Union Bank of India reported a record quarterly net profit in the three months ended December 2024 amid a sharp rise in non-interest income even as the state-run lender took a call in not pushing for aggressive growth due to spike in cost of funds. 

Union Bank of India managing director and CEO A Manimekhalai said the state-run lender's business  growth in FY25 could be closer to the lower end of the guidance range made at the start of the current fiscal.

The Mumbai-based lender had guided for 11-13% loan growth and 9-11% deposits growth in FY25.

As against this, the bank has achieved in the first nine months of FY25 advances growth of 5.9% to Rs 9.5 lakh crore while deposits have risen 3.76% to Rs 12.16 lakh crore. The total business has grown to Rs 21.66 lakh crore as of 31 December 2024.

The bank’s strategy, Manimekhalai emphasised, is to prioritise profitability and operational efficiency rather than aggressive growth. 

What the bank gave up in terms of business growth, it made up in  profitability and asset quality. The moderation in growth was driven by the lender’s decision to shed high-cost bulk deposits of Rs 30,000 crore in the third quarter of the current fiscal.

Net profit in the December quarter rose 28.24% year-on-year to Rs 4,604 crore, backed by a healthy growth in non-interest income. This incidentally marked the bank’s highest-ever quarterly net profit.

Operating profit grew to Rs 7,492 crore, from Rs 7,278 crore a year ago.

For the quarter ended December 2024, Union Bank reported a net interest income (NII) of Rs 9,240 crore, climbing just 0.79% year-on-year. 

On the other hand, non-interest income, including fees, commissions, treasury revenues and recoveries, jumped 17.02% year-on-year to Rs 4,417 crore.

Net interest margin (NIM) fell 17 basis points to 2.91% in the fiscal third quarter due to spike in cost of funds.

The bank’s asset quality improved, with the gross non-performing assets (NPA) ratio at 3.85% as of 31 December 2024, down 98 bps from the year-ago period. This was at 4.36 in the September quarter.

Net NPA ratio improved by 26 bps year-on-year to 0.82%.  A quarter ago, this was at  0.98%.

In absolute terms, gross NPAs came down by 15.5%  to Rs 36,554 crore and net NPAs by 19.07% to Rs 7,568 crore. Credit cost rose from 0.56 % to 0.63%.

The bank has built up a strong pipeline of Rs 75,000 crore of corporate loans awaiting disbursement and sanctions, Manimekhalai said in a post-earnings call. There is a good number of loan proposals coming from sectors like road, energy, telecom, renewables and EVs. “This will help grow the loan book,” she added.  

The bank  will continue to focus on the retail segment in the current quarter as well as look at the corporate sector to push for growth.  

During the quarter ended December, retail loans grew 16.36% year-on-year to Rs 2.01 lakh crore. Agriculture loans grew 4.34% while the MSME (micro, small and medium enterprises) book was up 6.34%. The RAM (retail, agriculture and MSME) segment increased 9.26%. RAM advances constituted 56.69% of domestic advances as of 31 December 2024.

Provision coverage ratio on non-performing loans stood at 93.42% as on 31 December 2024, improving from 92.54% a year ago.

Capital adequacy ratio rose to 16.7% from 15.03%.