Driven to Transform Fueled by Ambition - PNB Housing Finance Limited

Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Fueled by Ambition
Driven to Transform
    26th Annual Report 2013-14

      PNB Housing Finance Limited
Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Now taking a
home loan is
Driven to Transform Fueled by Ambition - PNB Housing Finance Limited

                                   Doing More,
03   Logic Behind New Logo    18   Doing it Differently            52   Auditors’ Report

                                   Transforming with Information
04   Board of Directors       22   Technology                      56   Balance Sheet

     Transforming Dreams,          Transforming the
06   Fueling Realty           26   Financial Landscape             57   Profit and Loss Statement

     Fueled by Ambition,
08   Driven to Transform      28   Leadership Team                 58   Cash Flow Statement

                                   Management Discussion &
10   Awards and Recognition   29   Analysis                        60   Notes to Financial Statements

     From the Chairman’s
12   Desk                     42   Directors’ Report               89   Events

     From the Managing
14   Director’s Desk
                              50   Comments of C & AG              92   Our Network

Driven to Transform Fueled by Ambition - PNB Housing Finance Limited

                             Directors                     Bankers & Financial
                             K R Kamath                    Institutions
                             Chairman                      Bank of Baroda
                             Tejinder Singh Laschar        Central Bank of India
                             G N Bajpai                    Dena Bank
                             P K Gupta                     HDFC Bank Limited
                             S K Jain                      HUDCO
                             S S Bhatia                    ICICI Bank Limited
                             Vivek Vig                     Punjab National Bank
                             Anand Dorairaj                State Bank of India
                             Sanjaya Gupta                 Union Bank of India
                             Managing Director
                                                           United Bank of India

                             Auditors                      Vijaya Bank
                             B R Maheshwari & Co.
                             M-118 Connaught Circus,       Registered and
                             New Delhi - 110 001           Central Support Office
                                                           9th Floor, Antriksh Bhawan,
                             Legal advisors
                                                           22, K G Marg
                             Vaish Associates, Advocates   New Delhi - 110 001

                             Company Secretary
                             Sanjay Jain

     Annual Report 2013-14
Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
PNB Housing
                         Finance Limited
                       logic behind new logo
Old Logo   The old logo of PNB Housing Finance Limited (PNB HFL) faced the unique challenge of
           having too much in too little a space. PNB Housing Finance Limited, written out in one
           straight line, was not easy to read. A challenge that became particularly severe when one
           looked at the logo from a distance. As a direct consequence, the brand message of it being
           a housing finance company was getting lost at first glance. This caused a problem as the
           Company was poised to make its presence felt in the market and every opportunity had to
           be taken to popularize the name – PNB Housing Finance Limited; logo being a vital element
           in every marketing communication.
New Logo
           To provide a solution to this communication challenge, minor
           changes were incorporated into the framework of the existing
           logo. These changes ensured better visibility and message
           delivery without a total overhaul of the original design.

           Maroon and yellow color band at the bottom, emphatically flag off the parentage, which
           is PNB. This alone ensures a positive rub-off on our emerging brand; after all the logo
           announces the pedigree loud and clear – a pedigree that has come to be trusted across all
           spheres of banking and financial services.

           PNB Housing is written across the maroon band to the right of the emblem. The available
           space allows PNB Housing to be seen clearly, immediately registering the name as a housing
           finance company.

           The new logo, hence, is ready to enhance this message and visibility in every marketing

Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Fueled by Ambition,                 Management
                 Driven to Transform             Discussion & Analysis            Statutory Reports            Financial Statements

  of Directors

                                                   Shri Tejinder Singh Laschar
                                                   He joined the Indian Economic Services in 1973
                                                   and superannuated as Senior Economic Advisor.

                                                   He has also held prestigious positions such as
                                                   Economic Advisor to the Ministry of Chemicals
                                                   and Fertilizers; Member Secretary of the
                                                   Working Group on Fertilizers, 10th Five Year Plan;
                                                   Additional Economic Advisor, Ministry of Finance
                                                   and Director, Ministry of Home Affairs and
                                                   Banking Division of the Ministry of Finance.
                                                                                                        Shri Ghyanendra Nath Bajpai
                                                                                                        He was the Chairman of Life Insurance
                                                   He is the Chairman of the Audit Committee and        Corporation of India (LIC) and the Chairman of
                                                   member of Business Process Committee of the          Securities and Exchange Board of India (SEBI).
                                                   Board of PNB HFL.
                                                                                                        Currently, he is on the Board of many prominent
                                                                                                        companies in the capacity of Chairman/
                                                                                                        Non-Executive Independent Director. He is
Shri K R Kamath                                                                                         also the Chairman of the National Pension
Chairman of the Board                                                                                   Trust and has written three books. He received
Currently, CMD of Punjab National Bank                                                                  “Outstanding contribution to the development of
                                                                                                        finance” award from Prime Minister of India.
He is a brilliant academician and a banker of
repute. He started his career with Corporation
                                                                                                        He is the Chairman of the Marketing Committee
Bank in 1977. At Corporation Bank, he had held
                                                                                                        of the Board of PNB HFL.
various senior level positions.

He was appointed as Executive Director of Bank
of India on May 19th, 2006. He became the
Chairman and Managing Director of Allahabad
Bank on August 2nd, 2008. He was appointed as
the Chairman and Managing Director of Punjab
National Bank in November 2009.

He is the Chairman of the Board of PNB HFL.        Shri P K Gupta
                                                   He started his career with PNB in 1971 and
                                                   became General Manager. He was elevated as the
                                                   Executive Director of Corporation Bank in 2001.
                                                   He became the Chairman & Managing Director of
                                                   National Housing Bank in 2004 and the Chairman
                                                   & Managing Director of United Bank of India in
                                                   2005. He has also held the position of Managing
                                                   Director of PNB Capital Services Ltd.

                                                   He is member of Audit Committee and
                                                   Appointments Committee of the Board
                                                   of PNB HFL.

            Annual Report 2013-14
Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Shri Anand Dorairaj
                                                       He is a Chartered Accountant from the Institute
                                                       of Chartered Accountants of India (ICAI). He has
                                                       worked with Citigroup International in New York.
                                                       After gaining experience as a senior emerging
Shri S K Jain                                          markets specialist with extensive hands on
                                                       exposure in mergers and acquisitions, he joined
He is an MBA from Indiana University, USA
                                                       New Silk Route Advisors in February 2007 and
(Dean’s List) and a Fulbright scholar. He worked at
                                                       focused on private equity opportunities in the
Citibank for 30 years in various capacities in India
                                                       Indian sub-continent.
and abroad. He was Senior Credit Officer in Hong
Kong, Taiwan, Philippines, Thailand and Canada
                                                       He is a member of the Audit Committee and
with Citibank before retiring in 2001.
                                                       Appointments Committee of the Board of
                                                       PNB HFL.                                           Shri Sanjaya Gupta, MD
He is currently the Chairman of the Credit
Committee of the Board of PNB HFL.                                                                        He holds a post graduate degree in Business
                                                                                                          Management. He is also a Fellow of the Royal
                                                                                                          Institution of Chartered Surveyors.

                                                                                                          Throughout his career, which spans over
                                                                                                          27 years, he has significantly contributed to
                                                                                                          mortgages and allied risk management products
                                                                                                          across geographies. He holds the distinction
                                                                                                          of establishing Indian mortgage industry’s first
                                                                                                          international housing finance branch operations
                                                                                                          for HDFC Ltd. He is often consulted by policy
                                                                                                          makers on key changes in the sector.

