Union Bank of India Ltd

NSE:UNIONBANK

Earnings Call Analysis

Strong Financial Performance

Union Bank of India reported outstanding financial results for the second quarter ending September 30, 2024. Operating profit reached INR 8,113 crores, marking a 12.4% increase year-over-year, while net profit surged to INR 4,720 crores—an impressive 34.4% growth from the previous year. This performance is reflected in improved return on assets (ROA) at 1.35% and return on equity (ROE) now standing at 19.10%.

Improved Capital and Asset Quality

The bank's capital adequacy ratio improved to 17.13%, bolstered by a CET ratio of 13.88%. Additionally, the gross non-performing assets (NPA) ratio decreased by 202 basis points to 4.36%, closely approaching the bank's target to keep it below 4% by March 2025. Net NPA also improved, declining by 32 basis points.

Guidance on Growth and Margins

Union Bank confirmed its annual growth guidance aligns with its Q2 results, expecting profit growth to remain around 9.2% year-on-year while advances should grow by approximately 9.6%. The bank expects deposit growth to fall between 9% and 11%. Net interest margin (NIM) maintained a solid position at 2.97%, with guidance set between 2.8% and 3%. However, this quarter saw minor pressure on NIM primarily due to a large corporate slippage and regulatory adjustments.

Managing Slippages and Recoveries

While total slippages increased significantly during the quarter to INR 5,219 crores, this can be attributed to one substantial account. In the first half of FY '25, recoveries totaled INR 7,300 crores against a guidance of INR 16,000 crores for the year. The bank remains confident in meeting its recovery targets due to strong ongoing efforts, particularly in the SARFAESI process.

Focus on Retail and CASA Growth

Union Bank aims to increase its retail lending, targeting a retail-to-corporate advances ratio of 55% to 45%. As of September 2024, it stood at 57.43%, demonstrating solid positioning in retail sectors. The bank has successfully added 3.48 million CASA (Current Account Savings Account) accounts, maintaining a steady focus on enhancing its deposit base to drive liquidity.

Strategic Branch Openings and Digital Initiatives

The bank opened 122 branches during the financial year up to September, focusing on high-growth centers. Significant digital initiatives were also introduced, like various Single Transaction Procedures (STPs) to facilitate transactions and reduce turnaround time for loan approvals, thus enhancing customer experience.

Outlook on Market Conditions and Treasury Management

Union Bank is navigating through competitive market conditions but remains optimistic about the future, especially regarding treasury operations. The bank expects a decent 20% to 25% growth in treasury income, fueled by improved strategies to optimize its liquidity and capture foreign exchange opportunities amidst favorable conditions.

Conclusion: A Path Forward

Overall, Union Bank of India appears well-prepared for sustainable growth. With strong financial results, improving asset quality, and consistent deposit growth strategies, the bank is positioning itself favorably to navigate challenges ahead and capitalize on growth opportunities. Investors should note the bank's continued commitment to enhancing profitability and efficiency without compromising growth.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Union Bank of India Earnings Conference Call for the period ended September 30, 2024. The bank is represented by the Managing Director and CEO, Ms. A. Manimekhalai; Executive Directors: Shri Nitesh Ranjan; Shri Ramasubramanian, S.; Shri Sanjay Rudra; Shri Pankaj Dwivedi; and other members of the top management. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ajay Bansal, Deputy General Manager. Thank you, and over to you, sir.

[Ajay Bansal, executive]

Thank you, madam. Good afternoon, ladies and gentlemen. I, Ajay Bansal, Head of Investor Relations, welcome you all for Union Bank of India Earnings Con Call for the period ended September 30, 2024. The structure of con call shall include a brief opening statement by respected MD and CEO Madam, and then the floor will be open for interaction.

Before getting into the con call, I will 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 expectation. These statements involve a number of risks, uncertainties and other factors that cause the actual results to differ from the statement. The investors are therefore requested to check this information independently before making any investment or other decisions.

With this, I now request our respected MD and CEO ma'am for our opening remarks. Thank you, and over to you, ma'am.

[Arumugam Manimekhalai, executive]

Good afternoon, everyone, and welcome to Union Bank's financial results announcement for the second quarter ended September 30, 2024. Thank you for joining us today. I trust you have had the opportunity to review our results. I will provide you a brief overview of our performance and key highlights for this quarter. Before, diving into our financials, let's touch upon the operating environment.

The banking industry has seen credit growth outpace deposit growth, creating a competitive scenario for liabilities. However, the gap between credit and deposit growth is narrowing as per the latest RBI data. Now let's take a look at our financial highlights for the quarter ended September 2024. We have achieved our highest ever operating profit and net profit for the quarter. Our operating profit reached INR 8,113 crores, reflecting a 12.4% growth. Net profit stood at INR 4,720 crores, showing a 34.4% year-on-year growth. ROA has improved to 1.35% and ROE has reached 19.10% for Q2 FY '25.

