Release Date: July 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Union Bank of India (BOM:532477, Financial) reported a net profit of INR 3,679 crores for the June quarter, marking a 13.7% YoY growth and 11.1% QoQ growth.
- The bank's operating profit reached INR 7,785 crores, showing an 8.5% YoY growth and 19.1% QoQ growth.
- Gross NPA reduced to 4.54%, with gross recovery at INR 3,368 crores and slippage restricted to INR 2,318 crores.
- CASA and retail term deposits form 72% of total deposits, maintaining a consistent ratio.
- S&P Global Rating revised the bank's outlook to positive, and India Rating upgraded the rating to AAA Stable.
Negative Points
- Credit and deposit growth were muted in the first quarter, with domestic credit growing by only 0.59% and domestic deposits slightly decreasing.
- The bank reported a high number of fraud cases, with INR 465 crores in frauds and INR 341 crores outstanding in 128 cases.
- Yield on advances declined by about 15 bps QoQ, primarily due to a fall in DL recovery.
- Standard asset provisioning increased by INR 1,296 crores due to anticipated stress or potential restructuring in a couple of accounts.
- The cost of deposits is expected to rise in the coming quarters due to the tight liquidity position and the need to raise more term deposits.
Q & A Highlights
Q: On the muted credit and deposit growth this quarter, how does the bank plan to achieve its target of INR1,10,000 crores in credit growth for the remaining quarters?
A: (Ramasubramanian S., Executive Director) The banking industry is currently facing liquidity challenges, making deposit growth difficult and costly. However, we have seen steady growth in retail deposits and have implemented various initiatives to increase our CASA base. We are also ready to increase our portfolios once private CapEx picks up, with an excess liquidity of around INR65,000 crores.
Q: Can you explain the increase in net worth despite the changes in investment norms?
A: (Avinash Prabhu, Chief Financial Officer) The increase in net worth is due to a reduction in Deferred Tax Assets (DTA), which accounts for the additional INR700 crores. The new investment norms added INR1,702 crores to the general reserve, contributing to the overall increase.
Q: What is the nature of the reported frauds, and what measures are being taken to address them?
A: (A. Manimekhalai, CEO) About 70% to 80% of the reported frauds are digital in nature. We have established a transaction monitoring department and a 24/7 cybersecurity operation center to address these issues. Real-time monitoring and AI-based velocity checks are also in place to reduce fraud incidents.
Q: What is driving the strong growth in the agriculture loan portfolio?
A: (A. Manimekhalai, CEO) The growth is driven by increases in gold loans, agri SHGs, and investment credits. Our extensive branch network in rural and semi-urban areas also contributes to this growth. We expect to maintain a growth rate of around 21% to 22% in the agriculture portfolio.
Q: Can you provide details on the standard asset provisioning and its impact on the bank's financials?
A: (A. Manimekhalai, CEO) We have made a standard asset provision of INR1,296 crores due to anticipated stress in a couple of accounts. This is a one-off provisioning, and we do not expect similar high provisions in future quarters.
Q: What is the outlook for the cost of funds in the coming quarters?
A: (A. Manimekhalai, CEO) While the cost of deposits has slightly reduced this quarter, we anticipate an upward movement in the cost of funds due to the tight liquidity position and the need to raise more term deposits to support credit growth.
Q: How is the bank addressing the high NPA levels in the MSME sector?
A: (A. Manimekhalai, CEO) We have a robust mechanism for underwriting and recovery in the MSME sector. About 50% of our MSME book is in micro advances, with 75% collateral in the form of CGTMSE. We are also focusing on improving our recovery mechanisms and maintaining substantial collaterals.
Q: What are the bank's plans for branch expansion?
A: (A. Manimekhalai, CEO) We plan to open about 200 to 250 branches this year, focusing on high-growth centers and premium branches. We have also rationalized about 25 branches and are using analytical and digital tools to optimize branch locations.
Q: What is the impact of the new AFS guidelines on the bank's treasury income?
A: (Sudarshana Bhat, Chief General Manager - Treasury) The new guidelines treat the AFS book as a banking book rather than a trading book. We have strategically positioned ourselves in the HFT book to generate similar profits as before. The positive impact of INR150 crores in the P&L is due to mark-to-market gains.
Q: What is the bank's strategy for maintaining a balance between credit and deposit growth?
A: (A. Manimekhalai, CEO) We aim to grow our deposits in line with our advances growth. We have implemented several strategies, including hiring a consultant, opening new branches, and establishing a customer service excellence cell to improve our liability portfolio and reduce the gap between deposit and credit growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
