Union Bank of India : Transcript of Post Earnings call for Quarter ended June 30,2024

"Union Bank of India Earnings Conference Call for the

Period Ended June 30, 2024"

July 20, 2024

MANAGEMENT : MS. A. MANIMEKHALAI	-	MANAGING DIRECTOR &
		CHIEF EXECUTIVE OFFICER
SHRI NITESH RANJAN	-	EXECUTIVE DIRECTOR
SHRI RAMASUBRAMANIAN S. - EXECUTIVE DIRECTOR
SHRI SANJAY RUDRA		- EXECUTIVE DIRECTOR
SHRI PANKAJ DWIVEDI	- EXECUTIVE DIRECTOR
SHRI AVINASH PRABHU		- CFO
SHRI AJAY BANSAL -		HEAD, INVESTOR RELATIONS

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Union Bank of India

July 20, 2024

Moderator:Ladies and Gentlemen, Good Day and Welcome to the Union Bank of India Earnings Conference Call for the Period ended June 30th, 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.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing "*" and then "0" on your touchtone phone. Please note that this conference is being recorded.

Now, I hand the call over to Mr. Ajay Bansal - Deputy General Manager. Thank you and over to you, sir.

Ajay Bansal:Thanks, sir. 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 June 30th 2024.

The structure of the con call shall include a brief opening statement by respective M.D. and CEO ma'am, and then 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 statement based on the current expectations. These statements involve a number of risks, uncertainties and other factors that cause the actual result to differ from the statement. Investors are therefore requested to check this information independently before making any investment or other decision.

With this, I now request our respective M.D. & CEO ma'am for her Opening Remarks. Thank you and over to you ma'am.

A. Manimekhalai: Good afternoon to all of you. I welcome you to Union Bank Financial Results Announcement for the 1st Quarter ended June 30, 2024. Thank you for joining us today. I trust you have reviewed our results.

Let me "Provide an Overview of our Performance and Key Highlights for this Quarter":

The 1st Quarter is typically a flat season compounded by election impact and annual staff transfers, resulting in not-so-good business growth.

As far as the banking industry is concerned, the credit growth has been outpacing deposit growth, increasing competition for liability. We are mindful of this fact and implemented several strategies to address this challenge, which I will discuss in detail later.

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The guidance versus the actual performance:

Let me just give you a brief with regard to what the guidance that the Bank had given and the performance of the Bank. The deposits have grown by 8.5% YoY, advances by 11.5%, largely in alignment with our guidance range of 9% to 11% for deposits and 11% to 13% for advances. Our NIM is at 3.05% surpassing our guidance of 2.8% to 3% for FY25.

On asset quality:

We are showing consistent improvement in the past several quarters. In line with our guidance, gross NPA reduced to 4.54% with gross recovery at 3,368 crores and slippages restricted to 2,318 crores.

With regard to my growth:

We aim for a sustainable growth balancing top line and bottom-line performance. As per latest RBI data as of June 2024, SCBs reported 10.6% YoY deposit growth and 13.9% growth in credit vis-à- vis our Bank reported 8.5% growth in deposits and 11.5% growth in advances. Both on YoY and QoQ basis, the deposits and advances of the Bank is positive. We are not growing our top line at the cost of our bottom line. CASA and retail term deposits form 72% of our total deposits and we are maintaining this ratio consistently for a long time.

Now, with regard to my Q1 highlights:

Total business of the Bank reached Rs.21.36 trillion with deposits of Rs.12.24 trillion and advances at Rs.9.12 trillion, while our SB deposit registered a YoY growth of 4.6%, CASA on a whole grew by 3.7% and term deposits registered a growth of 9.5%.

We grew better under RAM advances by 14.5%, while large corporate advances grew by 7.8%. Higher growth, we have seen under gold and an education loan and also vehicle loans.

