PNB Housing Finance - Should you buy?

The name Punjab National Bank conjures up the image of a loss making public sector behemoth which recently took one of the largest hits among Indian banks from the NPA crisis. Is its housing arm any better? To your surprise, you'll find that nearly 49% is owned by Destimoney Enterprises, a private player. Post the IPO the company will cease to be a public sector company strictly speaking because the government will no longer own 51% of it. If you think of other erstwhile government owned finance companies that went private, the list is adorned by high performers such as HDFC and ICICI. Will PNB Housing Finance follow suit? Housing Finance Companies owe their existence to home loan restrictions on banks imposed during the late 1980s, favourable terms from the National Housing Bank (NHB) and a tax exemption that allows them to claim a deduction of 20% of their profits. The first of these has largely melted away and the other two may well follow suit under the present reformist dispensation. On the other hand they also enjoy delectably low NPAs (a mere 0.22% Gross NPA Ratio for PNB Housing Finance). So what of PNB Housing Finance? Its loan portfolio grew at a staggering 62% per annum from FY 2012 to 2016. Housing Loans make up about 70% of its portfolio with the balance going to loans against property at 18% (these can be used by borrowers for non-housing expenditures) and about 12% in construction finance to builders. Housing Loans have a record of safety in India's staid retail driven market. Its cost of borrowing is 8.67% and the bulk of its money (55%) comes from debt markets and public deposits (27%). The yield that it earns on average from its loans is 10.80% making for a rather slim margin of about 2%. However this still translates into a solid shareholder return (ROE) of about 17%. Housing Finance Companies are likely to