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Edited Transcript of PNBH.NS earnings conference call or presentation 23-Jan-20 12:30pm GMT

Q3 2020 PNB Housing Finance Ltd Earnings Call

NEW DELHI Jan 28, 2020 (Thomson StreetEvents) -- Edited Transcript of PNB Housing Finance Ltd earnings conference call or presentation Thursday, January 23, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deepika Gupta Padhi

PNB Housing Finance Limited - Head of IR

* Sanjaya Gupta

PNB Housing Finance Limited - CEO, MD & Director

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Conference Call Participants

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* Abhijeet Sakhare

Goldman Sachs Group Inc., Research Division - Associate

* Abhishek Murarka

IIFL Research - VP

* Amit Premchandani

UTI Asset Management Company Limited - Fund Manager

* Jignesh Shial

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Nidhesh Jain

Investec Bank plc, Research Division - Analyst

* Preethi RS

UTI Asset Management Company Limited - Research Analyst

* Riddhesh Gandhi;Discovery Capital;Analyst

* Ritika Dua

Elara Securities (India) Private Limited, Research Division - AVP, Lead of Diversified Financials & Analyst

* Shubhranshu Mishra

BOB Capital Markets Limited, Research Division - Analyst

* Viral Shah

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the PNB Housing Finance Limited Q3 and 9 Months FY '19-'20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Ms. Deepika Gupta Padhi. Thank you. And over to you, Ma'am.

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Deepika Gupta Padhi, PNB Housing Finance Limited - Head of IR [2]

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Thank you, Aman. Good evening, and welcome, everyone. We are here to discuss PNB Housing Finance Q3 and 9 Months Financial Year '19-'20 Results adopted as per Indian Accounting Standards. You must have seen our business and financial numbers in the presentation and the press release as was shared with the Indian Stock Exchanges and is also available on our website, that is www.pnbhousing.com. With me, we have our leadership team represented by Mr. Sanjaya Gupta, Managing Director; Mr. Shaji Varghese, Executive Director, Business Development; Mr. Ajay Gupta, Executive Director, Risk Management; Mr. Anshul Bhargava, Chief People Officer; Mr. Sanjay Jain, Company Secretary and Head of Compliance; and Mr. Kapish Jain, Chief Financial Officer; and Mr. Nitant Desai.

We will begin this call with the overview and performance update by the Managing Director, followed by an interactive Q&A session. Please note, this call may contain forward-looking statements, which exemplify our judgment and future expectations concerning the development of our business. These forward-looking statements involve risks and uncertainties that may cause actual development and results to differ materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statement to reflect future events or circumstances. A detailed disclaimer is on Slide 2 of the investor presentation available on our website.

Now I will hand over the call to Mr. Sanjaya Gupta for his remarks.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [3]

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Thank you, Deepika, and a good evening to everyone. Welcome all to our quarter 3 and 9 months financial results for the financial year '19-'20. This year is a year of capital conservation and capital raise, liquidity management, asset liability management, resolution of corporate accounts and overall asset quality.

During the year, the company continued to mobilize long-term resources through bank term loans, ECB, deposits, NCD, securitization via the direct assignment route, et cetera. In quarter 3 of financial year '19-'20, the company raised NCDs from LIC amounting to INR 2,500 crores. It is a long-term NCD with a door-to-door maturity of 10 years. In spite of the challenging environment, the company during the year incrementally mobilized debt of over INR 33,000 crores. The company enjoys a very strong deposit franchise, supported by the highest rating of FAAA from CRISIL Limited and is the second highest deposit mobilizer in the HFC sector.

We mobilized over INR 7,500 crores during the 9 months of the financial year '19-'20. These deposits are sticky in nature with tenure ranging between 30 to 36 months and a healthy high double-digit renewal rate. Deposits as of 31st December 2019 stand at INR 16,470 crores, that is 19% of our total financial resources. With INR 17,103 crores of securitized book as of 31st December 2019, the company has developed expertise in securitizing through the direct assignment route. As of 31st December 2019, our securitized book is of 35 months vintage, which -- with gross nonperforming assets of only 0.20%. With an objective to contain gearing, the company securitized INR 3,342 crores during quarter 3 of financial year '19-'20 and INR 9,239 crores during the 9 months period of financial year '19-'20. We also sold corporate finance assets amounting to INR 1,963 crores during the 9 months period for FY '19-'20. With our continued focus on the long-term borrowing, securitization and sell-down of corporate finance assets, these ALM gaps across buckets are further contracted with no negative gap in up to 1-year bucket and significantly lower gap in the subsequent buckets as well.

On our resource profile, 23% is contributed by banks, 22% by the nonconvertible debenture and 20% by direct assignment, 19% by deposits, 7% refinance from the National Housing Bank and 6% through the external commercial borrowings and 3% by commercial paper. Our share of commercial paper reduced from INR 8,625 crores as of 31st December 2018 to INR 2,591 crores as on 31st December 2019. The company has maintained excess cash and liquid investments to the tune of INR 9,258 crores as on 31st December 2019, along with undrawn and sanctioned OD lines from banks, our liquidity position moves beyond INR 10,000 crores.

With all the measures taken, our CRAR as on 31st December 2019 increased to 17.06% with Tier 1 at 14.09% and much beyond the minimum regulatory Tier 1 requirement of 10%. This has improved from CRAR of 13.98% with Tier 1 of 11% as of 31st March 2019. Please note that CRAR numbers are as per IGAAP, net own funds and does not consider the positive impact on net worth arising out of IndAS adjustments. The gearing of the company is at 8.48x as of 31st December 2019, which has improved from 9.66x as on 31st December 2018.

If we net off the surplus cash and bank balances, excluding next 2 months of projected commitment from the outstanding borrowing, our gearing further improved to 7.7x as of 31st December 2019. As of 31st December 2019, we have assets under management of INR 86,297 crores, with share of retail loans being 82% and corporate being 18% of the AUM. During 9 months period of FY '19-'20, the company sold corporate loan books worth INR 1,963 crores. The AUM reported is net of sell-down portfolio.

We continue to focus on building our retail book. Geographically, west is our largest market with 41% of assets under management, followed by north at 30% and south at 29%. We have limited presence in east, with 3 branches: 2 in Calcutta and 1 in Bhubaneswar, which forms part of the north zone.

