Dear Stakeholders

Building an enduring institution is more than just strategy and vision. It is also about resilience and courage to face adversity, the ability to stay afloat in periods of challenges with positive thinking and opportunity mapping. Sometimes when the going gets tough, one may be weak enough to abandon values and high standards of performance but that is not true at PNB Housing. In this context, I am reminded of Dr. Robert H. Schuller’s famous saying, “tough times never last, tough people do.” At PNB Housing, we are inspired by the philosophy of toughness and teamwork to build a robust institution of value for the nation.

On this note, I wish to congratulate every member of our growing stakeholder fraternity for helping us accomplish predictable performance in a rather uncertain operating environment. This is the result of our grit and determination to continue the journey and strengthen an institution, which can deliver lasting value.

MACRO ENVIRONMENT

The upswing in global economic activity persisted until the middle of 2018. However, the momentum petered out subsequently, amid broad-based moderation in activity across developed and emerging economies. Despite global headwinds, the Indian economy during the year continued to grow at close to 6.8% following wide-ranging reforms undertaken by the Government of India and states in the recent years.

According to Government estimates, the country is poised to become a US$ 5 trillion economy in the next five years and aspires to become a US$ 10 trillion economy in the next eight years thereafter. Moderate inflation, controlled fiscal deficit, encouraging growth in gross capital formation and ease of doing business continue to be critical growth catalysts of our economy. It is relevant to mention here that encouraging improvement in the ease of doing business (India’s rank in the World Bank’s Ease of Doing Business Report has gone up from 142 in 2014 to 77 in 2018) has helped turn around investment sentiment in the country.

The implementation of structural reforms such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC) framework have been of critical significance in India’s journey towards having a more formalised and transparent economy. The Government’s thrust towards digital connectivity, financial inclusion, faster urbanisation, affordable housing and gradual revival of the semi-urban and rural economy will further bolster economic growth in the coming years. The accommodative monetary policy of the Reserve Bank of India will also help spur growth in the economy.

Shifting the focus to overall financial services sector, FY 2018-19 came with a mixed baggage. There were liquidity challenges and the sector had to grapple with a larger issue of trust deficit. In fact, the challenges had an adverse impact on the economy as a whole, as liquidity stress affected consumption finance.

India’s economy saw a sharp downward trend in liquidity, both in wholesale corporate bond market (where it was more pronounced) and the banking sector. The fear of credit default, which got accentuated by events at few corporate houses held back the lenders from financial institutions, especially NBFCs and HFCs.

RESILIENT PERFORMANCE

Notwithstanding challenges in the operating scenario, we registered healthy double-digit growth during FY 2018-19 vis-à-vis FY 2017-18. The net interest income grew by 24% to reach `2,064 crores and profit after tax expanded by 42% and was at `1,191.5 crores. The spread on loans for FY 2018-19 is 235 basis points. Excluding the direct assignment income (that is as per IGAAP), the spread on loans for FY 2018-19 is 198 basis points. Net interest margin is 293 basis points for the same period. The gross margin, net of acquisition cost, including fee income for fiscal 2018-19 stood at 334 basis points against 350 basis points during FY 2017-18.

We continue to be the fifth largest in the domestic HFC segment in terms of our assets size, second largest in deposits, and third largest if one considers incremental disbursements. Our growth has been one of the fastest in the sector during the last few years. For the period we disbursed loans worth `36,079 crores at a growth rate of 9% over the previous year.

One should be cognisant of the fact that PNB Housing is a unique national asset, built meticulously with diligence and foresight. The process of building required extraordinary vision, design, execution prowess, personality, culture-building and beyond the call of duty efforts; today that labour of love and dedication is in public domain.

Maintaining laser sharp focus on portfolio quality, granularity and product mix are foremost in our list of priorities. Aggressive pursuit of the aspiring self-employed customer segment has been undertaken. The aim is to fulfil their home ownership aspirations and cater to their financial requirements. Over 80% of our portfolio addresses the retail segment and we are clear about our priorities to grow our footprint as a retail lending institution.

PNB Housing is aggressively strengthening its footprint to reach out to more customers; 18 branches were made operational during the year, totalling 102 branches across 62 cities. Our customers are also serviced through 29 outreach locations. The hub-and-spoke operating model is the backbone of operations and we are strengthening it through continuous investments in analytics, technology enhancements and digitalisation. The branches and outreach locations are points of sale and service as well as centres of lead generation, while 23 advanced hubs are responsible for prompt processing, quicker turnarounds and optimising productivity.

During the year under review, greater depth, rigour and higher degree of monitoring the risk management framework have been introduced. This strategy helped us further minimise liquidity risk, sustain the retail disbursements and see good growth in asset volumes. With regard to the corporate loan book, accounts were monitored on multiple vectors, aside from delinquency, such as utilisation, stage of construction, sales velocity, demand, collection efficiencies and escrow discipline. This is carried out with different weightages at different project lifecycle stages and with specific resolution norms in place.

The efficiency to underwrite all segments with prudence has helped in containing non-performing assets (NPA) to the industry’s lowest levels even in the most testing times.

