UNIONBANK Q1 FY25 earnings call.
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Union Bank of India reported a steady Q1 FY25 with PAT at INR 3,679 crore (+13.7% YoY), driven by improved asset quality but challenged by muted deposit growth. GNPA reduced to 4.54% (-280bps YoY) with PCR improving to 93.5%, while credit cost declined 24bps to 0.73%. However, deposits grew only 8.5% YoY against 11.5% advance growth, creating a liquidity gap that management is addressing through premium branch expansion and customer acquisition initiatives. The bank made a one-off INR 1,296 crore standard asset provision for potential stress in select accounts, which CFO clarified was precautionary. Agriculture advances grew strongly at 23% YoY with gold loan nearly doubling to INR 66,000 crore. Board has approved INR 10,000 crore capital raise (INR 6,000 crore equity + INR 4,000 crore debt) to support future growth. NIM of 3.05% exceeded guidance of 2.8%-3%. Risk: Persistent credit-deposit wedge could pressure cost of deposits upward in coming quarters as industry-wide liquidity remains tight.
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Guidance to track
- Management maintained full-year guidance despite Q1 being a slack season with muted growth due to elections and staff transfers.
- Bank targeting deposit growth to match advances growth and maintain CD ratio in 73%-76% range; premium branches and customer acquisition initiatives underway.
- Q1 credit cost was 0.73%; management expects to maintain sub-1% credit cost for FY25 with continued focus on asset quality.
- Board approved raising INR 6,000 crore equity and INR 4,000 crore AT1/Tier II instruments; capital adequacy at 17% provides comfort but raise supports future growth.
Risks flagged
- 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.
Key quotes
- We want to grow our deposits in line with our advances growth. But we have given our guidance for the year, and we will keep to the guidance that we have given.
- In the interim budget, the FM also talked about the growth that rural also was the main focus of the present government, so we are looking at growth in those regions also. Agri insurance is one portfolio that we are very aggressively looking at.
- Some of these are all almost like 70%-80% of these frauds are digital frauds are small in nature, and of course, the remaining are credit and credit frauds that is happening.
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