In our retail segment, individual housing loans constitute 59% of the AUM; retail LAP, that is retail loan against property, constitute 19%, and retail nonresidential premises loans contribute 4% of the assets under management.

In the individual housing loan segment, we do foresee, there may be some delivery risks due to constrained credit flow to the real estate developers. Hence, conservatively staying away from funding retail home loans for under-construction segment, we are focused on the completed properties. As a result, the under-construction portfolio as a percentage to individual housing loans has considerably come down from 31% as on 31st March 2018 to 20% as of 31st December 2019. Our retail LAP segment consists of loans primarily disbursed of working capital to the SME customer. Our LAP book has an average ticket size of INR 48 lakhs, with loan-to-value of 49%.

Majority of our customers are credit tested with average monthly income of INR 2.1 lakh. LAP portfolio includes 81% of self-employed customers in the age bracket of 40 to 55 years. The corporate loan book as of 31st December 2019 is 18% of the assets under management, down by 1% on a sequential basis. This comprises 12% construction finance, 4% corporate term loan and 2% lease rental discounting.

Our lending in this space is primarily to marquee real estate developers and repeat customers. During 9 months of FY '19-'20, the corporate book witnessed a natural runoff of 15% annualized, not considering the sell-down of INR 1,963 crores of LRD. As on 31st December 2019, our corporate book is spread across 150 unique developers, down from 156 as of 30th September 2019. Construction finance is spread over 114 developers and 153 projects. Corporate term loan and LRD are spread over 49 and 14 developers, respectively.

During 9 months period of FY '19-'20, principal repayment started for 60 corporate finance loan accounts having total loan outstanding of INR 2,020 crores. The amount collected in these facilities during the principal moratorium period was INR 483 crores. The top 20 developers with 62 loan accounts constitute 62% of the corporate book. As informed earlier too, as a part of our continuous monitoring, we had identified 5 accounts which were stretched. Initially, when we had identified these accounts, the loan outstanding as of 31st March 2019 was INR 908 crores, which has further reduced by 9% as on 31st December 2019 to INR 819 crores.

On lines of conservatism and as a prudent measure, we have created 37% ECL provisioning in these 5 accounts as of 31st December 2019. In addition to this, we have steady-state provision of INR 168.5 crores. Out of these 5 accounts, 1 account, Ireo Private Limited, moved into NPA in quarter 1 of financial year '19-'20; and 2 accounts, that is Radius and Supertech, have moved into NPA in quarter 3 of '19-'20.

The developer, Ireo Private Limited, has approached the company with a structured repayment plan. As a result, the developer paid INR 49 crores resulting in principal outstanding to be reduced to INR 101 crores. We continue to work with the developer on the structured payment plan and expect to resolve this account by end of the current financial year.

In case of Supertech, since the developer is running into multiple credit exposures, it was essential to ensure remoteness to bankruptcy and hence, transfer the project. The company, through rigorous follow-ups along with legal actions on the developer, have been able to get a favorable order from the Haryana RERA regarding cancellation of earlier project registration favoring Supertech and movement of the project and its registration to serve AFP. In the process, remoteness to bankruptcy was attained in serve. RERA has also advised the existing lenders to rebook and restructure the loans in serve.

With respect to Radius, the project has enough receivables and construction for the commercial portion has already commenced. The company is in close consultation and discussion with the co-lender and monitoring all events. In the month of December, there were concerns raised against one more developer that was Omaxe. The company has disbursed INR 635 crores to the developer for 3 projects in Chandigarh and Lucknow. The outstanding as of 31st December 2019 is INR 418.5 crores, with the security coverage of 2.3x. The entire exposure is in Stage 1 as of 31st December 2019.

Considering the external environment, the company has significantly reduced corporate loan disbursement and has also titrated its monitoring norm, restructured the entire team and heavily invested in IT enablement of the workflow to further make operations robust and world-class. We will continue to remain cautious while lending to this segment till we see positive developments and improvement in the sector and macroeconomy.

Gross NPAs as of 31st December 2019 is 1.45% on the AUM and 1.75% on the loan assets. The NPA includes 3 large corporate accounts that we have mentioned as stretched in May 2019. Excluding the 3 accounts, the gross NPA would be 0.88% of the loan assets. In this regard, I would also like to mention that the life-to-date write-offs of the company is 7 basis points of the cumulative disbursements. As of 31st December 2019, our total provisions to assets stand comfortably at 1.52%. The provision coverage ratio for Stage 3 has moved up to 28.43% as of 31st December 2019 compared to 22.26% as of 30th September 2019. The financial results of the company as on 31st December 2019 are as under.

Profit after-tax for the 9-month period stood at INR 888.3 crores as compared to INR 811.8 crores for the 9-month period of '18-'19, a growth of 9.4%. The spread loans for 9-month period in FY '19-'20 is 256 basis points. Excluding the assignment income and other IndAS adjustments that is as per IGAAP, the spread on loans for the 9-month period is 212 basis points compared to 193 basis points for the 9-month period of '18-'19.

The expansion in spreads is due to healthy yields on the loan portfolio compared to the cost of borrowings. The net interest margin for the 9-month period is 311 basis points. The gross margin, net of acquisition costs and including fees for the 9-month period, stood at 331 basis points against 326 basis points during the same period of the previous year. The OpEx to average total assets for the financial year, excluding the ESOP cost of INR 24.41 crores, being more of an accounting provision, stood at 57 basis points. This includes employee cost of our wholly owned subsidiary, PHFL, which largely houses the in-house sales force.

The cumulative ECL provisioning as of 31st December 2019 is INR 885 crores. The company also maintains steady-state provisions amounting to INR 168.54 crores. The return on assets for 9-month period is 1.44% compared to 1.51% in FY '18-'19. The return on equity for 9-month period is 14.99% compared to 16.22% for H1 of financial year '19-'20 -- '18-'19. The closing net worth as per IndAS as of 31st December 2019 is INR 8,325.1 crores. Our gearing was 8.48x as of 31st December 2019 against 9.66x as on 31st December 2018.

