Policy rate cut to put more pressure margins: Union Bank of India MD & CEO

Union Bank Q4 profit rises 50.57 per cent year-on-year, but net interest margin dips to 2.87 per cent as RBI repo rate cuts begin to impact lending margins

Policy repo rate cuts by the Reserve Bank of India (RBI) may put further pressure on the net interest margin (NIM), A Manimekhalai, managing director and chief executive officer of Union Bank of India, said on Friday.

 

The state-run lender, which announced its earnings on Friday, reported a 50.57 per cent year-on-year (Y-o-Y) rise in net profit to ₹4,984 crore for the fourth quarter of FY25, driven by strong growth in non-interest income. The NIM fell to 2.87 per cent in Q4FY25 from 3.03 per cent in Q4FY24, due to a 25 basis points (bps) policy repo rate cut by the RBI in February. The central bank further reduced the repo rate by 25 bps in its April meeting, and the market expects more rate cuts during 2025.

 

“Policy rate cuts by the Reserve Bank of India are anticipated to exert downward pressure on the bank’s NIM in the near term. It is a little volatile and a fluid state, so I should not be able to give any kind of policy guidelines on NIM,” said Manimekhalai.

 

She further said that the benefit of a rate cut is realised faster for repo rate-linked loans, whereas it takes more time for deposits and marginal cost-based lending to reprice. Around 29 per cent of the bank’s loan book is linked to the external benchmark-linked rate, and 44 per cent is linked to the marginal cost-based lending rate (MCLR). Within the MCLR book, around ₹2.96 trillion—about 67 per cent—is linked to a one-year tenure, which will see repricing over the next year, said the management. Going forward, a dip of around 5–10 bps is expected on MCLR rates, the bank said.

 

Though the bank did not provide guidance for loan growth, executives said it had sanctioned corporate credit worth ₹63,000 crore. “There is fine pricing happening, posing a challenge to grow the corporate loan book,” the bank said.