Union Bank to maintain FY09 NIMs at 2.8%

Union Bank has declared its first quarter results. Its Q1 net profit was up at Rs 228 cr versus Rs 225.1 cr.

Its NII was up at Rs 810 cr versus Rs 771.3 cr.

MV Nair, CMD, Union Bank, said they have increased the BPLR by 50 bps with effect from July 1, which will have a very positive contribution to net interest margin and going forward it should go up. The bank has a target of 2.80%, which was also FY08's NIM, and they expect to get that.

Excerpts from CNBC-TV18's exclusive interview with MV Nair:

Q: It has been a rather flat quarter for you on the bottomline. The topline has come in at about Rs 810 crore. Could you walk us through the advances and deposits growth and the key highlights this quarter?

A: We have done well on the growth parameters. Our deposit growth has been of the order of 23.03%. Significantly, retail deposit growth has been of the order of 33% and our current account and savings account (CASA) ratio has moved up 150-bps. So there has been a good management of the growth of the liability and the cost containment. Whereas our growth on the advances side has been 19% and we grown our operating profits at 17.33%, especially on the background of a difficult quarter that we completed. I should say, 17.33% has been quite impressive.

We were impacted by three components on the operating profit side. One is that we have reduced Benchmark Prime Lending Rate (BPLR) in the beginning of the year. So for first quarter, we almost had Rs 60 crore of impact there and second on the farm loan wavier the interest reversal of about Rs 20 crore and the CRR increase of about Rs 40 crore. If this component had not been there, then the operating profit would have been about 40%.

But given that, 17.33% under the circumstances, is a good number. Coming to net profit, it is been flat because we had Rs 225 crore on the previous year and it is Rs 228 crore this year, but then we had a MTM (mark-to-market) of Rs 330 crore. This was a substantial amount of MTM loss and after absorbing that we were able to maintain the net profit at Rs 228 crore.

Q: Could you throw more light on that Rs 330 crore of mark-to-market loss and the nature of the position that you have taken on account of which you have got this loss? What will be the future as well? How will you be looking at accounting more such losses if any?

A: That is absolutely right; in the sense that mark-to-market loss is basically a book entry. As a matter of fact, over the last two days there have been developments both on the oil front as well as the inflation numbers that have come in. Going forward, in case interest rate stabilises or comes down, mark-to-market loss is something that can come back to us.

So to that extent on the AFS portfolio where we have taken this hit, basically we are not booking a loss, but it is a provision that we make.

Q: Are there any further trends where you are reducing your bulk deposits for cost containment and what are the net interest margins you are looking at maintaining going forward?

A: I am very happy to share with you that the bulk deposit has actually come down. It is only Rs 16,500 crore, and it was about Rs 18,500 crore. Our net interest margin is 2.63%, which is the same as the last quarter of last year. What it means is that now we have increased the BPLR by 50 bps with effect from July 1, which will have a very positive contribution to net interest margin and going forward it should go up. We have targeted 2.80%, which was our last year’s whole year net interest margin, and we should be able to get that.

Q: What is your outlook on the NPA picture currently and are you seeing any significant provisioning going forward?

A: Our net NPA is at 0.15%, which is the best in the industry and actually, the gross NPA has come down by Rs 190 crore. We have coverage of 93% and we have looked at all the portfolios to see whether this slippage has taken place during the quarter. I am very happy to say that the delinquency ratio, which is the incremental slippage that has taken place, is only 0.85%, which is less than 1%, which is internationally considered as the best standard. I don’t anticipate substantial delinquency taking place as we move on.

Q: Can you quickly update us on your outstanding AFS exposure because your MTM losses are way higher than what we were expecting at about Rs 200 crore. You have about 29% right now in the AFS portfolio, are you looking at increasing that exposure?

A: No, actually we feel that some amount would come back to us because we have about Rs 11,000 crore in the AFS portfolio. But the moot point is because on the shorter end the yield was higher. The composition of our portfolio resulted in Rs 330 crore of MTM loss. But going forward we feel that we should be able to actually get it back.

Q: What is your total AFS exposure as of now in terms of percentage?

A: We have SLR (Statutory Liquidity Ratio) in our portfolio in HTM of about 23% i.e.of the net demand in time liability. So it is about 2%, which we can move.