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The stock of Union Bank of India slipped 7 per cent on Tuesday, after the company delivered disappointing results for the December quarter. The bank’s net profit fell by 13 per cent over last year, primarily driven by increase in employee cost and provisioning on bad loans.
The bank’s advances grew by a subdued 8.9 per cent during December, lower than the industry credit growth of 10 per cent during this period.
Credit growth
Aside from a slower credit growth, rise in bad loans, which is now 5 per cent of loans, up from 4.69 per cent in the September quarter, also impacted the bank's earnings. With restructured assets, another 5 per cent of loans, the bank’s stressed assets have been weighing on the bank’s capital base.
Union Bank of India has a tier I capital of 7.3 per cent (6.5 per cent norm) as of December 2014, stretching it thin. The return on equity is an abysmal 6.6 per cent down from about 8.3 per cent in the previous year.
Net interest margin
The bank’s net interest margin, which has been under pressure, is likely to face further stress as the bank lowered its base rate by 25 basis points after the RBI’s policy rate cut on Januay 15. The yield on loans is already down 10 basis points sequentially in the December quarter.
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