PNB Housing has a very strong and robust retail deposit arm with over 1,50,000 deposit accounts. Progressively, the deposit mobilisation during FY 2018-19 grew over 4.5 times from `212 crores per month in April 2018 to `1,032 crores in March 2019. Similarly, deposit volumes increased more than three times, from 3,500 applications in April 2018 to over 11,400 applications in March 2019. Deposits outstanding as on March 31, 2019 are `14,315 crores, reflecting a growth of 23.5% over `11,586 crores as on March 31, 2018.

Amid the high volatility in the debt market and scarcity of funds, long term funds at competitive rates have been mobilisied. We leveraged multiple lending partners to manage liquidity and judiciously allocated capital across operations. During the financial year, `30,858 crores was borrowed through bank term loans, National Housing Bank refinance, external commercial borrowings and public deposits. The National Housing Bank sanctioned `3,500 crores in the third quarter of fiscal 2018-19, which was fully drawn down during the fourth quarter.

With the increased share of long-term borrowings during the year, the asset and liability management (ALM) gaps across buckets have also improved. As on March 31, 2019, we prudently maintained over `7,000 crores, as cash and liquid investments on the balance sheet. The liquidity buffer helped in strengthening resilience while being nimble-footed and stable.

Considering the macro-economic environment, continuous growth and sustained profitability has kept the investors’ faith strong in the management team. Robust communication channels has helped us maintain continuous dialogue with all stakeholders, so that there is no speculation about our strategic priorities and outlook. A strong and effective 1,609 member team, PNB Housing enhanced efficiency across all employee performance metrices, during the year under review.

On the people front, the Company is relentlessly building competencies to provide a rewarding career to its colleagues. We endeavour to provide relevant skill development opportunities to our talent pool and have made continuous efforts to build an inclusive culture. In the Corporate Finance domain, we have ushered in the concept of strategic business unit (SBU), which is in harmony with the three retail zones. The Company will stay committed towards its ethos of promoting internal talent.

Compliance continues to be a non-negotiable priority for us; and all state-of-the-art operating procedures, systems and processes are designed keeping in mind the interests of stakeholders. Our stringent governance framework was crucial in helping us tide over volatile sector conditions and motivating the teams. Proactive measures were taken to inculcate core values across tiers, instiling values of trust, hard work and commitment.

In line with our philosophy to enable the not-so-fortunate community in becoming capable and self-reliant, we work in the area of skill enhancement training, day care centres, education and health care under our corporate social responsibility (CSR) programme. Through the institutionalised intervention programme ‘Saksham’, we engage with multiple agencies, public and private, to uplift the lives of construction workers and empower them by implementing feasible solutions.

WAY FORWARD

The Company’s objective is to continue to build upon overall efficiencies, leverage technological interventions and deliver on the expectations of stakeholders. To accomplish our future goals, we will need to commit and align with the organisation’s strategy of optimising existing resources, for achieving industry-leading performance levels. It is time to revisit our arsenal, leverage our capabilities, identify areas of improvement, focus on improving efficiencies and reducing wastages.

Over 50% of PNB Housing branches were operationalised during the preceding three years and our goal is to enable these branches to contribute to the growth of the organisation. I strongly believe, the opportunity landscape in housing finance sector is gradually widening as mass housing offers a plethora of prospects, well cushioned by incentives and tax breaks. We have ensured that the Company’s presence within the target group is gradually penetrating emerging cities, where there are encouraging opportunities. There will also be a special focus on establishing and expanding the property services group (PSG) and loan syndication business.

The use of technology in line with the business ideology will be a key differentiating factor for the holistic growth of the organisation. The intelligent and intuitive use of data and technology will help in making the business more future-ready and sustainable. It is now time to make the optimum use of digital resources with a focused approach to enhance efficiencies and reduce cost.

In this context, one must also mention that the Company has adopted total quality management (TQM) framework to help improve productivity and bring efficiency in the existing retail processes. After attaining success in the pilot project at two hubs of North zone, that is, Noida and Green Park, it has been extended to two hubs in MMR and three hubs in Bangalore in a phased manner.

The strategies are well in place to take the organisation to the next level of value creation. Before I conclude, let me reiterate that sustainable value creators are those businesses which have a strong set of values and remarkable resilience to withstand headwinds and move on. We are building such a lasting value-creating business with a balanced approach to business growth, asset quality and profitability to serve all our customers and stakeholders and contribute to the nation-building.

Your continued encouragement and support will stand us in great stead in the journey together.

I thank our regulator, the National Housing Bank (NHB), our lenders, rating agencies and business partners whose continuous trust makes us who we are. I also wish to extend humble regards to the Reserve Bank of India (RBI), Stock Exchange Board of India (SEBI) and the stock exchanges for rendering their support.

The Board of Directors has continued its relentless guidance and support to the development of the Company. The Independent Directors have played a pivotal role in bringing about high standards of corporate governance, especially with the enactment of the Companies Act of 2013. I sincerely thank them for their continuous direction.

I extend gratitude to the statutory and internal auditors who have kept a keen vigil on all aspects of our operations while maintaining a pragmatic view on business growth.

I would also wish to give a big applause to every member of PNB Housing and PHFL teams for their persistent determination and endurance to perform in such challenging environment. It is their relentless efforts that has delivered such a fine performance in the financial year 2018-19.

Warm regards,

Sanjaya Gupta

Managing Director