Union Bank of India — Q1 FY26 earnings call

Call held 19 Jul 2025

Management summary

Union Bank delivered steady Q1 performance while managing the impact of rate cuts and regulatory changes. The bank strategically reduced bulk deposits to protect margins and focused on growing RAM segments. Asset quality remained strong with recoveries exceeding slippages. However, PSLC income was impacted by regulatory changes affecting agricultural gold loan classification.

Highlights

  • Net profit grew 12% Y-o-Y to INR 4,116 crores with ROA maintained above 1% at 1.11%

  • Strong RAM segment growth: Retail 26%, MSME 18%, overall RAM grew 10.3%

  • Strategic bulk deposit reduction of 7% from March to June to protect margins

  • NIM moderated 11 bps to 2.76% due to immediate EBLR repricing on 48% of portfolio

  • Asset quality improvement with slippage ratio below 1% and gross recovery exceeding slippages

  • No PSLC income in Q1 vs INR 950 crores last year due to regulatory changes on Agri gold loans

  • Union Bank ranked 3rd among PSBs in EASE program for FY'25

Concerns

  • PSLC Income Loss

Key financials

  1. Net Profit Q1 FY'26 ₹4,116 Cr +12%YoY
  2. ROA 1.1%
  3. ROE 15%
  4. NIM 2.8%

What they filed

Q1 FY27: revenue up 1.1%, net profit up 29.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue26,708 26,544 27,695 26,919 26,191 −2%26,443 −0%26,439 −5%27,203 +1%
Net profit4,720 4,604 4,985 4,116 4,249 −10%5,017 +9%5,316 +7%5,332 +30%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

NIM

  • Net Interest Margin NIM · FY'26 · High confidence 20-25 bps decline for full year
    Around 20-25 basis point impact on the margins... 20-25 basis points moderation in NIM over March 25 is expected during the current year

    — Nitesh Ranjan

  • NIM Bottom Range NIM · Near-term · Medium confidence 260-265 bps minimum level
    Maybe somewhere between 260 to 265 is the range where we can hit at the minimum level. And from there, we should be able to bounce back

    — Sanjay Rudra

Profitability

  • Return on Assets Profitability · FY'26 · High confidence Above 1%
    This year also, we will aim to have an ROA which is above 1%

    — Nitesh Ranjan

Credit Growth

  • RAM Segment Growth Credit Growth · Next few quarters · High confidence Double digit growth
    Directionally, we expect that this double digit RAM growth rate should be possible over the next few quarters also

    — Nitesh Ranjan

MCLR

  • MCLR Reduction MCLR · Next 6 months · Medium confidence 25-35 bps further reduction possible
    Over the next 6 months, 25-35 basis points, further reduction in MCLR is possible

    — Nitesh Ranjan

Income

  • Interest on Tax Refund Income · FY'26 · High confidence Close to INR 500-1,000 crores
    We are quite comfortable in terms of being close to Rs. 500-Rs. 1,000 crores mark

    — Avinash Prabhu

Risks & concerns

  • PSLC Income Loss

    high

    Loss of INR 950 crores PSLC income due to RBI guidelines on agricultural gold loans under INR 2 lakh

    Exploring alternatives

  • NIM Compression

    medium

    48% EBLR portfolio causing immediate yield impact while deposit repricing lags

    Managing through repricing lag

  • Loan Growth Deceleration

    medium

    Credit growth slowed to 6.8% Y-o-Y as bank focuses on margin protection

    Prioritizing margins over growth

  • SMA Levels Increase

    medium

    SMA-2 increased from INR 1,200 crores to INR 2,600 crores

    Monitoring with government support expected

  • Recovery Performance Decline

    medium

    Cash recovery halved to INR 790 crores from INR 1,600 crores last quarter

    Expecting improvement in q2

Q&A highlights

5 direct, 1 evasive
Overall Bank Performance and Strategy Evasive
There is nothing wrong with Union Bank of India... we have to trade-off between the margin and your growth. We are trying to manage both the things

Management defending strategy of prioritizing margins over growth amid challenging environment

Asked by Ashok Ajmera from Ajcon Global

Treasury Income and PSLC Impact Direct
Last June '24, we had a PSLC income to the extent of Rs. 950 crores... this year, since the opportunity was not available, so that profit is not added here

Clarifies major impact of missing PSLC income on operating profit comparison

Asked by Ashok Ajmera from Ajcon Global

Deposit Repricing and NIM Bottom Direct
Close to 20% of the retail term deposits would have got repriced as of now... somewhere between 260 to 265 is the range where we can hit at the minimum level

Provides specific guidance on NIM trajectory and repricing status

Asked by Mahrukh Adajania from Nuvama

Standard Asset Provisioning for ECL Direct
Some of the assets which we felt that where the ECL was not implemented, there is no overdue as on date, but we were required to maintain a higher provision

Explains INR 446 crores standard asset provisioning for ECL preparation

Asked by Jay Mundra from ICICI Securities

PSLC Impact from Agri Gold Loan Changes Direct
RBI came out with a guideline that up to Rs. 2 lakh loan cannot have any collateral security and Gold is also, considered to be the collateral security... Because of that we were not able to sell any PSLC in the 1st quarter

Detailed explanation of regulatory impact on PSLC income

Asked by Rakesh Kumar from Valentis Advisors

Gold Loan Portfolio and Growth Direct
Today, we have around Rs. 83,700 crores in the gold loan book as of 30th June... June 24 it was around Rs. 78,000 crores

Quantifies significant gold loan portfolio and growth trajectory

Asked by Gaurav Jani from Prabhudas Lilladher

1 min read 5 chapters

Detailed narrative

Rate Cut Impact Management

Union Bank faced immediate impact from 100 bps repo rate cut with 48% EBLR portfolio repricing instantly while deposit repricing lagged. NIM declined 11 bps to 2.76% in Q1 with management guiding 20-25 bps full-year decline and minimum level of 260-265 bps before recovery.

Strategic Bulk Deposit Reduction

Bank strategically reduced bulk deposits by 7% from March to June while maintaining comfortable CD ratio of 76%. This trade-off between growth and margins helped protect profitability amid competitive rate environment. Retail term deposits showed strong 12% Y-o-Y growth.

PSLC Income Loss Impact

Major impact from loss of INR 950 crores PSLC income due to RBI guidelines preventing collateral for agricultural loans under INR 2 lakh. This affected overall operating profit comparison. Management exploring alternative fee income sources to compensate.

Strong RAM Segment Performance

Retail, Agriculture, and MSME segments delivered robust 10.3% Y-o-Y growth with retail at 26% and MSME at 18%. Gold loan book grew to INR 83,700 crores from INR 78,000 crores. RAM portfolio maintained 56% share as guided.

Asset Quality Resilience

Asset quality remained strong with slippage ratio below 1% and gross recoveries exceeding slippages. However, SMA-2 increased to INR 2,600 crores and recovery performance was muted in Q1. Bank took INR 446 crores standard asset provision for ECL preparation.

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