Offering the rating rationale, India Ratings stated that the ratings factor the significant presence of PNB Housing Finance Limited in the mortgage space that has seen multiple business cycles. The ratings also factor in the granularisation of the loan book, with 98% of the book being retail, and almost complete rundown of the corporate book.

India Ratings expects its credit costs to be modest, given the retail and granular nature of the loan book.

The Rs 2,500 crore equity infusion in the form of rights issue offers the necessary growth capital to expand the franchisee in the granular mortgage space.

However, the performance of the affordable housing portfolio, which is at a nascent stage, remains a monitorable.

The agency further stated that a substantial proportion of granular stable funding in the borrowing mix, a sizeable expansion in the franchisee, gaining the market leadership, and expanding its presence across multiple geographies while maintaining its credit costs will be positive for the ratings.

However, the company's inability to expand its franchisee on account of competitive headwinds or otherwise, elevated delinquency levels such that the gross NPA exceeding 5%, on a sustained basis, and a significant deterioration in PNBHF's liquidity buffer, on a sustained basis, could lead to a negative ratings action.

PNB Housing Finance is a deposit-accepting housing finance company registered under the National Housing Bank and the Companies Act, 1956. PNBHF provides housing loans to individuals for purchase, construction, repair, and upgrade of houses. It also provides loans against property, loans for commercial property, and loans for purchase of residential plots, and real estate development loans (no new sanctions of real estate development loans since April 2019).

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