Our capital efficacy ratio improved to 17.13% because CET ratio increasing to 13.88% as at September 2024. Gross NPA has reduced by 202 basis points, while net NPA is reduced by 32 basis points. The PCR has improved by 76 basis points to 92.79%. Our cost-to-income ratio improved to 43.56% for Q2 FY '25, down from 44.08%. That is what was in the last quarter. Our Q2 performance is broadly in line with our FY '25 guidance. The profit grew by 9.2% year-on-year and advances by 9.6%, while deposit growth is within our target range of 9% to 11%.

Advances growth has been slightly muted than what the target that we had given. In the Advances segment, we saw a 12.3% growth in RAM lending, while corporate lending grew at moderate 6.3%. Our NIM stood at 2.97% for H1 FY '25 and 2.90% for half year ended FY '25, aligning with our guidance of 2.8% to 3%. The decline in NIM is primarily due to adjustments in penal charges as per RBI guidelines and a drop in our dummy ledger recovery. Asset quality continues to improve with gross NPA reducing to 4.36%, aligning closely with our target of below 4% by March 2025. For Q2 FY '25, gross recovery was INR 3,932 crores, which is lower than slippages of INR 5,219 crores, mainly to a large ticket slippage from a single major account.

In H1 FY '25, we achieved a gross recovery of INR 7,300 crores, in line with our annual target of INR 16,000 crores. Total slippages stood at INR 7,537 crores as against our guidance of INR 11,500 crores. We have consistently met and often exceeded our targets, and we are confident in our ability to achieve the same for FY '25. We remain committed to the sustainable growth, ensuring a balanced focus on both top line and bottom line performance. We prioritize profitability and efficiency, overpacing growth at any cost. Our CASA and retail term deposits account for 72% of our total deposits, a ratio we have maintained consistently. In our Advances portfolio, we have targeted retail to corporate ratio of 55% to 45%. And as of September 2024, we are at 57.43%.

Let me share some of the significant developments during the quarter. We achieved a second position in the EASE 7.0 ranking for the first quarter. We ranked first under the team banking towards Viksit Bharat; and second in customer service excellence, effective risk management and developing employees for emerging banking priorities. We have opened 122 branches this financial year up to September, including 12 focused branches in RUSU centers. We launched the Union Leap, a CASA transformation and business build project, deploying 1,250 relationship managers to drive new business acquisition and engage existing customers. Up to September 30, 2024, we added over 3.48 million CASA accounts, and our VYOM mobile registrations reached 29.1 million. Additionally, we on-boarded 123,000 clients through our digital savings account.

We introduced several new digital journeys such as the PM Vishwakarma STP, KCC renewable up to INR 10 lakhs, GST Gain STP for fresh sanctions up to INR 1 crore, and Union Nari Shakti STP for new-to-bank customers. Bank introduced a UPI interoperable cash deposit into CRM, UPI Light Auto Top-up, UPI Circle functionality under ability to deposit into PPF and SSA accounts. We inaugurated 2 rural self-employed training in Mauganj, Madhya Pradesh and Palnadu, Andhra Pradesh, both fully managed by women staff to support women entrepreneurs. All rating agencies upgraded the bank over the past year. In FY '25, S&P Global revised our outlook to positive with a BBB- positive rating, while India Rating and Brickwork upgraded as 1 notch to AAA with a Stable outlook. We've also been added in the NIFTY's Next 50 index.

To conclude, Union Bank has consistently demonstrated strong, stable and sustainable performance. Our key initiatives, including enhanced underwriting capabilities, centralization, verticalization, HR transformation and a robust assurance framework are in positive results. We have significantly strengthened our digital capabilities through the VYOM app, digital on-boarding, straight-through processing journeys, fintech partnerships, analytics and data lakes. We are committed to building on these initiatives to enhance our performance and customer experience further.

With that, we are now open to questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Mahrukh from Nuvama Wealth Management.

[Mahrukh Adajania, analyst]

Good afternoon. Ma'am, the slippage, so I have 2 related questions. Firstly, that the slippage we are seeing in LC and others of INR 34 billion should be from a single account that is in the news and that was discussed even last quarter, correct? Is that correct?

[Arumugam Manimekhalai, executive]

Yes, ma'am. It is only from a single account.

[Mahrukh Adajania, analyst]

Okay. Now the thing is that last quarter, you had disclosed that a couple of accounts had -- came to the SMA list, right? And that is why there was a sharp increase in SMA. So if something has slipped from SMA to slippage, I'm guessing that this account was identified as SMA, then why has the SMA figure gone up quarter-on-quarter by INR 7 billion? It should come out by the -- come down by the amount of slippage, correct? That's the other question.