                                                                                                          He is an ADB nominated Director on the Board of
                                                                                                          HDFC Plc., Maldives and an independent Director
                                                                                                          of India Shelter Finance Corporation Ltd., where
                                                                                                          he also heads the Audit Committee of the Board.
                                                       Shri S S Bhatia
                                                       He joined PNB as a Management Trainee in           He was appointed Managing Director of the
                                                       1977. During his 37-year career with PNB, he       Company in June 2010.
Shri Vivek Vig                                         has handled many important assignments.
He is a post graduate from Indian Institute of         He has headed large branches, been SRM and
Management (Bangalore). He joined Citibank in          later on DGM, Amritsar, DGM (Stressed Assets
1986 and has performed several roles at Citibank,      Management Division), Circle Head (Meerut),
including Country Head (Consumer) of Turkey and        Field General Manager (Ludhiana) and now
Saudi Arabia. After Citibank, he joined Centurion      General Manager, RAD and MSME, HO.
Bank of Punjab in 2004, as Country Head (Retail
Bank). He is now associated with Destimoney            He is a member of the Credit Committee and
Group of Companies in the capacity of Managing         Marketing Committee of the Board of PNB HFL.
Director & Group CEO.

He is a member of the Credit Committee and
Business Process Committee of the Board

Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Fueled by Ambition,       Management
         Driven to Transform   Discussion & Analysis   Statutory Reports   Financial Statements

Fueling Realty
                                                          A dream is a boundless desire, without
                                                          necessarily being affordable. For
                                                          millions of Indians, owning a home
                                                          is a distant reality, rooted in such a
                                                          desire. Being the most capital intensive
                                                          purchase of their lives, buying a
                                                          home is not always realizable, thus
                                                          easy access to funding is essential to
                                                          transform this dream into reality.

      Annual Report 2013-14
Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
PNB Housing Finance Limited enables people to realize their dream of owning a home by
providing competitive and easily accessible home loans.

PNB HFL provides home loans (for home purchase, extension, construction, buying a
residential plot of land or home improvement) and non-home loans (loans for commercial
property, loan against property, lease rental discounting and loans to real estate developers).

PNB HFL also offers Public Deposits of different maturities and various interest payment
options for those who have surplus savings to invest in highly rated instruments.

Amongst India’s top five lenders in the housing finance segment,
PNB Housing Finance Limited is driven by its ethos of putting
people first, being customer-centric and operating to the highest
ethical standards.

PNB Housing Finance Limited -
A Self Portrait
  We are a subsidiary of one of India’s largest
  banks - Punjab National Bank, which
  owns 72.6% of the Company’s equity.
                                                  Loan book has expanded to
  The remaining equity capital is held by
  Destimoney Enterprises Private Limited.         `10,591 crores during FY 2014,
                                                  from `6,619 crores in the
  We enjoy high credit ratings - CRISIL           previous year.
  FAAA with stable outlook for fixed
  deposits, CRISIL AA+ with stable outlook
  for bank borrowings, CRISIL AA+, CARE           Profit After Tax stands at
  AA+ and ICRA AA+ for non convertible
  debentures (NCDs) and CRISIL A1+ for
                                                  `127.44 crores during FY 2014,
  commercial papers.                              from `91.5 crores in the previous year.

                                                  Gross non-performing assets (NPAs) are

                                                            0.32 % and
                                                  at a low of

                                                  Net NPAs stand at 0.16 % of loans
                                                  outstanding as on March 31st, 2014.

Driven to Transform Fueled by Ambition - PNB Housing Finance Limited
Fueled by Ambition,       Management
        Driven to Transform   Discussion & Analysis   Statutory Reports   Financial Statements

     Fueled by Ambition,
     Driven to Transform

     Annual Report 2013-14
PNB HFL is driven by an
ambition to be the most
admired housing finance
company in the country,
                                It is a transformation rooted in excellence and driven by our
not merely in terms of          ambition to reach the highest rank in the housing finance sector.
numbers but also for its
quality of service and
strong relationships.
We are in midst of a
comprehensive business
transformation, which will
have a long-term bearing
on our business model.
The technology we use
and the systems that drive
our business accessibility
will be made easier for
prospective customers. The
transformation journey is
steered thoroughly by a well
designed business process
re-engineering (BPR)
program, which is aimed
at amalgamating solidity,
stability and transparency of
the traditional public sector
with nimble responsiveness
of the contemporary private
sector, delivering a robust
and agile corporate entity.

Fueled by Ambition,       Management
           Driven to Transform   Discussion & Analysis   Statutory Reports   Financial Statements

     Awards are the
  Rewards of a Process of
In the journey of excellence,
the only entity we compete
against is ourselves. Our
best performance becomes
the benchmark that we try
to better every day. Being
incrementally superior
becomes a way of life, a
way to transform oneself,
and we believe that if
something is worth doing,
it is worth doing well. This
way of looking at business,
as an endeavor to excel in
all that we do, has been
rewarding in more ways
than one. We are the proud
recipient of many awards
from the industry, and each
of these encourages us to
do better every time.

        Annual Report 2013-14
Awards during FY 2014

 Organization change story awarded in the category
 of ‘Special Commendation Award’ by Best Change
 Interventions from Asia Seminar and Study Awards
 2013 - organizations successfully designing, executing
 and managing change.

 Acknowledged by HUDCO for ‘Significant Contribution
 to Housing for the FY 2013-14’.

 Change management story got published in
 ‘Switch’, amongst twelve best change management
 stories of India.

 Awarded by Franchisee India as the
 ‘Fastest Growing HFC’.

While the transformation is still ongoing, these
awards are milestones that underline our steadfast
progress towards our ultimate goal of excellence -
‘The most admired housing finance company in
the country’.

Fueled by Ambition,       Management
        Driven to Transform   Discussion & Analysis   Statutory Reports         Financial Statements

           From the
       Chairman’s Desk

                                    Our objective is to take this
                                Company amongst the top 3 HFCs
                                in a few years’ time. The Company
                                has drawn up an ambitious business
                                plan for itself for the next 4 years

                                                                          Dear Stakeholders,
                                                                          I am happy to present to you the 26th
                                                                          Annual Report of your Company. I hope you
                                                                          will enjoy going through the contents.

                                                                          I congratulate all the stakeholders on the
                                                                          momentous occasion of the Company
                                                                          successfully completing 25 years of its
                                                                          purposeful existence on November 11th,
                                                                          2013. This is an opportune time to look
                                                                          back at PNB HFL, which is one of the fastest
                                                                          growing subsidiaries of Punjab National
                                                                          Bank (PNB).

