Page 14 - Banking Finance August 2019

HOUSING

DHFL sells stake to PGLH, RBI to regulate housing finance firms soon
RBI will soon get power to regulate housing finance companies (HFCs), which
exits AMC space
will almost certainly lead to the lenders facing stringent
After selling its entire stake to its joint asset quality reviews, informed sources. However, this
venture might lead to major repercussions for about 80 HFCs, in-
partner cluding Indiabulls Housing Finance Ltd, Housing Devel-
PGLH of opment Finance Corporation and Dewan Housing Fi-
Delaware nance Corporation as they might face unprecedented scrutiny and the poten-
Inc, Dewan tial for major financial penalties and restriction on their activities if improper
Housing Fi- practices are discovered.
nance Corporation (DHFL) has exited
the asset management business. RBI, in late 2015, has started a similar review of bank assets amid allegations
that lenders were hiding the extent of the bad debts on their books. During
The US-based company will take over reviews of banks, the RBI had revealed a wide range of areas where lenders
the entire control of DHFL Pramerica were under reporting their bad loans. It initially led to financial penalties for
Asset Managers which manages some lenders and eventually fed into decisions to impose tougher restrictions
about Rs 5,400-crore of assets. on their loan books while their bad debts remained high.
Dewan Housing Finance Corporation The housing finance companies, which are part of the broader shadow banking
held 17.12% stake directly in DHFL sector known as non-banking finance companies (NBFCs), are currently regulated
Pramerica Asset Managers and by the National Housing Board, and the central bank has no direct authority over
32.88% stake through its wholly them. The other NBFCs are very loosely regulated, with various regulators includ-
owned subsidiary, DHFL Advisory and ing the RBI having some role but no one being fully accountable.
Investments.
The RBI's oversight of HFCs will be a step towards the Indian authorities getting
Both these companies sold the entire a firmer grip on the risky shadow banking sector that will help to contain any
50% stake to PGLH of Delaware Inc. systemic problems. A series of debt defaults last year by major infrastructure fi-
The trouble-ridden DHFL earlier had nancing group, Infrastructure Leasing and Financial Services (IL&FS), showed that
declared its plan to sell off the asset much of the sector was highly leveraged. "There will be substantial improvement
management business and had re- in regulation and supervision of all entities including NBFCs and HFCs once RBI has
ceived necessary approvals including direct control over the housing finance firms," one of the sources said.
that from SEBI.
PNB HFC records 11% y-o-y growth in net profit
In a statement, PGIM, the global in-
vestment management business of PNB Housing Finance has recorded a 11% year-on-year (y-o-y) increase in its net
US-based Prudential Financial Inc, profit to Rs 284.50 crore in the June quarter, despite a
which is known as Pramerica in India, 44.5% y-o-y growth in net interest income as finance
said the local fund house will now be costs shot up 38% y-o-y. Total income increased 35.4%
called PGIM India Mutual Fund and y-o-y to Rs 2,232 crore led by 30% y-o-y increase in the
also announced the appointment of interest income. Spreads saw a 42-bps y-o-y increase.
Srinivas Rao Ravuri as the Chief In- Asset quality deteriorated as the gross non-performing asset (GNPA) ratio rose
vestment Officer for equities. 37 bps sequentially to 0.85% and the net NPA ratio increased 29 bps to 0.67%.
PGIM global chief executive Glen The company’s provision coverage ratio dropped drastically to 117% from 167%
Baptist said the acquisition by his in the previous quarter. Its total provisions shot up 59% to Rs 754 crore, of which
company, which manages a pool of cumulative expected-credit-loss (ECL) provision as on June 30 was Rs 598 crore.
over $1.2 trillion globally, should be Total borrowings grew 20% to Rs 72,261.4 crore against Rs 60,439.7 crore last
seen as a “deep commitment” to year. The deposit portfolio rose 32% to Rs 15,445.5 crore. To be adequately
deliver high quality and innovative capitalised for the future, the board has approved the capital raise plan of the
solutions for long-term investment company of up to Rs 2,000 crore in FY20, PNB Housing Finance MD Sanjaya
needs of people. Gupta said.

14 | 2019 | AUGUST | BANKING FINANCE