Now let me talk about the business performance. During the 9-month period, we registered a degrowth of 2 -- of 25% in loans file logins compared to the corresponding period of the previous financial year. The disbursement degrew by 43% to INR 15,800 crores vis-à-vis INR 27,518 crores during the same period of the previous year. Retail disbursement degrew by 26% year-on-year to INR 14,506 crores and the corporate finance disbursement degrew by 84% year-on-year to INR 1,293 crores during the 9-month period of '19-'20.

Loan assets, net of assigned loans is INR 69,194 crores as of 31st December 2019, representing a degrowth of 2% year-on-year. During the 9-month period of '19-'20, out of the total individual housing loan disbursement, around 36% by value was in less than INR 25 lakh category, which can be termed as affordable housing. With stabilization of branch network in Tier 2 and Tier 3 cities, we look forward to growing the contribution of affordable segments in our individual housing loan portfolio.

In order to implement various CSR programs with this company, we have incorporated Pehel Foundation during quarter 3 of '19-'20. We are a strong 1,614 full-time employee team as of 31st December 2019. The company while maintaining muted disbursements for the rest of the current financial year will continue to focus on raising Tier 1 capital, maintaining adequate liquidity, resolve corporate loans and reduce gearing levels.

Let me give an update on the capital raise plan of the company. As part of the capital raise program, we have a very positive update from our promoter that is Punjab National Bank. PNB has confirmed that they will maintain a minimum shareholding of 26% in the company while ensuring that the company has excess to sufficient capital to reach its own growth objective. PNB has confirmed that its stated objective is to continue to hold 26% in the company and continue to be the promoter of the company. PNB further mentioned that they do not plan to sell any of its current holding. The company shall continue to use the PNB brand.

Further, during capital risk process, the company investors discussed about its growth plan. Over the next 3 years, that is financial year '20 to '23, the assets are expected to grow at a CAGR of around 15% to 18% per annum. The spread is expected to be anywhere between 200 to 215 basis points and the gross margin is expected to be 330 to 350 basis points. The OpEx to ATA is targeted to reach 56 to 60 basis points. And the credit cost will continue -- will be obtained from the current financial year. The return on assets is expected to be in the range of 170 to 190 basis points. With the mentioned growth rate and post infusion of the planned equity in the current fiscal, the company is expected to maintain a steady-state gearing of around 7 to 7.5x, with no further equity envisaged up to financial year '20-'23. Please note that these are management estimates based on the current market conditions and subject to review and ratification by the Board of Directors.

With this, we will now open the floor for questions and answers and thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Riddhesh Gandhi from Discovery Capital.

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Riddhesh Gandhi;Discovery Capital;Analyst, [2]

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As you pointed out, how much is the exposure to the Lodha Group at the moment and the underlying project...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [3]

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INR 1,250 crores.

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Riddhesh Gandhi;Discovery Capital;Analyst, [4]

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Sorry. Is it, how much?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [5]

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INR 1,250 crores, 1-2-5-0.

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Riddhesh Gandhi;Discovery Capital;Analyst, [6]

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Understood. And with regards to the capital raising which you're talking about, and is PNB going to (inaudible) in the company? Or have they stated that they are looking to exit the company at the moment? And when we implement plans of capital raising, are you planning in QIC raise issue, how you are thinking about that?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [7]

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Can you repeat this? I mean I did not really get what you are asking about PNB.

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Riddhesh Gandhi;Discovery Capital;Analyst, [8]

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Actually, what I was asking was, is PNB actually agreed to...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [9]

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Sir, your voice is breaking. Are you on a mobile telephone? Hello?

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Operator [10]

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Mr. Riddi, your audio is breaking.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [11]

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We lost him. We lost him. You can move to the next one.

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Operator [12]

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The next question is from the line of Nidhesh Jain from Investec.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [13]

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Sir, on the capital raise, do we have any indication from PNB or are any other existing shareholders or any timelines that you can share with us from the capital...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [14]

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Yes. So one is, Nidhesh, that PNB very categorically has said that right away they are in the midst of merger with 2 other banks. So they will not be able to invest in the company. And -- but the good thing about it is that they have said they will continue to be the promoter and they will maintain at least a 36% stake in the company, and the company will continue to use PNB brand and PNB is not going to sell a single share in the secondary market. So that is why we have recalibrated our capital requirements, muted our growth rate for the next 3 years. And with a INR 1,500 crores to INR 1,600 crores of capital raise, PNB will have a cushion of about 1% to 1.5% depending on the share price of PNB Housing in the current capital raise.

Going forward, we will be taking care for the next 3 years with this capital raise. And I'm sure that PNB after the merger will be in a very strong position. And if after 3 years or something like that there's another round and PNB has mentioned without mentioning any time period that they will be the promoter. They will maintain minimum 36%. PNB Housing will continue to get the brand. Then I think that eventuality is not to be sort of eclipsed that in a good tomorrow, PNB might like to up its stake or maintain by putting new infusion into the company.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [15]

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Sure. And any timelines for this INR 1,500 crores to INR 1,600 crores of capital raise that you are...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [16]

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Yes, this fiscal, this fiscal, this fiscal.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [17]

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Okay. And sir, secondly, with our steady-state ROA, the guidance of 1.7% to 1.9% and leverage of 7 to 7.5x, our ROE will be broadly in the range of 13% to 14%?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [18]

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Basically -- the current scenario is such, Nidhesh, that we cannot talk about levering our balance sheet movement.

