PNB Housing: Festive Home Loan Demand Status Check | Girish Kousgi Share Details & Expectations

Summary

In this interview, Gish kogi, MD and CEO of PNB Housing Finance, discusses the current state of the housing finance sector. He mentions that while festive season offers may not be as significant due to high demand and strong sector performance, there could be minor processing fee waivers. He also addresses the challenges faced by banks in lending for home loans due to lower spreads and strong credit offtake elsewhere. Kogi predicts that long-term rates may experience a slight drop but will remain stable, not returning to previous lows. He reflects on the price war in the HFC market and suggests it's calming down, with a focus on emerging and affordable segments for better margins. Lastly, he touches on the impact of liquidity on HFCs and the balance between salaried and self-employed borrowers.

Takeaways

• 🏦 Gish Kogi, CEO of PNB Housing Finance, suggests that while there might be some festive season offers, they won't be major due to high demand and the sector performing well.
• 📈 The housing finance sector is currently doing well, with demand increasing every quarter, which might limit significant discounts on home loans.
• 💼 Banks are currently less inclined to lend for home loans due to lower spreads compared to other types of loans, where they can earn more.
• 📉 The banking industry is facing challenges with deposit raising, which might lead to a slowdown in credit growth or an increase in deposit mobilization efforts.
• 🏢 The demand in the housing sector is strong and is expected to continue growing, providing opportunities for non-banking financial companies (NBFCs) and housing finance companies.
• 📉 Long-term rates for the industry are hard to predict, but there might be some rate cuts in the coming year, with rates expected to stabilize rather than drop significantly.
• 💹 The price war in the HFC market, which was intense in 2021-2023, is likely to subside due to banking sector challenges and a shift in consumer savings towards other asset classes.
• 🏠 Real estate prices have increased significantly, affecting the average loan ticket size, which has gone up. However, future price increases are expected to be more moderate.
• 💧 Liquidity for HFCs has not been a challenge post-COVID, and with the Reserve Bank of India easing liquidity, conditions are expected to improve for HFCs.
• 💼 PNB Housing's strategy includes a mix of salaried (60-66%) and self-employed borrowers, with a focus on emerging and affordable segments for better margins.

Q & A

What is the general trend for home finance companies (HFCs) during the festive season?

While HFCs have historically offered special deals during the festive season, this year might not see major offers due to high demand and the sector performing well. Any offers could be limited to waivers in processing fees rather than deep discounts on rates or fees.

Why are banks currently hesitant to lend to home loans?

Banks are not keen on lending to home loans because the spread is lower compared to other types of loans. With strong credit off-take, banks can enjoy better returns by lending to corporates or for working capital requirements.

What challenges are banks facing that could impact HFCs?

Banks are facing challenges with deposit raising, which has become difficult. This could lead to adjustments in the capital adequacy ratio (CAR), potentially requiring banks to mobilize more deposits or slow down credit growth, which might open opportunities for NBFCs and HFCs.

What is the outlook for long-term interest rates in the housing finance industry?

Predicting long-term rates is challenging, but there could be a slight drop during the year. The rate drop cycle might start but will take time, and it's unlikely to return to the very low rates seen previously or exceed high rates of 13-14%. Rates are expected to stabilize and be more consistent in the coming years.

Is the brutal price war in the HFC market from 2021-2023 considered over?

To a certain extent, yes, due to banking sector challenges and changes in deposit flows. However, with good demand and aggressive strategies from HFCs, there could still be competitive growth rates in the industry.

How have real estate prices and ticket sizes for HFCs changed recently?

Real estate prices have increased significantly in the last few quarters, affecting the average ticket size which has gone up. However, it's expected that prices will consolidate and not increase drastically in the future.

How does the liquidity situation for HFCs look in the current financial climate?

Post-COVID, liquidity has not been a challenge for HFCs. Market borrowings and bank term loans have softened in pricing, and with the Reserve Bank of India no longer tightening liquidity, conditions are expected to improve, potentially leading to rate drops.

What is the current focus of PNB Housing in terms of customer segments?

PNB Housing has a balanced strategy, focusing on both salaried and self-employed individuals. The current retail split is approximately 60-66% salaried and the rest self-employed.

How does the government's focus on affordable housing impact the customer mix for HFCs?

