy, supported by low credit costs. Coming to PNB Housing, we had a stellar run in the current financial year and achieved significant milestones during the year. Let me talk about them and update on the performance of our guidance shared last year. Despite the challenging operating environment, we achieved retail loan book growth of 18.2% Y-o-Y, surpassing our guidance of 17% to INR 74,802 crores as of 31st March '25. The total loan asset of the company crossed INR 75,000 crores after 23 quarters to reach INR 76,765 crores as on 31st March 2025. The Affordable and Emerging Market segment continues to increase the share in the retail loan asset and is at 26% as on 31st March 2025 from 21% on 31st March 2024. Our Affordable segment loan assets has performed phenomenal and crossed a significant milestone of INR 5,000 crores on March '25. Despite being a late entrant in the Affordable segment, this achievement is a testimony to our conviction in the available opportunity, ensuring right execution and presence across time zones. Retail disbursements increased by 26% Y-o-Y with Affordable and Emerging segment contributing 40% during the quarter. Recoveries from written-off pool grew 2x from INR 100 crores to INR 336 crores in the current year. The gross NPA reached close to 1%, which is at 1.08% by end of the financial year. Ensured stable NIM of 3.7% during the year, achieved ROA of 2.55% for FY '24-'25 versus 2.2% in FY '23-'24. With the strong performance of the company, I'm pleased to announce that the Board of Directors recommended a dividend of INR 5 per equity share for FY '25. This is subject to the shareholders' approval. Let me now talk about a few details on the performance achieved during the year. Disbursement. Our disbursement grew by 25% during the year to INR 21,972 crores. The disbursement during quarter 4 grew by 23% Y-o-Y and 27% quarter-on-quarter to INR 6,854 crores. Affordable and Emerging Market segments contributed 40% in quarter 4 and 36% in FY '25 of total retail disbursements. As planned, we opened 51 branches in quarter 4 FY '25 for Affordable and Emerging Market segments. The total pan-India branch network of the company stands at 356, including 200 for Affordable and 60 for Emerging Market segments. Taking the vision of the regulator forward to develop Northeast states, we have expanded our reach to an Affordable branch in Guwahati. With a large presence pan-India, we are ready to capitalize the opportunity available in Affordable and Emerging Market segments in Tier 2, 3 and 4 cities. On asset quality, the gross NPA improved to 1.08% as on 31 March '25 as compared to 1.5% on 31st March 2024, and 1.19% as on 31st December 2024. During quarter 3 FY '25, one corporate account, which slipped into Stage 2, has now been rolled back to Stage 1. With focused collection efforts, we sold 537 retail properties as compared to 268 in FY '24. We recovered INR 336 crores from written-off pool, which includes INR 178 crores from retail and INR 158 crores from corporate pool during FY '25. The company has a remaining written-off pool of around INR 1,000 crores in corporate and around INR 400 crores in retail. To further our commitment to the vision of housing for all, we are proud to share our partnership with MoHUA and NHB to spearhead the interest subsidy scheme of PMAY initiatives. The scheme was applicable from 1st September 2024. And since then, the company has sourced over 5,500 applications amounting to over INR 750 crores, which are eligible under PMAY scheme. Our diversified liability profile improved credit rating, and continuous engagement with the lenders enabled us to reduce the cost of borrowing by 15 bps during the year to 7.86% versus 8.01% in FY '24. In FY '25, PAT increased by 28.4% Y-o-Y to INR 1,936 crores, leading to an ROA of 2.55% and ROE of 12.19%. The capital adequacy ratio is 29.38% and Tier 1 is 28.39% as on 31st March 2025. Given the industry outlook and the business performance so far, sharing our FY '26 guidance with you all. Retail loan growth 18%. Affordable loan book on 31st March 2026 will be INR 9,500 crores. Corporate disbursement will be in the range of INR 1,500 crores to INR 2,000 crores. NIM will be stable. Credit cost remains benign due to recoveries from written-off pool. ROA would be in the range of 2.5% to 2.6%. As we progress, we will continue to focus on profitable growth while sustaining the asset quality. With this, I would like to hand over the call back to Deepika.

Thank you, sir. I'll now request Vinay, our CFO, to talk about our financial performance.

