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Union Bank of India Ltd
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Ladies and gentlemen, good day, and welcome to the Union Bank of India Earnings Conference Call for the period ended September 30, 2022. The bank is represented by the Managing Director and CEO, Ms. A. Manimekhalai; Executive Directors, Sri Nitesh Ranjan; Sri Rajneesh Karnatak; Sri Nidhu Saxena and other members of the top management. [Operator Instructions] Please note that this conference is being recorded.
Now I hand over the call to Ms. Ranjita Suresh, Assistant General Manager, Investor Relations. Thank you, and over to you, madam.
Good afternoon, ladies and gentlemen. I am Ranjita Suresh, Head of Investor Relations, welcome you all for the Union Bank of India Earnings con call for the period ended September 30, 2022. The structure of the con call shall include a brief opening statement by MD and CEO, and then the floor will be open for interaction.
Before getting into the con call, I'll read out the usual disclaimer statement. I would like to submit that certain statements that may be discussed during the investor interaction may be forward-looking statements based on the current expectations. These statements involve a number of risks, uncertainties and other factors that cause the actual results to differ from the statements. Investors are, therefore, requested to check the information independently before making any investment or other decisions.
With this, I now request your MD and CEO for her opening remarks. Thank you. Over to you, ma'am.
Good afternoon to all of you. At the outset, let me wish you all a happy Diwali. Today, we have come out with our results and coming to the Union Bank's business and financials for the quarter ended September 30 for FY 2023. The branch has continued to post strong financials as the total business has grown by 17.33% Y-o-Y.
The total advances registered a growth of 21.92%. Within that, the RAM sector has grown by 14.45%. And domestic advances standing at 54.57% as against the corporate credit of 46%.The total deposits has grown by 14.14% Y-o-Y led by CASA deposit growth of 9.42% Y-o-Y. The CASA ratio has -- is standing at 25.63% as of September 30, 2022.
The net interest income grew by 21.61% of Y-o-Y. The NII stood at INR 305 crores and the global NIM is 3.15% for the quarter ended FY 2023. The operating profit of the bank has improved by 8.29% Y-o-Y to INR 6,577 crores. And the net profit is at INR 1,848 registering a growth of 21.07%.
The asset quality of the bank has improved. The gross NPA ratio stands at 8.45%, and the net NPA stands at 2.64%, which is 197 basis points over September 2021.
The CRAR has improved to 13.64% -- from 13.64% to 14.5%. And the return on assets is also at 0.61%. As you are aware, The bank has brought many structural changes in the existing setup by way of introduction of various STP journeys, MSME and retail segment. We have also introduced specialized branches, corporate relations sales and various other initiatives have been taken by the bank to increase the business and to increase the footsteps to the bank.
With this, we have also -- if you remember, that we have given guidance for the financial year 2023. And let me reiterate the guidance. The deposit growth was to the extent of about 10% for FY '23; advances growth in the range of 10% to 12%; CASA ratio in the range of 37%; NIM to be around 3%; credit cost at 1.7%; delinquency ratio at less than 2%; and gross NPA, less than 9%; and NPA at less than 3%.
These are my opening remarks, and we are now open for Q&A session. Thank you.
[Operator Instructions] The first question is from the line of Ashok Ajmera from Ajcon Global Services.
Thank you, ma'am, for giving this opportunity, and compliments to you for coming out with good set of numbers and almost on every parameter. Having said that, I've got a couple of observations, questions and some clarification.
My first clarification I would like to have, it is on the taxation front, which Mr. Samal, can elaborate. This total note, note #14, the reverse GPA of INR 1,436 crores and then reversal of the provision of taxation of earlier years of INR 607 crores. So in nutshell, during this quarter, how much amount is impacted in the provision for taxation and in other provisions? Can you please give this clarification, ma'am?
You are first. You have, at least, a total of the tax of INR 1,436 crores within the quarter. To be clear…
Sorry to interrupt you, sir. The audio is not clear from your line.
Who's line? My line? Or Mr. Samal's line?
Mr. Samal's line.
Mr. Ajmera, sir, can you hear me now?
No. No, I can. Yes. Yes, I can hear you, sir. No. No, what I want to know basically, that in provision for tax is only INR 652 crores which is around, say, 22%, 23% of -- or 25% of the profit of this quarter. So how much of this reversal of DTA and reversal of provision of taxation, these figures have gone into the other provisions?
