Union Bank of India · risk themes across the available quarters.
Bear-case history
Industry-wide liquidity crunch where credit growth (13.9% system) outpaces deposit growth (10.6% system); RBI analysis suggests wedge may persist for 1-2 more years. Union Bank's deposit growth of 8.5% lags its 11.5% advance growth.
Households shifting savings from deposits to equity and small savings instruments; CASA ratio facing structural headwinds in high-rate environment. Risk of upward pressure on cost of deposits.
MSME NPA remains elevated at ~8% despite improving from higher levels; while 50% of MSME book is micro advances with collateral, analyst raised concerns about sector-specific stress.
New RBI guidelines reclassify AFS as banking book, eliminating MTM gains booking flexibility; management shifted positions to HFT but treasury income volatility may increase going forward.
Zero PSLC income in Q1 FY26 vs INR 950 crore in Q1 FY25 due to RBI guideline changes on agri gold loans. Management does not foresee replicating last year's income but expects some market-driven income in future quarters.
MSME NPA ratio increased from 4.14% to 4.39% QoQ. While overall slippages declined, MSME segment remains elevated and continues to be monitored closely.
SMA-2 accounts doubled from INR 1,200 crore to INR 2,600 crore quarter-over-quarter. Management attributed this to temporary repayment delays with government support, but analyst raised concerns about potential NPA slippage.
Cash recovery halved to INR 790 crore from INR 1,600 crore in Q4. Some NCLT-related recoveries (expected ~INR 12,000 crore) delayed to September quarter. Management guided improvement in Q2.
With only INR 23,947 crore credit expansion in H1 against INR 1.17 lakh crore needed for 13% annual growth, management must disburse ~INR 93,000 crore in H2 from existing pipeline. Execution depends on capital cycle recovery and borrower demand.
The slipped PSU account (INR ~3,400 crore provision at 20%) has recovery 'in process' at government and bank level, with no specific timeline or haircut guidance provided. Management stated 'no haircut as of now' but acknowledged resolution is ongoing.
Analyst raised concern about INR 1,664 crore SMA-2 book (still in SMA0) representing potential future slippages. Management confirmed one account remains in SMA0 with standard provisioning and cash flows intact, but resolution plan is 'being worked out.'
Deposit growth of 9.2% YoY is at lower end of 9%-11% target range with CASA growth slowing. H1 deposit growth was only 1.67%, and cost of deposits increased 35bps YoY due to repricing of retail TD products.
Bank has lagged system loan growth for over 12 quarters, with current growth of 4.99% vs industry ~11%. While management targets catch-up by Q4 FY26, execution risk remains given competitive pressures in retail and MSME segments.
Yield on advances declined 16 bps QoQ while cost of deposit reduction was only 5 bps, creating margin squeeze. Management acknowledged strategy numbers appear different from actual results, with full benefit of deposit repricing yet to materialize.
Credit cost rose to 222 bps in Q2 FY26 from 109 bps YoY, more than doubling. While asset quality improved YoY, the sequential increase warrants monitoring as growth accelerates.
Treasury profit declined sharply to INR 192 crore from INR 961 crore in Q1 due to one-time gains. Management expects better quarters ahead but acknowledged dependence on market conditions and rate movements.
Credit growth (11-12% industry) running ahead of deposit growth, creating funding pressure. Management admits Catch-22 situation where CASA growth slowdown constrains corporate lending expansion.
INR 13,000 crore MSME book reclassified—INR 5,000 crore upgraded to mid-corporate and INR 12,000 crore declassified due to URN number issues. INR 7,000 crore NPAs reclassified to 'LC and Others' segment, inflating GNPA.
Recovery credited to interest income at INR 1,738 crore in 9M vs INR 2,223 crore last year—shortfall of INR 500 crore. Management attributes this to weaker SARFAESI effectiveness this year.
One large account moved to SMA-2 (INR 5,500 crore vs INR 1,654 crore in Q2) due to temporary funding delay. Account recovered subsequently but highlights account-level concentration risk in advances book.
Deposit growth at 0.95% QoQ (3.36% YoY) significantly trails credit growth of 4% QoQ (7.13% YoY); LDR at 83.89% with domestic CD below 81%; CASA increase partially offsets but reliance on wholesale funding may increase cost
H1 FY26 had zero PSLC income vs INR 950 crore in H1 FY25; only INR 108 crore booked in Q3; analyst questioned whether FY25 levels (~INR 950 crore half-year) can be recovered in remaining quarters
Standard asset provisions dropped sharply to INR 176 crore from INR 882 crore QoQ; management stated no ECL provisioning done this quarter; analyst Siddharth Rajpurohit asked for excess standard asset provision quantum but management did not quantify
Management stated ECL impact would be INR 4,200-4,300 crore net of existing provisions and offered 5-year dispensation but said bank may not need it; analyst questioned if this is transition impact or run rate—management stated run rate credit cost should be similar, but exact ECL impact pending final RBI guidelines
Advances grew only 8.6% versus 11-13% guidance, and large corporate book was deliberately not grown. Management expects credit growth to track GDP growth (~6%), which could disappoint investors expecting double-digit expansion in a recovering economy.
MSME and Agri slippages rose sharply sequentially in Q4 due to repeated restructured accounts in agriculture and fully automated asset classification changes. Management attributed this to Q4-specific factors, but the sequential deterioration warrants monitoring into Q1 FY26.
Analyst directly asked about MD A. Manimekhalai's term ending May 31st and renewal prospects. Management deflected by stating the call was focused on quarterly results. Leadership continuity risk at a PSU bank creates execution uncertainty.
Analyst specifically asked about SMA-1 and SMA-2 book movement in MSME and whether the ₹1,235 crore SMA-2 has seen recovery in April. Management did not provide granular SMA breakdown or April recovery update, leaving asset quality trajectory opaque.
Management acknowledged monitoring West Asia war impact on energy-sensitive sectors (Morbi ceramics) and remittance flows. While no significant stress observed yet (only 59 CGSE applications, 35 PC extension requests), MSME slippages rose to INR 2,023 crore in Q4 vs INR 1,660 in Q3. Management is handholding affected MSMEs with extended bill periods.
Bulk deposit blended rate was ~6.90% in Q4 (March piece at ~7.70%), compressing margins on corporate advances yielding 7.20-7.50%. Although management shifted INR 57,000 crore from bulk to CASA/RTD, competitive deposit pricing could continue weighing on margins.
Total deposit growth of 2.72% YoY significantly trails 9.74% advance growth. While LCR (114%) and NSFR remain comfortable with 7-8% buffer above internal triggers, sustained credit growth requires matching liability generation. CD ratio rose to ~80.5% from 77% in March 2025.
Analyst Ajmera flagged that while SMA-2 numbers declined, SMA-1 accounts nearly doubled QoQ. Management interpreted this positively (movement from SMA-2 to SMA-1 indicating recovery), but the doubling of early-stage stress accounts warrants close monitoring in coming quarters.