Just a second, Nidhesh. So what -- we are going very, very conservative in our estimations and -- so what we are trying to do is basically have a better sort of a return on assets, better portfolio quality, more retail-oriented and expand our ROTA, compressor OpEx, right? That is the strategy going forward because I don't know when this entire sort of the critique behind levering more than 8.5 to 10x, 11x will go away from the rating agencies because the cost of borrowing is also very important and the rating of the company has to be a strong rating of AA+ without any sort of qualification or a AAA. And that will give us an advantage that going forward because there is a limit that you can forecast. And personally speaking, I think 12 to 14 months is still there to get stability back into the housing sector, and hence, the housing finance sector. So we have projected this low level on a very conservative basis. And with this sort of a ROTA and this sort of a gearing, we will be in the vicinity of about 14%, 15% of our ROE.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [19]

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Sure, sir. And just lastly, on the gross NPA in retail segment, I think there is also slight increase on a sequential basis. So...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [20]

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Yes, yes. And this is where -- just a second. And if you want to take away these 3 corporate accounts, which are in NPA, our gross NPA on portfolio will be something like 0.88%, which will still be the most sturdy in the entire lending space. And yes, the retail NPAs have gone up by 20 basis points, but this is quarter 3, my dear friend, and if you remember, every year in quarter 3, the retail NPAs do go up by 20 to 25 bps because the resolution from the SARFAESI courts only start happening in quarter 4. So I will once again repeat for the interest of the entire audience which has joined on us. What happens is that the SARFAESI action takes 6 months to mature. And by the time it is May, June of a financial year, the first 2 months, we start putting the recalcitrant retail customers into the SARFAESI court. And by the time it is quarter 3 and December 31, they speak because once you are having a legal action you are not collecting anything other than curing an account. And in quarter 4, the retail NPAs always come down.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [21]

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Sure, sir. And then lastly, on the corporate book, so we have disclosed these 5 names. Outside of that, any changes -- do we see any other name which is in that bucket?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [22]

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I will be very transparent and truthful. There are 3 more accounts which have moved from bucket 1 to bucket 2, but all these projects are very bankable, solvent. The thing is that the macroeconomic indicators are not doing the due justice with these accounts. We -- because of our very tenacious team and because of our good IT enablement, we are able to (inaudible) these, I would say, challenges much before the developer showed it in their propensity to repay the loan. And we are in consultation with all these developers to help and construct faster, to deploy their funds only in those projects even in sales our property services group has been able to, on a pan-India basis, sell about 55 drilling units, et cetera, et cetera. So we are doing everything and monitoring the escrow, also changing the escrow sharing ratio where the properties are getting completed so that more funds come to retire the loan because the projects will now not be requiring funds as they are near completion or are completed.

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Nidhesh Jain, Investec Bank plc, Research Division - Analyst [23]

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Sure. Will it be possible to share the quantum of these 3 to 4 accounts that you are mentioning or...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [24]

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Not really. There's nothing alarming. They -- I mean it will be like sharing confidential sort of information of our customers. But yes, the moment -- I mean, we will let you know if required.

And because -- business as usual sort of a thing. They are forward closed. They are backward closed. This is our business. We are not in the lending space. We are in the space to provide service and collections because our raw material and finished product is seen. So we are not in the lending space. Then what are we in? Service and collection. I mean, no company gets about INR 2,200 crores of recovery from its portfolio every month, natural, without repayment. And I'll give you a little bit of flavor. So on one side, there has been a lot of gloom and doom. Now you realize that in the first 9 months, our corporate book was so sterling that we were able to sell down INR 2,000 crores of corporate loans in this market. I'm not talking of quarter 4. Quarter 4, we would have done better because the banks especially they like their assets to grow. But in quarter 3, right? Plus, you will be surprised to know that even on the accounts, 60 accounts, which have moved from moratorium -- principal moratorium to principal repayment worth about INR 2,020 crores, almost something close to 25% of the principal outstanding got repaid during the moratorium period. And that is the propensity of our monitoring. Then INR 385 crore has got prepaid in construction finance. And this has all happened in quarter 3. And this is when the seasonality of the business comes in. And that is why when you talk to Ajay Gupta, our Field Risk Officer, he always says the biggest challenge is that this is not a quarterly risk business, this is an annuity business. Let me complete a year at least, then I will give you a commentary. So this is all quarter 3. INR 2,000 crore of sell-down, almost INR 480 crores of repayment during moratorium period of 60 accounts is moved to principal repayments and INR 385 crores of prepayment in construction finance. So everything is not bad. There are some good news also.

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Operator [25]

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The next question is from the line of Jignesh Shial from Emkay Global.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [26]

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I missed the -- I'm really sorry, but I missed the initial part. You say there are 3 large accounts as an NPA, of which 1 is Supertech, right? One, you talked about Omaxe.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [27]

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No Omaxe is not an NPA. Omaxe is bucket 1 because there is a lot of -- stage 1 because Omaxe, there is -- a lot of ruckus was created somewhere around mid of December. That is why we brought in Omaxe here, but even on 31st December, it was stage 1. That was all 3 accounts.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [28]

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And there you said it is 2.1 -- 2.3x, the coverage is there, 3 projects, Chandigarh, Lucknow, and the balance right now is INR 418.50 crores, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [29]

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Yes.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [30]

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Sir, can you elaborate the 3 -- I'm really sorry, I'm requesting you to repeat this, but the 3 large NPA accounts. Can you just give a brief about that?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [31]

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Yes. So this is IPL, the Gurgaon one, Radius and Supertech. And combined they are INR 604 crores if my memory serves me right. Not INR 603 crores, not INR 605 crores, INR 604 crores.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [32]

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All right. And the Supertech would be -- you said it has already reduced to some INR 100-odd crores, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [33]

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No, no, not Supertech. That is Ireo which has come down by INR 49 crores in the first 9 months.

In Supertech, we did remoteness to NCLT. I mean don't only look at delinquency. Look at the stages of the project. So Supertech being Supertech with all large banks there and multiple NPAs, my first worry was that my project should not be driven into NCLT. Why? Because this was very, very cash-rich project. I will reiterate, the Phase 1 has got 780 units, 85% completed, 650 sold. The receivables from sold alone are in the vicinity of INR 480 crores. Phase 2, again, has 780 units, 45% completed. And Phase 3 is licensed land, which if I was to sell, I could today get INR 140 crores. Now my -- our basis -- I mean the genesis of creating this, I would say, bastion around our project was to save a very much bankable cash-rich positive network project to be driven into NCLT because of the infamous Supertech. So we devoted our 4, 5 months. You can imagine getting an order from a RERA Authority to move the project from the parent company to the SPV, which was the landowner -- or which is the landowner and the landowner is pledged to us. So tomorrow, if I was to become a developer, I can just walk into the shoes of the company.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [34]

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Sir, now is -- your coverage right now is 28.4%, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [35]

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Assume the entire book.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [36]