The focus on emerging and affordable housing segments has led to a higher share of self-employed customers, as these segments offer better margins. For affordable housing, the ideal mix is 50-50 between salaried and self-employed.

What is the impact of real estate price corrections on the housing finance industry?

The correction in real estate prices that started in 2020 has led to an increase in ticket sizes across all retail segments. However, going forward, price increases are expected to be moderated, and the market is anticipated to stabilize.

Outlines

00:00

🏠 Housing Finance Market and Festival Offers

Gish Kogi, CEO of PNB Housing Finance, discusses the housing finance market's performance during the festive season. He suggests that while there might be some limited offers, such as waivers in processing fees, major discounts on rates or fees are unlikely due to high demand and the sector's strong performance. Banks are currently more inclined to lend to corporates or for working capital requirements due to better spreads. The conversation also touches on the challenges faced by banks in raising deposits and the consequent impact on credit growth. Kogi anticipates that long-term rates may see a slight drop but will remain stable, not returning to the lows of 6.5-6.75% or exceeding 13-14%. He reflects on the price war in the HFC market in 2021 and 2022, led by State Bank of India and PNB, and suggests that while the competition may have eased, the demand for housing finance remains robust.

05:00

📈 Real Estate Price Trends and Liquidity for HFCs

The discussion shifts to real estate price trends, noting a correction that began in October 2020, with prices in certain markets surpassing pre-COVID levels. Kogi anticipates that prices will consolidate and not increase drastically in the long term. The conversation also addresses liquidity for housing finance companies (HFCs), with Kogi indicating that liquidity has not been a challenge, even during COVID, due to market borrowings and bank term loans. He expects rates to start dropping soon, which should benefit the HFC industry. The focus on the salaried class for housing loans is highlighted, with PNB Housing maintaining a balance between salaried and self-employed borrowers. The government's focus on emerging and affordable segments is noted, with a higher share of self-employed borrowers in these segments. Lastly, Kogi shares insights on the average ticket size for loans, which has increased significantly in the last year due to rising real estate prices.

Keywords

💡Housing Finance Companies (HFCs)

Housing Finance Companies are financial institutions that provide loans to individuals for purchasing, constructing, or improving residential properties. In the video, the discussion revolves around the strategies and market conditions of HFCs, especially during the festive season, where they might offer special deals or 'Festival offers' to boost sales.

💡Festival Offers

Festival Offers refer to special deals or discounts provided by companies, including HFCs, during festive seasons to attract customers and boost sales. The script mentions the possibility of such offers being limited this year due to high demand and strong sector performance.

💡Processing Fee

The processing fee is a charge levied by financial institutions, including HFCs, for processing a loan application. In the context of the video, it is suggested that any festival offers might only include a waiver in the processing fee rather than a deep discount on rates.

💡Credit Off-Take

Credit off-take refers to the amount of credit or loans disbursed by banks or financial institutions. The script discusses how banks might be more inclined to lend to corporates or for working capital requirements due to better spreads, rather than home loans, which have lower spreads.

💡Deposit Mobilization

Deposit mobilization is the process by which banks attract and gather deposits from customers. The video script highlights the challenges banks are facing in raising deposits, which affects their lending strategies, including for home loans.

💡CD Ratio

The CD Ratio, or Credit-Deposit Ratio, is a measure of a bank's lending in relation to its deposits. A high CD ratio indicates that the bank has lent out a large portion of its deposits, which might necessitate corrective measures to balance the ratio, as discussed in the script.

💡NBFCs

Non-Banking Financial Companies (NBFCs) are institutions that provide various financial services without being a bank. The script suggests that the challenges faced by banks in deposit mobilization and credit off-take could open opportunities for NBFCs and HFCs.

💡Long-Term Rates

Long-term rates refer to the interest rates on loans or investments that are expected to last for an extended period. The discussion in the video revolves around the prediction of long-term rates for the housing finance industry and the potential for rate cuts in the coming year.

💡Price War

A price war occurs when companies compete aggressively on price, often leading to reduced profit margins. The script refers to a 'brutal price war' in the HFC market, led by State Bank of India and PNB, which has since calmed down due to sector challenges and changes in banking strategies.

