Union Bank of India has upped its recovery target for the current fiscal to Rs 16,000 crore after seeing a good run in the first half of the year, with Dewan Housing Finance Corporation Ltd (DHFL) alone accounting for Rs 1,650 crore. 

The state-owned bank, which had earlier set the target of recovering Rs 13,000 crore from bad loans in the current financial year, has already upgraded and recovered Rs 10,000 crore in the first six months of FY2022.

The bank, which reported a nearly three-fold year-on-year jump in its standalone net profit to Rs 1,526 crore in the September quarter, saw its recovery and upgrades up 75% during this period over the year-ago quarter, with the stock of bad loans dipping 16%. The gross bad loan ratio fell to 12.34% in the fiscal second quarter, from 14.71% a year ago.  

The second quarter’s profit came on the back of improving asset quality, lower provisions and strong growth in non-interest income. It was supported by the one-off recovery from DHFL, of which Rs 700 crore came in form of cash and Rs 950 crore as ten-year bonds.

“The profit came from an improving asset quality and a stable fee-based income. The yields on advances are likely to improve from here on as interest rates, particularly on the shorter end, are beginning to harden. With the Reserve Bank of India (RBI) sucking out excess liquidity, this process is likely to continue,” said Union Bank of India managing director and chief executive officer Rajkiran Rai.

Despite a surge in net profit, a matter of concern is the bank’s loan book growth which shrank 2.53% during the quarter to Rs 6,34,583 crore as corporate advances fell. The core interest income growth was 8% from the year-ago period and, in fact, fell 2.6% from the preceding quarter. 

With interest rates specially at the shorter end being very low, the management thought it did not make sense to contract the corporate advances where the margins were squeezed.

“The interest rates on the corporate credit, especially on the shorter end, was very low and they tend to squeeze the margins. So it did not make sense to contract the corporate loans. But the retail loans grew closer to 10% and agriculture loans also rose 13.06%,” Rai told analysts 

Provisions for bad loans and contingencies fell by 12.22% to Rs 3,723.76 crore from the year-ago period. 

The bank’s gross non-performing assets (NPAs) fell 12.64% of its gross advances to Rs 80,211 crore, from 14.71% (Rs 97,190 crore) a year ago.

However, net NPAs rose marginally to 4.61% (Rs 26,786.42 crore), from 4.13% (Rs 23,894.35 crore).

The bank wrote off a record Rs 10,714 crore of loans, which are fully provided for. Recovery of Rs 1,764 crore from written off accounts also helped boost the bank’s profits. 

Net Interest Income (NII) rose 8.52% to Rs 6,829 crore in the September quarter as the interest on deposits fell by 12.99% to Rs 9,195 crore and there was robust improvement in fee income, which rose 65.32% to Rs 3,978 crore. 

The cost of deposits was at 4.16% after CASA (current account savings account) improved to constitute 37.16% of the mix. The sharp growth in fee income was led by processing charges on advances and commissions on government business. The core interest on advances, though, was lower by 6.02% to Rs 11,165 crore. The interest on investment was also lower by 6.64% to Rs 4,916 crore. 

Total income during the July-September 2021 period rose to Rs 20,683.95 crore as against Rs 20,182.62 crore in the year-ago period.

The bank had fresh slippages of Rs 6,745 crore as Rs 3,586 crore of its corporate loans slipped into NPAs. Also, Rs 1,031 crore of agriculture loans slipped into NPAs, while Rs 1,526 of MSME and Rs 602 crore of retail loans also added to the pile of gross slippages. 

The bank had Rs 3,582 crore of recoveries and upgrades during the quarter. It restructured Rs 23,906 crore worth of loans. While Rs 12,304 crore of loans were restructured in the RBI restructuring  scheme 1.0, another Rs 9,133 crore came under the central bank’s restructuring scheme 2.0. Outside this, the bank restructured Rs 2,469 crore of MSME loans.

On a consolidated basis, the bank reported a net profit of Rs 1,510.68 crore in the fiscal second quarter, rising 183% from Rs 533.87 crore in the year-ago quarter.