Union bank disappoints with Q2FY12 result

Union Bank of India – Disappointing Q2 FY12 Numbers

Union Bank of India (UBI) disappointed markets, posting unanticipated Q2 FY12 numbers. Its Net Profits increased 16% to Rs 352.53 crore. However, the bank’s asset quality deteriorated substantially. Its Gross NPAs increased by 70 basis points to 3.49%, while its Net NPAs increased by 0.86 basis points to 2.04%. The scrip tanked 11.56% yesterday to touch Rs 212.20.

The following are the key parameters of the bank’s financials:

Key Financials

According to the RBI, the bank should identify its NPAs through a system generated process as these were resulting in deteriorating asset quality. UBI’s Net Interest Margin (NIM) decreased by 14 basis points to 3.21% on a YoY basis. However, this was up by 10 basis points if compared quarterly. The bank’s Return on Assets remained stable at 0.64%. Its Capital Adequacy Ratio (CAR) increased marginally by 0.01% on a YoY basis, at 12.54%. Of this, its Tier I CAR stood at 8.54%.

UBI’s total deposits increased by 10% to Rs 195572 crore, while advances grew by 16.50% to Rs 147284. CASA deposit grew by 8% to Rs 62754 crore, and the ratio stood at 32.09%. Its profits from treasury operations decreased by 58% to Rs 164.49 crore, on account of the weak bond market. Strong retail demand helped the retail segment post a strong profit growth of 498%, at Rs 273 crore.

The management expects the loan book to grow at 18% for the fiscal, which is below the RBI’s credit growth projection of 19%. They also expect the NIM to remain stable at 3.2% and the asset quality to improve further here on.

We, at DSIJ, believe that UBI has posted very bad numbers. When we look at other banks’ results, we see that their asset quality has improved (Net NPAs of DCB improved by 0.89 basis points to 0.97%, those of ING Vysya Bank improved by 0.50 basis points to 0.31% and those of HDFC Bank improved by 0.10 basis points to 0.2%).Today, the scrip is trading 0.52% higher at Rs 213.30. We would advise our readers to stay away from the counter, even though the scrip has been beaten down a lot. Those who have already invested should hold the scrip.