PNB Housing Finance Embraces Affordable and Emerging Markets to Strengthen Margins
In a strategic pivot to counter intense competition from banks in the premium home loan segment, PNB Housing Finance is aggressively targeting higher-than-industry growth in the affordable and emerging market categories. The company's newly appointed Managing Director and CEO, Ajai Kumar Shukla, revealed this approach in a recent interview, emphasizing that this focus will support margins while expanding market presence.
Expanding Distribution and Digital Infrastructure
To drive this ambitious growth trajectory, the housing financier is deploying multiple strategic levers. The company plans significant expansion of its branch and distribution network, coupled with increased manpower allocation specifically for these segments. Simultaneously, substantial investments are being channeled into digital platforms to enhance customer reach and service efficiency.
"We will grow faster than the industry in the affordable segment because we have the scope, the distribution and branches to grow," Shukla stated confidently. He added, "We will be adding more branches this year and next year. Our footprint will increase geographically as well as in terms of additional resources in existing branches wherever there is opportunity to grow."
Currently, PNB Housing operates 358 branches across India, with an impressive 79% of these dedicated to serving the affordable and emerging market segments. This structural advantage positions the company well for targeted expansion in these high-potential areas.
Portfolio Performance and Strategic Recalibration
The lender's affordable portfolio experienced a temporary contraction of approximately 15% year-on-year, settling at ₹786 crore in the third quarter. Shukla attributed this dip to delayed repayments resulting from regulatory changes in microfinance lending governance. This development prompted a strategic "rethink" and "recalibration" of short-term approaches in this segment.
With regulatory clarifications now in place and asset quality remaining robust, the company anticipates a strong recovery. Shukla projects that the affordable segment will return to a healthy 20-25% growth rate in disbursements starting from the fourth quarter onward.
Despite the temporary setback, the company's overall asset quality metrics remain encouraging. The gross non-performing asset (GNPA) ratio held steady at 1.04% for the quarter, showing improvement from 1.19% recorded a year earlier. However, gross NPA for the affordable segment showed some increase, rising to 0.66% in Q3 from 0.51% in the previous quarter and 0.23% a year ago.
Financial Performance and Growth Targets
PNB Housing reported consolidated net profit of ₹521 crore for the third quarter, representing an 8% year-on-year increase though marking an 11% sequential decline. Retail disbursements demonstrated strong momentum, growing 16% year-on-year to reach ₹6,217 crore during the quarter.
Retail loans, which constitute a dominant 99.7% of the total loan portfolio, expanded 16% year-on-year to ₹81,931 crore in the December quarter. Affordable and emerging-market loans currently represent 39% of retail loans, a proportion that Shukla aims to elevate to 45-50% over the coming few years through focused expansion efforts.
Margin Protection Through Strategic Focus
The company's strategic emphasis on affordable and emerging markets is particularly crucial for margin protection. Net interest margin (NIM) for the quarter stood at 3.63%, slightly down from 3.67% in the previous quarter. This pressure stems from multiple factors including the sharper reduction in yield on advances compared to borrowing costs, following the Reserve Bank of India's cumulative 125-basis-point repo rate cut since February 2025.
Yield on advances decreased to 9.72% in Q3 from 9.95% in the preceding quarter, while the cost of borrowing declined to 7.50% from 7.69%. Shukla explained the strategic rationale clearly: "We'll keep focussing on the affordable and emerging segments, because this is where you can improve your yield. In the prime business, there will always be competition."
The incremental yield data supports this strategy, with the affordable segment delivering 12.1%, emerging markets at 9.38%, and the prime segment at 9.08% for the quarter. Despite incremental borrowing costs rising to approximately 7.19-7.20%, Shukla expects margins to stabilize around the current 3.6-3.7% range, supported by the focus on higher-yielding segments.
Diversification Through New Verticals
Beyond the core affordable housing focus, PNB Housing is actively developing complementary business verticals to further bolster margins. The company is establishing and expanding its loans against property (LAP) operations while simultaneously growing its construction finance portfolio, which will encompass both residential and commercial real estate projects.
"The vertical is already set; a seasoned team has joined. They have started meeting in the market and deals are underway," Shukla revealed, indicating that some transactions might materialize within the current quarter itself. The company aims to grow its construction finance book to 5% of total assets next year, with a further expansion target of 8-10% within two to three years.
Average ticket sizes are strategically segmented, with construction finance averaging ₹60-80 crore, while LAP operations will target ₹45-50 lakh in the prime segment and ₹18-20 lakh in the affordable housing category.
Differentiating in a Competitive Landscape
In the intensely competitive prime segment, where banks particularly dominate the salaried customer category, PNB Housing is strategically increasing its focus on self-employed customers. This segment currently represents around 40% of the company's total customer base, offering significant growth potential.
"Our team is attuned and seasoned. They know how to underwrite and navigate this business. Plus, our processes and technology will help us give a better turnaround time," Shukla emphasized. He highlighted that the lender's differentiated approach involves structuring customized proposals and leveraging digital technology to accelerate customer acquisition and enhance service delivery.
This comprehensive strategy—combining geographic expansion, segment specialization, digital transformation, and vertical diversification—positions PNB Housing Finance to navigate competitive pressures while pursuing sustainable growth in India's evolving housing finance landscape.