                                                                          PNB incorporated PNB HFL in 1988, like
                                                                          many other public sector banks and
                                                                          insurance companies, when the Indian
                                                                          Parliament notified the National Housing
                                                                          Bank Act. Our main objective was that the
                                                                          Company should efficiently deliver housing
                                                                          loans to the Indian public at large and

     Annual Report 2013-14
create a niche place for itself in the housing    provided limited growth opportunities.           The Company has professional and
finance company (HFC) domain. As we               During these testing times, the Company          experienced manpower drawn from the
went along, it was felt that in order to take     recorded a growth of 60% in loans                industry, robust policies, seamless system
optimum advantage of a growing market             outstanding, 69% in deposits and 39% in          solution, secure and convenient sales and
for home loans, the Company needs to be           profit after tax. While the industry struggled   service branches across the country, solid
professionally driven and given operational       to contain NPAs, the Company continued to        and trustworthy brand image of the parent
independence. Moreover, in order to attain        maintain very high quality of loan portfolio.    PNB, gives us the confidence that
leadership position, the Company should           The Company has also delivered benchmark         PNB HFL is certainly poised to reach greater
have its own cadre of contemporary and            standards of customer service and a door-        heights in the times to come.
sound human capital, robust operating             step delivery model for customer ease and
model, market aligned products & policies         convenience.                                     The year ahead has many challenges and
and an effective delivery model.                                                                   opportunities. The Company is operationally
                                                  Our objective is to take this Company            ready to meet these challenges and seize
Hence, in September 2008, PNB floated a           amongst the top 3 HFCs in a few years’           the opportunities. I am sure that FY 2015
global tender for disinvestment of its stake      time. The Company has drawn up an                will be another year of excellent growth
in the Company and brought in a private           ambitious business plan for itself for the       and the Company will be able to once again
equity partner in December 2009. The              next 4 years. Complementing the                  surpass your expectations.
disinvestment was followed by a detailed          growth plans of the Company, the Board of
business process re-engineering (BPR)             Directors has approved infusion of               In the end, I take this opportunity to
program, christened as ‘Project Kshitij’,         ` 1,000 crores by way of equity capital          thank our shareholders, my colleagues
which was operationalized in July 2010.           during the coming two to three years.            on the Board who have been valuable
It gives me immense satisfaction that the         This will allow the management of the            guide in steering PNB HFL to new heights
thought process behind restructuring and          Company to focus on quality growth and           and the customers who have patronized
re-defining our strategies for the Company’s      improving profitability indicators. I am sure    the brand PNB HFL to make it the fastest
future is on course to achieve all the specific   in the coming years the Company will not         growing HFC in the country. A word of
objectives with which we had started this         only grow in size but will also be one of the    appreciation for the members of the staff
journey of BPR. The same has also been            most admired HFCs in the country.                of PNB HFL who have wholeheartedly
corroborated by business growth, one of                                                            participated in this journey of Business
the industry best asset quality and healthy       The Company has customized its lending           Process Re-engineering – without their
profitability figures. In a short span of four    products and is offering wide range of fixed     selfless, dedicated and smart working we
years, the Company has now edged up to            and floating rate of interest products, which    would not have attained these heights
5th position amongst HFCs with a loan book        suit prospective home buyers and insulate        of excellence. I also thank our regulator,
of over ` 10,000 crores and profit of over        them from macro-economic volatilities. The       the National Housing Bank, for their
` 125 crores, while maintaining excellent         Company is now developing state-of-the-art       continuous and timely guidance.
asset quality with just 0.32% gross NPAs and      enterprise system solution, which will not
1.10% total delinquencies.                        only support the Company’s loan origination
                                                  and underwriting but would also enhance          Yours sincerely,
Last year was an eventful and challenging         customer service and customer interface.
year in terms of slow macro-economic              Being in the service industry, our objective
growth, persistent high inflation and high        is to provide best-in-class service to the
rate of interest, particularly from July 2013     existing 83,000 loan and deposit customers
onwards. The country recorded moderate            and simultaneously grow the customer base
GDP growth of 4.7% for the year, which            many times more.                                 K R Kamath

Fueled by Ambition,       Management
        Driven to Transform   Discussion & Analysis   Statutory Reports         Financial Statements

         From the
     Managing Director’s

                                   We stride forward with tangible and
                                high level of operational readiness,
                                which is steered by passionate and
                                committed people and is rooted in a
                                new set of system solutions and best
                                industry practices

                                                                          Dear Stakeholders,
                                                                          Your Company, PNB HFL, after two and a
                                                                          half decades of its existence, is now at a
                                                                          significant point of inflection. And that is
                                                                          why the theme of this year’s Annual Report
                                                                          is ‘Transformation’.

                                                                          As we move into the next phase of our
                                                                          business transformation journey, we do so
                                                                          as a more vibrant, dynamic, people-first,
                                                                          customer-centric and forward-looking
                                                                          organization which is entrenched in strong
                                                                          and deep-rooted values. We stride forward
                                                                          with tangible and high level of operational
                                                                          readiness, which is steered by passionate
                                                                          and committed people and is rooted in
                                                                          a new set of system solutions and best
                                                                          industry practices.

                                                                          As we prepare to take the next big leap
                                                                          towards becoming a larger and more
                                                                          significant player in the housing finance
                                                                          sector, we are cognizant of the need to align
                                                                          our operations to the constantly evolving
                                                                          desires of our customers.

     Annual Report 2013-14
Expanding our portfolio with personalized      National Housing Bank (NHB) relaxed               It included revamping of business processes,
and unique solutions, we are consistently      some measures in the second half of               organizational restructuring, revisiting
driving our efforts to provide best-in-class   FY 2014 - reduction in risk weights for home      policies, creating and implementing a
products and service experience to our         loans in the ₹ 0.30 crore to ₹ 0.75 crore         strong and scalable target operating model
customers. It is our focused commitment        category. This resulted in easing of pressure     (TOM) and formulation of a detailed five
to ensure customer delight across all our      on capital adequacy, thereby enabling             year business plan to steer us through the
product lines, through customized solutions    better portfolio growth for housing finance       journey of transformation.
and door-step service.                         companies (HFCs).
                                                                                                 From FY 2013 we started testing our new
FY 2014 saw us take many steps forward in      GROWTH ACTUATORS WERE IN                          machinery, which included people, processes,
fructifying our customer-focused agenda.       PLACE FOR FY 2014                                 systems, new branch lay-outs, new ways of
When we look back at the year gone by, with                                                      sourcing business, centralized underwriting,
                                               Despite slowing down of the economy,
a sense of satisfaction, it was a period of                                                      handling recalcitrant customers, augmenting
                                               HFCs displayed healthy growth momentum
successful culmination of our plans –without                                                     our networks, system solutions, human
                                               in the home loan segment. The overall
a doubt it has been a year of exciting                                                           capital saw a sea change as contemporary
                                               growth in housing credit was 20% in
developments that have transformed                                                               practices were implemented – this was a
                                               FY 2014, which is higher than the growth
your Company into a more contemporary,                                                           very energy absorbing phase, we had to be
                                               rate for FY 2013. Real estate prices, however,
dynamic and energetic entity.                                                                    continuously alert and tenacious; as we were
                                               remained subdued, with only a few cities
                                                                                                 changing all four wheels of a fast moving car!
                                               reporting a marginal increase.
What makes this journey even more
gratifying is the way we grew in contrast to                                                     FY 2014 (year under review) was the first
                                               FUELED BY AMBITION, DRIVEN TO
the prevailing macro business environment,                                                       year when we could test, over-load and
which was not favorable to the growth of                                                         trust, wing to wing, all elements of change
the sector.                                    Let me share with you the panoramic insight       which were brought in under Kshitij.
                                               to our business process re-engineering
SOFTENING ECONOMY, HARDENING                   program (BPR), launched under the banner          I am happy to report that most of the
RATE OF INTEREST                               ‘Project Kshitij’, and how the initiatives have   initiatives are in the final stages of
                                               been successfully executed to bring about         implementation and their results are already
Amid a continuing slowdown of the              dramatic changes to the brand image.              evident. The BPR exercise has transformed
economy, India recorded the decade’s                                                             the face of PNB HFL and has resulted in
lowest annual GDP growth rate of 4.7%          This exercise was planned to span over four       significant improvements in our competitive
during the fiscal gone by. From mid July,      years starting from FY 2011 – the year was        position and scale of operations.
the industry faced a steep rise in rates of    absorbed in discovering our own selves and
interest, resulting in some large lenders      determining our value proposition and where       With the agenda of using technology
increasing rate of interest on home loans by   ‘we want to be’ in medium and long term time      extensively, we have remarkably improved
20-35 bps. This mainly impacted the existing   frame. Primarily we designed our own destiny.     our internal and external delivery model,
customers, most of the lenders offered                                                           human resource (HR) and customer
discounts in the range of 15-25 bps for new    The second year (FY 2012) was spent               relationship management (CRM),
customers through special schemes. Hence,      at strengthening our business and                 thereby enabling us to emerge as a
rates of interest for new customers were       financial risk profiles by creating a robust,     customer-centric organization, across
back to the pre-July 2013 levels.              growth-oriented business model.                   products and services.

