Union Bank Of India Bets On Rising Loan Demand To Maintain Net Interest Margins
ED Nitesh Ranjan said Union Bank of India's corporate loan book growth in Q2 was subdued because it had to 'let go of some of the low-yielding corporate loan opportunities'.
Union Bank of India is witnessing robust demand for its corporate and retail, agriculture, and MSME loan portfolios in the ongoing financial year, according to the lender’s Executive Director Nitesh Ranjan.
The public sector bank has reported a fall in its net interest margin at 2.9% in Q2FY25 versus 3.18% in the year-ago period. However, the numbers were still within the range of Union Bank’s margin targets for the fiscal.
“As far as margins are concerned, we had given the guidance earlier this fiscal that our NIM will be in the range of 2.8–3%. For Q2, our margins have been 2.9%, which is the mid-range of that guidance. There is still pressure on the cost of funds while a large quantum of deposits have got repriced over the last year,” Ranjan told NDTV Profit.
He noted that the bank’s retail, agriculture, and MSME loan book had grown at an annualised rate of 12–15% over the past several quarters. However, the first few months of this financial year witnessed sluggish growth.
“We have started seeing a pickup from the middle of August in retail as well as the MSME sector. Now, in the middle of the festive season, we feel that this trend will continue with good traction in terms of the new sanctions, both in retail and MSME,” he said.
“This should help us achieve the guidance level,” the top executive added.
Ranjan further revealed that the corporate loan book of Union Bank of India, which comprises 45% of the lender’s total loan book, has been witnessing good demand over the last 6–12 months.
“Of the 11–13% guidance that we are giving for the overall loan growth, corporate is going to contribute a lot,” he said.
Despite a strong overall loan growth of Rs 8.94 lakh crore, which is a 9% increase year-on-year, the bank's corporate loan book witnessed subdued growth in the September quarter.
This, Ranjan attributed to the bank having to "let go of some of the low-yielding corporate loan opportunities in the market" to ensure that a 2.8–3% guidance range of net interest margins for the current financial year.
Shares of Union Bank of India closed 0.04% lower at Rs 109.20 apiece on the NSE as against benchmark Nifty 50's decline of 0.15% and Nifty Bank's decline of 0.04%.
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Here Are The Excepts
Union Bank of India is the company in focus. The lender posted second quarter numbers and profits jumped 34%. We asked Nitesh Ranjan, executive director, to put these numbers into perspective and about the growth outlook. Listen in.
Nitesh Ranjan: For the quarter ended September 2024, Union Bank of India has reported a good set of numbers, both in profitability as well as the business and also most of the guidance parameters, including the recovery and slippages, the bank has reported in line with the guidance.
So far as margin is concerned, you will recall that we had given guidance that during the current fiscal our NI will be in the range of 2.8% to 3% and in fact, for the Q2 also, our numbers have been 2.9, which is in the mid-range of that guidance. Having said that, there is still pressure on the cost of funds, while a large quantum of deposits have got repriced over the last one year, but still the deposit rates remain elevated.
Our sense is that deposit rates have perhaps peaked out, but it is going to remain elevated for quite some time, maybe around six months or so from now, till the time we see some action from RBI in terms of the rate cut.
I just wanted to understand, you know, you've said that your guidance is between 2.8 to 3% just wanted to understand what is the rationale behind this, given that your RAM, you know, you're saying that you expect to bank on RAM advances going forward, and it's a high-yielding book for you that is also seeing a bit of a slowdown on our sequential basis. So what is the rationale behind sticking to this guidance?
Nitesh Ranjan: So, if you look at the RAM book, we have been growing in the range of 12-15% for the past many quarters, if you look at the annualised growth rate.
This year, in the first half, first few months have been very lean, actually, but we have started seeing the pickup from mid of August in retail as well as the MSME sector, and now being in the middle of the festive season, we feel that this trend is going to continue only, and we are seeing a good traction in terms of the new sanctions, both in retail as well as in MSME. So this should help us in achieving the guidance level.
