Union Bank Q2 net up 16%, aims lower NPAs in H2FY12

Moneycontrol Bureau

Public sector lender Union Bank of India's second quarter (July-September) net profit grew at a slower pace by 16% year-on-year to Rs 353 crore on the back of sluggish loan book growth. This is way below the market expectations. A CNBC-TV18 poll predicted net profit at Rs 519 crore.

However, net interest income (NII) or the difference between interest earned and interest expended, increased 8% (YoY) to Rs 1,661 crore, which is slightly higher-than-the-expected.

"The worst quarter is over," said M V Nair, chairman and managing director of the bank at a conference.

"We aim to grow our book at 18% for the full fiscal year. The growth will be very secular in nature including sectors like agriculture, SME, large corporates and retail. Our net interest margin would be around 3.20% in FY12. We have fully completed the process of system based NPAs and it had its bearing on our profit level."

Union Bank's loan book expanded 16.5% YoY to Rs 1,47,284 crore. Non-performing assets (NPAs) shot up from 1.32% to 2.04% quarter-on-quarter while gross NPAs scaled up from 2.57% to 3.49% at the same time. The lender has also registered slippages or bad assets of Rs 1,821 crore in Q2.

"This is primarily due to system based technology wherein smaller (loan) accounts below Rs 5 lakh added to higher NPAs. With everything settling down, we expect to maintain 2.65% gross NPA level for the full year," Nair told Moneycontrol.com.

Out of total slippages around 85% is generated out of accounts below Rs 5 lakh mark. Moreover, 13.26% of the restructured assets have turned bad during the three month period. As on September 30, total restructured assets stood at Rs 6,601 crore compared with Rs 5,845 crore in June quarter.

Typically, a lender gives some discounts to its borrowers in a restructuring scheme. However, a borrower can default on repayment, even after restructuring.  

According to the Reserve Bank of India's norms, banks should identify NPAs through system generation process, instead of manual procedures wherein a lot of small accounts, delaying repayments for a few months, do not get reflected in books.

The bank has sought for more capital from the government of India, its major stake holder (57.2%). The lender's capital adequacy ratio stood at 12.54% as of September 30. This means for the bank to give Rs 100 as loans, it has a capital base (equity + debt) of Rs 12.54.

After the proposed capital infusion, the GoI's stake would inch up to 58%. Moneycontrol.com earlier reported that the bank had sought for Rs 350 crore capital support to shore up its lending capacity.

Total deposits rose just 10% to Rs 1,77,780 crore while the bank has managed to increase the share of current account and savings account (CASA) to total deposits at 32.09% as against 31.51% in Q1, FY12.

Union bank shares tumbled more than 11% on Monday to close the day at Rs 212.20 on the BSE.

Saikat Das
saikat.das@network18online.com