Fueled by Ambition,       Management
          Driven to Transform   Discussion & Analysis         Statutory Reports         Financial Statements

                                  What is emerging as a result of these           FOCUS ON INTERNAL OPERATIONAL
    The results of                initiatives is an entity that is technology     READINESS

our efforts are                   savvy, customer-friendly, competitive in
                                  borrowing and lending, as well as proactive
                                                                                  The weak external environment did not
                                                                                  distract us, we focused our energies on
palpable and                      in communicating its value proposition
                                                                                  getting various aspects of our organizational
                                  while maintaining its relevance to its target
evident in our                    market segments. Our ambition is to strive
                                                                                  transformation in place. While the human
                                                                                  capital continued to play a vital role in taking
performance.                      for excellence and not merely growth in
                                                                                  our agenda forward, we also successfully
                                  numbers. We aspire for nothing less than
Notwithstanding                   being the best-in-class HFC in the country.
                                                                                  enhanced our operational readiness through
                                                                                  revamped business strategy, processes,
uncertainties in                                                                  infrastructure and systems.
                                  A first for the Company, PNB HFL has
the rate of interest              gone live on radio, newspaper, television
                                                                                  SUSTAINED INCREASE IN ASSET SIZE
regime and a                      and Internet to generate better brand
                                  recall, gain consumer mind share and            The results of our efforts are palpable
slowing economy,                  communicate our new and improved value          and evident in our performance.
                                                                                  Notwithstanding uncertainties in the rate
your Company has                  add to the brand and services. This is a
                                  step which, I believe, shall go a long way in   of interest regime and a slowing economy,
more than doubled                 strengthening your Company’s brand power        your Company has more than doubled its
                                                                                  loan asset size to `10,591 crores over the
its loan asset size               and reputation.
                                                                                  past two years. Adhering to the strategy to
to `10,591 crores                 Only after the final quality checks were        strengthen our competitive position, I am
                                                                                  confident that your Company will continue
over the past two                 satisfactory, your Company dared to go all
                                  out in the market to seize opportunities to     to maintain above average industry growth
years                             grow faster than its peers - which was from     rate for quite a few years to come.
                                  FY 2013.
                                                                                  CHANGING PROFILE OF CUSTOMERS
                                  To share with you the key factors which         As we move towards evolving into a more
                                  brought about this change in culture and way    resurgent and dynamic entity, we are
                                  of life within PNB HFL – the elements are:      geared to leverage the immense potential
                                                                                  of future growth. This growth comes with a
                                  PEOPLE LEADING THE CHANGE                       renewed focus on customer centricity.
                                  This transformation would not have been
                                  possible but for the dedicated involvement      Customers have always been at the core of
                                                                                  our growth philosophy and our business
                                  of our people, who have moved in
                                                                                  model is built around customer needs and
                                  harmony with our journey of positive
                                                                                  desires. We have re-defined our target
                                  change. They have been active participants
                                                                                  customer segment with focus on young,
                                  in this process; firstly, by changing their
                                                                                  ambitious and upwardly mobile customers
                                  own beliefs and philosophy, aligning
                                                                                  in existing and emerging urban centers.
                                  these with the Company’s ethos, and
                                  secondly, by becoming agents of change to
                                                                                  CORPORATE WITH A HEART
                                  percolate the upgraded agenda across the
                                  organization, including the new                 We strongly believe in fostering meaningful
                                  family members.                                 relations with all those who fall within

       Annual Report 2013-14
our periphery of activity, especially the      I am thankful to our parent body PNB
underprivileged, so that development           and the co-investor Destimoney Enterprises
becomes a universal phenomenon.                Pvt. Ltd. for their continued support
                                               and guidance.
As a responsible corporate citizen, we
see a role for ourselves in promoting          The PNB brand makes our journey smooth;
development of the society in a holistic       it inspires us to whole-heartedly contribute
manner and act towards this end. We have       to the national wealth and be a good
collaborated with NGOs that promote            corporate citizen.
child-care, general wellness and health care
for the underprivileged.                       I thank our regulator National Housing
                                               Bank, our customers, our lenders, our rating
SETTING THE AGENDA FOR THE                     agencies, our lawyers and several business
FUTURE                                         partners whose continued trust in the
                                               Company keeps us going and achieving
As we move forward, I see a huge
                                               new milestones. They are our reason
potential for growth in the relatively under
                                               of existence – I thank them all to have
penetrated housing finance sector in India.
                                               associated with us and am sure we
Your Company is well poised to leverage
                                               will cement our relationships in the years
the opportunities that are before us. This
                                               to come.
transformation augurs well for our future
and going forward it paves the way for a
                                               Finally, I take this opportunity to thank
more ambitious growth agenda.
                                               our management team and express my
                                               gratitude to all our employees, without
Transparency, integrity and care are key
                                               whose relentless support we could not
drivers of our growth strategy. We are
                                               have steered this journey to new milestones
committed to becoming a truly
                                               within a limited time frame. I also welcome
customer-oriented organization rooted in
                                               aboard the new team members who have
the ethos of our ‘Ghar Ki Baat’ positioning.
                                               recently joined PNB HFL to carry forward
                                               our agenda.
In the following pages a detailed
commentary on this heart transplant has
                                               Thanking you,
been compiled, to show case to you how
much micro planning and execution prowess      Yours sincerely,
has been utilized to make this journey a
successful model; may be worth replicating.
                                               Sanjaya Gupta
I thank the Board of Directors for their
continued support and guidance, who have
inspired us to build new roads.

Fueled by Ambition,       Management
           Driven to Transform   Discussion & Analysis           Statutory Reports         Financial Statements

           Doing More,
        Doing it Differently
Transformation or business         And we did it with the support of an energized team which worked in tandem with the
                                   Company’s ambitious goals. Various initiatives that have given a thrust to transforming
process re-engineering is          the organization have happened at several levels – people, information technology,
an energy intensive task.          infrastructure, customers, capital, risk management, business strategy and processes.