[Unknown Executive]

Madam, that is -- see, this is only, again, a couple of accounts, which is the -- there was a like -- no, no, in the quarter 2, there was a 1 or 2 days delay, which has come and it has been recovered. So it was on 30th September, it was the position actually.

[Mahrukh Adajania, analyst]

Okay. But on 30th, the account that appears to have slipped in the corporate slippage was SMA last quarter, correct?

[Unknown Executive]

No. See, actually, in the last -- if you're looking at the quarter 1, we made a provision for 2 accounts.

[Mahrukh Adajania, analyst]

Correct.

[Unknown Executive]

That's INR 1 lakh slippage in the current quarter...

[Mahrukh Adajania, analyst]

Correct, correct.

[Unknown Executive]

Another one is continuing in SMA, so it was not there after SMA on 30/6/2024.

[Mahrukh Adajania, analyst]

Sorry?

[Unknown Executive]

The another account, it was not an SMA as on 30/6, though it has defaulted in some other bank.

[Mahrukh Adajania, analyst]

Okay. So there were -- you made provisions on 2 of which 1 was not SMA in the first quarter?

[Unknown Executive]

Yes, yes.

[Mahrukh Adajania, analyst]

And -- but now the increase in SMA is driven by only that account or by a couple of accounts?

[Unknown Executive]

Another accounts also, but that is only because 1 or 2 days delay. It has come back as well. Yes, yes.

[Mahrukh Adajania, analyst]

Okay. And so which sectors would that belong? It's corporate, government, what kind of sectors would the SMA that got upgraded subsequently belong to?

[Arumugam Manimekhalai, executive]

These are state government, ma'am, and these shall come back to normalcy in this quarter.

[Operator]

The next question is from the line of Ashok Ajmera from Ajcon Global Services Limited.

[Ashok Ajmera, analyst]

Ma'am, compliments to you, especially as regards the profitability of the bank is concerned. You are very, very conscious about it. And quarter after quarter, you are declaring a very good profit. So my compliments to the entire team and you for the same. I think our profit after tax has come up to almost INR 4,700 crores. I think one of the highest quarterly profit.

Having said that, ma'am, I have got some questions on your comments. And maybe my concern on especially the business growth. So while you say that year-on-year, I mean, if you take the whole year, then it's okay, 9%, 7%, that's okay. But if you look at the current half year of FY '25, our deposit has grown only by 1.67%, and our credit has grown only by [ 2.5%. ] So especially on the credit side, if you look at it, if you take your target of 13%, which means about INR 117,000 crores in this financial year should be, whereas the total credit expansion is only INR 23,947 crores. It means in the remaining 6 months, starting from October to March now, you will have to have the credit increase by about INR 93,000 crores.

Similar story on deposit side also. So how confident and sure you are that in almost remaining 5 months now, 1 month, of course, you must have done something. INR 93,000 crores is not a small amount. So how do you see the visibility from the sanction pipeline, from the new proposals, which are coming in, which are in sanctioning stage and the proposals, which were sanctioned are already in the disbursement stage. So can you give some little more detailed breakup on this, that how are we going to achieve this INR 90,000, INR 93,000 crores credit in this because this is a very, very important point, which will take the bank forward. So this is my first question here.

[Arumugam Manimekhalai, executive]

Sure. Ajmera ji, I will answer your question. First, I will look at the low growth in the advances. The corporate loans, especially on T-bills linked loans, we were not very aggressive. We let go some of the advances, which were yielding us a slightly lesser rate of interest. We will build this book where -- when we had -- we had built this book when we had a surplus liquidity in the system. So we have brought down our TBLR book to a considerable extent. Our NBFC book has also been reduced from whatever it was in December to -- December '23 to now. We have got it down considerably. That's the area where we have -- why we have declined on our corporate book.

Now if you are asking us with regards to what is our pipeline pending for disbursement and sanctions, if you remember, we had set a guidance of 11% to 13% credit growth for FY '25. We have almost about INR 75,000 crores ready for disbursement and sanctions, out of which INR 36,000 crores is pending for disbursement and INR 39 crores of sanctions is pending for sanctions, actually. Now we have -- on the corporate side, we have good sanctions on the road for the real estate, telecom, iron and steel, cement, all these areas we're seeing, we have got good sanctions. We are also focusing on sunrise sectors like the renewable energy, EV, semiconductors, data centers, tourism, these are the areas that we are looking at.

So we hope that we also think that there would be CapEx coming back in this quarter and so that we can revise whatever sanctions we have got on hand and see that they are disbursed. That is with our credit growth. With regard to advance -- deposits growth, of course, we had given a guidance of 9% to 11% and we have stuck to that guidance. We have done the 9.26% growth in our deposits to date; however, CASA has declined a little. But if you look at the numbers that we have, we have added absolute numbers close to about INR 8,000 crores in our CASA book and retail term deposits has also seen a healthy growth.

