State-owned lender Union Bank of India Ltd. reported a higher-than-estimated loss in the July-September quarter as it front-loaded provisioning for accounts facing insolvency action.
The lender reported a net loss of Rs 1,531 crore in the September-ended quarter, according to an exchange filing. That's more than 10 times the Rs 129 crore that analysts tracked by Bloomberg had estimated.
The surprisingly high loss came after Union Bank increased doubled provisions for bad loans sequentially to Rs 3,554.6 crore. This includes Rs 1,566 crore for the 11 accounts facing insolvency and bankruptcy proceedings at the National Company Law Tribunal.
“The RBI had allowed banks to spread provisions on NCLT accounts over three quarters, but we took board approval to front-load it,” said Rajkiran Rai, managing director and chief executive officer of Union Bank. The bank now has to make provisions worth Rs 1,080 crore in the December and March-ending quarters for the 18 accounts in RBI's second list of accounts that need urgent resolution.
If we had not front-loaded the provisions this quarter, we would have reported a Rs 500 crore loss.Rajkiran Rai, MD & CEO, Union Bank
Gross bad loans for the public sector lender narrowed to 12.35 percent from 12.63 percent of the total assets sequentially. Even net non-performing assets contracted 80 basis points to 6.7 percent. Rai expects the gross bad loan number to fall below 6 percent by the end of fiscal 2018.
Union Bank will need around Rs 3,500-4,000 crore of capital this year, he said adding that the lender is "closely" watching the market situation and appetite for various instruments to decide on how to raise these funds.
On the government's Rs 2.11 lakh crore recapitalisation plan for weak state-owned lenders, Rai said that they are still waiting to hear the specifics of capital infusion from the Centre.
Other Highlights
- Net interest income rose almost 2 percent to Rs 2,320.7 crore year-on-year.
- Provision coverage ratio rose to 56 percent from 51.1 percent in the previous quarter
- The lender had a capital adequacy ratio of 11.22 percent compared to 12.01 percent in the previous quarter.
- Domestic net interest margin narrowed sequentially to 2.19 percent from 2.2 percent
Shares of Union Bank closed 1.43 percent higher, ahead of the results, while the benchmark S&P BSE Sensex ended trade up 0.33 percent.
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