Right. My word, at least, as was disclosed in our opening call, INR 1,436 crores is the important, which is to the provision losses on. And there is another -- we have disclosed that there is provision, a total of INR 607 crores. So this year, the total -- only on certain -- as seen in other post digital that had companies asking for, because the company provided assistance on a continuing basis and pay along that. But from that, we will get the -- when we get the -- I mean, afterward, we get the [ profit ] in it. So we have inquiries on [indiscernible].
And the tax, for the current year also, because of our higher provision, [indiscernible], the tax, that liability is going to be very, very minimal. And we have continued to pay the tax in that math. And you know [indiscernible], because ultimately, tax is very less. [indiscernible]
So all these put together, maybe something good will work with you.
So I mean, as a prudent measure, you've done -- you have taken the -- I mean, net provision you had done, but based on this final core judgment and they're saying -- I mean these figures will be added in the profit of the bank according to you, isn't it?
Right in that, we are processing the different decisions, something is toward the bank, something against the other banks. So that is there, it had gone through elaborate ways of known -- these are ways of the [indiscernible]. So there will not be much because we have a very -- we are doing [indiscernible].
Sir, my second question is on this note #12 of the fraud account. Generally, all the banks are giving the full numbers, that how much what we profited in this quarter, how much provided for, how much total provision is made. Whereas in your case, it is only -- has been given, has been provided for. So in this quarter, how much provision for the fraud accounts have been done beyond whatever has been carried forward about INR 1,100 crores or something...
Yes. Ajmera-ji, what I would know, only -- the accounted for so -- customers accounted [indiscernible] provision is made, but that is [indiscernible]. But in our policy -- as per our policy [indiscernible] as nearly as provision than that. That is an option to carryforward the provision for the quarter, and we will do that with the work of [ RBI ]. So these are the [indiscernible]…
No. No, in this quarter, how much had been provided for?
Looking at this quarter, it may have been more. I tell you, I don't have the figures right now. [indiscernible]. So therefore, I -- right now, I'm not going to tell you exactly how much. But then I will tell you, [indiscernible], Tamil Nadu which is basically [indiscernible], which will fully provide in next quarter. Instead of what it will be fully separate now and included. [indiscernible] December and March quarter and the full year.
My next question is on the recovery ma'am. On the recovery front of about the IRN 10,000 crores of target. Can we have a clearer picture now in these 2 quarters? What have happened? And now going forward, in the remaining 2 quarters, where do we stand? And are we increasing this target of recovery? And what is the status of the NARCL now going to -- I mean, I believe that nothing has been done up to 30th September 2022. But going forward, how many accounts and how much amount is going there?
Ajmera-ji, the guidance is INR 15,000 crores for recovery. And as on date, we have done INR 8,900 crores we have already recovered. So we are keeping the guidance to INR 15,000 crores. Regarding NARCL, Ashok will...
As of now, there is visibility of 3 accounts, which is already there in the public domain, which has been given by the NARCL. And these 3 accounts, we are there in these 3 accounts. So the other 2 accounts where our exposure is not there. These 3 accounts, our exposure is around INR 1,000 crores, and we are likely to get INR 444 crores.
Out of INR 1,000 crores, you are going to get INR 4,444 crores?
Yes.
No, that is the total listing? Or it is including the cash and the...
This is total. This is total.
Again, this is the total amount which we are going to get in. Okay. Now coming then on the this credit side growth, our sanctioned amount that we generally see is much higher than the amount actually reversed, especially in the corporate books. So I would like to just have a little picture of that, but how much during the quarter, we have sanctioned and how much during the quarter we have disbursed, especially in the corporate book now. And going forward, what is our plan to achieve this growth of 12% of the advances?
So as on date, we have got about an unavailed limit of about 21,000 crores. So sanctions to disbursal is almost like 60% to 70%. And going forward, we will be able to reach the target that what we have given to the range of 10% to 12%. We will be able to achieve that kind of a growth numbers.
So as management, we had an announcement of INR 21,000 crores. After that we have got and released, put together around INR 50,000 crores of portfolio which we have. Maybe some of them are [indiscernible]. So INR 50,000 crores [indiscernible] that we have. So we are privileged to see this growth in the coming quarters.