Good evening, everyone, and a very warm welcome to our earnings call. I'm pleased to announce strong Q4 and FY '25 financial numbers, driven by robust company performance. I will now cover some of the financial parameters in more detail. With growth in retail loan book by 18%, our retail interest income has grown 17% year-on-year. Our total interest income grew 13% year-on-year to INR 1,906 crores in Q4 FY '25. Coming to borrowings, company continues to have diversified and cost-effective long-term financing sources, which resulted in a decline in cost of borrowings by 15 bps year-on-year to 7.86% in FY '25. Cost of borrowing for Q4 was at 7.84%, 1 bp higher than Q3 FY '25. This is on account of higher cost of deposits, and it's been almost at similar lines that we have been in previous quarters. During the year, company has received INR 5,000 crores from NHB and has sourced USD 350 million from ECB. With improved liquidity in the market and rate cut, we expect the borrowing cost to reduce from this quarter onwards. Net interest margin improved by 5 bps in Q4 FY '25 to 3.75% in comparison to 3.7% in the previous quarter. The increase in margin includes temporary gain due to higher disbursements and loan assets in March '25 without corresponding increase in borrowings. This will normalize next quarter. Gross margin improved to 4.27% in Q4 versus 4.1% in Q3, driven by 27% higher disbursements during Q4, and it also includes one-off on account of interest received on income tax refunds. Our operating expenses grew by 18% year-on-year to INR 208 crores versus INR 176 crores in Q4 FY '24 and INR 203 crores in Q3 FY '25. This increase is largely on account of new branch additions that we have done in Affordable and Emerging Market verticals at the beginning of this financial year. We have added another 50 branches in Q4, which will start reflecting in OpEx in Q1. However, we would be able to offset this with economies of scale in existing businesses. Our OpEx to ATA guidance remains in the range of 1% to 1.1%. Led by strong revenue growth, our pre-provision operating profit has grown 14% year-on-year to INR 646 crores at an overall level. Operating profit for retail has grown by 16% year-on-year. Credit cost stood at 32 bps negative for Q4 and 21 bps negative for FY '25. Happy to share that we have recovered INR 336 crores from written-off pool during FY '25. Happy to share we have also reported a PAT of INR 550 crores in Q4, which is up 25% year-on-year and 14% quarter-on-quarter. For FY '25, PAT grew by 28% to INR 1,936 crores. ROA improved to 2.55% for FY '25 versus 2.2% in FY '24. ROE stands at 12.2% in FY '25. Coming to capital. Our total CRAR is at 29.38% with Tier 1 at 28.39%. Debt to equity is stable at 3.7x. Our March '25 net worth stands at INR 16,863 crores, and our book value is now at INR 649. With this, I now hand over back to Deepika for taking this over.

Thank you, Vinay. I'll now request Dilip, our Chief Sales Officer for Prime and Emerging Business, to give segmental performance update.

Thank you, Deepika, and good evening, friends. Welcome to the call. I appreciate you taking the time out. I'm delighted to share with you that we had another very good quarter on the Prime and Emerging markets businesses. To give you a color on disbursements, we disbursed about INR 5,500-plus crores across both these businesses, a growth of 17% year-on-year and a sequential growth of 25-plus percent quarter-on-quarter. The NHL business, where we are trying to increase our growth rate, we managed to disburse INR 1,800-plus crores here in the quarter, Y-o-Y of 40-plus percent over last year Q4. Let me now give you a color of both businesses. I'll start with Emerging markets first. Disbursements in Emerging Markets grew at 33% Y-o-Y for the entire FY '25. In fact, for Q4, they grew at 40% Y-o-Y. The share of Emerging Markets business, like Mr. Kousgi explained, along with Roshni, is going up at an enterprise level. This business now is being generated at a yield increment of 41 basis points over the Prime business. Even within Emerging markets, NHL is going up strongly. NHL as a share of overall disbursements in Emerging Markets stands at 42% for Q4 of FY '25. Now in the Emerging Markets business, we opened a few more new branches along with the new branches and a set of existing branches, which are now being redesignated as Emerging Markets branches. The total distribution size in Emerging Markets goes up to 79 branches as compared to 50 branches at the beginning of FY '24. This just goes to show that we are more and more focused on growing this segment, which is more margin accretive for the enterprise. Now, coming to the Prime markets. Here also, we had a very good quarter on all fronts. We managed to increase our disbursements by 13% year-on-year for all of FY '25. The Prime book grew by 11% to about INR 55,600-plus crores. Another key agenda here is to restrict runoffs. Runoff for entire FY '25 stood at 17%. This is down by 80-plus bps Y-o-Y. Here also, the NHL mix has grown. Against 26% in Q4 of FY '24, the NHL mix in FY '25 for Q4 was 30-plus percent. We had opened 35 new branches across Prime and Emerging Markets in this year. Happy to update that they contributed to 13% of overall disbursements in Q4 of FY '25. Now in line with our focus on profitable growth and margin-accretive businesses, we have also set up a dedicated NHL team. This team will source exclusive NHL business, starting with 10 clusters in top cities. As we speak, in fact, we have also come up with a new customer offering, a complete full tenure fixed rate offering for nonhousing loans. This is a one-of-a-kind product, which currently is not available across the industry. We believe this will be a game changer for increasing our NHL mix further. So to summarize, be it sustained growth in business momentum through geography or managing channel partnerships, retention, asset quality, we have had a good quarter on all these fronts, and we are now ready to increase our business further in the coming years. We believe that FY '25 overall has been a testimony to the fact that our core business franchise is in very, very good shape, and we will only move forward on growth, on margins and asset quality. Thank you. I hand the call back to Deepika.

Thank you, Dilip. I'll now request Valli Sekar, our Chief Sales and Collection Officer for Affordable Business, to update on the business performance.