💡Ticket Size

Ticket size in the context of HFCs refers to the average loan amount disbursed to customers. The video mentions an increase in the average ticket size, reflecting higher real estate prices and the impact on the housing finance industry.

💡Liquidity

Liquidity in finance refers to the ease with which assets can be converted into cash without affecting their price. The script discusses how changes in liquidity conditions, influenced by the Reserve Bank of India's policies, can affect the operations and strategies of HFCs.

Highlights

PNB Housing Finance's CEO, Gish, discusses the possibility of festival offers in the home finance sector.

Demand for home loans is high, and companies are performing well, suggesting limited festival offers.

Banks are currently not inclined to lend for home loans due to lower spreads.

Banks face challenges in deposit raising, affecting their Credit Deposit (CD) ratio.

Opportunities for NBFCs and housing finance companies as banks may focus on other loans.

Long-term rates are expected to stabilize, with no drastic drops to pre-COVID levels.

The brutal price war in the HFC market led by State Bank of India and PNB Housing is likely behind us.

Real estate prices have increased significantly, affecting the average ticket size for HFCs.

PNB Housing has seen an increase in the average loan ticket size over the past year.

Liquidity for HFCs has not been a challenge post-COVID, with multiple sources available.

The cost of credit has been a challenge for some HFCs, but liquidity has not been an issue.

PNB Housing's strategy includes a mix of salaried and self-employed borrowers.

Government and housing finance companies have focused on emerging and affordable segments for better margins.

PNB Housing maintains a 60-40 split between salaried and self-employed borrowers.

The focus on salaried borrowers varies depending on the cost structure and desired margins.

The interview concludes with a discussion on the outlook for the festival season and demand.