Net profit of the Bank has reached Rs.3,679 crores in June quarter, a growth of 13.7% YoY and 11.1% QoQ basis. Operating profit of the Bank is at Rs.7,785 crores with 8.5% YoY growth and 19.1% QoQ basis. GNPA has reduced by 280 bps, net NPA has come down by 68 bps to 0.90%, PCR has improved by 263 bps to 93.5%. The credit cost improved to 0.73%, grew by 24 bps YoY. ROA has improved to 1.06% and ROE to 15.7% as of June 2024. The implementation of the new investment norms has positively impacted our portfolio.

With regard to CASA growth, we have taken a lot of initiatives, and we hope to increase our CASA base based on the various initiatives that the Bank has taken.

During the quarter, the major achievements that the Bank has achieved is S&P Global Rating has revised our outlook to positive aligning with the sovereign rating of the country. India Rating upgraded our rating to AAA Stable, one notch up.

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Union Bank of India

July 20, 2024

We have opened the first branch in Lakshadweep at Agatti and also opened 12 premium branches in

	the RUSU locations.
	We also have a plan to raise capital to the extent of Rs.10,000 crores for FY25. It has been approved
	by the board, of which Rs.6,000 crores will be equity and Rs.4,000 crores through AT 1 and Tier
	2 instruments.
	In conclusion:
	I want to emphasize the Bank has been very consistent in performance. Our balance sheet is quite
	strong, stable and sustainable. The key initiatives we have taken with regard to underwriting
	capabilities, centralization, verticalization, HR transformation, and robust assurance framework all
	are yielding good results for the Bank.
	Before I conclude, I want to address yesterday's outage regarding the Microsoft system. I want to
	emphasize that the Bank has not been impacted with regard to the outage.
	I conclude here and now we are open for questions. Thank you.
Moderator:	We will now begin the question-and-answer session. The first question is from the line of CA Dr.
	Ashok Ajmera, Chairman Ajcon Global. Please go ahead.
Dr. Ashok Ajmera:	My only little observation and concern, ma'am, is on the credit and deposit growth, especially in this
	quarter which is totally I mean muted, 0.59% domestic credit grew, and the deposit reduced from
	Rs.11,99,197 crores to Rs.11,96,168 crores as far as the domestic deposits are concerned. So, this is
	my first question that in the remaining quarters like when we have to grow our credit books even as
	per your target of almost about Rs.1,10,000 crores, that is almost about	Rs.36,000 crores per
	quarter minimum, how do we plan to grow that credit book and equally the deposit also, and which
	are the areas from where, because our agri portfolio has already grown much?
Ramasubramanian S.:	See, if you are looking at actually our growth, the banking industry is presently undergoing the equity
	trend that the deposits are very difficult and there is a high cost, it involves a large cost for the
	increase in the deposit, but at the same time, if you're looking at it, our retail, there is a steady growth
	of around Rs.3,000 crores we have increased in the quarter despite being one of the flat quarters

normally in the banking industry, being the 1st Quarter. If you're looking at it, as madam has already informed that we are taking the main various initiatives for increasing our deposits. There will be a special focus on CASA. We have taken a project where we are reaching out to our ETB and also new-to-Bank clients for balancing the CASA accounts. As ma'am told, we have also opened some premium branches, catering to these clients. The premium branches will be only catering to the CASA clients so that there is a steady growth of CASA in the coming days. So, already the Bank is aware of the situations, and we have already initiated many, many projects in this regard to keep our market share at the existing level. As regards to credit, if you are looking at the last quarter also, our RAM sector growth is 14%, which is in tune with the market. There is a reduced growth in the corporate sector where actually because some of the low yielding advances have been shut down