Undertaking a massive
                                   Transforming people, Value driven growth
and comprehensive
                                                                   Cultural transformation
process of change, while
conducting routine work                                                  Vision and Values
of a growing organization,                                          Institutionalize HR Processes

makes it enormously energy

consuming. Yet, that was the                    Integration of
                                                                                                            Training &
agenda on the operations
side of our business.                                     Competency                              Reward &
                                                           Framework                             Recognition
The task at hand was to
do more - generate and
                                                        Commitment                              Empowerment
transact more business in
both loans and deposits -
                                   The success of our journey is hinged on           As a part of this journey, we focused on
while doing it differently.        bringing about a cultural transformation of       the vertical and horizontal integration of
It involved extensive              our people, driven by our vision and values.      our people and processes through their
                                   It was important to align our people’s beliefs    alignment with organization’s medium and
training while working,            with our value system and business ethos,         long-term strategic objectives. This ensured
learning and competing.            enabling them to seamlessly embrace the           our self-driven commitment to walk that
                                   ideology and philosophy underpinning              extra mile.
                                   this process.
                                                                                     Our inclusive and value-led people strategy
                                   Sustainable and profitable growth can             outlined our commitment in creating a
                                   only be achieved with the right people            work environment which respects and
                                   working in an organization that is fit to         values people, while recognizing changing
                                   win, with trust and transparency being the        dynamics of the industry. By fostering a
                                   foundation of organizational culture. We are      sense of inclusiveness, the HR process
                                   increasingly becoming an agile and diverse        successfully saw employees appreciate how
                                   but cohesive business enterprise, with our        their work could contribute meaningfully to
                                   people empowered and motivated to do              the overall enterprise strategy.
                                   things right. We are building capability
                                   and leadership quality among our people           We focused on ingraining our beliefs within
                                   and attracting some of the best talent in         our employees and energizing them to
                                   the industry.                                     become change agents by effectively

        Annual Report 2013-14
understanding the needs of our customers
and delivering on the promises made to
them. Speed and accuracy of execution
has become the hallmark and major
differentiator of the Company’s culture.

Efforts were successfully geared towards
creating a strong sense of belonging among
employees and ensuring that they became
integral to the change process.

Changing the physical                            ourselves to handle large volumes of          wherewithal to fulfill their aspirations.
infrastructure                                   business.                                     These two segments have shown sustained
                                                                                               demand, with adequate repayment
Refurbishment and standardization of brick
                                                 Changing our Target                           capacity, and have thus emerged as key
and mortar infrastructure is an integral part
                                                 Customer Segment,                             target groups for our business focus.
of our change journey. Welcoming look and
                                                 transforming our
feel of all branches was necessary to ensure
                                                 possibilities                                 It is a strategic shift that is already showing
consistency in customer experience. More
                                                                                               benefits across our business and has
than 80% of the offices have already been        Along with our own people, customer
                                                                                               unfolded immense possibilities for
renovated and rest are underway.                 service and customer delight was on top of
                                                                                               future growth.
                                                 our minds. Moving into the implementation
Our revamped offices ensure friendliness and     phase, we are taking a close look at our
                                                                                               Infusing customer centricity,
comfort and highlight the values of our brand.   customer segments and have identified
                                                 groups that we could serve in the long run.
                                                                                               the ORGANIZATION
From a minuscule 48,000 sq.ft. in FY 2012,       In the last two decades, we have seen the
we will increase our office space to 1,42,000    emergence of a resurgent middle and upper     Today, customers have more options to
sq.ft. by end of FY 2015. We are gearing         middle class, with high aspirations and       choose from than ever before. We have

Fueled by Ambition,       Management
        Driven to Transform   Discussion & Analysis          Statutory Reports         Financial Statements

                                augmented our capability to fulfill growing      Communicating effectively
                                aspirations and demands of our customers         with our potential customers
                                and provide them with a lasting good
                                                                                 An important aspect of our customer
                                experience throughout their journey
                                                                                 engagement process is to redesign our
                                with us.
                                                                                 communication strategy; we have created
                                                                                 sales and marketing collaterals in the
                                We are developing an organization                common man’s language. These collaterals
                                wherein every team member is a member            demystify the business of borrowing and
                                of the customer service team. We believe         lay out everything with transparency and
                                the job of each one of us is to meet             without small print. Our communication is
                                customer expectations, to improve our            aligned with, and supports our positioning
                                relationship and foster customer delight.        of ‘Ghar Ki Baat’, which aims to make
                                The organization-wide focus on ensuring          customers feel at home across every part
                                highest levels of service competency is          of their relationship with the Company,
                                fueled by our ambition to be the most            beginning with the first touch point of
                                admired housing finance company.                 sales and marketing.

                                The thought that we imbibe and                   We have developed our communication
                                subscribe to in our customer interactions        collaterals with an aim to capture the
                                is – “I care, and I do.” So what we pursue in    customer’s mind share by creating a new
                                our service suite is personalized delivery       brand experience through harmonious look
                                engagement – from the first interaction          and feel of all published communication in
                                till completion of the loan cycle.               line with our corporate image.

                                In our belief, any technology-based              Thriving in a competitive
                                innovation can stand only second to              environment through
                                one-on-one interaction, and while we             efficient risk management
                                use technology to better our service             Sourcing and underwriting a high quality
                                delivery standards, we never neglect             portfolio in a competitive environment
                                the human element.                               calls for a responsive and efficient risk

     Annual Report 2013-14
management infrastructure. We have            performance indicators. As on March 2014,      resources for business requirements, in the
significantly enhanced our risk management    our Gross NPAs were at 0.32% and Net           most testing times.
capabilities to meet this challenge. We are   NPAs at 0.16%. These levels are amongst
now in a position to respond to market        the lowest in the industry - less than half    The Company has been raising money
situations that call for business actions     the industry average of 1% for the home        through bank loans, NCDs, NHB refinance
quickly and effectively, while upholding      loan sector.                                   and deposits, besides short-term funds
quality of the portfolio.                                                                    through commercial paper. Our borrowing
                                              We have a trained team to handle recoveries    mix at the end of the year is well balanced
Our risk management begins with               and manage delinquencies supported by          from the point of view of liquidity and when
a well documented policy, which is            well laid-out systems and procedures. This     matched with maturity profile of assets.
implemented by our team of experienced        team harnesses data in a timely manner to
and empowered industry professionals.         connect with customers appropriately in        With overall improvement in business,
Our people who occupy key positions           case of defaults. Our recoveries philosophy    credit quality, risk management and
in this function come with professional       is driven by core principles of integrity,     operations, the credit rating on various
qualifications such as CA or MBA. Our         transparency and respect for our customers.    financial instruments, such as deposits, bank
risk management processes combine                                                            borrowings and NCDs, has also improved
the tested templates and procedures           Details of various risk management             during the year.
for financial analysis in case of retail      initiatives undertaken in recent years are
transactions and use innovative deal          carried in the Management Discussion &         PNB HFL is one of the few select HFCs
based structuring for complex high-           Analysis section.                              which has been given approval by
value transactions. Extensive personal                                                       Reserve Bank of India (RBI) for raising
discussions with the customers are            Ensuring a steady supply of                    funds of $100 million through the ECB
conducted to assess their overall financial                                                  route. Our focus would continue to
                                              resources and capital
health and sustainability of their income.                                                   maintain a well balanced mix of equity
                                              Long-term funds at competitive cost are
                                                                                             and borrowings. The Company has
We have a strong system to capture, store     the key to sustained growth. Over the
                                                                                             planned infusion of equity capital at
and analyze data related to the customers,    years, treasury has kept pace with loan
                                                                                             appropriate times in tandem with
supported by quality underwriting.            disbursements for raising funds well in time
                                                                                             business requirements.
The robustness and effectiveness of our       and at competitive rates from the market.
risk management practices can be best         The Company has developed professional
understood through our key portfolio          capabilities to supply steady flow of