I also wanted to understand, you know, after the whole MTNL fiasco, you know, Union Bank of India has actually let go of some of the corporate loan book exposure. So just wanted your sense on that as to going forward, what is your sense on corporate loan growth? Are you seeing some slowdown there? What is your outlook on the same?
Nitesh Ranjan: See, 45% of our loan book is to the corporates and over the last six months, or 12 months of also, if you look at we have seen good demand coming from few sectors, within the corporate, be it the road sector, iron & steel, chemicals, some of the renewals energy, data centre, logistics. So there is a good demand that we are witnessing and of the 11 to 13% the guidance that we are giving for overall loan growth, I think corporate is going to contribute a lot.
Yes, during the quarter, you might have seen there's some subdued growth in the corporate sector. That is because we have let go of some of the low-yielding corporate loans opportunity in the market, because we have to ensure that we are in the guided range of NIM of 2.8 to 3%. Otherwise, there is a good opportunity in the corporate world.
So going forward, which sectors are you looking at in terms of corporate loans that are attractive right now?
Nitesh Ranjan: As I said, there is no particular preference for the sector. It depends on the opportunity, the promoter and all these things. I have already shared some of the sectors from where we are seeing the good proposals are coming to us.
As of now, we have close to around Rs 35,000-40,000 crore of proposals under discussion for the sanctions, and these are typically into the road sector, iron, steel, chemical renewal energy, logistics and so on.
Sir, also would like an update on the MTNL bit. So what is the recovery plan for that? If you could just provide a status on that?
Nitesh Ranjan: I'm afraid I won't be able to speak about a particular account.
Okay, no worries. I completely understand., So moving forward on the MSME lending space, MSME is also witnessing some slowdown. What do you think is the reason, because of that and when can we see a revival of the same?
Nitesh Ranjan: Yes, as I said, that in the retail agri, and MSME segment, first few months of this half year, we have seen very lean progress, but from middle of August, there is a good traction, there is a good demand, and that's why you notice that even in MSME, sequential growth rate during the quarter is around 2.8% which, on annualised basis, is a good number.
As of now, we are focusing on various MSME clusters across the country, and we are hopeful that there will be good sanction and disbursement in MSME during the second half of the year.
Sir, one thing, your slippage ratio has touched a two-year high. You know, in the second quarter, credit costs are also rising. This is also impacting asset quality. I mean, it's not just the Union Bank of India. We are seeing this trend taking place across the banking sector.
I just wanted your sense on that. Would you say that good asset quality numbers are kind of behind us now and how do you see asset quality the trend going forward from hereon, given that the whole economy is witnessing a slowdown?
Nitesh Ranjan: First of all, you look at our guidance for the gross NPA, which is for 4% and we are moving towards that continuously, we are bringing down the gross NPA quarter after quarter and this quarter, it is 4.36%.
Secondly, I think from our bank data, I can tell you we are not seeing any kind of, you know, serious asset quality concern for any book in the bank. Yes, there was a large account, which we had highlighted during the Q1 concall also and that is a stress and that stress has actually materialised and that account turned NPA, that is why the delinquency ratio, credit cost, everything looks higher for the quarter.
But if you remove that one large account, I think delinquency as well as the credit cost either in line with what we have reported in Q1 or in fact, better than that.
Sir, I understand that unsecured retail book exposure is not as high for Union Bank of India. If you could just throw some light on what other segments are leading to the rise in slippages?
Nitesh Ranjan: So if you look at the numbers for Q2 even compared to sequential basis Q1 in fact, there is decline in the new slippages in retail, Agri, as well as in MSME. Only in the corporate there is an increase and as I said, that is because of the one large account. Otherwise, we have not seen any increase in the slippages.
In fact, if you remove that one large account, then the slippage for the quarter, for Union Bank of India is around Rs 1,800 crores, which even compared to Q1 is lower, which was around Rs 2,100 crore and previous year itself, it was little higher. So actually, we are seeing stability at the current level of, you can see, on an average Rs 2000 crores of slippages per quarter.
