Union Bank of India - Asset Quality Pressures Easing - Karvy

We met the management of Union Bank of India (UBI). The key takeaways from the discussions are given hereunder.

Asset quality strain to ease

Slippages were contained in Q2FY12 at 1.8% as against 3.8% in Q1FY12. Management has guided slippages to trend Q2FY12 levels going ahead. Bank has offered an OTS scheme pertaining to NPA prior to FY09 for outstanding upto Rs1mn in cases where bank does not have adequate collateral. Similar scheme offered for outstanding upto Rs0.5mn received healthy response in Q2FY13. Management expects recoveries and upgradation to be strong and match incremental slippages, thereby keeping absolute GNPA flattish going ahead. It expects another Rs25-30bn of restructuring in H2FY13. It intends to increase provision coverage to 65% from current 61.5% till Mar 2013.

Selective growth in credit

Management expects a moderate growth in credit of ~17% in FY13. Bank is more focused on retail, agriculture and SME segment. Overall credit in corporate segment is slowing down. They are focusing more in Tier II & III cities for expanding retail credit. Their delinquency experience in SME segment with GNPA of 4.3% is better than peers. It is aggressively expanding its network and targets 3500 total branches and 5500 ATMs by FY13. Higher ATM expansion is also helping them in earning interbank ATM charges.

Margin to remain stable

NIMs have trended downwards by 20-30bps over last year to 3%. Management expects NIMs to stabilize at current levels. Pressure on NIMs on account of discounts offered on retail segment would be offset by moderate growth in SME segment and containment of cost of deposit. It has been able to bring down its deposit offered above card rate to 12% in Q2FY13 from 16-17% of total deposit in FY12.

Source : Equity Bulls

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