We have taken a lot of measures to see that our CASA increases, like we have opened, as I said in the very beginning, 122 branches, out of which 12 branches are in the RUSU centers, so premium branches have been opened. We have strengthened our BC model. We have got more than 21,000 BC models. We have launched special deposit schemes that we can garner more deposits. We have also separately introduced something called excellent sale in the bank, which is dedicated to give top-notch service to our customers. So we are looking at lot many things like this. We are also having a micro market strategy. We're focusing on growth hotspots in the country.

We have identified about 51 growth hotspots in the country where we will be seeing this growth. So overall, I can say that the bank is -- our focus is very clear. We would like to increase our deposits. We would like to increase our customer base. In the very beginning, I have told you that we added close to about 34.80 lakhs CASA accounts, out of which about 15 lakh customers are from the rural and semi-urban areas. So these many strategies that we have got, I'm sure that we will be able to increase my Advances portfolio and by Deposit portfolio also. Thank you.

[Ashok Ajmera, analyst]

And I'm sure with you being there all the time you have been performing better than the targets and this year also, you may do some magic to reach that figure of the credit and deposits, both. Having said that, ma'am, while we are comfortable on the, I think, recovery front target of INR 16,000 crores, we have already achieved INR 7,300 crores, so we are more or less there. But on the slippage front, out of INR 11,500 crores of target for FY '25, we have already, I think, slipped about INR 7,537 crores. And we have a very strong SMA pipeline, that a lot of these accounts, SMA-2 is also INR 1,664 crores. So going forward, on the slippages front, are we comfortable? I mean, our slippages in the coming 6 months now, the remaining 6 months will not be more than INR 4,500 crores or INR 4,000 crores, so as to meet the target of -- I mean, to be limited to the target of INR 11,500 crores?

And coupled with that one more question ma'am because I may not be allowed to ask in this round the question. If you look at the Note #20, in the last June quarter, we said that we have done -- we have made the additional provision on prudential basis on advances of INR 1,239 crores, which has come down in this quarter to INR 553.93 crores. So in fact, we have written back additional prudential provision of INR 685 crores in this quarter. So had that not been there, our NPA provisions would have gone up, so it means it would have been INR 3,200 crores. So this -- what is this mystery? I mean why have we reduced this provision, which was already made in June 2024 of INR 1,239, now reduced to INR 553 crores?

[Arumugam Manimekhalai, executive]

So I will answer your question with regard to slippage, sir. Though we had given a guidance of INR 11,500 crores, we have already crossed -- that's what we've crossed about INR 7,300 crores in this quarter itself, in the second quarter itself. But you see the only one large slippage that's the reason that the slippages are quite high in this quarter. If you look at the actual slippages that happened in this quarter, it is just about INR 1,604 crores, so slippages are under control.

If not for that one big slippage, we would have contained our slippage to a very great extent. And with regards to what you've talking about, the second part of the question is also answered because of this reason only, the slippage -- the provisions that we've made in the third quarter of INR 1,200 crores because that slipped into an NPA, that's the reason that it is showing that number.

[Operator]

The next question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Just wanted to check on from the account that slipped, how much have we provided? And what is your sense on the eventual haircut or the timeline of the resolution because that account is supposed to be sovereign. So if you can share your thoughts there.

[Arumugam Manimekhalai, executive]

Jai, we have provided close to the extent of 20% as per the norms. And with regard to recovery part of it, a lot many things are happening at the background at the government level, at the bank's level. Many things are in process, and we hope that the recovery comes very soon.

[Jai Prakash Mundhra, analyst]

Right. But then what would be eventual haircut, ma'am? Should it be less than 20 or it could be even more than 20?

[Arumugam Manimekhalai, executive]

No, we are not talking about any haircuts as of now, Jai, on this account.

[Jai Prakash Mundhra, analyst]

Second then, the account that is still the second account, right, which was talked about last quarter. Is the account still in SMA-0, right?

[Arumugam Manimekhalai, executive]

Yes, it is.

[Jai Prakash Mundhra, analyst]

Okay. And then so how is it possible in the sense that last quarter, it was also relatively straight and 90 days have passed and still in SMA-0, is there some special dispensation concession here?

[Unknown Executive]

Yes, Jai, if you're looking at it last quarter, it was -- it started showing sickness in other banks. Though it was not SMA there, it started showing sickness in the other banks. So as a prudential measure, we have done our provisioning, standard provisioning we have done. Until the unit is running, cash flows are there, they are able to pay, but with some delay. Some [ repayment ] plans are being worked out...