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That's on entire book, understood. So if you assume that is on your stage 3 and you are expecting the collections to happen on all your large 3 accounts of INR 604 crores, which is again part of stage 3, do you see this credit cost momentum to remain somehow subdued or do you think the credit cost will remain elevated going forward as well? My thing is recoveries would be sufficient enough? That is what I wanted to know.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [37]

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You are bang on. Now the thing is, this company, let us not look at the AUM today of approximately INR 90,000 crores. Let us look at the history of the company. The company would have disbursed somewhere like INR 2 lakh crores of loans. What is the credit loss? It's 7 basis points. What is the ECL for stage 3? It's 28%. What is the ECL for these 3 large accounts? It's almost 40%. But I have to be sensitive to the report writers, to the rating agencies, to my Board and to my colleagues. I'm of the same view as you are. So this is actually providing amendment for a better future. And I'm very confident if given time and if things stabilize at a macro level, this ECL will actually, I will never bring it back into P&L. That's my promise. Stats will speak. I will probably roll it into my steady state provisioning. Because if you were to trace the history of housing finance and housing sector, every 7 to 10 years this cycle comes. And the company is here for eternity. PNB, which is the second largest bank and is 140 years old, has commented that it will maintain 26%. Companies use my brand. I am the role model. So I cannot be thinking about 2 years, 3 years. I have to think of eternity, right? So this is a long-term game plan.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [38]

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Understood. Understood. Apart so -- okay, so understood now. So that thing is pretty clear now for me. Now most of these accounts are in the NCR. We see that is happening, and this is cyclical. That is obviously good. Apart from this, any other geographies? I don't want to know the name of the developer. Any other geographies where you are seeing that the pain might stay or might remain a little elevated for a while? Or you think more or less -- as far as PNB Housing is concerned, more or less, now we are done?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [39]

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See, I will be very frank. The flow of funding to the developers, we are not the only player, right? We have only 7%, 8% market share. The flow credit to under-construction properties is becoming a very big question. And if you were to ask a person like me who has spent 35 years in this sector, my biggest fear will be under-construction retail home loans. A lot was said about us when we fully withdrew from under-construction home loans in quarter 3. That they are out of the market, they are insolvent, they are ill-liquid. All -- everything was said. If you were to see my earnings call of H1 of '17-'18, somewhere in November of '17 we had [harbing] that there was going to be liquidity crunch. Now that is on the treasury side. How do you relate it or correlate it to the business? (inaudible) From December of '17, when we used to have 40%, 42% of under-construction in retail home loans, then we had 32% as of March of '18, it slowly and gradually came down to 30%. Because today we are talking of 3 corporate accounts, and similar number is sitting with our retail as a part outstanding in NPA. But if you want to talk about NPA under-construction, 1/3 of the retail is under construction, which has gone NPA because the flow of credit is not happening, right? So the thing is if the average loan of this company is, let's say, INR 25 lakhs because these are not fully disbursed loans. So each crore will have 4 loans, right? 250 crores of under construction will have 1,000 loans. Is it easy to monitor 3 accounts of your developer friends or 1,000 retail customers spread pan-India?

And this will happen at a sectoral level. I can prophetize it.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [40]

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Unless the revival happens, this is the retail NPA cycle?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [41]

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Unless the credit flow happens on the developer side because under RERA no advanced disbursements can happen, no front-end disbursements can happen. It has to be CLP planned as per the RERA registration. So if they say on 7th floor of a condominium you can take 40% disbursement, on the 5th floor you can't take 40%, even if the lender, the customer and the developer are all in sync.

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Jignesh Shial, Emkay Global Financial Services Ltd., Research Division - Research Analyst [42]

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Understood, understood. It needs to be resolved, that's a necessity unless it starts loaning to retail entities. Understood, sir. Understood. That's it. Really helpful.

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Operator [43]

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The next question is from the line of Amit Premchandani from UTI Mutual Fund.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [44]

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Sir, at the start of the year, you gave the estimate of stress through 5 accounts, while now you are a bit reluctant to share the estimated stress of these 3, 4 new accounts which have come up. What has changed here? Is the quality of these 3, 4 accounts much superior and you are not really worried? What exactly has changed?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [45]

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Okay. Nothing has happened. So as you will remember, we also said in our annual earnings call of FY '19 that we will disclose annually the stressed accounts. So once we do our annual sort of review at the end of this fiscal and we get to the earnings call somewhere around the first week of May, we will make a disclosure. And the quality of these 3 accounts -- 3, 4 accounts, which we are seeing are stressed, are far, far superior than the 5 that we mentioned in our FY '19 annual earnings call.

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Amit Premchandani, UTI Asset Management Company Limited - Fund Manager [46]

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And the guidance that you gave of 1.7% to 1.9% ROA includes whatever potential stress you may guide for in the May call?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [47]

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Well, as I said to the earlier sort of question, we have been very, very conservative in our 3 years projection to our Board and large investors. We are saying that such situation or conditions will prevail.

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Operator [48]

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The next question is from the line of Shubhranshu Mishra from Bank of Baroda Capital Markets.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [49]

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Just 2 questions. One is that you've got these retail asset break up and you're giving out the ticket size there. So I see almost like 6% to 7% of your loan book is upwards of INR 10 crores. So it's fair to assume that these are all...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [50]

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No, no, no, no, no, sir...

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [51]

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INR 5 crores, I'm sorry.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [52]

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You were mistaken. Above stage is only 0.6%.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [53]

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INR 5 crores and above, sir. It's around 6%. So is it fair to assume that these are all LAP or there's HL over here as well, sir?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [54]

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Yes, there will be HL and LAP both.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [55]

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Right. And in this specific category, what's the LTV that we have lent at?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [56]

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LTV in LAP is 48%.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [57]

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No, sir. In this specific ticket size. I'm just checking for this specific ticket size.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [58]

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It is about 40%. It's above INR 5 crores, it's 40%.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [59]

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Sure, sir. And sir, in your stressed accounts, the fourth case that you're mentioning, is it a loan to a corporate entity as in -- or to a particular project, sir? Is it at a corporate level or to a project, the exposure 4, sir?

But you're saying that that's under litigation.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [60]

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In the presentation, that is, I mean, construction finance loans.