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	during the last quarter, and our CD ratio also, we want to maintain between 73% to 76%. So, Bank
	is very well aware of it. If you are looking at the credit, once the private capex come into full Force,
	Bank is ready already, if you're looking at it, we are having an excess liquidity of around Rs.65,000
	crores. So, Bank is ready to increase the portfolio in the coming days.
Dr. Ashok Ajmera:	Ma'am, just due to the change in the classification and valuation norms of the investment, our AFS,
	there is an increase of Rs.1,702 crores which has gone to the general reserve. But, if you take it, our
	net worth which was Rs.87,601 crores given in the result and if you add the profit of Rs.3,678 crores,
	the total should come to Rs.91,279 crores but it is Rs.93,748 crores. So, net worth has gone up by
	Rs.2,470 crores versus the AFS increase in the valuation of the general reserve of Rs.1,702 crores.
	So, about Rs.700 crores has gone further into the reserve if you look at the networth difference
	between the March end and the June quarter. So, what is that component of that Rs.700 crores, the
	additional increase in the networth, is it zero coupon bond, some calculation?
Sudarshana Bhat:	As far as investment in new norms are concerned, which has been implemented from 1st April
	onwards, whatever the impact on that general reserve is Rs.1,702 crores after tax, which has been
	added in the general reserve. In addition to that, around Rs.20 crores, whatever the June quarter
	addition is there, that has been added to AFS reserve. Total addition is Rs.1,722 crores on account of
	changes in the investment guidelines which effect from 1st April 2024 onwards.
Avinash Prabhu:	This is Avinash Prabhu. Basically, the Rs.700 crores that you're talking about is the reduction in
	DTA. So, because there's a reduction in DTA, you're seeing that differential of Rs.700 crores. So,
	that's why our networth has increased.
Dr. Ashok Ajmera:	That is why Networth has gone up another Rs. 700 crores. Ma'am, certain on the notes to the
	accounts, there is a fraud in the note #9, the fraud is reported Rs.465 crores, the outstanding is Rs.341
	crores in this quarter in 128 basis. So, number one, it's a very high number in the first one quarter
	itself. Secondly, how much is of these frauds are on the borrower account and how much is on the
	digital and other cyber frauds and what are the chances of recovery out of this Rs. 341 crores
	outstanding which has been fully provided for?
A. Manimekhalai	Maybe in terms of Reserve Bank of India guidelines, now all the frauds, even though if the Bank is
	not responsible for that, but it is on the digital platform, it has to be classified as fraud and we have
	taken this up with the RBI in this regard. So, almost like 70% to 80% of these frauds are digital
	frauds of small in nature and of course the remaining are credit and credit fraud that is happening.
	The Bank has taken lot of initiatives with regard to this. We have opened the separate transaction
	monitoring department in the Bank. We also have reconciliation department. We have put a lot of
	steps with regards to arresting the digital frauds as well as with regard to the various transaction
	fraud that's happening. Real-time monitoring of all the transactions are happening in the Bank. We
	are also putting velocity checks and customer profile, AI we have taken this. So, we are taking up a
	lot of measures to arrest the fraud and you must be aware that the Bank is operating at 24/7 cyber
	security operations center also at Hyderabad. So, with these initiatives, we hope to reduce the number
	of digital frauds that's coming up with the Bank, plus also the transaction frauds are happening within
	the Bank.
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Moderator:	We will move to the next question which will be from the line of Mahrukh Adajania from Nuvama.
	Please go ahead.
Mahrukh Adajania:	Ma'am, firstly on PSLC income, while of course it's always strong in the 1st Quarter, it is kind of
	doubled. So, who would be the main buyers -- would it be Foreign Banks, Private Banks, who are
	the main takers of PSLC because the demand this quarter looks to be significantly higher than last
	year, right, where last year's 1st Quarter also there was good income, but this time it's even better?
	And what is it that sells the most -- is it agri-gold or what? That's my first question and then I have
	a question on cost of funds as well.
Sudarshana Bhat:	as far as PSLC is concerned, it is traded on the platform which is open to all the buyers. We are not
	able to understand who is the buyer and who is the seller. It is a platform where it will be dealt based
	on the demand/supply, but usually on observation during the last quarter, when the sale took place
	major buyers look to be a Private Sector Bank, who are in the segment.
Mahrukh Adajania:	Sorry, I did not hear the last point.
Sudarshana Bhat:	Private Sector Banks who are having the shortfall in that segment. It was traded at a range of Rs.1.80-
	2.00 during the quarter.
Mahrukh Adajania:	And then what would be the amount of recovery income or dummy interest in NII and any swap-
	related income in NII this quarter?
Sanjay Rudra:	For the last quarter it was Rs.607 crores. And what you asked about the second question?
Mahrukh Adajania:	In NII, you have some swap-related income every quarter, right? So, what was it this quarter?
Sudarshana Bhat:	Yes, it will be around Rs.700 to 800 crores, madam. It is on par with the year and quarter basis,
	similar income. There is no change as much.
Mahrukh Adajania:	Just one last question on cost of funds. Obviously, there's no business growth given that it's the 1st
	Quarter and it's a dull quarter for the banking sector. But, as liabilities are challenging, you yourself
	pointed out deposit growth being slower than loan growth and that there are special offers given by
	all Banks on term deposit, do you see an upward movement in the cost of funds in the quarters ahead,
	this quarter it has somewhat declined?
A. Manimekhalai	Actually if you look at this, QoQ, the cost of deposits is slightly reduced by 5 bps over	March
	'24. It is because we did not take much funds in the market and we have got enough of liquidity with

