Union Bank Q1 results: Net profit drops 13%; to sell stake in IndiaFirst Life

Mumbai: Union Bank of India‘s (UBI) net profit fell 13% to Rs 333 crore in the quarter ended June 2020 from Rs 381 crore a year ago as provisions increased, loan growth was flat and other income dropped. The bank said that the year on year numbers were not strictly comparable because Andhra and Corporation Bank were merged into UBI only in April.

UBI has decided to sell the 30% stake it got in IndiaFirst Life Insurance company after it took over Andhra Bank in April and will do so before the end of the fiscal year, CEO Rajkiran Rai said. “We expect to raise Rs 900 crore to Rs 1000 crore through this sale,” he said.

UBI already has a stake in Star Union Dai-Ichi Life Insurance Co which it plans to retain.

Rai also said UBI plans to raise up to Rs 10,300 crore of capital out of which Rs 1000 crore to Rs 1500 crore will be raised by selling Tier 1 bonds as soon as next month.

In the quarter ended June 2020, the bank’s total provisions increased 5% to Rs 3701 crore from Rs 3538 crore last year led by a rise in provisions for non performing assets (NPAs). The bank has made Rs 142 crore of additional provisions over and above the RBI regulations.

Total advances increased just 2% to Rs 6.50 lakh crore from Rs 6.37 lakh crore a year ago. Other income fell 23% to Rs 1462 crore mainly due to a drop in NPA recoveries and fee income during the quarter.

Rai said 35% of the bank’s loans to individuals are under moratorium and the bank will reach out to customers starting next week to assess how many of them want their loans to be restructured.

“We do not expect any big restructuring in these accounts because 60% of them are mortgage backed and many of these customers must have taken the moratorium just to conserve cash,” Rai said.

About 25% of the bank’s loans to companies are under moratorium and Rai expects that loans to medium sized companies of between Rs 100 crore and Rs 1000 crore will be needing restructuring as they will be hit hardest. Gross NPAs of the bank dropped to 14.95% from 15.59% a year ago.

“Larger companies are better placed and will not require restructuring,” Rai said.

Rai expects the bank’s loan growth to pick up to 6% to 7% from 3% to 4% in the first half in line with the economic recovery.