UNIONBANK Q1 FY26 earnings call.
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Union Bank of India delivered Q1 FY26 PAT of INR 4,116 crore (+12% YoY), with ROA at 1.11% and ROE above 15%, demonstrating profitability resilience despite macro headwinds. The bank prioritized portfolio quality over aggressive growth—RAM segment grew at 10.3% while overall credit growth moderated to 6.8%. NIM compressed 11bps QoQ to 2.76% due to immediate EBLR repricing (48% of loan book), with full-year NIM guidance of 20-25bps moderation. Asset quality improved with slippage ratio below 1% and provision coverage at ~95%. The key near-term catalyst is the INR 51,000 crore sanctioned pipeline awaiting disbursement under MCLR-linked pricing. Risk factors include elevated MSME slippages (NPA at 4.39%), PSLC income absence (INR 950 crore hit in base), and rising SMA-2 to INR 2,600 crore. Treasury income of INR 1,418 crore is expected to moderate going forward.
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Guidance to track
- NIM expected to decline 20-25 basis points over the full year from March 2025 levels, with Q2 seeing an additional 10-15bps sequential decline before potential recovery.
- RAM segment (Retail, Agriculture, MSME) expected to maintain double-digit growth trajectory over next few quarters, supported by INR 51,000 crore sanctioned pipeline.
- Management indicated NIM could potentially hit 260-265 basis points as the minimum level before bouncing back by 20-25 basis points for the year.
- Technology and digital transformation budget set at INR 1,500 crore for FY26, up from INR 1,000 crore utilization in FY25.
Risks flagged
- 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.
Key quotes
- We have taken a conscious call on the portfolio. We don't want to take any advances where the bank may incur a loss in futures. That is why the growth is slightly muted.
- We have to trade off between the margin also and also your growth. We are trying to manage both the things.
- We are focused on having a good trade-off between the top-line growth and the bottom line, and we'll continue to ensure that the overall return on assets and return on equity remains strong as we have done in the past.
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