Thank you, Deepika. Good evening, everyone. It's my distinct pleasure to share with you the exceptional progress we have made in our Roshni business over the last quarter and the year. We concluded the year with a remarkable loan book of INR 5,070 crores, representing a phenomenal year-on-year growth of 183%, up from INR 1,790 crores as on 31st March 2025. This also reflects a robust 32% growth over the preceding year. Our disbursements tell an equally compelling story. In Q4 of FY '25 alone, we disbursed INR 1,291 crores, delivering a 100% growth over INR 645 crores in Q4 of the previous year. On a sequential basis, we saw a 40% increase, up from INR 920 crores in the previous quarter, demonstrating a strong momentum and the market acceptance. Over the past year, we have added 40 new branches, taking our total footprint to 200 branches across 130-plus potential districts in 15 states. I'm happy to report you that these branches are fully operational and already started contributing significantly to our business. We have forayed into 2 promising new markets, namely Punjab and Northeast, with plans to deepen our presence in the coming fiscal. We are thrilled to open our first branch of PNB Housing Finance in Northeast at Guwahati. Our pan-India operations are well balanced across 3 zones, North zone contributing 36%, West zone contributing 33% and South zone contributing 30%. This geographical balance ensures resilience and consistency in our group. The state of Tamil Nadu posts the highest AUM followed by Uttar Pradesh and Madhya Pradesh. To further strengthen our reach, we have empaneled over 2,100 connectors under our Saarthi program and partnerships with more than 500 channel partners who are all powered by 1,200-plus vendors who handle the legal, technical, [indiscernible] related activities. On the technology front, we have implemented advanced digital solutions to enhance our operational agility and scalability. The last quarter was our best ever in terms of log-ins, sanctions, disbursements and the foundation for continued growth. On the portfolio front, we have made significant headwind. Self-employed sourcing rose to 44%, up from 42% last quarter and 37% a year ago. Informal income segment sourcing grew to 30%, up from 26% last year, forming a sizable part of our book now. 73% of the portfolio is within the ticket size of INR 25 lakhs and 30% of our portfolio remains nonhousing loans. On incremental yield, at 11.7% this quarter, sequentially down the previous quarter, however, higher comparatively to the last year. Generally, competition is higher than the last quarter, which results in lower incremental yields with focus on higher-yielding products and from Tier 3 and Tier 4 markets. We will increase the yields in the coming quarters. Importantly, portfolio quality remains very strong, bounce rates are well controlled at 11% and NPAs are impressively as low as 0.21%. We are incredibly proud of what we have accomplished. With this momentum and strong foundation we have laid, we are confident of closing the upcoming financial year with a loan book approaching INR 9,500 crores. Thank you all for your continued support and trust. I'm handing over back to Deepika. Deepika?

Thank you, Valli. I'll now request Jatul, our Chief Credit and Collections Officer, Retail business, to talk about the performance.

Yes. Thank you, Deepika. Good evening, everyone. So credit underwriting has been a driving force towards building a healthy portfolio, followed by sustainable growth. The company has a well-diversified book exposures across all industries with majority cases having low and mid-ticket size and a healthy mix of salaried and self-employed profiles. During Q4 '25, the company witnessed an upward tick in onboarding, sanctions and disbursements across all verticals, Prime, Emerging and Roshni. With all the checks and balances in place, the company has been able to calibrate the portfolio quality. The delinquency book during the last few quarters is well within the tolerable limits and is one of the critical monitoring parameters for the company at all intervals. Last 12 months, onboarding witnessed 30-plus of 0.13% and negligible NPA at 0.03%. Going to last 24 months disbursements, the 30-plus range at 0.48% with 90-plus of 0.14%. Now taking over more on retail collections. The company continued its pattern of sequential reduction in gross NPA quarter-on-quarter, reaching nearer to 1% by end of FY '25. Similar positive results were also replicated across other buckets through a focused approach on granular field collection performance plans, focus on rollbacks and normalization of cases in early buckets, efficient leverage of legal machinery to reduce NPAs by higher number of possessions through surfacing, and other legal actions available on a parallel basis. Now taking over to the dual success stories of write-off recovery and distressed property disposal, it gained further impetus in Q4 FY '25, recording newer heights. Recovery from written-off pool in retail was INR 49 crores for the quarter, taking the annual recovery to INR 178 crores as compared to INR 68 crores last year same time. Disposal of repossessed properties also witnessed staggering performance with 174 properties sold through auction in Q4, taking annual disposal to 537 as against 268 properties of last year same time, so doubling the numbers. So taking the queue forward, as we step into the new financial year, the plan for retail collections is to capitalize and build on successes of the last financial year, further uplift performance through rigorous reviews of the portfolio, tighter control of flows and faster resolutions. Thank you. And now, I'd like to hand over back to Deepika.

Thank you, Jatul. I'll now request Anubhav, our Chief Information Officer, to talk about our initiatives and programs.

Thank you, Deepika. A very good evening to all. PNB Housing Finance continues to move forward and strengthen its technology landscape and foundation to drive business and modern tech capabilities. Our long-term technology vision is to be recognized in a large tech-led digital player in the housing finance ecosystem, partnering with various fintechs, banks, aggregators through scalable digital platforms, and technology services which are integrated end-to-end. Our technology transformation agenda that was initiated in quarter 4, 2024, is in the final stages of completion now. In the quarter 4 of FY '25, we have launched the new deposit core platform for sourcing, servicing, renewing and managing of our term deposits for customers. This system replaces our legacy core deposit system and delivers improved performance, API integration capabilities and additional workflow controls. The new platform is under stabilization and user adoption. In quarter 4 FY '25, we have also successfully set up a full-scale disaster recovery setup on plant and the same was tested successfully. This setup will ensure IT resilience and failover capabilities and enhance our business continuity posture. The new cloud-based AI setup was successfully tested in this quarter for all systems and applications in scope. The overall scalability and performance of the new platform that have been implemented as part of transformation in the last 12 to 18 months was successfully demonstrated with the higher transaction volume that was handled in quarter 4, which was done in a seamless manner. Pilot launch of the new LOS for Prime and Emerging business will now be announced and rolled out across branches during Q1 and Q2 of FY '26. Lastly, we remain focused on the threat of cybersecurity and have set up a 24/7 information security monitoring capabilities center and continue to build residence in our technology platforms in line with new and emerging cybersecurity threat landscape. Information access for all users are also controlled using relevant tools, which work purely on a Zero Trust Architecture model. We have recently further augmented our information security capabilities by introducing additional AI-based monitoring capabilities for our e-mail landscape as well as for our internal network traffic monitoring. Thank you very much. Handing it over back to Deepika.