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Unidentified Company Representative, [61]

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No, sir. This one is PT and IPL.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [62]

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This is the IPL. Okay. It's a corporate term loan.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [63]

--------------------------------------------------------------------------------

And is it at the corporate level or to a project, sir? How...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [64]

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It's at the corporate level. It's at the holdco level.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [65]

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It's at the holdco level, sir?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [66]

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Yes.

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Shubhranshu Mishra, BOB Capital Markets Limited, Research Division - Analyst [67]

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Sure. And it's pari passu or like...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [68]

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No, no, no, no. We are the exclusive lenders. INR 101 crores is outstanding.

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Operator [69]

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The next question is from the line of Abhishek Murarka from IIFL.

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Abhishek Murarka, IIFL Research - VP [70]

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I have 3 or 4 just basic data keeping questions. One, I just wanted to cross-check when you said that the retail GNPAs have gone up 20 basis points Q-o-Q -- 20 basis points, is that Q-o-Q? And last quarter, you had mentioned the retail GNPAs at 0.84%. So it should be 1.04%, is that correct?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [71]

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It is 1.04%.

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Abhishek Murarka, IIFL Research - VP [72]

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Okay. Perfect. Sir, secondly, for these 5 or 6 accounts that you had mentioned between last quarter and today. In the last quarter, you had also given us ECL along with the outstandings in these accounts. Can you give us the same data, please?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [73]

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Yes, I will. For IPL, INR 101 crores. The ECL provision is INR 49 crores -- no, it's 37%. Supertech, INR 244 crores, the ECL provision is 38%. And Radius INR 259 crores, it's 39%.

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Abhishek Murarka, IIFL Research - VP [74]

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Okay. So incrementally, there hasn't been too much provision in these accounts, as in...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [75]

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No. There has been a 5% upside between Q2 and Q3.

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Abhishek Murarka, IIFL Research - VP [76]

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And sir, what about Ornate?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [77]

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Ornate, we have ECL provision of 36%.

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Abhishek Murarka, IIFL Research - VP [78]

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And the exposure is still at INR 181 crores?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [79]

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Yes, yes, yes, yes. Until we don’t get a resolution in this account, we are not going to disburse more.

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Abhishek Murarka, IIFL Research - VP [80]

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Sure. And what about Waterfront, sir? Is that also static as last quarter?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [81]

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No, no. Waterfront is now -- is not an NPA account, and the outstanding amount has come down to INR 34 crores and the ECL provision is 16%. I don't want to really commit myself, but God willing both Ireo Waterfront and IPL Gurgaon should get out of our book well within quarter 4 of this fiscal.

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Abhishek Murarka, IIFL Research - VP [82]

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Okay. Okay. Great. And sir...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [83]

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See -- I mean you will have to play along with us. We will work hard. (foreign language) Players will work for us.

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Abhishek Murarka, IIFL Research - VP [84]

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Sure. And sir, in your new business plan, let's say, going forward, which is like a more moderate growth, what is the AUM mix you are looking at? Is it likely to remain the same? Or are you looking to increase it?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [85]

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So what will happen is that going forward gradually, because let me be very candid, after this capital raise, we are going to put a stop to securitization for at least 2, 2.5 years. I will do 1,000 or 2,000, but that will be just a -- I will say, an ornamental securitization. And the idea behind that is because my portfolio has degrown, right? And this is annuity business. The NII flows with a lag and we will have to build our book to get back to our efficiency ratios of FY '19 throughout FY '21 because I don't want to surprise anyone of you in FY '21. I'm a long-term player. And gradually, my corporate book will be in the vicinity of 13% to 15%, and my retail book, hence, would be 85% to 87%.

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Abhishek Murarka, IIFL Research - VP [86]

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Retail, you mean including construction finance, the way you disclose it?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [87]

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Yes, yes.

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Abhishek Murarka, IIFL Research - VP [88]

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And how much would be construction finances...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [89]

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Retail would be retail loans to individuals. And corporate will have construction finance in it.

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Abhishek Murarka, IIFL Research - VP [90]

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So between corporate and -- as in construction finance and nonhousing, that will be 15%?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [91]

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No, no, no, no, no. From where are we getting this math?

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Abhishek Murarka, IIFL Research - VP [92]

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Sorry, I'm confused. Can you please tell me again, sorry?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [93]

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So 85% would be retail. The breakup of the retail would be somewhere between 57% to 58% pure home loans, right? Around 20% retail LAP, which makes up to 78%. 5% to 7% will be nonresidential premises loans to self-employed professionals like doctors, engineers, architects, right? So that makes the retail book.

In the corporate book, slowly and gradually -- so LRDs, we are getting rid of them because they are a sponge on my capital and the lowest yielding book, though it is a 0 DPD book. All of you should also appreciate that whatever is the gross number, gross NPA number is on a degrown book and on a sold down book and on a securitized book. 20% of our AUM is securitized today, right? So the construction finance will be 12% to 13%, which will be the remaining book.

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Abhishek Murarka, IIFL Research - VP [94]

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Okay. Okay. And what would be the yields on these portfolios...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [95]

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That is market-driven, my dear friend. I cannot [harbing] the Reserve Bank.

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Abhishek Murarka, IIFL Research - VP [96]

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No, no, I'm asking for the current yield, sir. So in...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [97]

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The current yield is about 10 -- I mean if you go to -- the current yield on portfolios is 1,086.

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Abhishek Murarka, IIFL Research - VP [98]

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And for the individual segment?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [99]

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For the individual segment, it is about -- I mean incrementally speaking, it is very healthy at about 1,044, it's for LAP. Home loan is 952.

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Abhishek Murarka, IIFL Research - VP [100]

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9-5-2?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [101]

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And retail is 984. It is a combination of HL and LAP. This will be 984. The corporate yield is 1,215. CLP is today sitting at 1,233, and CTL and LRDs are sitting at about 1,044.