Fueled by Ambition,       Management
           Driven to Transform   Discussion & Analysis                     Statutory Reports           Financial Statements

             with Information
Information technology (IT)          PNB HFL started IT transformation with BPR - Project Kshitij. The first step of the journey was
                                     creation and finalization of the IT transformation roadmap. The roadmap includes business
will play an important role in       process change enablement, application development and IT infrastructure deployment,
                                     monitoring of key performance indicators and behavioral change of management
modernization of PNB HFL.
                                     through training.
In order to be an industry
                                     IT Transformation journey
leader, there was a need for
a paradigm shift as IT could
no longer be viewed as an
                                                                                                p                          IT as
ancillary unit which only                                                            IT r
                                                                                         oad                             Strategic
assists business processes.
                                                                                         IT as
It needed to be viewed as                                                              Business
                                                                                       Process                       Implementation of enterprise
an integral component of                                                                                             core business suite with data
                                   Value Generation

                                                                                       Enabler                       center and disaster recovery
the machinery, capable of                                                                                            center started
                                                               IT as                                                 End point security
spearheading structural                                      Supplier
                                                                                  Centralized management information system (MIS) portal for
and cultural changes within                                                       single source of truth
                                                                                  Loan application tracking system
the organization, thereby                              Secured server room        Enhancement and centralization of existing loan management
                                                       setup at central support   solution to support hub & spoke business model
driving business growth and                            office (CSO)
                                                                                  Setup of sales contact center
                                                       Refurbishment of branch
innovation.                                            IT infrastructure          Binary watchdog-centralized application and link monitoring tool
                                                       Implementation of          Cloud-based, email and unified communication system
                                                       secured enterprise         Customer application and request tracking system
                                                       network link [MPLS
                                                       – multiprotocol label      Video conferencing facility at CSO and hubs
                                                       switching and internet]
                                                       at all locations

                                                      2012                         2013                               2014

        Annual Report 2013-14
Fueled by Ambition,       Management
        Driven to Transform   Discussion & Analysis         Statutory Reports         Financial Statements

                                In the first phase, IT was to act as a          manual data sharing with the CSO, which
                                supplier by putting basic infrastructure        did not guarantee authenticity of data.
                                in place, such as server room setups,           Our present branch infrastructure is
                                refurbishment of branch IT infrastructure,      designed in such a manner that all offices
                                end user hardware replacement etc.              are interconnected, with redundancy
                                Earlier, branches operated on local             and fail over for critical components. This
                                broadband in standalone mode (no                ensures scalability, assures security and
                                captive central network) and there was          legitimacy of data.

                                The second phase required IT to play the        IT has enhanced monitoring and efficiency
                                role of a business enabler; the focus was       through centralization and automation
                                to build point solutions for automation         in various business processes across all
                                of processes and bring in efficiencies          functions, such as issuance of interest
                                through various initiatives. These              warrant, electronic clearing system (ECS)
                                initiatives included inter-networking and       presentation, expense processing, issuance
                                enhancement of existing distributed loan        of certificates under Income Tax Act, etc.
                                management applications to support a
                                Hub and Spoke model; implementation             Another major change during the
                                of a centralized MIS portal for single truth    second phase was redesigning of the
                                across the organization; an application         corporate website. It has been made more
                                tracking system (ATS) to track file progress    customer-centric, a change which has
                                right from log-in to sanction stage; a          received positive reviews.
                                customer application and request tracking
                                system (CARTS) for customer service, and        In the third and current phase, IT is acting
                                a unified messaging and communication           as a strategic value partner, contributing
                                system for secure and effective                 towards creation of a cohesive and efficient
                                communication system.                           business ecosystem.

     Annual Report 2013-14
The focus for the coming year is to                                    with an integrated accounting and
implement enterprise core business suite                               HR management system. Adoption of
(ECBS), an end-to-end solution that will                               this suite will lead to automation of all
cover all business activities, including                               processes, and result in improved efficiency
lead management, loan origination,                                     and quality. This will make overall business
loan servicing and collections, along                                  model more secure, scalable and agile.

                            Customer                              Contact

                                               Branch                              Email           Internet        Mobile                            External World
                          Service Portal                          Center

                                                                  Multi Channel Framework                                        Allied Solutions      Customers
  Application Landscape

                              Lead                                        Loan                Deposit                              Regulatory
                                               Loan Origination                                               Loan Collections     Reporting         Credit Bureaus
                           Management                                  Management           Management
                                                   System                                                         System
                             System                                      System               System                             MIS and Business
                                                                                                                                                    Business Partners
                          Lead Generation         Origination            Repayment            Creation           Follow-up         Anti Money
                           Lead Follow-up          Appraisal          Re-schedulement       Maintenance          Litigation        Laundering
                          Lead Conversion          Disbursal               Closure         Maturity Closure      SARFAESI                              Regulators
                                                                                                                                  Asset Liability
                                                                     Common Services

                                                                                                                                   Document         Rating Agencies
                                Master Data     User Definition    Integrated Accounting    Human Resource Management

                                                                 Infrastructure Services                                           Messaging
                                              Data Center and Data Recovery Center Security      Networking                                          Market Feeds

In the coming years, the current set of
changes will ensure improved analytics
and decision-making, better time-
to-market and customer service, and
reduction in cost of operations. Going
forward, our IT transformation journey
will also consider implementing new
technologies, such as CRM mobility and
cloud, for process simplification to further
enhance operational readiness and propel
sustainable business growth.

Fueled by Ambition,                   Management
                   Driven to Transform               Discussion & Analysis              Statutory Reports                   Financial Statements

           Transforming the
          Financial Landscape
5-YEAR Performance at a Glance                                                                                                                          (` in Crores)

 Year                                                 Mar-10                 Mar-11                     Mar-12                     Mar-13                Mar-14

 Loan Approvals                                           850                 1,391                        1,668                      6,091                 8,840

 Loan Disbursements                                       805                 1,267                        1,508                      3,682                 5,500

 Loan Outstanding                                       2,507                 3,167                        3,970                      6,620               10,591

 Deposit Outstanding                                      304                   220                            363                    1,051                 1,712

 Total Income                                             316                   364                            463                     661                  1,116

 Profit Before Tax                                         94                      97                          103                     126                    176

 Profit After Tax                                          67                      69                           75                      91                    127

 Dividend (%)                                              20                      22                           22                      25                      30

 Earning Per Share (`)                                     22                      23                           25                      22                      25

 Net Worth                                                267                   326                            392                     609                    920

 Write off                                                0.10                 5.22                            2.77                    2.55                  7.99

 Gross NPAs                                             31.39                 41.50                        41.27                      37.09                 33.72

 Net NPAs                                               24.10                 29.44                        26.61                      23.40                 16.40

 GNPA to Gross Advances (%)                               1.25                 1.31                            1.04                    0.56                  0.32

 NNPA to Net Advances (%)                                 0.96                 0.94                            0.67                    0.35                  0.16

Total Income                         (` in Crores)       Profit Before Tax                     (` in Crores)          Profit After Tax                  (` in Crores)

                                         1,116                                                       176                                                     127

                                                                                         126                                                       91
                               661                                           103                                                          75
                                                          94       97                                                  67        69