Thank you, Anubhav. Nirav, we can now open the floor for the Q&A.

[Operator Instructions] The first question is from the line of Renish from ICICI.

Two questions. One on these Affordable yields...

Renish, sorry to interrupt. Your audio is not clear. Can I request you repeat your question from the beginning, please?

Yes. Is it better now?

Yes.

Okay. Yes. Congrats on a great set of numbers. Sir, just 2 things. One on this Affordable yield side. So we have seen a pretty sharp fall on a sequential basis to 40 basis points. Is this due to some seasonality or sort of how one should read this drop in yield on a sequential basis?

[Technical Difficulty] to increase and we will increase yield. So in quarter 4, we had focused more on volume and also with the PMAY ISS coming into picture. So because of these 2 reasons, yields are slightly lower. And I would say, in a sense, this is seasonal. And from quarter 1, it will pick up. Our idea is to take yield to about 12.65% in FY '26.

Okay. Okay. I mean, so is it fair to assume that, let's say, anything about INR 1,000-odd crores yields will be very competitive to achieve that volumes? Or I mean, just wanted to get a sense how one should read this data point in terms of INR 1,200 crores of disbursement and a 40 basis point of yield drop?

If you look at any quarter 4 of the year, it will be slightly seasonal because of too much of focus of everyone on trying to build up volume. So in that sense, it is seasonal. Otherwise, we are very clearly focused on increasing yield. So our plan is to take yield to about 12.65% in Affordable segment.

Got it. And last question from my side on the disbursement momentum, right? So just wanted to have the share, I mean, what would be the share from BT-in of Q4 disbursement and how much it would be from, let's say, core volume increase?

Sorry, come again, core...

BT and non-BT.

So for us, I think -- okay, we are into 3 different businesses. So let me try to address this business-wise. If you look at Prime, I think the BT-in and BT-out is almost similar. On Emerging piece, the BT-in is slightly more about 2%, 3% more than the BT-out. And in Affordable, I think largely it is BT-in; BT-out is negligible.

Okay. Any numbers you want to put it?

So overall, out of 17%, what we talk about closure, BT will be about 5.5% to 6%.

5.5% to 6% BT-in on a net basis?

BT-out.

BT-out. Okay, okay. And BT-in?

BT-in would be about 8%.

At overall basis, right?

Yes, overall.

Next question is from the line of Viral. The line for the participant dropped. We move to the next question. Next question is from the line of Abhijit Tibrewal from Motilal Oswal.

First things first, just trying to understand that you said that BT-in was 8% at the overall level. If you could also share the number in the Affordable book, what proportion of the disbursements in Q4 and full year FY '25 came from BT-in in the Affordable book?

So on book, I think it is 8% BT-in and BT-out is 6%, so we'll get net close to about 2%. So talking about business specifically, Affordable BT-in is about 12%.

BT-in is 12%, this was for 4Q disbursements?

Yes.

Okay. And for full year FY '25?

No, I was talking about the -- see, if we talk about overall Affordable, the BT-in is about 21% to 22%. And in Affordable, BT-out is hardly about 1% to 2%. If you take Prime, it is about 20%, and Emerging will be on similar line. Only thing is in Prime, the BT-in is equal to BT-out, so we do not get anything on BT. On Emerging, we gain about 3%. On Affordable, largely it is BT-in, BT-out is very low. So, overall on the book, what we lose is about close to 6% on BT-out and BT-in is 8%.

Got it. This is clear. So the second thing I wanted to understand is, how should we look at margins in FY '26? The reason I ask is, when we look at large HFCs like you, in a declining rate environment, we speak about a transitory NIM compression. In our case, because we are also matching it up with the product mix change in favor of Emerging and Affordable, how are we kind of looking at NIMs evolve over the next couple of quarters as well as this full year FY '26?

NIM should be stable. When I say stable, if I have to give you a range, it will be between 3.6% to 3.65%. The reason for that is very clear, even in spite of cut in policy rates, because of mix change and also because of corporate business, and the cost would slightly go down because we are expecting maybe, by the end of this year, maybe a rating upgrade. Because of these reasons, our cost would go down. Because of mix change, yield would go up. Because of corporate restart, it will help us on the yield and margin and therefore, margin will be stable.

Got it. And sir, lastly, I mean, if I recall correctly, during the opening remarks, you guided for a retail loan growth of 18% year-over-year and ROA of 2.5% to 2.6% in FY '26. Is that right?

Right.

