Repricing of assets and a strong pipeline of loan proposals will help Union Bank of India to protect its net interest margin (NIM) at 3% in the current financial year, the state-owned lender’s chief executive officer A Manimekhalai said.

In the quarter ended June which saw NIM expand to 3.13% from 3% a year before, the bank has repriced 25% of the loans which are linked to the marginal cost of funds-based lending rate (MCLR).

Of the bank’s total domestic advances of Rs 7,93,448 crore, 50% of the loans are linked to the MCLR. Besides repricing 25% of the loans in the fiscal first quarter, the bank is expecting a strong credit growth with Rs 25,000 crore of loans under various stages of disbursement.

“We have about Rs 75,000 crore of loans which we can reprice over the course of the next three quarters. So, we are confident of maintaining the NIM at the current levels,” said Manimekhalai.

Union Bank of India is one of the few banks which has seen its deposits grow faster than credit. The state-run lender reported a deposit growth of 13.63% in the quarter ended June 2023 compared to its credit growth of 12.33%.

“The banking sector remains strong and the pickup in economic activity will help us grow our credit. On the liability side, we are trying to increase CASA (current account savings account) deposits in our mix. But if credit outpaces deposits, we may have to contract more bulk deposits,” said Manimekhalai.

As of 30 June, the share of CASA to overall deposits fell to 34.6% from 36.2% a year before. In the preceding quarter, the bank’s CASA stood at 35.62%.

“Our focus is to grow our CASA deposits. We are working on various initiatives to improve our share of CASA deposits. The bank has opened a special vertical to mobilise CASA deposits. Special products have been launched for women and children to boost our share of low-cost deposits,” Manimekhalai said.

Though there is pressure on cost of deposits to go up, there is cushion on the liquidity side. “There is enough liquidity in the banking system which will keep the rates on the bulk deposits under check,” Manimekhalai told analysts in a post-earnings call.

The other initiative that the bank is taking on a war footing is recovery from write-off accounts. The bank has set a target of recovering around Rs 15,000 crore from write-off accounts. In the first quarter, the bank has already recovered over Rs 3,000 crore. 

Union Bank of India expects the gross non-performing assets (NPAs) ratio to fall below 6% by March 2024. As of June 2023, the bank’s bad loan ratio stood at 7.34%.

Shares of the bank rose 3.84% to close Friday at Rs 90.29 apiece on the BSE.