us. That's the reason the cost of deposits has fallen in this quarter. But going forward, looking at the increase in advances, we would like to borrow funds or raise more term deposits and that is the time that we will be looking at increasing probably rate of interest. And as of now we are very competitive in the market with regard to deposit rate and we look at the tight liquidity position and dividing gap between the deposits and the credit growth, plus we also have quite good excess SLR growth. So, we were not looking at increasing the cost of deposits to a great extent.

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Moderator:	The next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.
Suraj Das:	Couple of questions. One is on the yield on advances, that has declined on a QoQ basis. If you can
	shed some light, I mean, what is the actual behind that? And has there been any impact because of
	this revised payment charges guidelines?
A. Manimekhalai	Yes. Yield on advances has declined by about 15 days, primarily due to the fall in our DL recovery.
	About 11 bps impact it had because of the DL recovery compared to the previous quarter. We also
	saw a small increase in the average advances, that's about Rs.10,000 crores increase in the average
	advances. That's the reason there has been a decline, and plus if you look at this we were able to pass
	on the MCLR reset of only 25 bps during the year. So, that is the reason that if you look at YoY there
	is a decline in the yield on advances.
Suraj Das:	So, the second question is on the standard asset provision. So, I think this quarter you have provided
	something like Rs.1,300 crores and similarly, I think if I see let us say SMA-0, that book has also
	increased. So, if you can shed some light here?
A. Manimekhalai	Standard asset provisioning, we have done to the extent of about Rs.1,296 crores. It's increased to
	that extent. This increase is due to an anticipated distress or potential restructuring in a couple of
	accounts. That's the reason that we have done this additional provisioning.
Suraj Das:	And then the rational of increasing?
A. Manimekhalai	Rational also is there in SMA-0. That's the reason that our SMA-0 numbers have also gone up.
Suraj Das:	Last question would be on the NBFC growth. I think in your corporate slide deck, you have given
	the exposure to NBFC has grown substantially on a QoQ, YoY, both basis. So, I mean how you are
	looking at this growth probably in the coming quarters?
A. Manimekhalai	No, if you look at QoQ, there is not much of an increase in NBFC, but YoY of course from
	Rs.1,07,795 crores to Rs.1,20,065 crores that's how the NBFC book has grown. But we have shared
	lot of numbers on the NBFC book plus our other low yielding advances book also close to Rs.15,000
	crores is what we have.
Ramasubramanian S.:	To add to that, if you are looking at other Banks growth in NBFC, it is from the RBI data, we find
	that it is a 15% growth is shown, whereas our growth is around 14%. Still, we are having a room we
	will be taking.
A. Manimekhalai	We have shared almost Rs.5,000 crores in. our NBFC book. If you look at December '23, it was at
	Rs.1,25,540 crores and today we are at Rs.1,20,065 crores.
Suraj Das:	What could be the rating here? I'm assuming this would be double A or AAA rated NBFCs?

