Union Bank of India Reports 13.7% Growth in Net Profit Amid NIM Challenges

State-owned Union Bank of India reported a 13.7% rise in net profit for June 2024 quarter but faced challenges in maintaining its net interest margin (NIM). The bank's core net interest income increased by 6.5% while other income rose by 15.53%, despite a tough economic environment and higher cost funds.

State-owned Union Bank of India on Saturday reported a 13.7 per cent growth in net profit to Rs 3,679 crore for the June 2024 quarter, highlighting the challenges faced on the net interest margin (NIM) front.

The bank's core net interest income grew 6.5 per cent to Rs 9,412 crore, driven by an 11.5 per cent growth in advances. However, its net interest margin narrowed by over 0.13 per cent to 3.05 per cent.

Healthy growth in core fee income led to a 15.53 per cent increase in other income to Rs 4,509 crore. Despite the positive figures, both net interest income and other income were down compared to the March quarter, with the bank's managing director and chief executive A Manimekhalai attributing this to a softer first quarter industry trend.

Additionally, the reporting quarter was affected by the general elections, which caused some slack, Manimekhalai noted.

On the NIMs front, while the bank's numbers are currently higher than the guidance of 2.8-3 per cent, maintaining a figure above 3 per cent remains a challenge.

Pressures from higher cost funds persist, driven by the ongoing gap between deposit and credit growth, which continues to keep deposit rates elevated.

Despite these challenges, the bank remains comfortable on the liquidity front with an excess statutory liquidity ratio of Rs 65,000 crore, affirming earlier guidance of 11-13 per cent credit growth and 8-10 per cent deposit increase.

Manimekhalai clarified that the bank would not compromise on margins to grow its book, pointing out that Rs 15,000 crore of advances had to be rundown in the June quarter for not meeting NIM expectations.

There is a pipeline of Rs 54,000 crore in large corporate advances, primarily driven by state-owned companies, with the private sector investment yet to pick up.

The quarter witnessed 7 per cent growth in the large corporate book, while education and gold loans observed over 40 per cent growth each, with retail now constituting 56 per cent of the book.

On asset quality, fresh slippages were reported at Rs 2,318 crore, improving the gross non-performing assets ratio to 4.54 per cent. Provisions rose to Rs 4,106 crore, attributed to general slippages and higher allocations for stressed accounts.

The bank's overall capital adequacy hit 17.92 per cent, with core tier-I at 13.81 per cent. The bank has an enabling provision to raise up to Rs 6,000 crore in core equity, depending on growth in advances.

(With inputs from agencies.)