Mumbai: Public sector Union Bank of India reported a 42% rise in its July-September quarter on higher non-interest income.
Net profit for the second quarter rose to Rs275.78 crore compared with Rs194.16 crore in the year-ago period. Non-interest income registered a 77.12% growth over the year-ago quarter to Rs271 crore.
The Union Bank stock rose 3.38% to close at 160.80 on the Bombay Stock Exchange.
The bank’s chairman M.V. Nair said he sees the growth in the fee-based interest income sustainable in the coming quarters. “We have been doing this from the last two quarters, so we expect to sustain this growth (in fee-based income),” said Nair.
However, the bank’s net interest margin, which is a measure of a bank’s returns in its core business of borrowing and lending, fell year-on-year to 2.56% from 2.76% for the July-September quarter. The bank cited the industry-wide increase in rate of interest on term deposits, which resulted in an increase in cost of deposits of the bank leading to the shrinkage in the net interest margin.
Current account deposits, for which banks do not pay any interest, rose nearly 30%. The bank is projecting maintaining growth in the current portfolio between 30% and 35%.
The average savings bank deposits of the bank grew at 14.32%.
Effective from 24 October, Union Bank also reduced one-year term deposit rate to 8.25% and interest rate on three to five years tenure to 8.75% from 9%.
Operating income for the second quarter increased to Rs2,254.83 crore against Rs1,772.37crore in the year- ago quarter.
The bank’s capital adequacy ratio, or the ratio of a bank’s capital to its risk-weighted assets, a key indicator to its financial strength, stood at 11.55% as against 10.79% a year ago.
The Reserve Bank of India requires a bank to maintain capital adequacy ratio of 9%. Union Bank’s net non-performing assets, or bad debts, fell to 0.65% from 1.24% in the year-ago quarter.
The bank’s executive director R.S. Reddy said depending upon the market situation, the bank plans to raise bonds by the end of this fiscal year to maintain a capital adequacy ratio as required by Basel II Capital Adequacy Norm.
Nair said there would not be any equity dilution to raise capital.
By the end of this fiscal year, Nair is projecting a deposit growth of 23% and a 25% growth in advances.