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A. Manimekhalai	Yes, my NBFC portfolio, if you look at almost like 99% is A and Above and 1% is Triple B and
	Lower.
Moderator:	The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private
	Limited. Please go ahead.
Dixit Doshi:	So, I have three questions. Firstly, as you mentioned that the standard asset provisions we are
	anticipating some loan accounts defaulting. So, also do you feel that we will increase the standard
	asset provision going forward also or it was maybe one-off this quarter and this will be such high
	provisions in the future quarters as well?
A. Manimekhalai	Yes, this is a one-off provisioning of a certain couple of accounts and that's the reason that we have
	done this.
Dixit Doshi:	So, from next quarter onwards, this amount will be lower.
A. Manimekhalai	Yes, in the next quarter, it may not come up.
Dixit Doshi:	My second question is regarding this recent Telangana Government farm loan waiver. So, first thing
	is, will it impact us? And also, secondly so how this will be recorded in the books of accounts, will
	it be like those accounts move to the entry and the government will pay us at a later stage or I think
	the amounts are transferred to the farmers account, so can we do the auto debit kind of?
A. Manimekhalai	It's done usually, the amounts are credited to the farmers account and from there it is credited to the
	loan account. And it has just started. So, we will not know the impact because we are doing it in two
	phases. The second phase will be completed by August 15th. So, we will know the exact by that
	time.
Dixit Doshi:	The amount will be transferred to loan account. So, we don't anticipate a significant jump in the
	GNPA because of this, right?
A. Manimekhalai	No.
Dixit Doshi:	So, our capital adequacy is quite strong at 17% and we are targeting a growth of 11% to 13%. So,
	this Rs.6,000 crores equity raise, is it just the provisional approval we have taken, or do you really
	feel that we will require this much fund?
A. Manimekhalai	Yes, we are quite comfortable, as you say, with regard to the capital adequacy is concerned, we have
	enough capital to take care of our growth. But we have taken a board approval to raise capital in case
	there is a capital cycle revival and then the growth profits the Bank also increases and the ecosystem
	also increases, we would like to have more capital to take care of that.
Moderator:	The next question is from the line of Jai from ICICI Securities. Please go ahead.
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Jai:	My question is sorry again on this standard assets provisioning of Rs.1,200 and plus crores. Is this
	entirely due to some rising the SMA that you have seen, or this also includes the usual higher
	provision on restructured assets?
A. Manimekhalai	Because of those couple of accounts that we are finding a potential stress, that's the reason that it has
	been done.
Jai:	These are like large corporates, right? So, if you can mention the sector and the like overseas account
	also?
A. Manimekhalai	Not overseas sector, these are domestic ones only.
Jai:	And the amount even if I look at SMA right, it is only Rs.5,000 crores, usual trend of Rs.1,000 crores.
	So, it looks like that the increase is more like Rs.4,000 crores?
A. Manimekhalai	Yes, exactly.
Jai:	And against that you have taken a like 25% kind of provisioning?
Avinash Prabhu:	Yes, but Jay, it's not necessary that these accounts have to be in SMA. So, we have looked at the
	overall book and We have identified like ma'am said a couple of cases where we could need
	additional provisioning and that's why. So, it's not necessary that it has to tie-up with the increase in
	the SMA book.
Jai:	If you could mention the sector of these potential accounts, just to understand sector color there?
Avinash Prabhu:	Unfortunately, it covers a few sectors, and we don't want to get into those details at this stage.
A. Manimekhalai	Jay, no, as I told you, these are potential numbers that we are looking at. We have been upfront about
	it. So, we do not know how those accounts are going to behave. But as a prudent governance method,
	we have already provided for them.
Jai:	Then there's a question on this AFS new guidelines, right. In convention to that, there is a sharp cut
	in the AFS book also in absolute amount in both SLR and non-SLR, very sharp reduction in the
