PNB Housing targets micro loans and small developers to lift margins

The Story in Brief

PNB Housing Finance is entering micro housing loans and small developer finance as it seeks higher loan spreads and stronger profitability. The lender expects its affordable and emerging businesses to make up about half its assets by FY28, up from 41% currently. Micro housing loans could yield 14-15%, against about 12% for affordable loans, with lending focused on tier 4 and tier 5 cities. Its emerging developer finance business will fund home reconstruction and expansion projects in cities including New Delhi, Ahmedabad, Bengaluru and Hyderabad. PNB Housing’s net interest margin fell to 3.50% in the June quarter from 3.74% a year earlier.

The Indian Opinion

The easy story is that higher-yield micro loans will quickly fix PNB Housing’s margin pressure. That is premature. These borrowers and small developers may offer better returns, but they also bring underwriting and collection risks, while the lender has only recently launched both businesses. The opposite claim, that the plan is reckless, is also too broad. The useful test is whether NIM rises from 3.50% without a sharp increase in credit costs over the next few quarters.

Source: livemint.com

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