Higher provisioning towards bad loans and restructured loans tempered Union Bank of India’s net profit growth in the April-June quarter.

In the reporting quarter, the public sector bank reported a 10 per cent increase in net profit at 512 crore against Rs 464 crore in the same quarter last year.

Net interest income (the difference between interest earned and expended) was up by 15.59 per cent at Rs 1,822 crore (Rs 1,590 crore). Non-interest income nudged up marginally to Rs 491 crore (Rs 484 crore).

According to Mr D Sarkar, Chairman and Managing Director, provisioning increased as some lumpy accounts (about 10 loan accounts aggregating Rs 900 crore) had to be downgraded as the borrowers could not get short-term loans from other banks to pay-off the loans.

Public sector banks, including Union Bank of India, have stopped extending short-term, unsecured loans to corporates following a Finance Ministry directive. Union Bank made a provisioning of Rs 437 crore (Rs 365 crore) towards bad loans and Rs 70 crore (Rs 5 crore) towards restructured loans.

The bank’s net interest margin (NIM) was lower at 3.01 per cent (3.10 per cent). Mr Sarkar said his bank would endeavour to maintain a NIM in excess of 3 per cent.

He attributed the pressure on NIM to slowdown in deposit growth even as loan growth was sustained. In the April-June period, the bank restructured 309 loan accounts aggregating Rs 1,642 crore. This includes the Rs 1,200 crore loan exposure to a State Electricity Board.

According to Mr S.S. Mundra, Executive Director, the loan disbursements are happening only from the pipeline of loan sanctions built up over the last two years. There is some demand for loans from road projects. However, fresh investment demand has been slack.

Union Bank shares closed 7.86 per cent down at Rs 164.05 on the BSE against the previous close of Rs 178.05.

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