Mumbai: Mumbai-based Union Bank of India and Central Bank of India showed visible stress in their fourth-quarter profits as they set aside money for pension payments.
While Union Bank’s profit of Rs597 crore was little changed from a year ago, Central Bank’s profit dropped 22.4% to Rs132.7 crore.
Union Bank set aside Rs330 crore for pension liabilities towards its retired employees as a one-time item.
Overall, the bank provided Rs779 crore in the quarter towards pension and gratuity for its retired and existing employees.
Central Bank of India set aside Rs295 crore in the quarter towards pension payments.
Stocks of both the lenders rose as investors discounted the one-time items and booked profits.
Bank stocks had declined after the Reserve Bank of India raised its policy rates by 50 basis points (bps) earlier this week.
One basis point is one hundredth of a percentage point.
Central Bank stocks rose nearly 2% to end at Rs129.90 a piece on the Bombay Stock Exchange on Friday. Union Bank shares gained 10% to Rs319.65.
An analyst based in Mumbai said both the stocks are cheaper than those of their peers and investors were also enthused by the fact that banks are raising their lending rates.
Union Bank raised its lending rate by 50 bps on Friday. Central Bank is set to hike its rate soon, its officials said.
The banks also fared well in their net interest margins (NIMs), a key measure for profitability. Union Bank of India’s NIM for the quarter was 3.44%, up from 3.39% a year ago. Central Bank’s NIM rose to 3.47% from 1.81% earlier.
Union Bank’s bad debts after provisioning, or net non-performing assets (NPA), stood at 1.19% of its advances, against 0.81% a year ago. Union Bank’s chairman and managing director M.V. Nair said the asset quality will improve in the coming quarters, even as rates are on the rise and the economy is slowing, because the bank’s legacy accounts that showed higher bad debts this year are mostly out of its books. The bank now has in place a strong recovery system, he said.
Central Bank’s net NPA was at 0.65% compared with 0.69% a year ago.