Mar’ 10 Mar’ 11 Mar’ 12 Mar’ 13 Mar’ 14                 Mar’ 10 Mar’ 11 Mar’ 12 Mar’ 13 Mar’ 14                       Mar’ 10 Mar’ 11 Mar’ 12 Mar’ 13 Mar’ 14

             Annual Report 2013-14
Deposit Outstanding                                               (` in Crores)   Net Worth                                               (` in Crores)

                                                                  1,712                                                                       920



  Mar’ 10         Mar’ 11         Mar’ 12         Mar’ 13         Mar’ 14          Mar’ 10       Mar’ 11       Mar’ 12       Mar’ 13        Mar’ 14

Gross and Net npas                                                (` in Crores)   GNPA to Gross Advances & NNPA to Net Advances (%)

                41.50           41.27                                                           1.31
                                                                33.72                                         1.04
31.39                                                                                    0.96          0.94
        24.10                                           23.40
                                                                                                                                   0.35   0.32

  Mar’ 10         Mar’ 11         Mar’ 12         Mar’ 13         Mar’ 14          Mar’ 10       Mar’ 11       Mar’ 12       Mar’ 13        Mar’ 14
                         Gross NPAs         Net NPAs                                     GNPA to Gross Advances          NNPA to Net Advances



                    22              22

  Mar’ 10         Mar’ 11         Mar’ 12         Mar’ 13         Mar’ 14

Fueled by Ambition,       Management
                Driven to Transform   Discussion & Analysis    Statutory Reports         Financial Statements


                                        Ajay Gupta
                                        Chief Risk Officer

                                                                                   Nitant Desai
                                                                                   Chief Operations & Technology Officer

Shaji Varghese
Business Head

                                        Anshul Bhargava
                                        Chief People Officer

                                                                                   Sanjay Jain
                                                                                   Company Secretary & Chief Finance Officer

           Annual Report 2013-14
Discussion &
Fueled by Ambition,                Management
                Driven to Transform            Discussion & Analysis          Statutory Reports          Financial Statements

         Discussion & Analysis

                                                                                                  and delayed clearance of projects, adversely
                                                                                                  impacted fresh project investment as well as

                                                                                                  High Inflation Leads to Tight
                                                                                                  Monetary Stand
                                                                                                  Inflation ruled high for most part of FY 2014.
                                                                                                  Growth in the consumer price index (CPI),
                                                                                                  one of the risk factors to value of the rupee,
                                                                                                  averaged around 10% from April 2013 to
                                                                                                  December 2013. It was only in January 2014
                                                                                                  that consumer inflation moved marginally
Economic Overview                                 Although downside risks have diminished         below 10%. However, core inflation,
                                                  overall, they continue to dominate the          excluding food and fuel, continued to be
Global Economy - at a Threshold
                                                  global growth outlook, notwithstanding          high. Since taming inflation remained a
Global economic growth remained sluggish          positivity in the US, the UK and Germany.       priority over promoting growth, RBI did not
and erratic for the first six months of           Major concerns include risks from low           change its tight monetary policy stance. In
FY 2013. However, the later months                inflation and possibility of protracted low     its latest bid to curb inflation, RBI, in January
witnessed strengthening of global business,       growth, especially in the EU and Japan.         2014, increased the policy repo rate by
with much of the growth impetus flowing           Increased financial volatility in emerging      25 basis points - from 7.75% to 8.0%, a move
from advanced economies. Global growth            market economies, and increase in the cost      which increased borrowing cost. It helped
averaged at about 3.67% in the second half        of capital is likely to dampen investment       reduce the CPI inflation to 8.3% as on
of FY 2013, a marked uptick from 2.67%            prospects and weigh on their growth,            end-March 20143.
recorded during the previous six months.          moving forward. Growth in emerging market
Improved growth in the US was largely due         economies too is projected to pick up only      India’s Housing Finance Sector
to strong exports and temporary increase in       modestly. Overall, global growth is projected   The fast growing housing finance sector
inventory demand. In the EU, growth turned        to be slightly higher in FY 2014 at around      in India is served by multiple institutions,
positive in a select few economies; however,      3.6% and rise to 3.9% in FY 2015.1              comprising banks, housing finance
stress continued in countries outside the                                                         companies (HFCs) and non-banking
core EU regions as they slowly moved out of       Indian Economy - in need of Transformation
                                                                                                  finance companies (NBFCs). The volume
the long recessionary phase. In contrast to       FY 2014 was yet another challenging             of housing loans has witnessed sustained
the advanced economies, many emerging             year for the Indian economy. Internal           multi-fold growth, from ` 0.43 lac crores
market economies faced an unfavorable             challenges, inflation, rupee depreciation       as on March 2000 to ` 9.03 lac crores as
external financial environment even as            and consequent hike in interest charges         on March 20144.
they dealt with domestic challenges such          contributed to current account deficit.
as structural bottlenecks in infrastructure,      This, along with threat of a sovereign          At present, about 65-66% of total home
labor market rigidities and a worsening           downgrade by rating agencies and global         funding is contributed by banks and the
investment outlook, which derailed                headwinds, impacted business sentiments         rest comes from HFCs and NBFCs. The
growth. Yet, despite lower growth rates,          and resulted in muted GDP growth. For           number of housing finance institutions
the emerging economies continued to               the second year in a row, annual GDP was        registered with National Housing Bank
contribute more than two-thirds of                sub 5% (4.7%)2, amongst the lowest in this      (NHB) has grown at a significant pace and
the global growth.                                decade. The sluggishness in the economy         currently stands at 57.

