PNB Housing Finance expects modest margin gains from RBI rate hike

PNB Housing Finance MD and CEO Ajai Shukla said the Reserve Bank's decision to raise its benchmark lending rate will deliver only marginal benefits to the mortgage lender's profitability, despite expectations of broader market impacts.

The RBI raised its policy repo rate by 25 basis points to 5.5 per cent last week, marking its first increase since 2018 as policymakers seek to control inflation driven partly by geopolitical tensions in West Asia. However, Shukla explained that the benefits for PNB Housing Finance would be considerably smaller due to the composition of the lender's funding sources.

"The lender's borrowing costs are not solely indexed to the repo rate," Shukla told PTI. "We rely on a mix of MCLR-based rates, commercial paper, refinancing from the National Housing Bank, and non-convertible debentures." This diversified funding structure means not all of the lender's liabilities will reprrice immediately following the central bank's action, limiting margin expansion.

Shukla projected net interest margin improvement of 5-8 basis points across PNB Housing Finance's loan book, considerably lower than the full 25 basis point rate hike. The lender expects continued momentum in housing finance demand, with recent months showing positive traction in borrower inquiries.

The cautious outlook reflects broader challenges in India's mortgage sector, where competition and funding constraints limit lenders' ability to fully transmit rate hikes into improved profitability.