MOSL: UNION BANK OF INDIA (Neutral)-High provisions offset PPoP growth-net stressed loans increase QoQ

​Union Bank of India: High provisions offset PPoP growth; net stressed loans increase QoQ

(unbk IN, Mkt Cap USD1.4b, CMP INR134, TP INR140, 4% Upside, Neutral)

• UNBK reported PAT of INR1.17b (+8%/-30% QoQ/YoY). PPoP growth of -5%/+16% QoQ/YoY on the back of strong trading gains (46% of other income) was offset by elevated provisions of INR17b (+26% YoY). Provisions included INR294m of additional provisions toward standard accounts in the telecom sector; however, NPA provisions also remained elevated at INR18.76b, the highest in five quarters.
• NII growth was muted at -6%/7% QoQ/YoY, impacted by INR327m of interest reversals on SDR and S4A accounts. Domestic/global NIM contracted 20bp/21bp QoQ to 2.2%/2.06%. Trading gains of INR6.5b (46% of other income) helped prop up other income. Fee income grew -12%/5% QoQ/YoY.
• Gross and net slippages were the highest in five quarters. Gross slippages soared 51% QoQ to INR44.5b (6.9% slippage ratio), while recoveries and upgrades were subdued at INR5.4b, leading to net slippage ratio of 5.8% (five- quarter high). Overall pool of NSL (NNPL + OSRL + other stressed loans) was flat QoQ at INR33.3b, but increased to 12% of advances on a sluggish loan book. Agri slippages jumped to INR6.96b v/s INR2.74b in 4Q, while five large corporate accounts contributed INR20b.
• Other highlights: (1) RAM portfolio grew 13% YoY, led by 19% growth in retail. (2) CASA deposits rose 25% YoY, led by 28% growth in SA deposits. Avg. daily CASA ratio declined marginally QoQ to 33.5%.