Got it. And sir, I mean, just trying to understand this better, maybe 3, 4 quarters back, you had suggested that these provision write-backs will continue. This year, for almost whole of this year, we saw those provision write-backs continue. Earlier in the call, during your opening remarks, you spoke about INR 1,000 crores corporate write-off pool, INR 400 crores of retail write-off pool. Now I mean, are we looking for another maybe 3, 4 quarters of these write-backs, provision write-backs continue?

Yes, yes. Whole of FY '26, we will see write-backs. And credit cost will be negative.

Got it, got it. This is useful. Congratulations again on a very, very strong quarter.

Next question is from the line of Nishant Shah from MLP.

Congrats for the good set of numbers. So just elaborating on the previous question on like the headwinds from the repo rate cuts. So like fair play, we have like some levers from product mix change. But do you see some headwinds to just growth itself, like because while, yes, there will be margin compression or like yield compression on incremental book, does that kind of like also result in like lower growth, because you're seeing some of your large HFCs also start to cut rates in line with the repo rate cuts of the large banks. So should we think about like growth probably in the Prime segments or in the corporate segments tapering down a bit and probably Affordable trying to pick up the slack? How should we think about that?

I think 2 things, if you look at our strategy, our strategy has been to grow the Prime book slower, Emerging faster, and much faster Affordable book. So with the rates going down, demand will further go up, so which means volumes will increase. Now for us, cut in policy rate would not impact us for 2 reasons, one, our focus is on margins. So when the rate goes down, we would fine-tune the yield in such a way that the margin is protected. Adding to this, the product mix change and also corporate. So this would us to maintain margins, which should further propel demand and therefore the growth. But our focus is very clear. Our focus is on all the three, but Prime will grow at a slower pace, Affordable and Emerging at a faster rate.

Okay. Fair enough. So what should we think of like the blended company growth to kind of like come in at for this year?

So we have guided retail book growth of about 18%, and corporate, we plan to do about INR 1,500 crores to INR 2,000 crores.

Got it. And that 18% incorporates the slowdown in the Prime book as well as the acceleration in the Affordable book?

In fact, FY '25, there's a lot of challenges, which I've spoken in my previous earnings call. In spite of all the challenges, we had guided for 17% retail growth. We end up with 18.2% retail growth. FY '26 is going to be far, far better than FY '25 for the industry.

Sir, just to double-click on that point. FY '26, like we still had broadly rate discipline being maintained by a lot of the large banks, but now when there's like, say, a 100 bps rate cut cycle, it's compulsory, right? Everything will have to compulsorily kind of like flow through. Does that kind of like create -- so I'm just trying to understand how is the environment in FY '26 easier than in FY '25 when FY '26 is the one which is going to see the brunt of the rate cuts?

See, in FY '26, definitely, there will be cut in policy rates. And it could be 50 bps, it could be 75 bps, it could be 100 bps. It could be anywhere between 50 bps to 100 bps, right? Now this would definitely have an impact because of the lag effect, right? Now we have baked this into our business plan, and basis that we are saying that we'll be able to protect the margin. So on one side, this would impact the margin because of the lag effect, because everyone, including PNB Housing, we have our own PLR that is broadly linked to general interest rate scenario in the market. So whenever policy rate goes down, sooner or later, when our cost goes down, we pass on that benefit to our customers, right? However, there will be a bit of lag. To offset that, we have plan in place in terms of mix change and corporate.

Next question is from the line of Viral Shah from IIFL Capital.

Sir, 2 to 3 questions. One is you mentioned on the possibility of a rating upgrade towards the end of the year. Can you tell us like what gives you that confidence, say, have you interacted with the credit rating agencies? I'm asking this in the context that, of course, there is also the October 4 circular of RBI. If it comes through, then maybe potentially PNB may have to reduce their stake to, say, 20%-odd levels. Of course, there probably could be a glide path. Again, not sure whether even that circular is coming or not. But given that uncertainty, what gives us that confidence and more so the rating agencies? That's one.

See, we got the last upgrade in quarter 4 of last year and quarter 1 of FY '25, okay? So generally, there is a cooling period. And if you see the company's performance in last 5 quarters, this quarter included, I think all the performance metrics have improved, right? And we are sure that this performance will continue for next 2 quarters. So basis this, we feel that there'll be a rating upgrade. Commenting on Para 4, I think it's too early, because even the circular is not rolled out yet. So I think that is too premature to discuss on that. I think looking at the short to medium-term view, I think very clearly, we have a handle on our yield and margins, and we expect that end of this financial year, we should get an upgrade on the ratings.

Okay, sir. Sir, second question is with regard to, I would say, the management kind of say, continuity beyond, say, when the PE presence kind of goes away, more so from the perspective -- again, from a longer-term perspective, how does the governance and all those things kind of play out in that scenario?

See, PNB Housing is a professionally managed organization. So management is quite strong. We have a very strong bench. And today, if you look at PNB as a promoter, they hold about 28%. The next highest is by a private equity player, which is a little over 10%. So I don't think anything will change at all.

No, sir. But like once, say, the PE goes away, then basically, does -- like what's the view of, say, the parent? Because how do they then want to run it? Just if you can comment?

So we have no view on that. I think as of now we are focused on operational things of the company. And in the last few quarters, the stake has been changing, and we've seen that, we've witnessed that. But nothing really has changed in the performance of the company. So it will continue.

