The stocks of PNB Housing Finance recorded a remarkable upsurge in the equity markets after a major news about the credit rating of the company. Its share appreciated by a significant margin of 2.02% to close at ₹936.90 directly as a result of a positive response by one of the biggest credit rating agencies. This growth reflects market optimism that the company has an enhanced credit profile and stability in the future. This market enthusiasm was triggered by the disclosure that India Rating and Research (Ind-Ra) had raised its long-term ratings on the housing financier.

Strategic resilience and market recognition

The particular rating action was a rise in the non-convertible debentures (NCDs) and bank loans of the company. These instruments were rated higher than the best possible category of rating, IND AAA instead of IND AA+. The upgrade had a stable outlook, which indicated that the rating agency had confidence that the credit fundamentals of the company are likely to be strong and stable throughout the future. This top rating group is a crucial indicator to investors and creditors, which implies the lowest anticipation of credit risk and an exceedingly high level of protection concerning the punctual servicing of its debts.

Among the main forces behind this major upgrade, one can single out the anticipation of the strong and prompt support by its parent institution, Punjab National Bank (PNB). India Ratings and Research clearly indicated that the upgrade indicates the expectation that the PNB Housing Finance (PNBHF) would get much-needed support in terms of liquidity as well as equity, as and when required. This trust is founded on the strategic move by PNB to retain its interest in PNBHF, therefore, continuity of the relationship.

PNBHF enjoys the advantages of a shared brand name with the high goodwill and market reputation of one of the largest public sector banks in India. This symbiotic association is a significant credit enhancer, which lowers the independent risk profile of the housing finance company. In addition to the implicit backing that its parent provides, the rating also demonstrates the innate strength of PNBHF in the Indian financial environment.

The company is a well-established and clear leader in the business of housing financing in India. This robust position in the market is specifically impressive because it has been attained by passing through various business cycles. PNBHF has survived through different economic and industry-specific conditions and has been resilient and a planner, which has proved that its business concept is sustainable and resilient. This history of stability in its operations is one of the major criteria used by rating agencies to evaluate long-term creditworthiness.

Enhancement and financial portfolio

The rating upgrade does not only rely on the external support but is also well anchored on the recorded improvements of PNBHF in its core financial and operational measures. The firm has shown a steady rise in its profitability, implying that it manages its costs well and that it is generating revenue effectively.

The asset quality has also improved considerably, indicating that the loan book of the company is performing better, with a decrease in the non-performing assets and an improvement in the asset recovery. These are the two factors, profitability and improvement of asset quality, which are important indicators of a well-run and healthy financial institution.

PNBHF has been able to achieve granularisation of the loan book. This is the diversification of its lending exposure in a large number of small, retail accounts instead of having risk in a few, big-ticket loans to corporations or developments. This granular strategy in itself lowers the risk profile of the portfolio.

The company has also shown its success in raising funds at competitive rates in the capital markets to complement its strong underwriting and asset management. This capability, along with the fact that it has sufficient liquidity buffers, puts PNBHF in a good position to meet its financial obligations and take up growth opportunities in the future, which further warrants the ‘AAA’ status.

India Ratings and Research has a positive to medium-term perspective towards the financial health of the entity. Ind-Ra expects that the credit cost of the entity will be modest. This expectation can be attributed to the aggregate impact of the increased stringency of the underwriting standards of the company, as well as the desirable composition of its loan book, and is dominated by retail and granular. Restricted underwriting policies make sure that lending is done to borrowers who have high repayment capabilities, and this directly translates to a reduced number of defaults, thus resulting in low credit costs.

Another segment that the rating agency has been pointing at is still monitorable. This is with regard to its affordable housing finance portfolio performance. Although this segment is typified by high growth, it is still at an infantile stage in the overall mix of business in the company. A major aspect that will be followed by Ind-Ra and the market in the long term will be the successful implementation and performance of this relatively new, high-growth portfolio to ensure that the rapid growth in affordable housing does not have any effect on the quality of assets.

Conclusion

The rating of PNB Housing Finance as IND AAA on ratings by India Ratings and Research is a tremendous achievement that confirms the strict strategic and financial performance path by the company. The rating represents a powerful mix of high external support, which implies that PNB is expected to provide both liquidity and equity support in time, and a well-established set of liberties, such as a steady increase in profitability, improved asset composition, and rational risk management, as evidenced by granularisation of the loan book. The positive perception of this top credit rating is proven by the market reaction, which resulted in an increase in the share price by more than 2%.