           Annual Report 2013-14
Demand for Housing Finance                               by various tax incentives, such as        Trends in the Housing Sector
Growth of housing finance sector in India                deductions for payment of interest
                                                                                                   Despite huge potential in housing finance
can be attributed to multiple factors, some              on housing loans and rebate on
                                                                                                   sector, there has been a stagnant growth
of which are:                                            repayment of principal, under the
                                                                                                   rate due to high inflation and slower real
                                                         Income Tax Act. The concept of nuclear
     Burgeoning Population – India is likely                                                       income growth (real income = nominal
                                                         family is picking up with young urban
     to reach a population of 1.4 billion by                                                       income/price level).
                                                         population who now avail housing
     FY 2026, with a significant proportion
                                                         finance to actualize their dream of
     of the populace belonging to young                                                            Twin Concerns of High Inflation and Slow
                                                         home ownership.
     and working category. According to the                                                        Income Growth
     census of FY 2011, India has more than              Low Penetration – Mortgage lending        The high interest rate environment and
     50% of its population below the age of              has significantly contributed to the      lower income growth has adversely
     25 and more than 65% below the age                  growth of housing and construction.       impacted purchasing power of consumers
     of 35. It is expected that, in FY 2020, the         Outstanding mortgage loans contribute     and lower discretionary spending.
     average age of an Indian will be                    only 8% to India’s GDP, which is a very   The prevailing sentiment has resulted
     29 years, compared to 37 years for                  low number when compared to the           in prospective buyers withholding big
     China and 48 years for Japan; and by                GDP of many other countries. There is
                                                                                                   ticket purchases, particularly homes, in
     FY 2030, India’s dependency ratio should            an adequate headroom for increasing
                                                                                                   expectation of some correction in prevalent
     be just over 0.4. The rising population,            mortgage lending penetration in Tier II
                                                                                                   realty prices. Consequently, property
     accompanied by an increase in the                   and Tier III cities in India.
     proportion of working population, is                                                          demand has been sluggish, with oversupply
     likely to precipitate high demand for                                                         situation prevailing in some micro markets.
     housing finance5.
                                                                                                   Mixed Trends in Property Prices
                                                        Initiatives Proposed in Union
     Urbanization – With rapid                          Budget 2014-15                             In FY 2014, housing prices continued to rule
     industrialization and development                                                             high, except in a few pockets, probably due
     of Tier II and Tier III cities, growth in             Deduction of interest on housing
                                                                                                   to holding power of real estate developers.
     urban population is likely to outpace                 loans to be raised to ` 2 lacs from
                                                                                                   NHB Residex, an index that tracks
     overall growth in population. Growth in               ` 1.5 lacs previously.
                                                                                                   movement of residential prices across
     urbanization is estimated at a CAGR                   The total deduction allowed for         26 cities, indicated that for the period
     of 2.1% over the period FY 2012-50.                   repayment of principal amount has       October 2013 to December 2013, the
                                                           been increased from ` 1 lac to          prices marked an increase in 16 cities. The
  Rapid Urbanization in India                              ` 1.5 lacs.                             increase ranged from 8% in Nagpur to 1.1%
               Urban Population in Million
                                                  425      Allocation to Rural Housing Fund,       in Dehradun. For Delhi, it was 3.2%, Patna
                                       388                 run by National Housing Bank (NHB),     6% and Faridabad 2.5%. Prices declined
               314                                         to be increased to ` 8,000 crores       in only 8 cities, including Lucknow 3.2%
                                                           this fiscal.                            and Chandigarh 2%. Prices in Mumbai and
                                                                                                   Ludhiana have remained stagnant.
                                                           An additional ` 4,000 crores
                                                           earmarked for NHB to enable it to
                                                                                                   Low Demand for Housing Impacts
                                                           increase the flow of cheaper credit
                                                           towards affordable housing for
 FY 2001 FY 2005 FY 2010 FY 2015 FY 2020                   urban poor.                             Faced with lower demand and oversupply,
(Source: Census of India, Housing Microfinance)                                                    the real estate developers delayed launch
                                                           Government to spend ` 7,060 crores
                                                                                                   of new projects during first half of the year.
                                                           on developing 100 smart cities as
     Improved Affordability – Over last                                                            This has checked downward spiral
                                                           satellite towns of larger cities and
     two decades, average cost of buying                   by modernizing existing                 of housing prices, but it has resulted in
     a property has reduced to 4-5 times                   mid-sized cities.                       slower growth in home purchases.
     of annual income. This is due to                                                              HFCs have reported moderate growth
     rising disposable income supported                                                            in FY 2014.

Fueled by Ambition,                  Management
                Driven to Transform              Discussion & Analysis          Statutory Reports          Financial Statements

The total outstanding amount of home                whose loans are being taken over, this is a     program has restructured PNB HFL into
loans was ` 9.03 lac crores as on March 2014        big loss as they have to bear high boarding     a contemporary HFC with robust top line
as compared to ` 7.51 lac crores as on              cost besides losing on business.                growth and sound portfolio quality.
March 20136. The growth rate of HFCs and                                                            PNB HFL has been able to improve its earlier
NBFCs has declined from 28% in FY 2013              Pricing and Profitability                       track record and consolidate its position
to 23% for FY 2014. Banks have witnessed            Expected Movement of Growth Rate                in the industry through transformation,
growth rate of 18% over the same period.                                                            encompassing its entire business landscape
                                                    The overhang of slowing economy of last
                                                                                                    - from people, infrastructure, IT, risk
                                                    two years will continue in FY 2015 even
Policy Initiatives                                                                                  management, and to delivery model.
                                                    though marginal recovery is expected.
Major part of FY 2014 has been characterized        Moderation in growth is expected                Restructuring Benefits
by high rate of interest and a depreciating         due to stress in the overall economic
rupee. The liquidity across sectors was tight.                                                      Post restructuring, the Company has
                                                    environment, high rate of interest, price
                                                                                                    been transformed from a low volume
                                                    corrections etc.
In order to check depreciating rupee, the RBI                                                       boutique player to the 5th largest HFC in
clamped down on foreign exchange outflows.          However, long-term prospects for business       India. Its organizational change story has
It only allowed banks to undertake gold             continue to be encouraging. The growth          been well appreciated and its efforts have
imports, on consignment basis, specifically         rate is estimated to go up to 24% for HFCs      been recognized by various prestigious
to meet genuine needs of exporters of               and 14% for banks over the next few years.      organizations.
gold jewelry. It also reduced the limit for         Large part of growth is expected to emanate
remittances made by resident individuals                                                            Higher Growth and Expansion
                                                    from Tier II/III locations and affordable
under the liberalized remittances scheme            housing segment.                                In FY 2014, PNB HFL registered a top line
(LRS), from $200,000 to $75,000 per year.                                                           growth of 68%, besides sustaining healthy
                                                    Asset Quality                                   growth momentum of the previous years.
NHB gave some relief to HFCs after relaxing                                                         The Company has built a solid asset base of
                                                    Asset quality of HFCs has been largely stable
provisioning norms and reduced risk                                                                 over ` 10,000 crores which has more than
                                                    with gross NPAs of 0.73% as on March, 2014
weightage for property and housing loans.                                                           doubled over the last 2 years. The Company
                                                    as against 0.72% as on March, 2013.
This has eased requirement of fresh capital                                                         is expected to maintain its growth at a level
to meet capital adequacy norms.                                                                     that is significantly higher than the industry
                                                      Industry Growth Trends – Quick Facts
RBI allowed HFCs to raise funds through ECB                                                         average in medium term. In terms of
                                                      FY 2014
route for affordable housing segment. HFCs                                                          geographical expansion, the Company has
have raised a sum of $600 million through                 Overall Gross NPA% of HFCs: 0.73%         expanded across India with new branches
this route during FY 2014. The Government                 Marginal decline in NIMs and stable       being opened in South and West India. In
has allowed NHB to raise tax free bonds,                  operating expense levels                  North, where brand PNB is very strong, the
which will ease refinance rates.                                                                    Company’s operations continue to be on a
                                                          RoTA level 2.29%
                                                                                                    rapid growth trajectory.
Response to policy initiatives                            RoE level 20.54%

These favorable policy initiatives have               (Source: ICRA’s Indian Mortgage               Improved NPAs
resulted in easing fund crunch and enabled            Finance Market, FY2014).                      PNB HFL has put in place robust tools
HFCs to grow steadily despite difficult                                                             for credit underwriting, monitoring and
macroeconomic conditions.
                                                    Emerging Stronger through                       collection processes. There has been a
                                                    transformation                                  steady decline in Gross NPAs from 0.56% as
Besides these positive developments,                In FY 2011, PNB HFL embarked on a               on March 31st, 2013 to 0.32% as on March
there were some adverse developments,               transformation. Accordingly, it designed a      31st, 2014. It was driven by strong focus
such as, increase in the number of balance          multi-faceted business process                  on curbing delinquencies in the erstwhile
transfer cases in the industry. Some lenders        re-engineering program as a roadmap.            portfolio. In addition, the Company has
have lured existing customers by offering                                                           focused on improving quality vectors of
discounts on processing fee and offering            Despite macro economic environment              its portfolio and built a balanced portfolio
lower rates of interest to them. For HFCs,          challenges, the implementation of this          mix. The pre-BPR portfolio has been cured

           Annual Report 2013-14
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