Union Bank of India profit slumps on higher provisioning

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Union Bank of India profit slumps on higher provisioning

State-run lender Union Bank of India posted a 66 percent slump in third-quarter net profit mainly on increased provisioning and depreciation on investments, sending its shares down as much as 7.4 percent on Wednesday.

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State-run lender Union Bank of India posted a 66% slump in third-quarter net profit mainly on increased provisioning and depreciation on investments, sending its shares down as much as 7.4% on Wednesday.

Net profit for the quarter ended December was 1.97 billion Indian rupees, compared with a profit of 5.80 billion rupees a year ago.

The bank's provisioning jumped to 10.9 billion rupees in the December quarter from 6.8 billion rupees a year ago.

"But for such huge provisions, net profit would have been much higher. We expect the downward trend in NPAs (non-performing assets) to continue," chairman MV Nair told reporters.

The lender expects January-March quarter to improve sequentially as it aims to contain slippages, executive director SS Mundra said.

The bank expects slippages to be under 15% of the restructured portfolio in 2011-12, compared with 13% in the nine months to December, Mundra said.

Restructuring of loans worth 7.5-10 billion rupees is expected in the next couple of quarters, Mundra said.

Share of restructured loans for Indian banks may rise to 7-8 percent of total assets in 2011 and 2012 from 4.4 percent seen after the 2008 crisis, Fitch Ratings said in a note this week.

It expects credit losses to be contained but state-run banks' profits may be hit by 15-20 percent due to higher loan loss provisions.

The Reserve Bank of India has raised rates 13 times between March 2010 and October 2011, slowing demand for credit in Asia's third-largest economy and triggering worries about pile-up of bad loans and pressure on profit margins.

The central bank cut cash reserve requirements for banks by 50 basis points on Tuesday to ease tight liquidity, signaling a policy shift towards reviving growth after nearly two years of fighting inflation.

Shares in Union Bank of India, valued at $2.2 billion, recouped from initial losses to close 2.8 percent down at 206.80 rupees.

Earlier, Bank of Baroda, which flagged off earnings from state-run banks, said its net profit rose nearly 21 percent to 12.90 billion rupees in the December-quarter.

"We have seen a substantial improvement in net interest income, fee-based income," Chairman M.D. Mallya said.

Mallya expects the bank to maintain its net interest margin, a key gauge of profitability, at about 3 percent for this fiscal year to end-March. Bank of Baroda said it expects 6.75 billion rupees of capital infusion from the federal government by March.

Shares in Bank of Baroda, valued at $6.2 billion, ended 1.35 percent lower at 788.80 rupees.

Bank of Baroda is seen as the top pick among the state-run banks due to better earnings and a stronger asset quality than its counterparts. At least 35 of the 45 analysts covering the stock has a 'buy' or a 'strong buy' rating on it, Thomson Reuters' StarMine data showed.

It trades at 1.4 times its book value, cheaper than private-sector lenders Axis Bank