PNB Housing Finance Projects 5-8 Bps NIM Expansion Following RBI Benchmark Rate Hike

PNB Housing Finance anticipates a modest expansion in its net interest margin (NIM) of 5 to 8 basis points following the Reserve Bank of India's (RBI) recent decision to hike the benchmark repo rate.

The central bank raised its benchmark lending rate by 25 basis points to 5.5 per cent—the first rate hike in nearly four years—in an effort to contain inflationary pressures spurred by geopolitical conflicts in West Asia. While rate hikes typically increase borrowing costs across the financial system, housing finance companies with diversified liability mixes can often navigate the shift without immediate margin compression.

Diversified Liabilities Cushion Funding Costs

Addressing the transmission of the central bank's policy move, PNB Housing Finance Managing Director and CEO Ajai Shukla explained that the lender's funding base does not reprice simultaneously with the repo rate.

"Some benefit will go to the lender because all of the borrowing of the lender is not on the repo rate," Shukla told PTI. "It is a combination of Marginal Cost of Funds-based Lending Rate (MCLR), commercial paper, refinance from National Housing Bank and non-convertible debentures."

When asked about the extent of the margin expansion for the mortgage lender, Shukla clarified that while the full 25 basis point rate hike would not reflect immediately across the loan book, NIM is anticipated to widen by 5 to 8 basis points.

Full AAA Rating Suite to Lower Borrowing Costs

The margin outlook is further supported by a credit rating upgrade from Crisil Ratings, which revised PNB Housing Finance’s long-term rating to 'AAA/Stable' from 'AA+/Stable'.

With the Crisil upgrade, the housing finance company now holds 'AAA' ratings from all four major domestic credit rating agencies:

• Crisil Ratings
• India Ratings
• CARE Ratings
• ICRA

Shukla highlighted that the rating upgrades will directly reduce borrowing costs across the company's liabilities, particularly bank term loans, which account for 40 per cent of its total resources. The lower cost of funds will enable the company to maintain healthy spreads while passing competitive borrowing rates to retail home loan customers.

The rating actions reflect sustained improvements in the lender's operating profile, marked by stronger capitalisation and steady asset quality improvement.

Strong Demand Momentum for the Second Half

Commenting on housing credit demand, Shukla indicated that business activity had gathered pace heading into the festive period.

"We have seen some good traction... Momentum is already there. Usually the mortgage business starts picking up from Ganesh Chaturthi... so H2 (second half) of the financial year is going to be much better than the first half," Shukla noted.

The combined tailwinds of festive retail loan disbursements, pristine credit ratings, and a calibrated repricing of assets are expected to support PNB Housing Finance's earnings growth and balance-sheet expansion through the remainder of the financial year.

Tags: PNB Housing Finance Reserve Bank of India Crisil Housing Finance NBFC Net Interest Margin