ICRA has re-affirmed the ratings outstanding on the Rs 8 billion Lower tier II bond programme of Union Bank of India (UBI) at 'AA+' (stable) and on the Rs 4 billion Perpetual Bond programmes at 'AA' (stable).
The one notch lower rating to perpetual bonds as compared with the rating of the Lower Tier II Bonds of the bank reflects the specific features of these instruments wherein the debt servicing is additionally linked to meeting the regulatory norms on capitalisation and reported profitability.
The domestic regulatory norms for hybrid debt capital instruments need regulatory approvals from the Reserve Bank of India for debt servicing (including principal repayments) in case the bank were to report a loss and are not liable to service the debt in case the bank breaches the minimum regulatory capitalization norms. ICRA has also reaffirmed the A1+ rating assigned to the Certificates of Deposit programme of Union Bank of India.
The ratings continue to reflect the support for the bank from the Government of India. (Government of India (GoI) holds 60.13% stake in the bank), comfortable liquidity position and a healthy growth in advances. The ratings also factor in the modest asset quality indicators of the bank and low earnings profile primarily on account of reversal of income and high credit costs
The bank has total outstanding restructured advances of Rs 144.80 billion of which Rs. 110.32 billion were in the standard category. In Q3FY14, the bank restructured advances of Rs 10.04 billion as against Rs 15.34 billion in Q2FY14 and Rs 10.68 billion in Q1FY14. Under the financial restructuring package approved by the CCEA, the bank received SEB bonds worth Rs 20.35 billion in Q3FY14.
Net interest margin of the bank continues its downward trend, from 2.96% as on Mar-13 to 2.55% as on Dec-13. Interest reversal on NPAs and reduction in low cost deposits are the primary causes for falling NIMs. The non interest income of the bank grew by 6.3% in Q3FY14 and 11.9% in Q2FY14. The higher growth in Q3FY14 was on account of the profit on exchange transaction which grew by ~75% on a YoY basis.
Increase in operating expenses (Operating expenses as a percentage of the total asset base decreased from 1.45% in Mar-13 to 1.16% (1.54% annualized) in Dec-13) and lower margins resulted in lower operating profits of 1.13%(1.51% annualized) as a percentage of total assets as against 1.79% in Mar-13. The credit provisions decreased from 1.13% in Mar-13 to 1.11% in Dec-13. The bank paid higher taxes in Q3FY14 due to the deferred tax liability provisioning for special reserve which affected the earnings. Owing to this, the RoA of the bank came down 0.46% during 9M ended Dec-13 from 0.79% in FY13.
Shares of the company declined Rs 2.45, or 2.11%, to settle at Rs 113.50. The total volume of shares traded was 249,707 at the BSE (Wednesday).