[Operator Instructions] The next question is from the line of Jai Mundhra from B&K Securities.
I have a couple of questions. One is there was a recent RBI notification on new rating norms, wherein RBI has mandated that the bank's name should be clearly mentioned in the rating document of the rating agency to get the rating benefit. Are we -- so a, just wanted to understand, ma'am, what is the intent behind RBI, behind this circular? And would this -- and how are we practice -- what are the normal practices as of now?
Yes. Yes. Yes, have to respond. Basically, this is for large exposure accounts. What RBI has observed, that in large exposure accounts, the rating is, say, if it is a INR 7,000 crore rating, it does not mention which are the banks which -- for which this rating is, the INR 7,000 crore total rating. There may be a multiple banking account, which has 10 to 15 banks on a consortium account, which is having 12 banks. So there is a short-term rating and a long-term rating. To upgrade this, what RBI is now saying to the rating agencies and banks is that you mentioned the name of the bank for which the rating is ascribed for the amount which is given. So this is the basic intent of RBI.
Right. So if you have, let us say, 3 facilities and maybe multiple facilities, that rating has to be there for each of the facility? Or it would be a single bank level?
Yes, so what happens is, normally, sometimes it happens that Union Bank has given a term loan of INR 500 crores and a cash credit of INR 200 crores, right? So INR 700 crore exposure is there in account. And now we sanction another INR 400 crores of a term loan, fresh term loan. So if that INR 400 crores term loan, additional term loan is not reflecting in the rating now, and so then it will be an issue. So immediately, the auditors will also catch it and others will also come to know that this INR 400 crores, which we have given fresh is not covered. So this is the basic intent here.
Right. And now after this circular gets implemented from March, in this case, you -- the rating document would have the clear detail of Union Bank in these 3 facilities, right? It would be facility-wise or it would still be corporate level exposure?
Well, it should be bank-wide total exposure. Presently -- we have come presently what we are presuming bank-wide. Say state bank has given to x company this much, Union Bank has given this much, Bank of Baroda has given this much, this kind of thing would be there.
Right, understood. And just to…
So just basically, which we are awaiting from RBI is with respect to whether -- though it will be kicking off on 1st April 2023, but there are certain ratings, which will get due after 15 months as per RBI guidelines. So when that happened after the rerating happens or do the reserve bank want it to be effective in all ratings as on 1st April, that clarification is yet to come from RBI.
Right. Understood, sir. That is very well explained. And then -- so on interest income this quarter, there is a very strong loan growth and there is a very strong interest income growth, interest income from income on loans. I just wanted to check, so it has gone up from INR 12,000 crores to INR 13,800 crores. Is there any one-off or is there any component which has come from NPA recovery and has now become a part of the interest on advances?
About INR 700 crores has come from -- I was just telling you that about INR 700 crores has come from NPA recovery in this amount. In that INR 13,811 that you are seeing, our INR 700 crores has come from NPA recovery.
Understood. And the rest is all business as usual, right, in the normal interest rate?
Yes.
Right. Okay. And ma'am, in your guidance slide, while we have done very well, I mean, it looks like either you have not updated the guidance or I'm not able to understand that advances growth so far is 21.9%, and we are still maintaining like 10%, 12% range. Do you see a very sharp deceleration in the business growth in the second half? Or how should we look at the advances growth and same as the GNPA number that you have put out?
No. No, this is only a mathematical thing situation, which is there. The 20% growth of advance you are seeing now is 11 years, right? So we are comparing it from September '21 to September '22. September '21, our advance was not elevated actually. The growth has happened post March, actually and it happened in March. The acceleration happened in December '21 then March '22, then June '22.
Now it has been growing in the last 3 quarters. So March '20 to '23 guidance, we are keeping a 10% to 12% because our March '22 advance was elevated. So it has already started picking up. So the percentage growth in March '23, we are -- that is why keeping at a rate of 10% to 12% only.
Right. Understood. And last question, sir, from my side, our core CET1 Tier 1 number that you have put out. This includes the first half PAT, right? Or it does not include the first half PAT?
No. No, it doesn't include the PAT.
Sorry, sir. I missed that.
It doesn't include the profit. Profit doesn't include in that.
This is including or not including?
