Union Bank of India’s September quarter performance leaves a lot to be desired, when viewed in the context of the lender’s stock rally in the past one month.
Public sector lender reported net profit ₹1,526 crore for the September quarter, which is almost double from the corresponding quarter of FY11, and up 30% on a sequential basis. Its operating profit growth was a healthy 26% on a year-over-year basis. That said, the bank’s core interest income growth was up a modest 8% from the year-ago period. In fact, it showed a decline of 2.6% from the previous quarter. In short, profits were backed by a large one-time recovery of approx. ₹1500 crores during the quarter.
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To be sure, the bank recorded a decent improvement in asset quality, partly due to recovery from Dewan Housing Finance Corporation Ltd., among others. Its recovery and upgrades increased by 75%, with the stock of bad loans falling 16%. As a result, the gross bad debt ratio fell to 12.34% from 14.71% a year ago. The bank expects its recovery and total upgrade ₹16,000 crore for FY22.
That said, most of the positive has already been captured by the 31% rise in the bank’s share price over the past month.
This brings us to its balance sheet growth. Here, Union Bank has very little comfort to offer. Granted, growth in retail loans is in the double digits. The ongoing festive season has prompted people to borrow to buy their homes or consumer goods. Anyway, the bank’s overall loan book declined by about 3%.
Unless the corporate loan book grows, the lender is unlikely to see an expansion of its book which would be an overhang on its core interest income.
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