	absolute amount and similar to that I was under the impression that treasury income may decline
	because of this new guidelines. So, two questions here. One is why there is so much sharp cut in the
	AFS and non-SLR book in the AFS category, why not too much impact on the treasury income?
Sudarshana Bhat:	As far as treasury is concerned after the new guidelines, AFS book will not be treated as a trading
	book, it is a banking book. So, whatever the trading position to be taken, that should be taken in the
	HFT book. So, we have taken the position in HFT book instead of AFS book, and we have
	strategically done the exercise and we could able to book similar amount of profit which even
	otherwise annual shifting, other activities are not there, still we could able to generate a year-on-year
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	equivalent profit. That is the main reason for generating the equal amount of profitability in the
	treasury during the current quarter.
Jai:	Sir, there is Rs.150 crores of positive impact in the P&L, right, because of this treasury, because of
	these norms. If you could explain sir, what is that?
Sudarshana Bhat:	That is the mark-to-market gain on that which is not booked. It is accounted for daily basis and even
	quarter-end also. As per the new guidelines, we have to be done on the fair value and daily impact
	on all those portfolios will be taken into account in the P&L account. Since our HFT portfolio is
	having a position which is having a positive gain, that has been added to the P&L.
Avinash Prabhu:	See, basically this is the consequence of the new guideline, right. So, you see this across the banking
	sector where because there's a split in the held to maturity, AFS and FVTPL you see that these
	movements would happen in the 1st Quarter, but obviously you may see lesser volatility in the
	subsequent quarters.
Jai:	Ma'am in your opening remarks, you mentioned initiatives in CASA, and I think you mentioned a
	range of the loan to deposit ratio also. So, is that fair to say that loan growth in the near-term for next
	one to three quarters would be similar to deposit growth, right, I mean as you grow deposit, you will
	be able to lend as well, is that a fair understanding?
A. Manimekhalai	Yes, that is our strategy. We want to grow our deposits in line with our advances growth, but we have
	given our guidance for the year and we will be keeping to the guidance that we have given, but
	however, we have taken a lot of steps with regard to increasing the liability portfolio of the Bank and
	as I told you in the very beginning that we have also taken a consultant on both to increase to give
	us guidance on how to increase deposits, plus we are opening new branches and we are also opening
	new premium branches at RUSU locations to see that our deposits are growing. We have also
	established a customer service excellence cell for better service and complaint management and to
	take care of our existing to Bank customers. So, there are many strategies that the Bank has
	implemented during the last half year, and we hope to see good results and the gap between the
	deposit growth and advances growth will be reduced.
Kanika Pasricha:	This is Kanika, CEA. So, there are a lot of questions coming on wedge between credit and deposit
	growth and this whole issue around cost of deposits. While for our Bank, this quarter has been
	favorable, but overall, for the system we have seen on a macro basis, if you actually see the RBI
	itself in the latest financial stability report has come up with an analysis which shows that in high
	growth phases, typically, the wedge between credit and deposit growth lasts for 2 to 4 years. Now in
	the current cycle, which has started from April 2022, this wedge has been initiated between credit
	and deposit growth. 26 months have passed. We still have a year to go and the RBI itself is
	acknowledging that even for the next 12 months, that is going by historical examples of experience,
	this wedge may persist between credit and deposit growth. Similar issue for our Bank is actually for
	the system as well and it's reflecting in our guidance too. The second point is everybody is talking
	too much about CASA cost of deposits. Cost of deposit today for the banking system as a whole is
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