PNB Housing Finance’s ratings have been upgraded to AA+ from AA by CARE Ratings with a ‘stable’ outlook from ‘positive’, due to its improving asset quality and strong market position.

The ratings upgrade is applicable to a range of facilities and debt instruments, including its long-term and short-term bank facilities, bonds, non-convertible bonds, tier-2 bonds, and fixed deposits.

The ratings agency said the upgrade reflected the improved asset quality of the housing finance company, with its gross NPA ratio at 1.73 per cent at the end of December, compared to 8 per cent in March last year. The stable outlook was on the expectation that the housing financier would show profitable business growth along with healthy resource-raising ability and strong internal accruals.

It also factored in PNB Housing’s position as the third largest housing finance company in the country and its well-diversified resource profile.

CARE said PNB Housing had sharpened its focus on the affordable segment, though the exposure was still small at Rs 1,145 crore, which was just 1.8 per cent of its total loan assets. The performance of the affordable portfolio would remain a key monitorable.

The profitability profile of the HFC had improved with return on total assets at 2.09 per cent in the first nine months of the current fiscal year, and profitability was expected to improve further with a scale-up in the affordable portfolio.

Any significant improvement in the scale of operations, asset quality and profitability with return-on-assets crossing 2.5 per cent would make the case for a further ratings upgrade, CARE said.

However, if the capital adequacy ratio were to fall below 20 per cent, the asset quality would deteriorate, with the GNPA ratio going above 3 per cent, if the profitability declined and there was an increase in the construction finance portfolio of more than 10 per cent of the total asset base, then there could be a ratings downgrade.

At the end of December, PNB Housing had total loan assets of Rs 62,337 crore. The growth in asset base has accelerated in the last couple of years after declining in FY21 and FY22.

The decline was due to a strategic reduction in the wholesale book, while it focused on increasing the exposure of the retail loan book. The corporate book has reduced to 3.5 per cent of the total. The retail loan book has risen 11 per cent this year and is expected to grow 17 per cent in the next fiscal year, CARE said.

The affordable housing finance segment was expected to gain increased traction, amounting to around 5-10 per cent of incremental disbursements, it added.