Spread to average assets improved at 3.46 per cent since interest expended as a percentage to interest income was 5 per cent lower, as interest expenses fell Rs 10 crore at Rs 1,377 crore. Interest income on the other hand stood at Rs 2,144 crore. Another important feature relates to cost of deposits that fell by 47 basis points (bps), because of access to cheaper funds through retail network. However, lower interest rate regime continues to push yields on advances and investments: lower by 49 and 53 bps at 10.46 per cent and 10.42 per cent respectively.
Fee- based income rose by nine per cent at Rs 221 crore. The banks other income is evenly accounted for by commodities and exchange, trading, forex and service charges. The bank is bullish on the housing finance business and disbursals to this segment at Rs 410 crore accounted for over half of its total disbursements. However, at a time when banks face difficulties in sustaining their Cash Management Services ( CMS) product, it seems Union Bank has plunged into the arena fraught with acute competition. Since, the general belief in the banking industry is that a bank would be lucky to get either a float or a commission from the CMS business. Hence it would be interesting to watch the banks progress on this front.
Effects of VRS are visible on the banks working as wages have gone down by 11 per cent at Rs 376 crore. The bank expects savings on the VRS account to the tune of Rs 80-85 crore during the entire fiscal. That may help profitability. Total expenditure, too, is down by Rs 10 crore at Rs 1,865 crore that has made possible a 70 per cent growth of operating profit at Rs 500 crore.
The Bank has made higher provisions on the NPA front to keep pace with the rise in advances. As a prudent measure the bank intends to increase its coverage through provisions at 50 per cent by the end of the current fiscal up from the current 46 per cent.
However, the results have not had any significant bearing on the banks scrip that currently trades at Rs 15, below its offer price of Rs 16. Given the investor apathy towards public sector banks and the fact that even the best of the banks do not command a PE of 3-5 it is unlikely that the scrip will respond bullishly to good showing.