Chairman’s statement

DEAR SHAREHOLDERS,

It gives me immense pleasure to write to you as the Chairman of your Company, and present the 32^nd Annual Report and consolidated financial statements of PNB Housing Finance Limited (PNB Housing) for the financial year ended March 31, 2020. Every once in while we come across a global event that alters the ‘normal’ way of life.

PNB Housing is no stranger to adversities. In fact, an event of such scale and impact puts to test the fundamental strengths of any organisation. Your Company demonstrated once again, in FY 2019-20, its ability to withstand challenges and quickly adapt to the emerging realities.

PNB Housing employees are working relentlessly across the country to support aspiring homeowners through these uncertain times, providing appropriate funding to those in need and extending support to help them pass-through the pandemic (COVID-19) storm. Your Company is actively implementing Government-backed initiatives like moratorium on loan repayments, Partial Credit Guarantee Scheme 2.0, Emergency Credit Line Guarantee Scheme; and also participating in, Special Refinance Facility, Targeted Long-Term Repo Operations, deferment of interest on working capital facilities, among others.

The RBI has also taken steps to infuse liquidity into the system via targeted long- term repo operations (TLTROs), which could increase the available liquidity. The ` 50,000 crores of additional TLTROs announced on April 17, 2020 and the additional ` 10,000 crores of refinance facility to National Housing Bank (NHB) will support the immediate liquidity requirements of HFCs to some extent, especially those operating in the affordable housing space where collections are likely to be impacted more.

SYNCHRONISED EFFORTS TO REVIVE ECONOMY

The Indian economy had been experiencing a challenging period, with a mix of structural and cyclical factors in play before COVID-19 struck at the end of the financial year. The Government of India had implemented several measures to reverse the trend. The RBI complemented by easing monetary policy stance and taking steps to fuel credit growth. In addition, the reduction in corporate tax rates and steps to expedite insolvency resolutions are expected to boost sentiments.

However, just when green shoots in the economic growth were started coming up, the COVID-19 outbreak compelled the Government to rightly prioritise life over everything else and impose a multi-phase nationwide lockdown. Barring essential services, all economic activities came to a grinding halt, sending the economy into a tailspin. India recorded its slowest growth in 11 years.

The Government, along with the RBI are fully focussed to minimise the adverse impact, injecting liquidity into the system and lowering key policy rates across the board. These synchronised stimulus measures are likely to stabilise the economy in the near term and set the stage for a recovery in FY 2021-22. However, the shape of the recovery will depend on how the pandemic pans out over the next few months and the availability of vaccine.

HOUSING FINANCE OFFERS SIGNIFICANT UNTAPPED OPPORTUNITIES

The housing finance space is also facing its fair share of challenges, with muted demand, lingering concerns over asset quality, funding constraints, and portfolio sales through securitisation. The overall on-book housing loan portfolio growth of HFCs and NBFCs slowed significantly to 6% for the period ended December 31, 2019 (from 14% in the period earlier). However, Asset Book of HFCs has grown by ` 1.74 lakh crores during the 16 months period from ` 8.28 lakh crores at September, 2018 to ` 10.02 lakh crores at January, 2020. Individual Home Loan (IHL) portfolio of these HFCs has grown at same pace to reach ` 6.13 lakh crores. The demand remains robust in mass housing, which is likely to outpace industry growth with liquidity support from the NHB.

Overall housing credit growth is expected to be slower in the first half of FY 2020-21, while recovery in the second will depend on the economic turnaround. The pressure on asset quality is expected to mount with the impact being felt across all segments–housing loans, loan against property and construction finance.

In terms of broader trends shaping the housing sector, I believe more people are going to realise the value of homes and the value of tangible assets and savings over consumption. By extension, the average age of first-time homebuyers may see a paradigm shift in the years ahead, with more millennial coming into the market. This will be the same set of people who had previously preferred the mobility of a rented home. Also, it is unlikely that we will see any new launches in the near future, as developers will focus on finishing their under-construction inventory, preserving cash flows and maintaining creditworthiness. Lastly, by virtue of being a human capital-intensive sector, there will be cost of redeployment of operations, on account of the time it will take to restart supply chains and address the reverse migration of labour.

ADAPTING TO CHANGING MARKET DYNAMICS WITH PRUDENCE

PNB Housing is a non-banking finance company anchored in the housing loan market of India. Your Company understands the risks and opportunities in the evolving operating environment landscape and is well equipped to navigate the evolving operating landscape with prudent strategies and foresight. PNB Housing is well positioned to capitalise on the vast untapped opportunities that a vibrant economy like India offers.

Your Company remains committed delivering services to customers. Its ability to leverage digital technologies, lower costs and drive efficiencies is likely to enable PNB Housing to deliver solid performance through economic cycles. Employee safety and morale, liquidity and customer service, including disbursements, remain top priorities. A graded shift towards the relatively risk-free capital-efficient retail segment and a conservative approach to underwriting and lending will be key to lowering volatility and enhancing stability in an uncertain macro environment.

Before I conclude, I would like to thank all members of the Board, the leadership team and the employees of PNB Housing for their unwavering commitment. It’s no mean feat, given the current circumstances. I also wish to thank the RBI, the NHB, the Securities and Exchange Board of India (SEBI) and the stock exchanges for their continued support, even during these difficult times.

And finally, I thank you, the shareholders, for your trust, confidence, and support. It has been pivotal in helping your Company to make bold decisions and focus on long-term interests of the business.

Warm regards,

CH. S. S. MALLIKARJUNA RAO

Chairman