[Jai Prakash Mundhra, analyst]

Okay. So there is no dispensation here. Just that as of now, the account is still in SMA-0?

[Unknown Executive]

Yes, there's no difference. Nothing.

[Jai Prakash Mundhra, analyst]

And we have around INR 550 crores standard as provisioning against...

[Unknown Executive]

Yes, correct. That's right.

[Jai Prakash Mundhra, analyst]

And secondly, sir, we understand that margins are okay. But accounting-wise, there is a change and, hence, the penal interest has 11 basis point impact. So thanks for that disclosure. But if I remember correctly, this new circular was effective from April 1, right? So how should -- I mean, why is the impact in this quarter? And how to -- should one look at in the next quarter?

[Unknown Executive]

No, no. So Jai, yes, you're right, it was April 1, but the higher impact came in this quarter. There was not much of an impact in the April, June quarter. But in the July to September quarter, the impact was higher. So it was about 11 bps in the September quarter. And for the 6 months, the impact is 6 basis points.

[Jai Prakash Mundhra, analyst]

Right, sir. Even in the third quarter, hypothetically, if a person is charged penal interest, then this may impact third quarter also, right? I mean this is not done?

[Unknown Executive]

Yes, yes. But it will continue. Yes, but Jai, it's really only a movement from net interest income to noninterest income. So I mean there's no change in the operating profit. It's just the movement between lines, like as you're aware.

[Jai Prakash Mundhra, analyst]

Right, right. Last thing, sir, the cost of deposit has increased, Q-o-Q at least that looks slightly steep. We have been very calibrated in the deposit growth. CASA is also reasonably okay. What explains the rise in cost of deposits?

[Arumugam Manimekhalai, executive]

Jai, the cost of deposits Y-o-Y almost increased by 35 bps. Now the bank had the slow rate of growth in CASA, that's another -- that's the reason for this increase in cost of deposits. Plus, the bank had also introduced a few specifically designed products for garnering retail term deposits. This was high-cost deposit that we had taken up.

It's not because that we had taken bulk deposits, but it was only for the growth of retail deposits that we had taken. So that is the reason for the increase in the cost of deposits.

[Operator]

The next question is from the line of Nitin Aggarwal from Motilal Oswal Financial Services Limited.

[Nitin Aggarwal, analyst]

I have 2 questions. One is, ma'am, if you can talk about just how much of the interest reversal this quarter because with this large like corporate slippage, has the margin been further impacted due to that? Or is this like the base that we need to work forward with the next quarter?

[Arumugam Manimekhalai, executive]

The interest reversal from this large account is about INR 45 crores.

[Nitin Aggarwal, analyst]

Okay. So not much.

[Arumugam Manimekhalai, executive]

Yes, not much, yes.

[Nitin Aggarwal, analyst]

And secondly ma'am, is there any lumpy recovery that we are looking at because we have maintained our recovery guidance for the year, while first half is tracking well, but we carry 100% provisions on the NCLT book, even the SR book is fully provided. So any recoveries that we are expecting in the next 2 quarters?

[Arumugam Manimekhalai, executive]

We have a very healthy book of about INR 81,000 crores and we hopefully want to get some good recovery from these accounts. So a lot many things are happening at this front to recover from the TW or technically written-off accounts. And we also have -- the bank has put a lot of efforts in onetime settlement, actually. And SARFAESI, we have done very well under SARFAESI. We have done -- under OTS, we have bought up the scheme for INR 1 crore and below account. And we have, in this half year, settled close to 250,000 accounts. And that is one area where we have seen good recovery.

SARFAESI also, I think, among the public sector banks, we are one of the highest number of SARFAESI options we have done. That is another place we have seen. But with regard to a bigger recovery, chunky recovery, we hope that there are some recoveries from NARCL and NCLT.

[Nitin Aggarwal, analyst]

Right. And the last question is on the net profits that you have reported, which is a very sharp jump, like almost 28% sequential increase. So like this is an ROA of 1.3 plus. And so how should we look at it? Why did we not use this extra profit this quarter to make provisions given that SMA number is still unchanged despite this slippage. So what is the thought process behind these high profits?

[Unknown Executive]

Yes. So Nitin, we did the standard asset provisioning in the last quarter. At this stage, we did not see a need for an incremental provision. Our provision coverage ratio anyway stands at about 92.5%. So we thought that we won't make any additional closing for this quarter. If there is a requirement, we can look at provisions in subsequent quarters, but we did not see a need to make additional provisions this quarter.

[Operator]

The next question is from the line of Rakesh Kumar from B&K Securities. Due to no response from the current participant, we will move on to the next participant.

The next question is from the line of Clyton Fernandes from Sundaram Mutual Fund.

[Clyton Richard Fernandes, analyst]

My question is actually on credit cost. So...

