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

To support this growth, the home financier is focusing on various levers such as expanding 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, distribution and branches to grow,” Shukla said in an interview. “We will add more branches this year and next year. Wherever there is opportunity for growth, our footprint will increase in our existing branches, both geographically and in terms of additional resources,” he added. The company currently has 358 branches, 79% of which are aimed at the affordable and emerging market segments.

Short term recalibration

The lender’s affordable portfolio shrank by approximately 15% year-on-year. ₹786 crore in Q3, which Shukla attributed to delayed repayments due to a governance regulation on microfinance loans.

This has forced the lender to “rethink” and “recalibrate” its short-term strategy in this segment, he said, adding that with the announcements made now: Asset quality remains strongThe segment will return to 20-25% growth in payout ratio from Q4.

The lender’s gross non-performing asset (GNI) ratio stood at 1.04% in the quarter, on par with the previous quarter and better than 1.19% in the previous year. Gross NPA for the affordable segment increased to 0.66% in the third quarter from 0.51% a quarter ago and 0.23% a year ago. Overall retail payments in the third quarter increased 16% year over year. ₹6,217 crore.

Personal loans, which constitute 99.7% of the total loan portfolio, increased by 16% on an annual basis. ₹81,931 crore in the December quarter. Affordable and emerging market loans make up 39% of personal loans, and Shukla hopes that percentage will rise to 45-50% in the next few years.

PNB Housing announced consolidated net profit ₹521 crore in the third quarter, up 8% year-on-year but down 11% sequentially.

Focus on protecting margins

Shukla’s optimism stems from the fact that PNB Housing is currently a small player in the affordable housing market, with monthly loan payments of around €200 million. ₹Approximately 300-320 crore ₹700-800 crore for similar ones. “There is ample room to increase our share in these markets. The market is also growing,” he said, adding that it would be “very possible” to distribute loans worth approximately 200 million liras. ₹400-450 crore per month considering the company’s infrastructure, setup, resources and branch network.

Faster growth in affordable and emerging market loans will also support lenders’ margins, which have come under pressure due to a sharp decline in advance yield vis-a-vis the cost of borrowing and a reduction in the corporate loan book following the RBI’s cumulative 125 basis point repo rate cut since February 2025.

Net interest margin (NIM) in this quarter was 3.63%, decreasing from 3.67% in the previous quarter. The advance yield was 9.72% in the third quarter compared to 9.95% in the previous quarter, while the borrowing cost decreased to 7.50% from 7.69% in the previous quarter.

“We will continue to focus on affordable and emerging segments because this is where you can increase your efficiency. There will always be competition in prime businesses,” Shukla said. He added that going forward, the company will direct increased spending and distribution efforts to these segments to support its growth strategy.

Shukla said that the borrowing cost in this quarter was 7.15%, but the incremental borrowing cost was higher at around 7.19-7.20%, adding that overall borrowing costs are expected to remain at similar levels. Despite rising borrowing costs, it expects margins to remain at the current 3.6-3.7% level, supported by a focus on high-yield segments.

Loans for real estate and construction financing

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

The target is to increase the construction finance book to 5 percent of assets next year and 8-10 percent of total assets in two to three years. “The vertical has already been determined; an experienced team has joined. They have started picking up in the market and deals are ongoing,” Shukla said, adding that the lender may complete some deals this quarter. Average ticket size for construction financing ₹60-80 crore and under LAP ₹45-50 lakhs for prime segment and ₹18-20 lakh in the affordable housing segment, he said.

high level competition

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

“Our team is adaptable and experienced. They know how to take on and manage this business. Also, our processes and technology will help us provide a better turnaround time,” said Shukla, adding that the lender is focusing on structuring offers and using digital technology to reach customers faster and serve them better. “That’s what separates us from banks.”

Cash return growth in 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 at around 7.90%.