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Operator [102]

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(Operator Instructions) The next question is from the line of Kunal Shah from Edelweiss Securities.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [103]

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Yes. Sir, firstly, in terms of the decline in yields, as you highlighted, the incremental yields compared to that of last quarter, they have been more or less similar or it has gone up. Sir, this declining yields, is it largely on account of interest income reversal, whatever margin decline we are seeing? And how much would be...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [104]

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Okay. I will address it. I will address it very, very frankly. One is the NIM has got a little compressed because of 2 reasons. One is that we are carrying excess liquidity. Generally, we used to carry liquidity for 60 days. Today, we are carrying liquidity in excess to somewhere like 130 days, right? So whenever you carry excess liquidity, you incur a negative yield on that portion. So on our INR 70,000 crores of portfolio on balance sheet, we are carrying INR 10,000 crores of liquid cash, which is approximately 14% and which is giving me a negative return. That is one. The second thing is that the NII has got compressed because of the true up of securitized pool, right? So what happens is whenever in IndAS, you are securitizing, you upfront the spread and discount it at your borrowing cost in balance sheet, and you true up the behavior of that tool every quarter. So supposing, I had, at the time of the event of securitization on the IndAS, my pool behavior said that this pool is going to remain, the residual maturity is, let's say, 72 months. When it comes, and this is also seasonal like the cash flows in construction finance, there's a high propensity of people in quarter 3 to prepay loans. So when quarter 3, when we true up the behavioral pattern of the pool, there was a sharp decline in the residual tenure of that pool. And there was reversal of income of INR 44 crores. So these 2 elements, excess liquidity, which got me negative carry, and truing up of my securitized pool condensed my NII -- or compressed my NII.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [105]

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Sure. And secondly, in terms of the incremental GNPLs. So I presume there were 2 accounts which slipped during the quarter, Supertech and IPL. So this happened in this quarter along with 20 basis points rise in GNPL. This is what is the -- leading to the entire rise in the overall GNPLs?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [106]

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Yes. And also degrowth of the portfolio. See what was -- I would make you understand the behavior of the management. So what was the situation? We were highly levered. The rating agencies and the research houses put us on watch. The capital raise and the position of PNB vis-à-vis PNB Housing was not getting asserted. So what was -- the management could not have continued to have grown at the same pace. So what would the management do? A, sell out the corporate loan book because there's nothing like a securitization of a corporate loan book. So 0 DPD book of somewhere close to INR 2,000 crores is sold down. Another INR 1,100 crores will sell down in quarter 4. Already the bankers are lining in front of us. We securitized -- heavily securitized in the first few quarters. We brought down our level so that we give ourselves a window of time to let the capital raise get crystallized and not be kept on calibrated for growth. So this is how a mature and a conservative management knows how to manage an institution in given situation and the macroeconomy is not supporting in any which way.

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Operator [107]

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The next question is from the line of Ritika Dua from Elara Capital.

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Ritika Dua, Elara Securities (India) Private Limited, Research Division - AVP, Lead of Diversified Financials & Analyst [108]

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Firstly, on the yields. Sir, when we hear from the other...

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Unidentified Company Representative, [109]

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Sorry, Ms. Dua, you are not audible.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [110]

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Ma'am, we are not able to hear you at all.

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Ritika Dua, Elara Securities (India) Private Limited, Research Division - AVP, Lead of Diversified Financials & Analyst [111]

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Sir, am I audible now?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [112]

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Yes.

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Ritika Dua, Elara Securities (India) Private Limited, Research Division - AVP, Lead of Diversified Financials & Analyst [113]

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Sir, firstly on the yield front. So the incremental -- I mean like when we hear from most of the other HFCs or other wholesale financials who have exposures to developer, so they have been able to pass on the increase in cost of funds or they have been charging higher to the developers. But when we see our yield on the wholesale side, I mean, if I have the numbers correct, the number in second quarter and in third quarter has always been the same. So what is your take on the same?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [114]

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Yes. So I mean, you are talking about pricing of the corporate or the wholesale book?

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Ritika Dua, Elara Securities (India) Private Limited, Research Division - AVP, Lead of Diversified Financials & Analyst [115]

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Yes, sir.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [116]

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Now we are not doing land aggregation. We are not doing conversion. We are not doing legal arbitrage. We are not doing inventory funding. So we are entering into a project in stage 4 as per our investor presentation. And there, these are the type of yields which get sold in the market. We also did transfer the expansion of cost of funds to our developer friends because there is also a question on the, I would say, the financial viability of a project to absorb financial costs. Now I don't want that PNB Housing becomes the, I would say, the catalyst to make a bankable project not viable project by increasing the cost of funds by, let's say, 500 basis points, 600 basis points. So whatever happened in our treasury, we did pass it on. And that is why the demonstration of that is that has spread on our portfolio has gone up between quarter 3 of FY '19 and quarter 3 of FY '20 from 198 basis points to 212 basis points.

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Operator [117]

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(Operator Instructions) The next question is from the line of [Omkar Kulkarni] as an individual investor.

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Unidentified Participant, [118]

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So the fundraising will happen in the next 2 months, you mean to say that this financial year? And what would be the quantum approximately and mode of fundraise?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [119]

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Sir, it is going to be a Tier 1 capital raise. It will not be complicated. The quantum will be around INR 1,500 crores to INR 1,600 crores because we will maintain a cushion for PNB as a promoter not to come down below 26% because that's the mandate.

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Unidentified Participant, [120]

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Okay. You have said that they won't be coming below 26%. The current shareholding is around...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [121]

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Well, it is in all our communications to all our press releases, everything.

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Unidentified Participant, [122]

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Okay. But the current shareholding of PNB is around 32% and you have said that they won't be selling any single share in secondary market.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [123]

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Yes.

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Unidentified Participant, [124]

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So how does this work? I mean they are willing to hold on to 32% or 26% or they're planning to sell in?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [125]

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I will raise Tier 1 capital, they will get naturally diluted, no?

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Unidentified Participant, [126]

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Correct.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [127]

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That is why.

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Unidentified Participant, [128]

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Okay. So anything or -- will it be a QIP or right issue or something...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [129]

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Well, that my BRLMs are going to decide now. And the structure of that will get disclosed very soon.

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Unidentified Participant, [130]

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So it should be before March only, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [131]

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Yes, I said this fiscal.