[Operator]

We have lost the connection of the current participant. We will move on to the next participant. The next follow-up question is from the line of Ashok Ajmera from Ajcon Global Services Limited.

[Ashok Ajmera, analyst]

Ma'am, if you look at the Note #15, it says that in this quarter, 1 SR, new SR has been added. I would just like to know the amount and the account for this SR and how much -- what was the outstanding? And how much amount for which the SR has been issued? Because 15% must have been the cash if it is NARCL or what is the status of this SR?

[Unknown Executive]

Ajmera, I will connect with you offline on this one.

[Ashok Ajmera, analyst]

Pardon?

[Unknown Executive]

I will connect with you offline on this one, on this query of yours.

[Arumugam Manimekhalai, executive]

No, the details are not presently with us. We will connect to you offline.

[Ashok Ajmera, analyst]

All right, ma'am. There's no issue. Yes, so my question was also on one of the -- my colleague, which asked, then he went out of the line, is increase in the credit cost to 1.09% from 0.73% in last quarter. So what is the overall target of the credit cost for the whole FY '25, ma'am, on this?

[Arumugam Manimekhalai, executive]

Credit cost, we would like to keep it at 1% or below 1% any time. And that is how it was behaving for all these quarters. But for that one slippage that happened in this quarter, that's the reason that the credit cost has shot up. Otherwise, it was always under control and below 1%.

[Ashok Ajmera, analyst]

One question is on the treasury front. Now with all kind of different views coming and even the honorable RBI Governor soon also looking at the increase in the inflation rate and earlier the expectation of rates coming down, and now recently, again, reading a statement even after taking a pause again to be very, very little more hawkish. So what are our views on going forward on the treasury and the performance of the treasury looking at the rate scenario in the country by our, I mean, Reserve Bank of India, not comparing with the -- what the U.S. Fed. So what are our views going forward on the profit income from the treasury and also reevaluation of the assets and other?

[Sudarshana Bhat, executive]

Ajmera ji, thank you very much for the question. As we projected during the first quarter of the financial year that a lot of things will come into action, like indexation, bond indexation and borrowing cut, and all those things and subsequently rate cut by Federal Reserve in September 50 basis points instead of 25 basis points. Subsequently, European Central Bank and Bank of India also cut the rate by 50 basis points and 25 basis points, and RBI stance on the outlook from neutral to accommodation, these all have given a clear indication about the outlook, very good in the futuristic view of the market. Subsequently, during the recent conversation, there is a clear-cut indication that inflation is very high and RBI may not be in a position to cut the rate in the near future unless the probability of very visible.

But there are some political situations within Federal Reserve, and we know this also that election matters. All those things given a mixed reaction into the market. But however, the global condition as well as Indian market conditions are very favorable in the coming days because after the -- usually, the market moves -- after the Diwali, the New Year, the market react in a positive manner because of the ample liquidity availability and stability of the rupee because in spite of INR 40,000 crores to INR 50,000 crores of outflow in the FIS on account of the redemption of the equity, still rupee is at a level of 84 level. That gives a clear indication in the market as well as to the market participation that there will be stability in the liquidity as well as interest rate outlook.

We are hopeful that we have positioned ourselves in the coming days to take the advantage of the market, whatever the things have happened based on the projection, we have booked a profit. In the next 2 quarters also, we take a defensive and positive view of all those factors, and view a decent 20% to 25% growth in the treasury income.

[Ashok Ajmera, analyst]

That's good. Bhat saab, always very positive. And your actions definitely is getting good profit to the bank. Thank you very much for this elaborate commentary on that.

[Arumugam Manimekhalai, executive]

Thank you.

[Operator]

The next follow-up question is from the line of Mahrukh from Nuvama Wealth Management.

[Mahrukh Adajania, analyst]

I just wanted to check that last quarter, the penal interest was applicable only on incremental loans. And this quarter, it's on outstanding loans. Is that understanding correct? So then...

[Unknown Executive]

Yes, yes. Yes, that's right. That's correct.

[Mahrukh Adajania, analyst]

Okay. So then next quarter, incrementally, the impact should be lower. It will continue, but it should be a lower impact, right? Just on NII. I know it comes back as noninterest, but...

[Unknown Executive]

Yes, it should -- yes, we will, of course, have a deeper look at that. But yes, it could be lesser. But the impact will still be there, and it'll probably be higher than Q1.

[Mahrukh Adajania, analyst]

Right, right. Got it. And then if you just see the other interest, right, other interest as in that interest from interbank funds and maybe RBI, it's gone up by INR 1 billion. So that's just because of liquidity or what? .

[Sudarshana Bhat, executive]

This is on account of the available liquidity surplus that has been deployed to get a decent written, madam.

