SME lending helps Union Bank post 35% growth in net profit

SME lending helps Union Bank post 35% growth in net profit
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First Published: Tue, Jul 24 2007. 01 11 AM IST
Updated: Tue, Jul 24 2007. 01 11 AM IST
Mumbai: Buoyed by good loan growth to small and medium enterprises (SMEs) and the farm sector, Union Bank of India (UBI) on Monday announced a 34.73% growth in net profit for the quarter ended June to Rs225 crore, up from Rs167 crore in the comparable period last year.
The share price of the public sector lender closed at Rs155.65 on Monday, up 4.67% from its previous close on the Bombay Stock Exchange.
UBI chairman and managing director M.V. Nair said the bank’s thrust areas remained SMEs, agriculture and retail.
“We (will) continue to focus on these businesses for the rest of the year. We have centralized credit processing for SMEs and retail, and expect this to translate into better business growth for the forthcoming quarters,” he added.
SMEs contributed 31.14% to the credit growth of the bank, agriculture, 24.6% and retail, nearly 16% in the quarter.
The bank has also improved its net interest margin (NIM), or the difference between the cost of loans and the interest rate on deposits, to 3.11% from 2.94% in the three months to June 2006.
The net interest income of the bank registered a growth of 21.42% to Rs771 crore from Rs635 crore a year earlier.
“We have been able to improve our interest income by rebalancing our credit portfolio and focus on growing the loan book through high yielding assets,” Nair said.
Vishal Shah, a banking analyst with IL&FS Investsmart, a domestic brokerage, said UBI still looked expensive on valuation when compared to its peers such as Indian Bank.
“Although the bank seems to be growing well, its growth is still based on high-cost deposits,” he added.
UBI is making efforts to reduce the ratio of high-cost bulk deposits and increase the current and savings accounts (Casa), or low-cost deposits.
It aims to increase the ratio of Casa deposits to 36% from the current 33% of its total deposits by March 2008, and then to 40% by 2010.
The public sector lender has also decided to reduce the rate of interest on one-to-three years deposits by half a percentage point from 9.5% to 9%. Banks pay 3.5% interest on savings accounts and zero interest on current accounts.
UBI is also focusing on managing its bad assets. It has reduced it gross non-performing assets (NPAs) to Rs1,769 crore from Rs1,979 crore a year earlier.
In percentage terms, the gross NPA level has come down to 2.78% from 3.55% a year ago. The bank plans to bring the NPA level below 2% in the current financial year.
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First Published: Tue, Jul 24 2007. 01 11 AM IST