Union Bank’s earnings declined 74% y-o-y on the back of 9% y-o-y decline in operating profits and 45% y-o-y increase in provisions. Fresh impairments were high at 6.9% of loans but outstanding impaired loans increased 60 bps q-o-q largely led by RBI’s directives. There could be a few more quarters of pain ahead but the bank is attempting to steer itself away from pure corporate lending, which drives our positive view. Maintain ‘add’. Revise target price to Rs 140 (from Rs 170 earlier).
UNBK reported a steep decline of 74% y-o-y in earnings on the back of weak revenue growth (-4% y-o-y) and high provisions (45% y-o-y). Weak revenue growth was led by 6% y-o-y decline in NII and flat non-interest income. Loan growth was at 6% y-o-y while NIM declined 12 bps q-o-q to 2.2% largely on the back of interest de-recognized on account of high slippages as well as recent base rate cuts. Loan-loss provisions were at 1.9% of loans but despite high slippages for the quarter,the decline in coverage ratio was marginal at 55%. Tier-1 ratio was stable q-o-q at 7.7%.UNBK reported a 90 bps increase in gross NPLs to 7.1% while restructured loans declined 30 bps q-o-q to 5.2% of loans.
The bank reported a sharp rise in fresh slippages at 5.4% of loans largely on the back of RBI directives to recognize a part of restructured loans as NPLs. 60% of the fresh slippages have come from RBI’s direction or 40% of the slippages have come from restructured loans.