Got it, sir. Sir, and last is on the PLR rates. So you haven't taken any PLR rate cut as yet, right, for the total 50 bps cut that has already come?

Not as yet, yes.

Do you have any plans? And if at all, like say over what period you may want to consider that? I know it's an ALCO decision, But just some thoughts, if at all.

We keep reviewing. I think whenever it is, you know, the right time, then we will take a call.

Next question is from the line of Aabhas Verma from East Green Advisors.

I have 2 quick questions. My first question is, going forward, what steady state mix between salaried and self-employed customers do we see on the loan portfolio? Any broad guidance would be helpful. So that's my first question.

See, at a disbursement level, you know, again, we have 3 different businesses. So if we have to talk about Prime, it will be 65-35; Emerging would be 60-40; and Affordable, 50-50. This is at the origination stage, disbursement stage. At a portfolio level, it will take a lot of time because today, the mix is about 70 and 30. It will take time for the mix to create a portfolio.

Okay. And my second question is, for the corporate loan book that we build from here on, what will be the average ticket size and the yields on that, if you could help on that?

Average ticket size should be in the range of INR 175 crores to INR 200 crores. So we started off the last financial year with a small sanction. We will continue. And this year, we plan to disburse about INR 1,500 crores to INR 2,000 crores.

Okay. And about the yields, is it -- like what sort of yields are you expecting on the Affordable...

Yield should be about 12%.

Sorry.

Yield should be about 12%.

12%?

Yes.

Next question is from the line of [ Siraj Khan from Asset and Capital Partners ].

A couple of clarifications before I ask my question. For Affordable book, in the opening remarks, it was said INR 9,500 crores is the target for FY '26. Is that correct?

That's right.

Okay. And so that would imply, we would want to -- so for FY '25, we did approximately INR 3,400 crores of disbursements. And that would mean we have to do somewhere in the region of more than INR 5,000 crores considering the BT-in, et cetera. So would that be a fair assumption?

No. In Affordable, BT-out is hardly anything, as I mentioned. So as of March '25, the book is about INR 5,070 crores. So we plan to take it to INR 9,500 crores. So disbursement should be about close to INR 5,000 crores. You are right.

INR 5,000 crores. Okay. And the data keeping question, and then I will come to the main question. So in the past quarters, we were showing also, in the slide, the sanctions that we did in the quarter. So what is the Q4 sanction, just to identify the sanction to disbursement ratio for the quarter?

Generally, the ratio between disbursement to sanction is about 66%-67%. So we have disbursed little over INR 1,200 crores in quarter 4.

So the sanction rate is somewhere in the region of 66% for Q4?

Yes, about INR 1,600 crores to INR 1,700 crores.

66%. Okay. Great. So now my question comes with respect to the branch expansion. So in the last quarter, we added a significant amount of branches to reach 200 branches for the year. What is the number that we plot for FY '25? And how will it be distributed? Will it be again like this year, or year-ended maybe towards H2? Or will it be spread out? That is first.

So we are at now 356 branches as of March '25. The plan is to take to 500 by March '27. So Affordable, which is now 201, we will take it to about 300 branches, and the rest would be largely in Emerging. So all the branch expansion will happen in Affordable and Emerging. So close to 150 branches will open in next 2 years, that is FY '26 and '27, that would largely be in Affordable and Emerging.

So would that be -- like say, for Affordable specifically, would that be 50-50 in each year? Or will it be more in the next year and...

It will be almost 88% in Affordable and the balance 3% in Emerging.

Understood. And sir, with respect to the pricing, now I think many of the previous participants asked on this. So my question is slightly different on the yield. So the average yield for the whole book in specifically the Affordable was approximately 12%, 11-point-something percent on an average basis. So as and when the yields do come down with the rate cuts, how do you think that it will sustain? Will it go above 12% or will it be somewhere in the region of 11% to 11.5% over maybe...

It will go over 12%, because if you remember, our earlier yield was -- the target was 13%. So with the policy cut, we are now revised up to about 12.65%. So our yield will go up to 12.65%. So we have taken that into account.

Okay. Then basis that, the overall book yield would then, I think, go somewhere north of 10.2%, 10.5%? The incremental yield, I'm talking about.

Yes. Because Emerging, the yield what we're targeting is 10.25%. And let me talk about FY '26, because we really do not know to what extent there will be a swing in policy rates, right? And therefore, let's talk about FY '26. FY '26, the target for Affordable is to take the yield to 12.65%, Emerging is 10.25%, and Prime will be about 9.5% to 9.6%. So if you take disbursement blended yield, it should be in excess of about 10.2% to 10.3%.

Next question is from the line of Abhishek Jain from AlfAccurate Advisors.

Congrats for a strong set of numbers. Sir, my first question on the change in the business mix in this quarter. In this year, we have done around 26% from Emerging and Affordable Housing. So how do you see the change in the business mix in FY '26 and '27? And how much improvement is possible in the ROA and ROE front?

So on a long-term basis, we have guided that this mix should touch 40% by FY '27. Right now, we are at 26%. Next year should be around 32% to 34%, and then it will reach to 40%.

And at that point, what would be the ROE? In this quarter, we have seen a very good improvement on the ROE. What is your medium-term target for ROE?

See, right now, ROE or ROA has upside on account of recoveries from written-off pool, which is to the extent of around 40 basis points. So excluding that, we are at maybe 2.2% to 2.25%. So by FY '27, on a steady state, we want to reach to around 2.5% to 2.6% without the support of recovery.

