Union Bank net down 13% on higher NPA provisions

The bank's stock closed lower by 5.2% on Tuesday, at Rs 238 on BSE

Government-owned Union Bank of India's net profit fell by 13.2% for the quarter ended December 2014 to Rs 302 crore, on higher provisions for stressed loans.

The stock closed lower by 5.2% on Tuesday, at Rs 238 on the BSE.

The performance (net profit) was 19% below estimates due to high provisions for non-performing assets (NPAs). The asset quality had deteriorated, broking outfit Emkay said a note to investors.

Reflecting sluggish growth in credit demand, it posted an eight% rise in net interest income to Rs 2,122 crore. The net interest margin was stable at 2.5% from the same period a year before but declined compared to the earlier quarter's 2.53%.

Global deposits rose 9.8% in 12 months to Rs 312,912 crore.

The share of low-cost current and savings account deposits was stable at 28.7%. Global advances increased 8.9% to Rs 248,099 crore. Arun Tiwari, chairman and managing director, said the demand for loans was expected to grow in the current quarter.

Gross NPAs were 5.08% in December, up from 4.69% in September 2014 (and from 3.85% in December 2013). The bank also restructured loans worth Rs 1,212 crore. The pipeline for restructured loans is about Rs 1,500 crore in the quarter ending March 2015, said executive director Rakesh Sethi.

Tiwari said the gross NPAs rose on two counts. Credit had not grown as expected since the economy was yet to pick up. The cement, construction and sugar industries continued to show stress.

The provision for NPAs was Rs 674 crore, up from Rs 497 crore in the same quarter a year before. The provisions for restructured accounts jumped to Rs 106 crore from Rs 33 crore. Employee costs rose to Rs 966 crore, up from Rs 810 crore a year before.

The capital adequacy ratio under Basel-III norms was 10.3%, with tier-I capital at 7.32%.