More cash set aside towards bad loans and higher operating expenses, including employee wages , weighed on Union Bank of India’s bottomline in the fourth quarter ended March 31, 2014.
The public sector bank’s net profit dipped 27 per cent in the reporting quarter to ₹579 crore against ₹789 crore in the year-ago period.
In the full financial year, the bank reported a 21 per cent dip in net profit at ₹1,696 crore against ₹2,158 crore in the previous financial year.
In the reporting quarter, net interest income (the difference between interest earned and expended) nudged up 3.6 per cent to ₹2,052 crore (₹1,980 crore in the year ago period). Non-interest income was down 11.54 per cent to ₹774 crore.
Year-on-year, bad loans, in gross terms, rose by ₹3,250 crore to ₹9,564 crore. In net terms (that is after setting aside cash to cover the bad loans), the bad loans saw an increase of ₹1,987 crore to ₹5,340 crore.
Cash set aside to cover bad loans was sharply higher at ₹670 crore (₹211 crore). Employee costs rose to ₹888 crore (₹664 crore).
According to Arun Tiwari, Chairman & Managing Director, the bank’s profit was dragged down mainly due to provisioning towards bad loans.
However, he expects improvement in the bottomline over the next few quarters.
“In FY2014, we effected a directional change in the way we did banking...We rebalanced the loan portfolio, placing more emphasis on retail, agriculture, and micro, small and medium enterprises (MSME),” said Tiwari.
The share of retail, agriculture and MSME improved to 44.3 per cent of total domestic advances from 37.4 per cent a year ago.
Guidance For FY2014, the Union Bank chief gave a year-on-year deposit and credit growth guidance of 9-10 per cent and 10-12 per cent, respectively.
In FY2014, deposits and advances grew by 12.86 per cent and 10.6 per cent, respectively, to ₹297,675 crore and ₹234,332 crore, respectively.
In the reporting quarter, the net interest margin (measured as the excess of interest income over interest expense scaled by total assets) was lower at 2.55 per cent against 2.89 per cent in the year-ago period. This margin is expected to improve to 2.90 per cent in FY2015.
Tiwari said his bank will leverage its pan-India network of 3,871 branches to grow low-cost current account, savings accounts (CASA) deposits to 31 per cent of total deposits from 29.5 per cent now.
Further, the bank will step on the gas to grow its retail portfolio, which currently stands at 11.50 per cent of domestic advances.
Capital raising plans Union Bank is likely to raise ₹1,836 crore via the qualified institutional placement route in the next couple of quarters, Tiwari said.
The bank also has headroom to raise ₹4,000 crore through additional tier-I capital.
The bank has proposed a final dividend of 40 per cent (₹4 per share inclusive of the interim dividend of ₹2.70 per share) on the face value of ₹10 for the 2013-14 financial year.