Union Bank of India Concall Summary: Key Highlights and Q3 FY26 Results

Guidance & Outlook

• Loan Growth Outlook: Management expects stronger loan growth next quarter, supported by a sanctioned-but-undisbursed pipeline of INR 24,000–26,000 crore.
• Balance Sheet Strategy: The bank is consciously reallocating from high-cost bulk deposits, low-yield treasury assets, and IBPC into higher-yielding loans to protect profitability and NIM.
• Deposit / LDR Stance: Management maintained that deposit mobilization is not a constraint and intends to keep the loan-deposit ratio broadly stable, allowing only ~0.5–0.75% movement around current levels.
• Credit Cost Outlook: Management described current credit cost as very low but sustainable, with the CFO indicating 9M credit cost of ~26 bps and no expectation of a major change near term.
• ECL Transition: The bank estimates a net ECL gap of about INR 4,200–4,300 crore, but management believes it may be able to absorb the impact without using the full 5-year transition window.
• PSLC Income Outlook: Management expects better PSLC monetization in the coming quarters as the priority sector portfolio builds further.
• Operating Priorities: Key near-term execution areas remain CASA expansion through ecosystem banking, RAM-led loan growth, digital vertical rollout, and MUSKAAN-led process simplification.

Capex & New Projects

• IT Spend: The bank’s FY26 IT capex budget is around INR 1,600 crore, higher YoY, focused on infrastructure, network strengthening, and cybersecurity.
• Cybersecurity Program: Management said Phase II of the Resilient Center of Excellence is underway, with the cybersecurity COE expected to be near completion in the next couple of months.
• Technology Architecture: The bank highlighted a resilient operating setup with two data centers and two disaster recovery sites, plus active-active load balancing for digital banking.
• Project MUSKAAN: Around 300 processes are being simplified under MUSKAAN to improve employee productivity, customer service, risk management, and cost efficiency.
• Digital Business Vertical: The bank is setting up a digital business vertical with three service models: DIY journeys, assisted servicing through call centers, and branch-led digital origination/service.
• Branch Expansion: Management plans to open about 75 branches this year, with ~200 more branches to be added over time.

Financial Performance

• Net Profit: Q3 net profit stood at INR 5,017 crore.
• Interest Income: Interest income for the quarter was INR 26,443 crore.
• NIM: Net interest margin was 2.76%, versus 2.91% in Dec’24; management emphasized that margin pressure was contained despite cumulative rate cuts and sequentially improved versus the September quarter.
• Business Growth: Total business grew 5.04%, with gross advances up 7.13% and deposits up 3.36%.
• CASA Ratio: CASA ratio improved 140 bps QoQ to 38.41%, with CASA balances rising by about INR 9,000 crore.
• Profitability Ratios: Management indicated RoA of 1.35% and said RoE was the highest, though no specific RoE figure was given on the call.
• Treasury / Other Income: Other interest income was supported by RIDF/PSL-related income, with RIDF contribution at about INR 198 crore for the quarter; management also cited treasury income from FX, HTM sales, mutual funds, and swaps.

Operational Highlights

• RAM-led Growth: RAM advances grew 11.50%, led by Retail up 21.67% and Agri up 19.75%.
• Corporate Book Quality: Management said about 95% of the corporate book is BBB and above, underscoring the conservative quality of the portfolio.
• Portfolio Reallocation: During the year, the bank allowed INR 38,000–40,000 crore of high-cost bulk deposits to run off, reduced treasury assets by ~INR 15,000 crore, eliminated INR 20,000 crore of IBPC, and shifted around INR 10,000 crore from lower-yielding assets into loans.
• Asset Quality: Management said both GNPA and NNPA declined; SMA-2 accounts above INR 5 crore stood at INR 4,285 crore, which it described as one of the lowest levels.
• Provision Coverage: PCR is now more than 95%, while quarterly slippages were around INR 1,800 crore, broadly offset by recoveries and upgrades of a similar amount.
• Recoveries: Recoveries in the quarter were around INR 2,800–3,000 crore, with the recovery profile shifting toward smaller and mid-sized accounts rather than large chunky resolutions.
• Gold Loans: Gold loan book stood at about INR 84,000 crore, up roughly INR 2,200 crore QoQ, with yields around 8.85–9% and LTVs of 75% for non-agri and 85% for agri.

Business & Strategy Updates

• Funding Cost Optimization: Management reiterated that Q3 deposit growth reflected conscious optimization rather than weakness, with resource accretion also supported by retail term deposits, CASA growth, treasury contraction, and refinance lines.
• Corporate Growth Drag: Corporate growth remains muted due to churn and active pruning, though management indicated a stronger reported pickup once the pending sanctioned pipeline gets deployed.
• Provisioning Strategy: Management made clear that the sharp drop in standard asset provisioning reflects prior buffer creation, low slippages, and high PCR rather than any relaxation of prudence.
• ECL Preparedness: The bank is already conducting half-yearly Ind-AS / ECL assessments, and management said the gap has narrowed materially over the last 2–3 years as coverage improved.
• Exporter Relief Scheme: Under the RBI exporter dispensation, the bank sanctioned 78 proposals worth ~INR 500 crore and disbursed 61 proposals totaling INR 216.64 crore.
• Regulatory Impact: Management expects only a limited impact from both the labor code and new project finance provisioning norms, with labor code impact estimated at only INR 10–15 crore.
• Strategic Message: Management’s central message is that Q3 performance was driven by balance-sheet reshaping, tighter provisioning discipline, improved liability quality, and RAM-led growth, rather than by aggressive expansion or treasury carry.