This is not including, Jai.
Thank you, the next question is from the line of Nitin Aggarwal from Motilal Oswal.
Congratulations on good numbers.
Thank you. Thank you, Nitin.
Ma'am, I'll take forward from this guidance side again. So the first half growth is already 10%. So when you look at by March, of course, there's an elevated advances number and we did see advances growth picking up last year in the second half.
But over the March closing, we are already up 10%. And so which is where, if you can indicate, as to what sort of -- so some of these key operational numbers like margins, asset quality and advancement growth are you really looking for during FY '23, because we are tracking significantly here.
Yes, so as far as guidance is concerned, we are keeping the guidance at the same number. The reason being there is a lot of geopolitical and other issues which are there in the market. So factoring that, we are not changing the guidance as well.
And…
Mr. Aggarwal, sorry to interrupt you. The audio is breaking from your line. Please check. Mr. Aggarwal, The audio is breaking from your line.
So, shall I come back on the line if it's not audible?
Yes, please proceed now. Mr. Aggarwal, we request you to rejoin the question queue, the audio is breaking from your line.
We'll take the next question from the line of Anand Laddha from HDFC Mutual Fund.
Ma'am, congrats for good set of number. Ma'am, just wanted to understand, what -- the NII includes INR 700 crore of interest recovery from NPA. If I were to exclude the same, then our NII is almost flat this quarter on a Q-o-Q basis. So just want to understand, ma'am, despite the RBI-reported hike, we haven't seen any margin improvement for us. If you can give some outlook on NIM side.
Yes, NIM is almost 3.15% for this quarter. And we have kept the guidance to 3%. The -- whatever is 190 basis points that RBI has given us, that has been factored into -- in our reporting trade, 190 basis points. BPLR has been already passed on to the customers. And to MCLR to the extent of 76% -- sorry, 65%, which has already been passed on. And our yield on ratio, yield on advances has also improved to 7.65% for this quarter. And going forward, we will see, because these things came only in this quarter, in the last 2 months of this quarter. Going forward, we will see some increase in our interest on advances.
Okay, ma'am, if I were to remove this INR 700 crores you indicated, which is the recovery of interest on return of asset, if I were to remove that, because that's a one-off, then our NII growth has been almost like flat Q-o-Q.
So we're 13 -- yes.
In fact, if you see the last quarter, the factoring of the interest recovery in the NPA, last quarter also, it was INR 600 crores was there. So every quarter, if you see the recovery grew, the NPA accounts in the interest component, that is around INR 600 crores to INR 700 crores.
Mean, September '21.
September also. You want the September '21, it was around INR 340 crores.
Okay. Same quarter last year was INR 640 crores. This quarter, it is INR 700 crores.
Yes. Yes.
Yes. Yes.
Okay.
That company did constant. I think it is in the range of around INR 600 crores to INR 700 crores. Compounds will continue in the next quarter also. So it is not one-off item. It is, like, your interest income on the standard asset cost.
Okay. Okay. If you can give some -- this quarter, the slippages are quite low. So can you give some outlook for the full year slippages, how do you see that? Do you see this run rate of current quarter sustainable for us? And also, if you can give some outlook on provision cost for us?
See, the guidance is -- the slippages will be to the extent of 3%. That is what we want to keep it. 2% is what we want to keep. And this time, the slippages were to the extent of INR 2,913 crores. And we are hopeful that we will be able to reduce those numbers going forward.
The slippage is what we are seeing is -- stressors, what we're seeing is only in MSME book and retail. And retail slippages are not coming up, only in MSME book and agree, we are seeing some slippages, which we will be able to reduce further.
And despite that, you wanted to keep your guidance of 3%, I think you will end up this year with a 2% slippage run rate?
Yes, we hope to reach that number.
Okay. but this quarter, the recovery and upgrades were higher than the slippages.
Yes.
Do you believe that this is sustainable for us? What sort of recovery upgrades we expect for the full year?
See, we were looking the INR 15,000 crores of upgradation and recovery for the whole year FY '23 and slippages to the tune of INR 13,000. That was the guidance given. So what we have done is for this FY -- H1 FY '23, we have done INR 8,900 crores of recovery and about INR 6,000 and odd crores of slippages. So we will be able to reach the guidance at what we have given. My slippages will be below the recovery and upgradation, much below that.