[Mahrukh Adajania, analyst]

Okay. So the FX swap income will be how much from that?

[Sudarshana Bhat, executive]

So that will be around INR 700 crores to INR 750 crores, madam.

[Mahrukh Adajania, analyst]

That is the same like last quarter?

[Sudarshana Bhat, executive]

Yes, yes, it will be there.

[Operator]

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

[Dixit Doshi, analyst]

My first question is, can you give a breakup of our MCLR linked and extend benchmark linked loan?

[Arumugam Manimekhalai, executive]

Yes. MCLR is about 47%. That's the breakup and the remaining 49% is EBLR. 43% is EBLR. Out of that, repo is 29 and 17 is TBLR, which is a great rate than the other rates.

[Dixit Doshi, analyst]

My second question is regarding your outlook on the NIM. So where do you see our NIMs over next 3, 4 quarters? Because even without the interest rate cut by the RBI, we are seeing the pressure on the NIM. So if not in December, let's say, in January, February, we will see a rate cut. So how do you see your NIM over next 2, 3 quarters?

[Arumugam Manimekhalai, executive]

We have given a guidance at the beginning of the year that the NIM would be in the range of 2.8% to 3%. And currently, our NIM is about 2.97% and with a good MCLR book that we have, we will be able to keep our NIM at that range only, 2.8% to 3%.

[Operator]

The next question is from the line of Ashlesh Sonje from Kotak Securities.

[Ashlesh Sonje, analyst]

A couple of questions from my side. Firstly, on this PSU exposure default, it seems that the government is now fine PSU entities defaulting on bank loans. How does it change your view on lending to PSU entities going ahead?

[Unknown Executive]

See, we have to understand that the default can happen from any, whether it's a private or PSU, it is under some of the critical area because of that it is happening. We also -- there is no special dispensation has been given by the bank in appraising or underwriting the PSU loans also. So we follow the same structures only, and we are doing it. So I don't find any difference in underwriting or there is any separately we are doing any underwriting standards for the PSU. So this is a normal business risk, which the banks are undertaking and the pricing also is depending on that only.

[Ashlesh Sonje, analyst]

Understood. Sir, and just to clarify, in the past, have you experienced a loss on any of your PSU exposures in the history?

[Unknown Executive]

No, I am not able to get the question.

[Unknown Executive]

In the past, do we have PSU exposure?

[Unknown Executive]

No, I think, we -- I think, a long time back, there are 1 or 2 there actually.

[Ashlesh Sonje, analyst]

Okay. Understood. And second question on the cost of deposits. What proportion of your term deposits are yet to be repriced fully to the fresh TD rates?

[Arumugam Manimekhalai, executive]

No. All the -- except for your core deposits of CASA, the retail term deposits will be repriced every -- as and when the date of contract comes in. It has to be repriced.

[Ashlesh Sonje, analyst]

Okay. But any sense of...

[Arumugam Manimekhalai, executive]

But one thing is most of our deposits, 17% of my deposits are in the 1-year range. So after a year, it will come out for repricing.

[Ashlesh Sonje, analyst]

Okay. Understood. And last one is a clarification. Under your fee-based income, there is an item called Others, which has increased 50% Q-o-Q to INR 1,167 crores. Is it fair to assume that this is the penal charges-related income?

[Unknown Executive]

Yes, yes. Penal charges is a part of that Others. You're right.

[Operator]

The next follow-up question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

[Dixit Doshi, analyst]

Just one clarification. So the account, which got slipped is PSU. But the account -- the other account, which is in the SMA, that's also PSU or that is some private account?

[Unknown Executive]

Yes, that is also PSU only.

[Dixit Doshi, analyst]

And both are state government or central PSU?

[Unknown Executive]

No, PSU is a central government.

[Dixit Doshi, analyst]

Okay. So the one which has slipped is central government and the other one is a state government?

[Arumugam Manimekhalai, executive]

No, both are...

[Unknown Executive]

No, no, slipped that is different context. Other than these 2, there was 1 or 2 accounts, which the state government part we have given. It was for 1 or 2 days, it came as an SMA on September, which was cleared subsequently.

[Operator]

The next question is from the line of Sushil Choksey from Indus Equity Advisors.

[Sushil Choksey, analyst]

Congratulations to team Union for a stable result.

[Arumugam Manimekhalai, executive]

Thank you, Choksey ji.

[Sushil Choksey, analyst]

My first question is credit visibility in terms of sanctioned pipeline, which is unavailed and what kind of visibility for the growth in the second half, specifically in view of the guidance, which you've given to the previous questions?

