Union Bank beats estimates, profit jumps to Rs 5,017 crore

Union Bank of India‘s Bank of India’s net profit for the quarter ended December was up 9% on year to Rs 5,017 crore beating analysts estimate. According to Bloomberg estimates, the lender was expected to report a net profit of Rs 3,872 crore. The rise in bottom-line was due to a sharp fall in provisions and an improvement in asset quality.

Provisions and contingencies, excluding tax provisions, fell nearly 80% on year to Rs 322 crore and tax expenses rose to Rs 1,603 crore, taking the total provisions to Rs 1825 crore during the reporting quarter. Credit cost moderated further to 0.09% in Oct-Dec quarter from 0.22% a quarter ago. The provision coverage ratio of the bank stood at 95.13% as on December 31.

Higher Interest Margins

The net interest income (NII) of the public sector bank increased marginally on year to Rs 9,328 crore. Despite the policy repo rate cut of 25 basis points in December, the net interest margin (NIM) increased to 2.76% in Oct-Dec quarter as compared to 2.67% a quarter ago. This was mainly due to a sharp fall in the cost of deposits, which declined by 17 basis points on quarter to 5.31%. Bloomberg estimates had projected net interest margins 2.7% for the reporting quarter.

In terms of bank’s business, loan growth and deposit growth were lower as compared to industry levels. Global advances were up 7.13% on year to Rs 10.17 lakh crore, while deposits grew at 3.36% on year to Rs 12.23 lakh crore.

“The business accumulated is much more but we have done some reshuffling in the portfolio which is showing good colour to the performance,” Asheesh Pandey, managing director and chief executive officer of the bank said in a post earnings press conference.

Retail Segment Focus

Within global advances, the bank continued to focus on the retail, agriculture and the MSME segments, which were up 11.50% on year, largely led by retail advances. Large corporate loan book grew by 5.09% on year. The share of RAM and large corporates remained unchanged at 57:43. Within retail, housing and vehicle continue to see traction.

In terms of deposits, the bank let go of a lot of bulk deposits which reduced cost of deposits for the bank consequently helping the bank margins. “There has been a conscious effort by the bank to reduce bulk deposits. So, bulk deposits have gone down on year by Rs 51,600 crore. So, if you exclude bulk deposits, the year-on-year deposit growth would be up by 10.4% which is a good number,” Avinash Prabhu, chief financial officer of the bank said in the press meet.

The lender continued to focus on garnering the current account and savings account (CASA) deposits and retail term deposits. Domestic CASA ratio stood at 33.96%, up 140 bps on quarter and 53 bps on year. As per their investor presentation, the share of CASA and retail term deposits to bulk deposits stood at 79:21 as on December 31, as against 77:23 a quarter ago.

Improving Asset Quality

The asset quality ratios of the bank improved on a sequential basis with gross non-performing asset (NPA) ratio at 3.06% as on December 31 as against 3.29% a year ago and the net NPA ratio stood at 0.51% as against 0.55% a quarter ago. In Oct-Dec, the bank saw fresh slippages of Rs 1,660 crore and the slippage ratio too moderated from 0.91% a quarter ago to 0.79% in the quarter ended December.

Capital adequacy ratio of the bank stood at 16.49% as on December 31. The board has an approved plan of Rs 6,000 crore for FY26 through equity (Rs 3,000 crore), AT-1 bonds (Rs 2,000 crore) and Tier-2 (1,000 crore). The bank said that they would tap the market as per requirement.

On Wednesday, the shares of Union Bank of India closed 7.7% higher at Rs 179.00 on NSE. 

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