Transcripts

Gish kogi managing director and CEO of

pnb Housing Finance joins us now Gish

good morning thank you for joining us

we've historically seen that in and

around Festival season home finance

companies hfcs they come out with what

could be called as Festival offers are

we in for a repeat of the same this year

where Festival offers could come they

could start as early as the

Shera good morning n so I think if you

typically look at any year quarter 3 and

quarter 4 you know would be the best

ever quarters in the year and the

festive season starts from quarter 3 so

uh we can't rule out there could be some

offers but

not it won't be really major one because

the demand is so high and most of the

companies is doing well sector is doing

well so whatever offer is there I think

that could be limited to know some waver

in the processing fee otherwise it won't

be any Deep Discount in terms of of

rates or the

fee this is happening because

banks are right now in no mood to lent

to Home Loans because in home loan your

spread is lower and when your credit off

take is so strong if you are even

lending to a corporate or even if you're

lending for working capital requirement

you enjoy better stress so more bank for

buck for banks at least is not in HFS

Home Loans it is in other loans

I think if you look at the banking

industry now most of the banks know they

are facing challenge because deposit

raising has become a bit of Challenge

and because of that CD ratio has to be

corrected so two things could happen one

is they need to mobilize more deposits

or in some way they may have to go

little soft on grade growth so I think

that would in a sense open up

opportunity for the nbfc and housing

finance companies having said that I

think demand in this sector housing

sector is very very good and it is

increasing with every passing

quarter and where do you see the

long-term 10year rates and 20e rates

settling for the for the industry

now I think that will be a very

difficult question to answer I not an

expert but I think yes sometime during

the year we could see a bit of uh drop

it would I think the cycle would start

but it will take time we were

anticipating this to happen anytime

during quarter 2 or quarter 3 now it

looks like it might get slightly pushed

towards end of the financial year but I

think uh coming year we could see some

rate Cuts but having said that longterm

if you see it will be more stable I

don't think so we'll ever go back to you

know uh rates where uh the rate went

down to about 6.5

6.75 on the home loans or on the other

side it will not even go beyond 13 14% I

think it'll be more stable consistent if

you look at last few quarters the cost

has been going up rates have been going

up now this is the cycle where the rate

drop would start uh and it'll be more

consistent in next couple of years back

to that original point of mind which is

that couple of years ago and this was

like 2021 and 2022 a little bit in 2023

we saw what could be called as a brutal

price war in the hfc market State Bank

of India and pnb led it from the front

since that time they had lot of Kasa and

a lot of uh savings were moving into

Kasa into a lot of savings were moving

into fixed deposits largely because of

the covid impact State Bank of India and

pnb housing I I distinctly remember had

cut their hfc

offerings you think that brutal price

war in the hfc space is behind

us I think to a certain extent it'll be

behind given the context of the

challenges what the sector you know more

from a banking uh point of view is

concerned because the CD ratio has to

get corrected and also today if you look

at I think the money is not really

flowing into as deposits prits getting

into other asset classes and therefore

at least for next four to six quarters

we may not see very severe competition

from the banks having said that since

the demand is quite good lot of housing

finance companies are getting more

aggressive

and you could see good growth rates for

the

industry on the other side is that real

estate prices have gone higher on an

average we are talking about 50 becoming

70 and 70 becoming

150 do you see that for hfc's the

average ticket size which used to be in

and around 20 lakh Rupees at India

average that has multiplied are you also

seeing that at P&B housing the loan

wherever you are dispersing them the

average Base number has gone up

significantly in last one year I think

if you look at the real estate industry

during covid the prices know went down

significantly in certain markets and I

think the correction started from 2020

October onwards in last five to six

quarters it has gained lot of traction

and the prices are back there are

certain markets where the price have

gone up you know more than what was

anticipated but I think going forward

the price could uh consolidate and uh

definitely with this the ticket size

across all the segments in retail

whether it is super prime prime emerging

has actually gone up so it has helped in

a way but in the from a long-term

perspective the the price shouldn't

increase drastically so I think now it

was only a correction because the rates

had gone up during covid and postco

slowly it recovered I think most of the

markets today real estate know prices

are quite stable going forward

price increase you know could get

moderated uh I'll also like to draw your

attention to where the liquidity is

moving for hfcs while we've spoken about

you know how banks in a sense are

getting options if the liabilities are

less they want to perhaps lend into

Pockets where spreads are higher and hfc

spreads are lower I'm setting the

context for our viewers here but given

that Reserve Bank of India now is no

longer tightening liquidity and

liquidity is going to get easier and

easier how will that change life for

hfc's I think for uh housing finance

companies liquidity uh postco has never

been a challenge during covid of course

there was a challenge post that has

never been a challenge because to I

think if you look at last two three

quarters I think Market borrowings have

little softened in terms of pricing Bank

term loans have gone up because of

various uh know requirements various

changes know what has gone through in

last few quarters so as I mentioned the

cycle will change very soon maybe end of

this year and the rates could start

dropping I think cost of uh loan would

be a problem cost of credit was a

challenge for last couple of quarters

for some of the uh players in the nbfc

hfc space but not uh credit per se so

there was enough liquidity and there

were multiples sources from which hfcs

and Banks could hfc and industries could

Source only thing is the challenge was

on cost I think now that will know start

going down so it should really help the

industry both nbfcs and

hfc's

okay everybody is focusing on the

salaried class everybody I speak to even

your payers they say that look we only

want to pay or give it to folks where

there's a predictable cycle in terms of

understanding the payback at pnb housing

what is the split salaried versus

non-salaried

class I think pnb housing as a strategy

we changed a strategy a couple of years

back so in terms of profile we like

salary

self-employed uh and self-employed

nonprofessional so all the three we like

but if you have to look at split within

retail it's about 60 566 and the rest is

self-employed 66% is salary and the rest

is self and we would like to maintain

this mix on the profile but if you look

at the focus from government if you look

at the focus of most of the uh housing

finance companies at least in last few

years the focus has been really on

emerging and affordable because that is

where uh know they would get better

margins and be more profitable so uh the

minute you get into emerging and

affordable uh there has to be a share

which has to be significantly higher

than 30 35% on the self-employed pce if

you look at affordable the mix ideally

would be 5050 50 is salaried and 50

self-employed if you talk about some of

the matured segments like super Prime

and Prime where typically almost all the

banks PSU private Banks large housing

finance companies Focus so there the

focus would be more on salary I think it

all depends on the cost structure and

the margins you know which they settling

to so if you want more margins you need

to move segments more towards highing

segments and the mix would change more

skewed towards self-employed and if uh

if any institution is pretty okay with

the margins then they would focus more

on salary but I think appreciate your

time sir really appreciate your time and

good luck for the festival season demand

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