MUMBAI: Fund infusion by marquee investors did what a frenzied rally in equity markets couldn’t do for shares of PNB Housing Finance Ltd, fired them up. The company’s shares surged 20% on Monday after its board approved raising Rs4,000 crore in capital from the Carlyle Group and a handful of other investors through a preferential share issue.

Through this infusion, Carlyle will increase its stake in the company to 30% from the present 26%. Other investors include Aditya Puri, former chief of HDFC Bank. Puri is likely to be nominated to the board, PNB Housing Finance said in a release. The fundraising along with Puri’s appointment to the board will increase investor confidence in the lender. Punjab National Bank (PNB) will remain the promoter albeit with a diminished shareholding.

The fundraising comes at an opportune time for the lender. After languishing for several years, the real estate industry is showing signs of revival. Several state governments have extended tax sops to the real estate industry to boost sales. Along with low interest rates, the demand for homes is expected to increase. To be sure, the pandemic has hit the industry although retail housing sales have surged in select states.

PNB Housing Finance has been under pressure for the past several years as a troubled real estate sector resulted in an increase in stressed loans and a hit on earnings. The pandemic made it worse in FY21 and the company ended the year with a gross bad loan pile of Rs2762 crore or 4.4% of total book. Bad loans were below 1% three years before. But the company has been able to keep stressed loans under check to some extent despite the pandemic. Further, it has beefed up provisioning to offset the rise in stress due to the pandemic. PNB Housing Finance’s provision coverage ratio stood at 92% as of March. Provisioning buffer has increased three times compared with pre-pandemic levels.

It is clear that the capital infused would go towards growing the book. After all, provisions seem to be more than enough to safeguard against risks. Further, the lack of growth has been a big factor weighing on the company’s shares. For the March quarter, assets under management showed the highest ever decline of 10.7%. Much of this was by design as the lender sought to shed troubled wholesale loans and increase the share of retail. The lender’s loan book has been declining for six straight quarters now.

But its retail disbursements have galloped in the March quarter. The fresh infusion of capital will beef up ratios for sure but mostly they give PNB Housing Finance a leg up in lending to the safer retail segment. Retail loans form 67% of the lender’s book. The stock trades at a discount to its estimated book value for FY22 unlike most of its peers that trade at a premium.