CARE, assigned ‘CARE AA+’ [CARE Double AA (Plus)] rating to the proposed bonds issue aggregating Rs.300 crore of PNB Housing Finance Ltd (PNBHF). Instruments with this rating are considered to offer high safety for timely servicing of debt obligations and carry very low credit risk.

The rating factors in 100% ownership and demonstrated support from the parent Punjab National Bank (PNB) in the form of lines of credit and deputation of key personnel. The rating also factors in improved asset quality and collection efficiency. The rating is, however, constrained by the small size of the company, asset liability mismatches, and increasing competition in the housing finance sector as also increasing shift to developer financing where risks are greater. Its ability to scale up operations in a highly competitive business environment along-with managing interest rate risk and maintaining incremental spreads and profitability levels are the key rating sensitivities.

PNBHF, a wholly owned subsidiary of Punjab National Bank (PNB), was promoted in 1988, with the objective of venturing into housing finance business. PNBHF’s senior management team is predominantly drawn from PNB. One of the major strengths of PNBHF has been the strong parentage of PNB. The financial support of PNB helped PNBHF in consolidating its position in the intensely competitive market of housing finance.

PNBHF is relatively small to mid-size housing finance company. The company witnessed 40% growth in its outstanding loan portfolio that stood at Rs.1541cr as on Mar.31, 2007, compared to Rs. 1100cr as on Mar.31, 2006.

In FY07, sanctions and disbursements rose 62% and 65% respectively, compared to corresponding period in the previous year. Asset quality further improved during FY07 with 99% of the assets classified as ‘standard’ as on Mar.31, 2007 with Gross NPA% declining to 1.12 % as on Mar.31, 2007 from 3.52%, as on Mar.31, 2006 and Net NPA dipped to 0.8% from 2.77%, during the same period. Total Income rose 45% during FY07, over that for FY06. Interest income of the company also surged by 45% during FY07. Growth in income was driven by growth in loan disbursements and increase in the lending rates. Consequently, PAT of the company, improved considerably by 57% to Rs.28cr during FY07. ROCE which had been declining over the years improved in FY07 and stood at 9.55% due to increase in yield on housing loans during FY07. The interest yield has improved to 10.2% during FY07 from 9.4% in FY06 where as cost of capital climbed to 7.74% in FY07 from 6.56% in FY06, due to increase on cost of borrowed funds. Cost of borrowed funds increased due to high cost fixed deposits and NHB refinance. As a result, the interest spread declined substantially to 1.98% in FY07 from 2.46% in FY06. Increase in borrowings led to increase in overall gearing to 11.25, times as on Mar.31, 2007.

Total Income grew by 53% during H1 FY08 as compared to H1 FY07 mainly driven by growth in loan disbursements and jump in the lending rates. Consequently, the profitability of the company improved considerably to Rs.18cr during H1 FY07. Capital Adequacy Ratio (CAR), as on Sept. 30, 2007 stood at 17.31%.

Sourced From: Careratings

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