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Union Bank of India

| Q4 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤29th Apr 26

Summary : Union Bank of India reports strong financial performance with improved asset quality and capital, focusing on quality credit growth despite macroeconomic headwinds.

Management Perspective positive : Management consistently highlights strong performance, improved metrics, and expresses confidence in future growth and profitability, stating they are on a 'good footing' and will 'make it better'.

Concall Report Analysis & Insights

Business Overview

  1. Net profit for the year stood at INR 18,697 crores, with interest income at INR 1.06 lakh crores.
  2. Gross advances increased by 9.74% year-on-year, while total deposits grew by 2.72% year-on-year.
  3. The RAM (Retail, Agriculture, MSME) segment grew 12.56% year-on-year, with retail up 16.75% and MSME up 18.75%.
  4. Gross NPA reduced to 2.82% and net NPA to 0.48% year-on-year.
  5. Capital Adequacy Ratio (CRAR) was 18.10%, and CET1 ratio improved to 15.69%.

Future Growth Prospects

  1. The bank aims for 13-14% credit growth in FY27, focusing on quality and profitability.
  2. Management expects NII growth to align with advances growth in the coming quarters.
  3. Continued focus on increasing CASA and retail term deposits to improve cost efficiency.
  4. The bank plans to maintain and improve NIM, expecting positive movement from current levels.
  5. Strategic deployment of funds in the most effective way is a key objective.

Management Insights

  1. We are very cautious about our cost, NIM, and profitability, focusing on efficiency parameters.
  2. The bank has made a good stride in increasing CASA and retail term deposits.
  3. An additional provision of INR 700 crores has been set aside as a cushion for any eventuality.
  4. We are committed to growth with quality and profitability, not compromising on either.
  5. The bank is closely monitoring geopolitical situations and has not seen unusual impacts yet.

Signs of Skepticism

  1. Analysts questioned the sustainability of the low credit cost (23 bps) for the year.
  2. Concerns raised about NII growth lagging advances growth in the current quarter.
  3. Queries on the increase in MSME slippage in Q4 and its future outlook.
  4. An analyst questioned the strategy of pursuing corporate growth at potentially low yields given deposit costs.
  5. Clarification sought on the impact of the INR 700 crore provision on ECL shortfall.

Risk Factors

  1. Macroeconomic environment influenced by ongoing global conflicts and war-related disruptions.
  2. Fresh slippages increased to INR 2,023 crores from INR 1,660 crores in the previous quarter.
  3. Potential impact on energy-sensitive sectors and inward remittances due to geopolitical events.
  4. Deposit growth lagging credit growth could pose asset-liability matching challenges.
  5. NIM compression due to rate cuts and market competitiveness.

Good To Know

  1. The Board of Directors recommended a dividend of INR 5 per equity share (50% of face value).
  2. The bank shifted INR 25,000 crores from treasury book to lending book.
  3. INR 3,000 crores were raised through infrastructure bonds.
  4. Employee cost reduced by INR 586 crores this quarter due to discounting rate factor.
  5. Recovery from written-off accounts was INR 1,567 crores, including a significant Sterling Biotech settlement.

Key Drivers

  1. Strong credit growth expected.
  2. Improving asset quality metrics.
  3. Focus on high-quality advances.
  4. Robust capital adequacy ratios.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. Questions about the impact of current geopolitical situations and West Asia war on the bank's asset quality.
  2. Inquiries about any stress building up in the first quarter due to external factors.
  3. Discussion on RBI and Government measures providing a cushion against macroeconomic impacts.

Financial Highlights

  1. Questions on deposit growth matching credit growth targets and asset-liability management.
  2. Inquiries about NIM sustainability, given the December rate cut and quarter-on-quarter dip.
  3. Clarification sought on the reduction in employee costs and increase in operating expenses.
  4. Questions regarding the sustainability of recoveries from written-off accounts.
  5. Discussion on the credit cost and its sustainability for the upcoming year.

Product Composition

  1. Questions about the strategy for corporate loan growth, especially if low-yielding.
  2. Inquiries about the deposit mix, particularly the focus on CASA and retail term deposits versus bulk deposits.
  3. Discussion on the bank's strategy to churn its portfolio towards better-yielding assets.
  4. Questions on the growth and quality of the RAM segment, specifically retail and MSME.

Strategic Considerations

  1. Questions on the bank's future credit growth targets (e.g., 13-14% in FY27).
  2. Inquiries about the strategy to balance growth, quality, and profitability.
  3. Clarification on the impact of new LCR guidelines on the bank's position.
  4. Questions about changes in risk filters for the MSME book.
  5. Discussion on shedding low-yielding advances and its impact on overall strategy.