Maintain 'HOLD' on Union Bank of India - Geojit BNP Paribas

- Q2FY13 PAT, which came in at Rs.550 crores, was below expectations, on higher operating expenses.

- Asset quality improved, driven by lower slippages and higher recoveries.

- Higher recoveries and upgradations are not factored in, which can swing financials and asset quality performance for UBI – a key factor to watch out for.

- NIM was flat QoQ, at 3.02%, with the CASA ratio being maintained at 30.5%, despite pressure on CA.

- UBI's overall performance was stronger in Q2FY13 as asset quality improved, causing annualized slippages to decline to 2.15%, from 4.5% in FY12, restructuring Rs.800 crores. For re-rating, asset quality needs to stabilize for a few quarters

- UBI's tier I ratio of 8.3% remains a concern but if the bank's focus translates into higher recovery and upgradation during FY13, there is upside risk to estimates. The rewards for its focus on recoveries is expected to be more visible in FY14.

- Maintain HOLD recommendation on UBI.

- Upside/downside risks: Lower/higher slippages and higher/lower recoveries.

Source : Equity Bulls

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