Higher Provisioning Hits Union Bank Q3 Net Profit

Published: 28th January 2015 06:01 AM  |   Last Updated: 28th January 2015 06:01 AM   |  A+A-

MUMBAI: Union Bank of India’s net profit declined 13.2 per cent to Rs 302 crore in the three months to December 31, compared with Rs 349 crore in the year earlier period as the lender made higher provisions for rise in gross non-performing assets (NPAs), and other provisions.

Union-Bank.jpgThe bank made provisions of Rs 852 crore in the December ending quarter compared with Rs 610 crore in the year-earlier period. The bank had to also make provisions for pension and likely wage increases of employees. Unions are currently in discussions with the Indian Banks’ Association on wage settlement.

Yet, the bank’s operating profit before making these provisions was better at Rs 1,465 crore compared with Rs 1,262 crore.

The silver lining on the bank’s performance was its reliance on three segments – retail, agriculture and MSMEs, which the bank internally calls them as RAM sectors. RAM sectors today account for about half of all its loans compared with 42 per cent a year earlier, said its Chairman and Managing Director Arun Tiwari.

“During the past four quarters each of these segments have been growing between 26-30 per cent,’’ said Tiwari.

Senior officials of the bank see the lender depending on the RAM sectors to provide growth in the coming years as they are among the fastest growing segments of Indian economy, and also account for lower NPAs, quite in contrast with large corporates.

Still, Clyton Richard Fernandes, a senior analyst with Emkay Global Financial Services rates the stock as a ‘Sell’ because of its modest fees income, robust treasury gains and lower productivity. He expects weak asset quality, and low capital adequacy to constrain the bank from profitability ahead. The bank’s shares fell 5.25 per cent to Rs 238.20 on the Bombay Stock Exchange.

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