And lastly, on the tax rate side, we are on the new tax regime? Or we are still on the old tax regime?
We are in the old regime only.
And by when do you believe it will move to the new tax regime?
Someone? Any…
We are -- sir, we are reviewing that. Currently also, our current liability, economically [indiscernible] So we will do this next year. This year, we are now moving to newer tax regime. [indiscernible]. Next year, we'll renew [indiscernible]
Okay. And then for us, just see, first half, if I see the loan growth, a bulk of the loan has come from the corporate sector. If you can give some color, which sector have the growth come and demand has come in?
Yes. The RAM growth is also -- RAM also has grown to the extent about 14.95% and this has grown by -- of course, by 21%. The corporate book has grown by about 21%. The growth has come in the corporate sector with regard to infrastructure, a thing has happened on NBFCs. We have seen some growth on chemical. We have seen some growth in steel and pharma and cements also.
Textile.
Textiles, we have seen some growth.
And -- okay. Perfect. And do you believe that quarter-on-quarter from here on, the growth will decelerate significantly?
Yes. And what we want -- but our guidance is that we want to keep our corporate books at 40 -- RAM at 55%.
Next question is from the line of M.B. Mahesh from Kotak.
I have 2 questions, ma'am. One is there has been a sharp jump again in the international loan book. If you can just kind of give us some color what is the nature of these exposures that you're taking today? And whether they have some linkages back to Indian corporates out there? I don't know if you heard the question, so…
Are you able to hear us?
Yes, I'm able to hear now. But I don't know if you heard my question, ma'am.
No. No, I thought you were talking about our overseas business. There have been sharp advances in the overseas book. Yes, that is also -- one of my, I believe, Executive Manager is replying to your question.
Basically, it didn't cost -- the area of the, like, India or, like, we don't have depreciation. Basically, these are syndicated loans and much of the new taxes are for the banks. Basically to top one of the prime banks, we have given the majority of that. Of course, there are 2 India-based companies also, if we must, in the half year.
My -- sir, these exposures that you take, how -- what are the kind of duration that you typically take on these notes?
Duration?
Duration.
Last year, on an average we are taking on the years, over the years, we have a request for around 5 years also, but we are not taking that.
Three out of 3.
Yes. Maximum for the -- average for the 3 years.
Okay. Ma'am, second question do you -- there is about INR 200 crores provision on standard assets this quarter. What is that pertaining to?
That is pertaining to the [indiscernible].
Sorry, I don't think that we can -- sir, I don't think we are able to hear you.
Yes. Am I audible now?
You are a little bit distant. But we can -- but it's definitely there. We can hear you.
Sir, these are relating to standard provision, mostly relating to certain large corporate accounts, where there are some delay in resolution plan implementation. Because there are accounts in multiple banks major accounts, the exposure in multiple banks. And RBI [ released ] a circular which says that when there is a default, the bank has to put in place at the beginning, so basically we have certain large accounts, which we have done for the RBI guidelines.
Sorry, so you mean say that these are NPAs currently in your book stock? Or this would be potentially become your NPA?
No. No, there is no NPA. There is no NPA. So just to clarify, all these accounts are either consortium account or multiple accounts, and they are hitting the 7th June 2019 circular wherein, there is an amount SME in the clearing. So that is where the RBI observation was to make provision in these accounts. And these are all common industry accounts where other banks are also there.
So that number seems to be fairly large, right? Because if you're saying it…
The entire is not for those accounts -- so this entire provision is not for those accounts. There is a normal standard provisioning also 0.25%, 0.4%, 1% also and some COD provisioning also where the infrastructure projects where we extend the COD beyond 2 years, we have to make 5% provision. So all this combined together is this figure of INR 1,400 crores.
Okay. And my final question, with settlement, do you start making provisions from next quarter. How -- what is the thinking here now?
Now, no. December quarter, we will start making provisions.
The next question is from the line of Suraj Das from B&K Securities.
Most of the question has been answered. Only a couple of questions. In your DTA book, what would be the total outstanding accumulated losses, if you can give us the figure?
DTA, accumulated loss.
[indiscernible]
Sorry, sir. INR 10,000 crores is the total DTA book. What would be the accumulated losses, total accumulated losses.
