Stock Review: Union Bank of India

Union Bank of India saw its profit fall 50 per cent sequentially and 40 per cent year-on-year to `303 crore in the September quarter. This was due to a surge in loan-loss provisioning from `100 crore in the June quarter ( `102 crore in the September 2009 quarter) to `629 crore.

With over 11 per cent assets restructured till September slipping into the non-performing loans (NPL) basket, gross non-performing assets rose 29 per cent sequentially. The management indicated that although NPL additions would continue, the pace of slippages would slow down. It guided for gross NPAs at about 2.3 per cent of total advances by March 2011.

Operationally, sequential growth in advances was tepid at 1.35 per cent, but looked good on a y-o-y basis at 27 per cent off the lower base. However, deposit growth outstripped it at 3.67 per cent (26 per cent y-o-y). Low-cost current and saving account (Casa) deposits increased four per cent sequentially to expand the Casa ratio by 12 basis points (bps) to 32.7 per cent.

Net interest margins rose 20 bps sequentially to 3.2 per cent, excluding one-offs, mainly due to an improvement in yield on advances and investments. Margins are expected to stay at the current levels, as the bank recently raised the base rate by 50 bps to 8.5 per cent, but the deposit rate rose only 25 bps.