January 27, 2015:
The stock of Union Bank of India slipped 7 per cent on Tuesday, after the company delivered disappointing results for the December quarter. The bank’s net profit fell by 13 per cent over last year, primarily driven by increase in employee cost and provisioning on bad loans.
The bank’s advances grew by a subdued 8.9 per cent during December, lower than the industry credit growth of 10 per cent during this period.
Credit growth
Aside from a slower credit growth, rise in bad loans, which is now 5 per cent of loans, up from 4.69 per cent in the September quarter, also impacted the bank's earnings. With restructured assets, another 5 per cent of loans, the bank’s stressed assets have been weighing on the bank’s capital base.
Union Bank of India has a tier I capital of 7.3 per cent (6.5 per cent norm) as of December 2014, stretching it thin. The return on equity is an abysmal 6.6 per cent down from about 8.3 per cent in the previous year.
Net interest margin
The bank’s net interest margin, which has been under pressure, is likely to face further stress as the bank lowered its base rate by 25 basis points after the RBI’s policy rate cut on Januay 15. The yield on loans is already down 10 basis points sequentially in the December quarter
Union Bank of India Q3 profit drops 13.33% to Rs302.42 crore-Live Mint
Net interest income increased 8.03% to Rs.2,121.23 crore from Rs.1,963.50 crore a year ago
Mumbai: Union Bank of India on Tuesday posted net profit of Rs.302.42 crore in the three months ended 31 December, declining by 13.33% from Rs.348.94 crore in the year-earlier period, mainly because of higher provisions and contingencies.
The bank’s profit was lower than the estimate of Rs.511.5 crore forecast by 24 analysts polled by Bloomberg.
Net interest income, or interest earned on loans minus interest paid for deposits, increased 8.03% to Rs.2,121.23 crore from Rs.1,963.50 crore a year ago.
Provisions and contingencies for the quarter rose 39.57% to Rs.851.92 crore compared with Rs.610.40 crore in the year-ago quarter.
Other income rose 29.03% from a year ago to Rs.877.24 crore
Net non-performing assets (NPAs) rose to 2.95% versus 2.26% last year while gross NPA rose to 5.08% compared with 3.85% a year ago.
At 11.53am, Union Bank of India was trading at Rs.237.60 on BSE, down 5.5%, while India’s benchmark Sensex rose 0.15% to 29,322.42 points.
See restructuring loans worth Rs 1600 cr in Q4: Union Bank-Money Control-28.01.2015
Union Bank of India's third quarter net profit fell 8.1 percent year-on-year to Rs 302.4 crore, impacted by higher provisions. Other income, however, supported the bottomline but asset quality of the bank deteriorated during the quarter.
Union Bank of India disappointed the Street with the third quarter net profit falling 8.1 percent year-on-year to Rs 302.4 crore, impacted by higher provisions. Other income, however, supported the bottomline but asset quality of the bank deteriorated during the quarter. Net interest income grew 8 percent to Rs 2,121 crore in the quarter ended December 2014 from Rs 1,963 crore in the year-ago period, which was in line.
Below is the transcript of Arun Tiwari’s interview with Masavi Ghelani on CNBC-TV18.
Q: The results are little disappointing, there has been a drop in the net profits as well a shift in your net interest margins (NIMs). Can you give us a sense on what happened there and do you see that panning out even for the next few quarters, what is your expectation like?
A: If incidence of NPA increases I have to write back and going forward I have no interest income; predominantly it has been that reason only. As I shared sometime back the numbers about the slippage of the last quarter, Rs 738 crore which was Rs 968 crore in the Q2 of the current financial year, going forward if I look the industries which comprises non-performing assets (NPA) they will be a quarter or two here and after when there will be an uptick. I am sure because most of it is power, metals, in some cases roads. If we are talking about 6 percent plus economy growth all these segments of the industry have to perform well. Once they perform well one, I will be earning interest on that, two, there will be write back of my provision already locked in there.
Q: As of today what is your restructuring pipeline like and in future do you see that trend continuing as well?
A: Let me give you a comparative number. Last quarter when the same question was asked our ballpark number was somewhere around Rs 1700-1800 crore. However, actual restructuring happened for Rs 1212 crore. Within restructured portfolio which is about Rs 12000 crore plus, a small amount of Rs 240 crore which is comprising within Rs 1738 crore got in to NPA.
Current quarter Q4, our rough numbers indicate that restructuring could be somewhere Rs 1500-1600 crore. However, as past says we take very bullishly these numbers but the actual numbers which gets restructured is much lesser; two thirds of that.
Q: Could you help us with the breakup of your provisions and your recovery this quarter, would that also continue in the next quarter and the next financial year?
A: During this quarter if I look at, cash recovery was Rs 358 crore which was in previous quarter Rs 183 crore. So, year-on-year (YoY) if you look at cash recovery it was Rs 183 crore in December 2013 quarter which has gone up to Rs 358 crore in December 2014 quarter that is Q3.
My Comment:
Profit of every public sector ban has to fall and Non performing asses of every PSU bank have to go up . RBI and GOI can not stop it until they diagnose the real and root cause of sickness. Unfortunately they prescribe the same as medicine for curing the disease which is in face the cause of disease .
HR policy based on flattery and bribery cannot cure the sick PSU banks. Every quarter some bank or the other declare rise in bad debts and fall in profits. For some quarters they manage to hide bad assets by manipulations and restructuring , but finally truth comes out and goes beyond control.
Even banks which are considered by Government as strong bank are also slowly falling in line because they appeared stronger only because they were master in the game of manipulation and fraudulent tapering of data.
‘Extend special asset classification benefit’-HBL
Mumbai, January 27:
Union Bank of India Chief Arun Tiwari on Tuesday said banks, under the aegis of the Indian Banks’ Association, will make a request to the Reserve Bank of India to extend the deadline for withdrawing the special asset classification benefit for all restructured loan accounts by a year.
The central bank last year said the special asset classification benefit will be withdrawn for all loan restructuring cases with effect from April 1, 2015.
Currently, the provision requirement on restructured loan accounts is 5 per cent.
But come April 1, 2015, when the restructured loan accounts will get downgraded (to the non-performing asset or NPA category), the provisioning will go up to 15 per cent.
The increased provisioning will weigh on banks’ profitability from the first quarter (April-June) of FY 2016 onwards. In the reporting quarter, out of Union Bank’s total restructured loan accounts of ₹12,000 crore, loan exposure aggregating ₹240 crore turned sour
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