[Arumugam Manimekhalai, executive]

Okay. We had given the guidance of 11% to 13%. We have got a healthy pipeline, actually. If you see our sanctions, in this quarter, we have got about INR 76,000 crores of sanctions for the current quarter -- for this one. And out of this, INR 36,000 crores is pending for disbursement. So we have got a healthy pipeline also. And we hope that if the CapEx cycle comes back, we will be able to disburse much faster and whatever the sanction limits that we have got, that also we may quickly disburse.

[Sushil Choksey, analyst]

Ma'am, the visibility is more coming from private sector or public sector?

[Arumugam Manimekhalai, executive]

It's more on the public sector. We have growth -- and some of the private sector is also in the area of real estate, telecom, iron and steel. Sunrise sectors like the renewable energy, semiconductor, data centers, tourism, there are many areas that we have given. Ports are there. So many areas, we have given our sanctions.

[Sushil Choksey, analyst]

Ma'am, how's the visibility in the festive season where retail loans are concerned, specifically car loans, housing loans? With the environment being so competitive and rates being offered by majority banks are pretty low. So how is the visibility there?

[Unknown Executive]

In retail loans, we have grown last quarter in the range of 5.88%.

[Arumugam Manimekhalai, executive]

Choksey ji, actually, we have done very well in the last quarter in the sector of retail loans. Home loans and the vehicle loans, we saw about -- close to about 15% growth and a very good growth in our education loan sector also. Festive seasons are usually the time when retail registers a higher growth. And we hopefully want to see a better growth in our vehicle loan sector, home loan sector in this quarter also.

[Sushil Choksey, analyst]

Ma'am, my next question is more pertaining to treasury. So you can answer or Mr. Bhat can answer.

[Arumugam Manimekhalai, executive]

Yes, Mr. Bhat is there to answer.

[Sushil Choksey, analyst]

So ma'am, the world expects a little volatility with U.S. presidential election. RBI Governor has made very specific that early rate cut is not required, but it seems that 2025 rate cut is certain, maybe in the first quarter or later part. In view of the volatility, which is there in the money market led by Treasury and Exchanges both, how are we garnering to position ourselves by encashing sufficient treasury and converting into corporate loans or retail loans, where the arbitrage is visible at 1.7% to 3% depending what loans are your sanctioning.

[Sudarshana Bhat, executive]

As far as volatility is concerned here, after the Governor statement and U.S. elections outcome, there will be clarity on the volatility. Until that time, expectation of the futuristic things happening, market will position themselves in the exchange market. But as far as India is concerned, RBI is quite visible to have stability in the exchange rate in spite of so much volatility in the global exchange rate, but Indian rupee is very stable. [ Depends at 84 to 84 term ] level. That indicates a clear-cut direction from the Reserve Bank that they want to stabilize the rupee. Once the rupee stability happens, almost all other factors like liquidity, interest rates and various other factors in spite of the geopolitical conditions and crude oil prices uptick and global imbalances, still Indian conditions are far favorable.

We, as a treasury, along with the relationship team coordinate with the various corporate to encourage the benefit of getting more and more business opportunities in respect of the foreign exchange, interstate products, and other sectors so that we can definitely margin ourselves and generate additional fee income by way of exchanging the information and timely interaction with them, and giving the market outlook to generate additional business as well as overall growth in both treasury credit and whatever the aspect available from the segment.

[Sushil Choksey, analyst]

So if the foreign exchange income, FX arbitrage income, which was very sustainable compared to other banks likely to be visible in the second half?

[Sudarshana Bhat, executive]

Yes, because this depends on the liquidity condition. We are having comfortable liquidity and there is a good arbitrage opportunity available because expectation of the interest rate cut in the U.S. by 200 basis points in the next 1 year. So there is a spike in the premium market, that will be able to generate a decent arbitrage as and when the liquidity available into their system.

[Operator]

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

[Unknown Executive]

Just before that, there was a question from Ajmera ji on the SR in Note #15. So the amount is not material, it's only INR 2 crores. So that covers that question as well.

[Unknown Executive]

Thank you, everyone, for joining on the call. As we have discussed in the call that the bank performance in the Q2 has been in line with the guidance. And there were certain development during the quarter in terms of the slippage of one large account, which also we had guided actually in the con call of the first quarter. Other than that, everything has been in line. Also that some of the initiatives that bank has taken during the current year, particularly in terms of CASA mobilization and which we have spoken earlier also.

Hopefully, in the second half of the year, we should see good outcome out of that as well as the -- some of the steps that we have taken for MSME loan growth, both in terms of the product and the reach out through specific branches. I think that should also see the positive outcome. And thirdly, on the digital area also, we have taken several initiatives. We have been talking about that. Hopefully, in the second half that we are in, we'll see some of these getting rolled out for our customers and creating value for the bank. So thank you once again for joining and for your feedback.

[Arumugam Manimekhalai, executive]

Thank you, everyone.

[Operator]

On behalf of Union Bank of India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.