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Operator [132]

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The next question is from the line of Abhijeet Sakhare from Goldman Sachs.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [133]

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My first question was on growth. Assuming the capital raise comes through next quarter, what kind of balance sheet growth are we targeting over the next 2 years?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [134]

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In the next year, and -- I would say, a CAGR of anything between 15% to 18% for next 3 years starting from FY '21.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [135]

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This is on the balance sheet basis, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [136]

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This is on the balance sheet basis because I also qualified that we will not be vehemently doing securitization in the next 3 years because our lever will be very, very respectable under 8 in all the 3 years.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [137]

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All right. So just a follow-up on that would be that would then impact our P&L because the fair value gains almost now contribute to about 20% of operating profit. So that would essentially go away from the P&L starting next year.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [138]

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Yes, we have made good of it because the fair value of spread or gain also has a negative connotation which has happened in quarter 3 of this fiscal.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [139]

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Okay. But the entire gains would not flow through from next year onwards, right?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [140]

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We will be able to sort of moderate and mitigate that. Our fee incomes will go up. I mean if you see -- if you were to really see the numbers, the fee income or the non-fund-based income, which used to be a healthy 45 to 50 basis points, has got condensed to 20 basis points. So that will also commence.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [141]

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Okay. And second was on the quarter-on-quarter decline on cost of funds, almost around 13, 14 basis points. So what actually happened...?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [142]

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Well, in the last quarter, to be very frank, the cost of fund, if you were to see incrementally, has come down by about 25 basis points. But yes, on a 9-month period, it has come down by about 13 basis points.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [143]

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Okay. And this is because of refinancing of earlier high-cost loans, is it?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [144]

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No, no, that we will do in quarter 4.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [145]

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Okay. So what kind of cost of funds are we looking at for the next 12 months or so? What kind of reductions are we targeting?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [146]

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Well, it is the confidence of the institutional investors, refinance from National Housing Bank. So we really sort of negotiate on the cost of borrowings, especially when they are long because you get the -- I mean the repricing of that becomes difficult during the tenure. So we really -- our treasury people really does a good job of it.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [147]

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Okay. And sir, just a couple of quick clarifications. From the 5 accounts, if I'm not wrong, Ornate Group is still stage 1 or stage 2, right? Still not NPA?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [148]

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It is stage 2.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [149]

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Stage 2, okay. It moved from stage 1 to stage 2, right? Over the last -- okay.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [150]

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Yes.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [151]

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Okay. And just lastly, in terms of retail NPLs, what's the breakup between home loans and LAP?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [152]

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Well, they are almost same. The behavior pattern is not segment or product-driven in retail. As I said, I mean, and I have voluntarily said that the biggest shocker was pricing home loans under construction.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [153]

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Sir, apologies, what would be the...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [154]

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So people who are selling home loans at 7.98% and all, so -- that is where one has to be careful.

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Abhijeet Sakhare, Goldman Sachs Group Inc., Research Division - Associate [155]

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And just lastly, what are the -- what's the steady state PCR we're targeting on stage 3 and stage 1 and 2?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [156]

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Well, it will depend. See ECL is a combination of behavior of a portfolio. So loss given default, probability of default, all those things go into it. So we have a very versatile portfolio analytics team, which works very closely with the CRO and the behavior will determine the ECL provisioning. And yes, when the -- sort of the credit cycles and the economy improve, I'm certainly sure the LGD has not gone up dramatically, but the PDs will come down.

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Operator [157]

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The next question is from the line of Preethi RS from UTI Mutual Fund.

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Preethi RS, UTI Asset Management Company Limited - Research Analyst [158]

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Sir, am I audible?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [159]

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Yes, yes. Very well.

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Preethi RS, UTI Asset Management Company Limited - Research Analyst [160]

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Sir, my question is...

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [161]

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Now you are not audible.

Your greetings were very warm and clear, but now your question is not clear.

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Preethi RS, UTI Asset Management Company Limited - Research Analyst [162]

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My question is on the retail disbursements. Slightly surprised by the extent of decline. So is this driven by the lack of demand or it's restrained by the capital or the organization is focusing more on recoveries and collections?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [163]

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No. So other than the last one, it was a combination of all. So one was that we had a scare, I will be truthful, of liquidity somewhere in October, November. And so we detained ourselves. Plus, as I've been saying, the majority of home loans in this sector and as a guess I'm saying that 45% is under construction. We kept out of it 100%, right? So plus -- so we were very, very conservative. And I'm sure we will rebuild our franchisee in quarter 4 of this fiscal and quarter 1 of the next fiscal, and get back to our retail disbursement upwards of INR 1,700 crores, INR 1,800 crores a month.

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Operator [164]

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The next question is from the line of Viral Shah from Crédit Suisse.

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Viral Shah, Crédit Suisse AG, Research Division - Research Analyst [165]

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I had just 1 question. I was comparing the collection efficiency that you have given out in your PPT. I noticed that in the 9-month ending December '19, collection efficiency has dropped to 97.8%, vis-à-vis 98.4% in the first half. So could you give the collection efficiency number quarter-wise? It seems like there was actually a dip in the 3Q, and if you could give any reasons behind the same?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [166]

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See basically, Q3 is a time for vacation and festivals and that is why -- this is billing versus cash collection, right? But I'm very sure it will come back in quarter 4. Plus, our resolution rates are very healthy. And the NPA resolution rates for -- just a second -- and what is happening is, as I said, the SARFAESI decisions take a 6-month period, and that ends, if you were to see the 9-month period, somewhere in December. So I'm very sure by quarter 4 end, this graph will again get into -- close to 98.5%, 99%.

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Viral Shah, Crédit Suisse AG, Research Division - Research Analyst [167]

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Could you break up that number quarter-wise?

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [168]

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As I said, this is annuity business. Let's do it once in a year. It cannot -- it's not a manufacturing thing, sir.

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Operator [169]

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Ladies and gentlemen, due to time constraints, that would be the last question for today. I now hand the conference over to Ms. Deepika Gupta Padhi for closing comments. Thank you, and over to you, ma'am.

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Deepika Gupta Padhi, PNB Housing Finance Limited - Head of IR [170]

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Thank you, everyone, for joining us on the call. If you have any questions unanswered, please feel free to get in touch with Investor Relations. The transcript of this call will be uploaded on our website, that is www.pnbhousing.com. Thank you.

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Sanjaya Gupta, PNB Housing Finance Limited - CEO, MD & Director [171]

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Thanks a lot. Good night, and a Happy Republic Day to all.

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Operator [172]

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Thank you very much. Ladies and gentlemen, on behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.