Okay. And my last question on the outlook for the affordable housing industry. What are the key levers of the growth in FY '26? And how do you see competition over there?

See, for Affordable, especially, now there is a lot of focus from government as well. PMAY 2.0 interest subsidy scheme, there's a lot of demand for that interest subsidy scheme. And even otherwise, from EWS and LIG and part of MIG, there's a lot of demand. So Affordable industry should do well. The growth should be much higher compared to Emerging and Prime. And since our focus is more on Affordable, that's the reason we are planning to take our book from INR 5,000 crores to about INR 9,500 crores, which is almost about 80% to 90% growth in book.

In the next 2 years?

No, no. By March '26, Affordable book to INR 9,500 crores. By March '27, our Affordable book will be INR 15,000 crores. So March '27, I reiterate, our retail loan book is going to be INR 1 lakh crores. Out of INR 1 lakh crores, Affordable will be INR 15,000 crores, Emerging will be INR 25,000 crores and the balance INR 60,000 crores will be Prime book.

[Operator Instructions] Next question is from the line of Aditi Naval from RSPN Ventures.

I just have one question in the Affordable segment. So the bounce rate sequentially over the last few quarters has been inching up. So what is the bounce rate that we are comfortable with in this particular segment?

So I think if you look at the industry, bounce rate is in the range of 15% to 16%. We are at about 11% -- 10.5% to 11%. So I think this portfolio, we are very comfortable as long as it is under 15%. But today, it is 11%. It will take a lot of time because we also have built a book largely from low risk and medium risk. So as we increase our business change segment, we will be in line with the market. Today, we are much below market in terms of bounce rate. I think give or take another 18 months, I think we will get close to that, but we'll be very comfortable as long as it is below 15%.

Next question is from the line of Harsh Shah from Reera Holdings.

Sir, my question is on the credit cost. So this year, we had around INR 160 crores of negative credit cost because of the recoveries. And next year also, you're guiding that recovery could be higher than the credit cost. So my question is, this year, we had almost 35 bps flow through to the ROA because of savings in the credit cost. But if I look at FY '27, we might end up at our usual 20 bps, 25 bps kind of a credit cost. So that means it would be a negative delta of almost 50 to 60 bps in a couple of years. So my question is, how do we get from that -- how will we recover that 50 bps to 60 bps of negative impact that our ROA will have from the credit cost? So currently, we are at 2.75% ROA, which could go down to maybe 2.25%, 2.3% because of this negative credit cost turning to credit cost expense.

So if you look at our recovery pool, I think whole of FY '26, the credit cost is going to be negative because of the recovery, right? In FY '27, we will not get that much support because we won't have really pool available. In the meanwhile, we would have built our corporate book. We would have increased our share of Affordable and Emerging. And also parallelly, we are trying to increase yield in all the 3 segments, I think barring quarter 4, right? So today, the NIM is about 3.6% to 3.7%. By FY '27, NIM will go to over 4.1%. So with that stand-alone, the credit cost is going to be about 25 bps and ROA will be 2.5%, 2.6%.

Okay. Okay. That is what I wanted to ask. So you are working towards getting that NIM to above 4.1% kind of a number?

Yes.

Next question is from the line of [ Siraj Khan from Asset and Capital Partners ].

With respect to the pricing strategy, and again, this is kind of related to both the Emerging and Affordable segment. Again, the Affordable segment saw a drop in the yields for Q4 because of seasonality and competition. Across the board in other HFCs and even your Affordable HFCs, we have seen the incremental yields dropping. So although you are saying that the yields will be above 12%. But my question was, would it be in our benefit to not go too much ahead and stay like a cost leader? Are we doing this by design? Or is it happening by default that we are getting the benefits of being like a low-cost leader in the space with respect to the yields?

No, I think we are very, very clear in our strategy. See, if you look at Affordable business, there are 3 segments, low risk, medium risk and high risk. So the strategy for us is going to be focus on 20% from high risk, 60% from medium risk, 20% from low risk. So this would give us a yield of about 12.65%. So we would neither be at the bottom in terms of pricing nor at the top. We will be somewhere in between, and our yield is going to be 12.65%. So that is our strategy.

Understood. So I was just wanting to understand whether this was by design or something. And any specific buckets of ticket size, say, for example, I can see from the presentation that the less than INR 35 lakh ticket size is the predominant one. But even in the specific subsegment, so with respect to INR 10 lakhs to INR 15 lakhs, or INR 15 lakhs to INR 25 lakhs, any specific band of ticket size that you see is showing good growth in the specific subsegments of this ticket size? And secondly, any specific geography that we are seeing any early signs of, you can say, with respect to asset quality troubles or any specific reason, even with the ticket size and the geography?

So in terms of average ticket size today, we are at about INR 15 lakhs, INR 16 lakhs. So I think once we increase volumes, it will be around INR 14 lakhs. Now in terms of geography, I think South is doing well for us, North is doing well, West is doing well. So I think our strategy would continue. We don't have any pocket or a geography which is a clear no-go for us. So we are pretty much comfortable because we have our experience, we have industry experience. So as of now, all the geographies are doing pretty well in terms of portfolio quality, and we will remain focused on all these geographies. And in future, if there is a need, there might be a small tweak here and there, but I think by and large, our strategy is going to be the same.