No, we don't clear any DTA on accumulated losses. This is not on accumulated losses. Basically, the difference on, like, all of this provisioning, because whatever bad debt provisioning we dedicate in our book, everything is not calculated in that manner. That provisioning is credit loss. We don't clear any DTA on losses.
Okay, but you will be having some accumulated losses on your book, right, even if you don't have a DTA on that, but you still have some accumulated losses on your book, right?
That is right. That is right. However, it is dealt very conservatively. So just now around INR 3,000 crores [indiscernible].
INR 3,000 crores per day you are saying.
INR 2,900.
Okay. Okay. Understood. And now in the ECLGS book, which is roughly around INR 16 billion. So what would be the GNPA or delinquency here in this book on the ECLGS?
Arun, you have any data on that? ECLGS, how much is an NPA? 3.5%.
In our percentage…
And our percentage. Our ECLGS book, 3.5% is GNPA. And the same amount under stress also.
Okay. Okay. Understood. And the last question from my side would be on the restructured book. So you have given restructuring 1.0, 2.0 figures. Is there any other restructuring number? I mean, which is pertaining to previous earlier in MSME scheme or CDR, SDR or anything outside these 2 numbers?
No. RF 1 and RF 2 numbers we have given, this is only restructured book that we have got. And onetime restructuring also under COVID, that also we have given you. There, the gross advances -- the percentage of gross advances is 2.6%.
Okay, okay. So this 20,000 crores, this is the total restructured book for the bank.
Yes.
The next question is from the line of Rishikesh Oza from Robo Capital.
So only 1 question from my side. Please indicate on the tax rate for H2 FY '23?
FY '23 normal tax rate. We are in normal tax rate.
The next question is from the line of Rakesh Kumar from Systematix Shares.
Just 2 questions I have. Firstly, if I see the domestic investment book, the yield has gone up by around 10 bps -- 10, 11 bps and, like, in the -- from the -- in the first half or maybe from the June to September also, the moment is just around 15 bps. We are holding the duration of around 0.5 years on the SLR side, and the majority of the investment book would be a SLR itself around 90% plus. So why that we have seen in the market that movement is pretty sharp on the shorter end? Why our yield has gone up by just around 13, 14 bps. So what is the reason behind it?
These are all shortened duration treasury bills, which don't have any much impact on the yield movement. Our portfolio, 60% consists of the treasury bill. That is why the duration is very low. So impact on the shortened curve go more up, but treasury bill yields have not gone up such an extent. That is why we are not having much impact on the MTM portfolio as well as on the interest rate yield curve.
No, sir, I was not referring to the MTM losses. That would certainly not be there if it is FRB or if it is stable. I was referring to the yield movement in the system. And our yield movement on the domestic book is just around 10, 13 bps, though the yield movement in the system is much, much higher. So if you see the 364, there's T-bill, it has gone up by around 50, 55 bps in this quarter itself. So why our ill movement is not reflecting what is happening in the system? Because if the dilution is so low, we would have churned the book also.
These treasury bills are 91 days and 180 days. The majority of our -- 60% of the portfolio is treasury bills. So it has got matured and it has been replenished with new 91 days T-bill. So the impact will be 15 to 20 bps only.
Okay, I will take it offline, sir. Sir, the next question I had on this Slide #16 that has given on a corporate loan rating. So we have BB and below of around 11%. So out of this 11%, what would be the number of percentage of loan which are actually not rated, like, some of the government SCBs and all? And what are the remaining percent?
This 11% of BB and below are mostly MSME loans. And this is all covered under the CGT investing. So you cannot say that these are not unrated ones.
Okay. So these are rated but rated BB and below and are covered under the CGTMSE.
Yes, CGTMSE.
Yes. All. All loans?
Yes, some portion must be the personal loans also. But these are all loans that we give to salaried employees or where the account is with the bank itself for quite some time. And this is through an STP journey that we have given these personal loans. But majority, almost 90% of the BB and below are MSME loans only.
As there are no further questions from the participants. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for the insightful discussions. We are grateful to the analysts and the investor community for their continued support and feedback that helps us to take informed decisions in our journey towards efficiency and profitability.
Once again, wishing you all a happy Diwali. Thank you all of you.
Thank you. Ladies and gentlemen, on behalf of Union Bank of India, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.