Union Budget 2026: PNB Housing Finance Positioned for Growth in Affordable Segments

The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, has laid out a comprehensive roadmap for 'Vikasit Bharat', with a significant emphasis on urban development, infrastructure, and the financial sector. For PNB Housing Finance Ltd (PNBHOUSING), a leading player in the Indian mortgage market, the budget's focus on Tier 2 and Tier 3 cities, coupled with a massive capital expenditure outlay, provides a fertile ground for credit expansion. As the company continues its transition under new leadership, the policy environment appears increasingly aligned with its strategic pivot toward affordable and emerging market segments.

Strategic Focus on City Economic Regions (CERs)

A standout feature of the Union Budget 2026 is the proposal to develop City Economic Regions (CERs) in Tier 2 and Tier 3 cities. The government has allocated 5,000 crore per CER over the next five years to implement growth plans through a challenge mode. This move is directly beneficial for PNB Housing Finance, which has been aggressively expanding its footprint in these geographies. Currently, the company's 'Affordable' and 'Emerging Markets' segments constitute approximately 38% of its retail loan asset portfolio. The development of these cities as new growth engines is expected to drive housing demand, particularly in the mid-to-low income categories where PNB Housing has established a strong presence.

Infrastructure Capex and Real Estate Multipliers

The Finance Minister announced an increase in public capital expenditure to 12.2 lakh crore for the financial year 2026-27. This continued momentum in infrastructure spending, including the development of seven high-speed rail corridors (such as Mumbai-Pune and Delhi-Varanasi), acts as a massive multiplier for the real estate sector. Improved connectivity typically leads to the development of new residential clusters along these corridors. PNB Housing, with its retail loan book growing at 16.9% YoY as of September 2025, is well-positioned to finance the resulting surge in home-buying activity in these newly accessible regions.

NBFC Sector Reforms and Regulatory Stability

The budget proposed the setting up of a high-level committee on banking for 'Vikasit Bharat' to review the sector and align it with the next phase of growth. For NBFCs and Housing Finance Companies (HFCs), this signals a move toward a more robust and efficient regulatory framework. The vision for NBFCs includes clear targets for credit disbursement, which could lead to improved liquidity access and lower cost of funds for well-governed entities like PNB Housing. The company has already seen its cost of borrowing decline to 7.69% in Q2FY26, and further structural reforms in the NBFC space could sustain this downward trend.

Impact of Taxation and Disposable Income

The introduction of the Income Tax Act 2025, effective from April 2026, aims to simplify compliance and forms for ordinary citizens. By reducing the complexity of tax filings and rationalizing certain tax rates, the government intends to increase ease of living. While there were no direct changes to home loan interest deductions in this specific speech, the overall thrust toward simplifying the tax regime and increasing household purchasing power is a long-term positive for the housing finance industry. Higher disposable income in the hands of the middle class often translates into higher eligibility for home loans.

Affordable Housing and PMAY Alignment

PNB Housing Finance has been vocal about its strategy to increase the share of affordable and construction finance businesses. The budget's focus on the poor, underprivileged, and disadvantaged (the 'Sankalp' to focus on the poor) aligns with the Pradhan Mantri Awas Yojana (PMAY) objectives. The company’s affordable loan asset grew by 120.8% YoY to 6,531 crore as of September 2025. The budget's emphasis on ensuring every family has access to resources and opportunities further validates PNB Housing's aggressive growth targets in the affordable housing segment.

Key Budgetary Measures for the Housing Finance Sector

Financial Health and Market Sentiment

PNB Housing Finance enters the post-budget period with a strong balance sheet. Its Gross NPA stood at 1.04% as of September 2025, with a Capital to Risk Asset Ratio (CRAR) of 29.80%. Analysts, including those from Motilal Oswal, have maintained a positive outlook with target prices reaching up to 1,200. The budget's focus on stability and fiscal discipline (targeting a 55.6% debt-to-GDP ratio) provides a stable macroeconomic backdrop, which is crucial for interest-rate-sensitive sectors like housing finance.

Market Impact and Investor Outlook

The market reaction to the budget has been cautiously optimistic for HFCs. The increase in Securities Transaction Tax (STT) on futures and options may lead to a shift in investor preference toward stable, value-oriented stocks in the financial services space. PNB Housing, trading at a P/E of approximately 9.84 and a P/B of 1.20, remains attractively valued compared to its peers. The potential for a re-rating remains high as the new management, led by CEO Ajai Shukla, executes the strategy to maintain NIMs in the 3.6% to 3.7% range while scaling the affordable book.

Conclusion

Union Budget 2026 provides a clear tailwind for PNB Housing Finance Ltd. By prioritizing urban infrastructure, Tier 2 city development, and financial sector efficiency, the government has created an environment conducive to long-term mortgage growth. For PNB Housing, the challenge and opportunity lie in capturing the credit demand from the newly designated City Economic Regions while maintaining its improved asset quality. Investors should monitor the implementation timelines of the CERs and the upcoming recommendations of the high-level committee on banking for further cues on the sector's trajectory.