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Last Updated : Jan 22, 2019 10:54 AM IST | Source: Moneycontrol.com

Union Bank falls another 2% as elevated slippages disappoint

Global brokerage house Nomura said bank's core pre-provision operating profit (PPOP) continued to lag peers and core PPOP/assets will unlikely improve materially from 1.4 percent level

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Public sector lender Union Bank of India slipped 2 percent in the morning on January 22 in addition to 6 percent fall seen in the previous session, as analysts were disappointed with elevated slippages in Q3.

The stock was quoting at Rs 84.85, down Rs 1.55, or 1.79 percent on the BSE at 1025 hours IST.

Global brokerage house Nomura said the bank's core pre-provision operating profit (PPOP) continued to lag peers and core PPOP/assets will unlikely improve materially from 1.4 percent level.

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Union Bank of India reported third quarter profit at Rs 153.2 crore for the December quarter against the loss of Rs 1,249.8 crore in same period last year, driven by sharp fall in provisions and higher other income led by treasury gains. But profit was far lower than CNBC-TV18 poll estimates of Rs 229.3 crore for the quarter.

Other income grew 25.4 percent year-on-year to Rs 1,095 crore and operating profit increased by 6 percent to Rs 1,750 crore in Q3.

Asset quality improved sequentially in Q3. Gross NPA as a percentage of gross advances in Q3FY19 dropped to 15.66 percent against 15.74 percent in the previous quarter and net NPA was lower at 8.3 percent against 8.42 percent in Q3FY18.

"While gross NPA reduced marginally, normalised slippages remained elevated," said Credit Suisse which expects the bank, with its CET-1 at 7.5 percent, to receive capital in Q4.

The research house cut its FY20/21 net profit estimates by 15 percent on slower growth.

The bank reported slippages for the quarter at Rs 2,983 crore against Rs 2,667 crore in the previous quarter. Its accumulated slippages stood at Rs 24,532 crore and provisions at Rs 13,812 crore at the end of December quarter.

Rajkiran Rai G, MD & CEO of the bank told CNBC-TV18 that Rs 700 crore of slippages was seen in retail, agri and MSME sector in Q3. "We expect similar slippages from MSME and Agri in Q4FY19. The restructuring of MSME loans from January 1, 2019 will be helpful."

Provisions and contingencies halved to Rs 1,617.1 crore for the quarter ended December 2018 against Rs 3,254.4 crore in the same period last year, and also declined 2.3 percent sequentially.

While retaining buy call on the stock with a target price at Rs 105, global research house CLSA said earnings are expected to normalise from FY20 onwards.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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First Published on Jan 22, 2019 10:52 am
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