PNB Housing bets on emerging markets to boost margins as banks corner high-end loans

To drive this growth, the housing financier is focussing on several levers such as growing its branch and distribution network, adding more manpower for these segments, and investing in digital channels, Shukla said.

“We will grow faster than the industry in the affordable segment because we have the scope, the distribution and branches to grow," Shukla said in an interview. “We will be adding more branches this year and next year. Our footprint will increase geographically as well as in terms of additional resources in existing branches wherever there is opportunity to grow," he added. The company currently has 358 branches, of which 79% are for the affordable and emerging market segments.

Short-term recalibration

The lender’s affordable portfolio shrank by around 15% year-on-year to ₹786 crore in Q3, which Shukla attributed to delayed repayments on account of a governance ordinance about microfinance loans.

This forced the lender to “rethink" and “recalibrate" its short-term strategy in this segment, he said, adding that with the clarifications now in and asset quality remaining strong, the segment will return to 20-25% growth in the disbursement rate Q4 onwards.

The lender's gross non-performing asset (GNPA) ratio stood at 1.04% for the quarter, flat from the previous quarter and better than 1.19% from a year earlier. Gross NPA for the affordable segment rose to 0.66% in Q3 from 0.51% a quarter ago and 0.23% a year ago. Overall retail disbursements for Q3 were 16% higher year-on-year at ₹6,217 crore.

Retail loans, which account for 99.7% of the total loan portfolio, grew 16% year-on-year to ₹81,931 crore in the December quarter. Affordable and emerging-market loans comprised 39% of retail loans, a share that Shukla hopes to increase to 45-50% over the next few years.

PNB Housing posted a consolidated net profit of ₹521 crore for Q3, up 8% year-on-year but down 11% sequentially.

Focus on maintaining margins

Shukla’s optimism stems from the fact that PNB Housing is currently a small player in the affordable housing market with monthly loan disbursements of around ₹300-320 crore, compared to around ₹700-800 crore for its peers. “There is good scope to improve our share in those markets. The market is also growing," he said, adding that it would be “very possible" to disburse loans of around ₹400-450 crore a month given the company’s infrastructure, setup, resources and branch network.

Faster growth in affordable and emerging market loans would also support the lender’s margins, which have come under pressure owing to the sharper reduction in the yield on advances compared with the borrowing cost following the RBI’s cumulative 125-basis-points repo rate cut since February 2025 and because of a reduction in the corporate loan book.

Net interest margin (NIM) for the quarter was 3.63%, down from 3.67% in the previous quarter. Yield on advances was at 9.72% in Q3 compared with 9.95% in the previous quarter, whereas cost of borrowing fell to 7.50% from 7.69% a quarter ago.

“We'll keep focussing on the affordable and emerging segments, because this is where you can improve your yield. In the prime business, there will always be competition," Shukla said. Going forward, the company will direct its increased spending and distribution efforts toward those segments to drive its growth strategy, he added.

Borrowing cost for the quarter was 7.15%, but the incremental borrowing cost is higher at around 7.19-7.20%, Shukla said, adding that overall borrowing costs are expected to remain at similar levels. Despite the rise in incremental borrowing costs, he expects margins to remain around the current level of 3.6-3.7%, supported by the focus on higher-yielding segments.

Loans against property and construction finance

To support margins, PNB Housing is also in the process of establishing and growing its loans against property (LAP) vertical and the construction finance portfolio, which will include both residential and commercial real estate.

The aim is to grow the construction finance book to 5% of assets next year and 8-10% of total assets in two to three years. “The vertical is already set; a seasoned team has joined. They have started meeting in the market and deals are underway," Shukla said, adding that the lender may be able to complete some deals in this quarter itself. The average ticket size for construction finance will be ₹60-80 crore, and under LAP it will be ₹45-50 lakh for the prime segment and ₹18-20 lakh in the affordable housing segment, he said.

Competition at the high end

In the prime segment, Shukla said competition from banks is largely in the salaried customer segment, which is why PNB Housing is working to grow the share of self-employed customers, who currently account for around 40% of total customers.

“Our team is attuned and seasoned. They know how to underwrite and navigate this business. Plus, our processes and technology will help us give a better turnaround time," Shukla said, adding that the lender is focussed on structuring proposals and using digital technology to reach customers faster and service them better. “That's the thing which differentiates us and the banks."

Incremental yield on advance for the quarter was 12.1% in the affordable segment, 9.38% in the emerging market segment and 9.08% in the prime segment. In comparison, the company’s promoter Punjab National Bank’s home loan rate starts at 7.20%, while HDFC Bank's starts around 7.90%.