UNIONBANK Q2 FY26 earnings call.
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Union Bank of India reported Q2 FY26 net profit of INR 4,249 crore, up 3.25% QoQ, with H1 FY26 PAT reaching INR 8,365 crore. The bank demonstrated strong asset quality improvements with gross NPA declining 107 bps YoY to 3.29% and net NPA at 0.55%, while provision coverage stands at a robust 95.13%. Capital adequacy remains industry-leading at 17.07% with CET1 of 14.37%. However, loan growth remains subdued at 4.99% YoY, lagging system growth of ~11%, as the bank strategically reduced high-cost bulk deposits by 21.85% YoY to protect NIMs, which stood at 2.67%. New CEO Asheesh Pandey, who rejoined the bank, outlined plans to accelerate loan growth to system-level by Q4 FY26 through RAM segment expansion (targeting 55%-58% of mix) and improved deposit franchise utilization. Retail lending grew strongly at 23.98% YoY while MSME grew 14.88%. Risk factors include elevated credit costs at 222 bps vs 109 bps YoY and NIM pressure from sequential yield-on-advances decline of 16 bps. Treasury income declined to INR 192 crore from INR 961 crore in Q1, though management expects improved performance in H2.
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Guidance to track
- Management targets achieving loan growth at par with industry levels (~11-12%) on a cumulative basis by March 2026, with quarter-on-quarter growth expected to match system levels going forward.
- Bank aims to increase Retail, Agriculture, MSME (RAM) share of loan book from current 55% to 58% over the next 1-2 years to improve portfolio quality and cross-selling opportunities.
- Management indicated NIM decline is nearing bottom given sequential decline is decelerating. Full impact of bulk deposit reduction (INR 21.85 billion) will be visible this quarter, with NIM expected to stabilize and improve from Q3 FY26 onwards.
- Bank targets maintaining credit-to-deposit ratio between 78.5% to 80% levels, with plans to increase CASA ratio by 1-1.5 percentage points going forward to reduce cost of funds.
Risks flagged
- 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.
Key quotes
- Going forward you will see that. The system level will be at par with the industry... We'll be going ahead. We are aspiring better than that, so that it is not converging as usual. We would like to expedite converge a bit earlier.
- Capital adequacy is one of the best in industry at 17.07% with CET1 ratio at 14.37%. Similarly, there is an improvement in the asset quality... The gross NPA reduced by 107 bps YoY to 3.29%. The net NPA declined by 43 bps YoY to 0.55%. The provision coverage ratio stood at 95.13%, reflecting a well-provisioned balance sheet of the bank.
- Whatever we have done in the last financial year, at least that kind of quantum would be possible from the next year [for PSLC sales]. We have not done the PSLC sale this year, but as of now we are meeting the priority sector targets and sub-targets.
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