Union Bank of India's slippages were Rs 23.5 billion (1% of loans), lower than the previous quarter and our estimate. They were range-bound across segments with notable improvement in agri.
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Anand Rathi Report
Lower margins and weaker non-interest income led to Union Bank of India's operating profits degrowth. Yet, its cost/income was below 50%, suggesting decent overall operating performance.
Headline asset quality and provision coverage ratio improved. Key positives were:
modest slippages (1% of loans),
lower stress formation (SMA at 0.5% of loans),
decent traction in the retail/MSME books (up 5.7%/5.9% QoQ) and
15%+ RoE now for 10 straight quarters.
We expect the bank to deliver a sustainable, ~14%, RoE in the medium term.
We retain our Buy rating, with a 12-mth target price of Rs168, 0.9x price/adjusted book value on the FY27e book.
Risks:
Lumpy slippages in the corporate book; less-than-expected credit growth.
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