Union Bank reports Rs 12.5 bn loss in Dec quarter, asset quality weakens

Lower other income and operating income, and higher provisions dented profitability, but good growth in interest income restricted losses

Front-loading of provisions for the NCLT accounts led state-run Union Bank of India today reported a net loss of Rs 12.5 billion in the December quarter as against a net profit of Rs 1.04 billion a year ago.

In the September quarter also, the city-based lender had reported a massive Rs 15.31 billion losses.

The bank's bad loan provisions for the quarter jumped to Rs 25.21 billion from Rs 15.82 billion a year ago as its gross non-performing assets rose to 13.03 per cent from 11.70 per cent, and net NPAs inched up to 6.96 per cent from 6.95.

Another reason for the higher losses is the additional provisions worth Rs 14 billion.

"Losses include investment depreciation of Rs 7  billion (treasury losses) and provision of Rs 9.91 billion for the second list of the accounts referred to the NCLT.

"Even though we had an opportunity to spread the provisions for accounts in the second RBI list for the two quarters, we took an upfront provisioning during this quarter," managing director and chief executive Rajkiran Rai told reporters here today.

The bank has exposure in 18 of the 28 large stressed accounts mentioned in the second RBI list, which totals around Rs 1.5 trillion in bad assets for the system.

During the quarter the bank's treasury income dropped significantly to Rs 1.55 billion due to the recent surge in bond yields. It had booked a treasury gain of Rs 8.22 billion in the year-ago period.

"On an average, we used to earn Rs 5-6 billion from treasury and this quarter it's almost nil. We're not factoring in a huge benefit from treasury income in the fourth quarter either," he added.

On a positive note, its domestic net interest margin improved to 2.34 per cent from 2.04 in the year-ago period.

The fresh slippages increased to Rs 41.87 billion from Rs 32.94 billion due to one account--Reliance Communication-- which was under strategies debt restructuring but turned NPA towards the end of the reporting quarter.

The bank also reported divergences in NPAs and provisions of Rs 1,400 crore during the quarter. "We had a total divergence of Rs 28 billion for March 2017. Of that, 50 per cent was taken in June and September quarters and the rest Rs 14 billion was set aside in Q3," he said.

Its recovery and upgrades stood at around Rs 7 billion and it expects Rs 10 billion more recoveries both from written-off accounts and other NPAs during the March quarter.

The bank sold one account of Rs 70 million to asset reconstruction companies in the quarter and put on sale Rs 80 billion of NPAs in the fourth quarter.

In January, the bank sold its entire 10 per cent stake in Experian Credit Information Company for Rs 820 million. It is also looking to raise Rs 30 billion from sale of non-crore assets in the current quarter.

The bank has raised Rs 20 billion through qualified institutional placement and will be receiving Rs 45.40 billion infusion from recapitalisation plan announced by the

government.

Domestic business grew 7.5 per cent to Rs 6.72 trllion, while deposits grew by 4.9 per cent.