Understood. Because we're looking at some of the results of some of the HFC peers, they were speaking about a few issues in the southern region and a bit of issues in the Madhya Pradesh region. So I was like because we have a good presence in these areas, so are we seeing any risks or are we seeing anything on ground in these specific regions in our book or maybe...

Not at all. Not at all. South is doing well, West is doing well, North is doing well. So we have not seen any stress.

Next question is from the line of Harshit Toshniwal from PremjiInvest.

Congratulations on a good set. The question is on the cost of funds this quarter. So I think when we look at the sequential decline, is it that a lot of the cost benefit is passed? Or what has led to this decline, if you can help us know? And given our mix, if you can help us that within the bank loans, how much would be MCLR linked, and how much would be repo EBLR linked? And if you can also help that, how should we expect the cost of funds to pan out next year?

So there is no sequential decline. But year-on-year, we have seen a decline of 15 bps, and this largely has happened post the rating upgrade for us in Q4 and Q1 of this financial year. So more or less, we have now received the benefit of the rating upgrade, which is in the range of 15 basis points as of now. Out of the total loan book, I mean, the term loans that we have, around 40% of it is linked to repo, and rest is linked to MCLR, which are also short-term in nature, roughly mostly 1 month and 3 months. Transmission, again, it depends, because we are also watching while repo is obviously being repriced immediately in some cases, in some cases, it takes 2 to 3 months. But on the MCLR side, there is still no action as such from banks. So it depends on when we see that transmission to start happening. But we are expecting somewhere around 10 to 15 basis points reduction over a period of next 2, 3 quarters in our cost of borrowing.

Sir, just on one thing. I think when we look at this 40%, maybe I think 50 basis points reduction, if I take then, I think 20, 25 basis points of reduction in my overall cost of funds can be from this. And on the public deposits also, there should be -- so I'm just wondering that when you are saying a 15 basis points reduction on a full year basis, are we being conservative here?

No. See, 40% of 40%. So our overall term loans are 40% of our total borrowings. Within that term loans, 40% is linked to repo. So on an overall basis, it is 16% roughly, not 40%. So on that also, transmission comes with a lag. Maybe it takes 2 to 3 months for certain banks to reprice. So it will come. But yes, the impact is 15 to 16 basis points, which is direct. The remaining is linked to MCLR, which will be over a period of time.

Understood. Got it, sir. Sir, in that context, when we look at our margins this year to next year, given the fact that in the Prime also, we have not yet taken PLR cut, anything right now, but there will be an increased competition. And obviously, as you said, corporate loan, et cetera, and mix shift will help. But still maintaining the margins, do you think that it would be the best case scenario, because for a 15 basis points decline only. And still for our Prime and Emerging, the rate cut and the competition cycle will play out in the next 2, 3 quarters. Just wanted to get your sense on that piece itself. Will the offset elements will be so effective that the corporate mix and the mix change is going to offset the entire impact?

So we have multiple levers to increase our yield vis-a-vis compared to the impact because of policy cut and thereby impact on cost of funds and therefore, transmission to the customer, right? So there, as I mentioned to you, whatever is the benefit we get because of policy rate cut, that we will pass on. To that extent, we pass on to our customers. At the same time, we are working on multiple things. See, from this year, we have started LAP vertically. So that will be at a higher yield, number one. Number 2, all the 3 segments, Prime, Emerging and Affordable, we are increasing yield. Number 3, we'll start corporate. So these 3 things will ensure that the yields will go up. And there will be some impact because of the policy rate cut. I think that can easily be offset with these initiatives.

Got it. Okay. And sir, on our credit cost, if I exclude the write-off, then it's a 46 basis points this quarter, if I'm not wrong, 40, 45 basis points. If you can help us that ex of the recoveries, how should we look at the credit cost given the book will season over time, specifically the Affordable one?

Our credit cost will be about 25 bps, ex one-offs, yes.

Next question is from the line of Ravi Naredi from Naredi Investments.

Girish ji, you and your team are doing a very good job in housing finance company and we salute you for doing such a fantastic work for PNB Housing. At this stage, can you tell on 25 number page of investor presentation, you sold 537 properties. So out of selling of these properties, how much we lose or how much we gain? Can you tell the figure?

When we actually sell property on the retail side, we hardly lose anything, sir. We don't lose it. At times, it will be no loss, no profit on principal. So if we talk about corporate, there could be a haircut of about 20%, 30%, 35%. But when it comes to retail, literally, there is no haircut. So whatever properties we have sold through Sarfaesi action, legal initiation, so the loss is hardly nothing. At an enterprise level, there is no loss. At an account level, you might have loss in a few accounts, but you will also get more in other accounts, and therefore, it just gets netted off. So there is no loss on the retail side.

Okay. And you had given very fantastic projection, INR 1 lakh crore AUM by next 2 years. It is really fantastic, and we hope you will attend this AUM figures.

Ladies and gentlemen, we'll take that as the last question. I now hand the conference over to Ms. Deepika Gupta Padhi for closing comments.

Thank you, everyone, for joining us on the call. If you have any questions unanswered, please feel free to get in touch with the Investor Relations team. The transcript of this call will be uploaded on our website. Thank you.

Thank you very much. On behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.