Markets
Union Bank’s Q2 positives are priced into valuations
Summary
The public sector lender reported a net profit of ₹1,526 crore for the September quarter, which is nearly twice that of the corresponding quarter of FY21, and 30% up on a sequential basis
Union Bank of India’s September quarter performance leaves much to be desired, when seen in the context of the surge in the lender’s shares over the past one month.
The public sector lender reported a net profit of ₹1,526 crore for the September quarter, which is nearly twice that of the corresponding quarter of FY21, and 30% up on a sequential basis. Its operating profit growth was a healthy 26% on a year-on-year basis. That said, the bank’s core interest income growth was a modest 8% from the year-ago period. In fact, it showed 2.6% drop from the previous quarter. In essence, the profits were supported by a one-off large recovery of nearly ₹1500 crore during the quarter.
To be sure, the bank reported a decent improvement in asset quality, too, partly because of the recovery from Dewan Housing Finance Corp. Ltd, besides others. Its recovery and upgrades were up by a stellar 75% with the stock of bad loans dipping 16%. As a result, the gross bad loan ratio fell to 12.34% from 14.71% a year ago. The bank expects its recoveries and upgrades to total ₹16,000 crore for FY22.
That said, most of the positives have already been captured by the 31% rise in the bank’s share price in the past one month.
That brings us to its balance sheet growth. Here, Union Bank has little comfort to offer. Granted, growth in retail loans is in double digits. The ongoing festive season has also prompted individuals to borrow to fund their purchases of homes or consumer goods. Be that as it may, the bank’s overall loan book shrank by about 3%.
Until the corporate loan book grows, the lender is unlikely to see its book expand which would be an overhang on its core interest income.
