Higher provisioning towards bad loans weighed on Union Bank of India’s profitability in the October-December quarter.
The public sector bank’s net profit was down 13 per cent at ₹302 crore against ₹348 crore in the year-ago period.
The bank set aside more cash (provision) to cover potential losses in loans in the reporting quarter. The loan loss provision for the quarter was ₹674 crore (₹497 crore in the year-ago quarter). Further, the provision towards restructured loans increased to ₹106 crore (₹33 crore)
Net interest income (the difference between interest earned and expended) was up 8 per cent to ₹2,120 crore (₹1,963 crore).
Profit on sale of investment at ₹252 crore (₹70 crore) propped up non-interest income, which rose 29 per cent to ₹877 crore (₹680 crore).
Net interest margin (NII/average assets) was flat at 2.54 per cent. NIM indicates how effectively a bank deploys its funds to generate income from credit and investment operations.
Union Bank Chairman and Managing Director Arun Tiwari said while the bank does not have control over the external (economic) environment, which is challenging, it has put in place a strategy to improve operational efficiency so that capital can be conserved.
Among others, the bank has shrunk high-cost deposits — as at December-end these deposits constituted 8.5 per cent of total deposits (against 10.14 per cent as at September-end); and stepped up focus on retail, agriculture and micro, small and medium enterprise (or RAM) loans as these loans carry relatively lower risk weights.
Tiwari said RAM loans now account for half of the total advances as against 42 per cent a year ago. The bank will continue to hold on to the deposit and loan growth targets of 9-10 per cent and 10-11 per cent, respectively, set out at the beginning of the year, he added.
Union Bank saw an incremental addition of ₹1,738 crore to its bad loans portfolio as against ₹1,968 crore in the preceding quarter. An account in the construction sector and another in the sugar sector accounted for a chunk of the increase in bad loans in the quarter.
Gross non-performing assets (as a percentage of total loans) rose to 5.08 per cent from 3.85 per cent as at December-end 2013.
Union Bank shares closed at ₹238.20 a share, down 5.25 per cent, on the BSE on Tuesday.