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    Union Bank (I)

    UNIONBANKNeutral
    Financial Services·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

    7

    • 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

    1

    • PSLC Income Loss

    What Changed2

    vs Q2 FY26

    Tone shiftconfident and forward-looking → defensive but confidentRisks discussed4 → 5 (+1)

    Key financials

    Single quarter

    04 metrics
    1. 01Net Profit Q1 FY'26₹4,116 Cr+12%YoY
    2. 02ROA1.1%
    3. 03ROE15%
    4. 04NIM2.8%

    Guidance & targets

    6
    CategoryTargetPriority
    NIM
    Net Interest Margin
    20-25 bps decline for full year
    		High
    NIM
    NIM Bottom Range
    260-265 bps minimum level
    		Medium
    Profitability
    Return on Assets
    Above 1%
    		High
    Credit Growth
    RAM Segment Growth
    Double digit growth
    		High
    MCLR
    MCLR Reduction
    25-35 bps further reduction possible
    		Medium
    Income
    Interest on Tax Refund
    Close to INR 500-1,000 crores
    		High

    Risks & concerns

    5
    RiskSeverity

    PSLC Income Loss

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

    high

    NIM Compression

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

    medium

    Loan Growth Deceleration

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

    medium

    SMA Levels Increase

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

    medium

    Recovery Performance Decline

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

    medium

    Q&A highlights

    6

    “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

    1 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.