Mumbai: Public sector Union Bank of India’s quarterly net profit jumped almost 130%, helped by a reversal of Rs90 crore in employee pension payment provisions, a write-back of a tax provision related to a venture fund and a boost in non-interest income.
The bank’s fourth quarter net profit increased to Rs521.13 crore from Rs228.58 crore a year ago. Its non-interest income, which is treasury and fee-based income, rose 28.51% to Rs311 crore.
The bank decided to reverse the pension liabilities of Rs30 crore it had provided in each of the three preceding quarters, as it provisioned its entire pension liability of Rs350 crore through accumulated reserves in the fourth quarter.
Under pension liability norm AS-15, an international accounting standard that came into effect in fiscal 2008, banks have to provide for the amount either at one go or in equal tranches over five years.
“Since our balance sheet was strong this year, we decided to provide the entire amount from our reserves. So, from next year, we won’t be taking aside Rs30 crore in each quarter from our profit,” said Union Bank of India chief financial officer Nirupam Mehta.
Operating profit increased 17.41% to Rs890 crore.
The bank’s stock rose 0.67% to Rs173.45 at close on the Bombay Stock Exchange.
Meanwhile, its tax provisions decreased to Rs4.37 crore from Rs21.4 crore due to a write-off of Rs17 crore related to a venture fund.
However, net interest margin, a measure of a bank’s returns in its core business of borrowing and lending, fell 2.75% from 3.52% in the year-ago period, as cost of capital increased to 6.38% from 5.48%.
“Going forward, margins are not going to be very high in the industry,” M.V. Nair, the bank’s chairman and managing director, said. “We would be happy to maintain anything between 2.80-3.00%,” he said.
Nair said the bank doesn’t enter into exotic derivatives transactions.
The bank’s net interest income fell marginally to Rs833.91 crore from Rs842.35 crore because, Nair said, about Rs10,000 crore of the bank’s deposit acquired last year was redeemed in the fourth quarter. There was a “virtual scramble for deposits” last year, he said.
The bank’s net non-performing assets, as a percentage of advances, fell to 0.17% from 0.96% a year ago.
Mehta said the bank has a headroom of Rs4,000 crore to raise debt for its tier II capital. It has also requested the government for a rights issue and is awaiting its response. The lender cannot raise capital through the dilution of equity as the government has only 55% stake in it.
Total deposits as on 31 March rose to about Rs1.04 trillion from Rs85,180 crore a year ago. Advances grew 19.20% to Rs75,878 crore.
Union Bank reduced interest rates on its home loans of Rs20-30 lakh by half a percentage point to one percentage point, depending upon various tenures, effective 9 May.