Union Bank of India Ltd
NSE:UNIONBANK
Earnings Call Analysis
Q3-2024 Analysis
Union Bank of India Ltd
In the latest earnings call, the narrative revolved around a tale of robust advances growth coupled with stable costs of deposits. The company has been unwavering in its ability to maintain a Net Interest Margin (NIM) of around 3%. This is attributable to optimistic advances growth, a marginal increase in Marginal Cost of Funds Based Lending Rate (MCLR) advances, and nearly half of the total advances being MCLR-based. Looking ahead, they stand confident in sustaining this 3% NIM.
The financial institution has demonstrated consistent management of its credit to deposit (CD) ratio, keeping it around 76% to 77%, which is well within the regulatory limit of 78%. The institution's strong Liquidity Coverage Ratio (LCR) stands at 125%, comfortably above the compulsory 100%, indicating a solid liquidity position that they plan to optimally use. Moreover, the planned capital raising initiatives, amounting to INR 8,000 crores, with INR 5,000 crores already achieved through a Qualified Institutional Placement (QIP) and an additional INR 3,000 crores expected within the fiscal year, suggests a forward-thinking strategy to bolster financial robustness.
Growth forecasts remain conservative yet consistent. The company initially set guidance of 10-12% growth, and they are tracking towards the lower end of this range, with intent to meet these expectations, moderating their growth outlook when necessary. The growth has largely been infused by sectors such as agriculture, and within it, a staggering year-over-year growth in gold loans of 53%, showcasing the company's adeptness in tapping into successful market segments.
Management exuded confidence in their control over slippages and recoveries, hinting at the possibility of surpassing targets set at INR 12,000 crores for slippages and INR 16,000 crores for recoveries. This indicates a proactive approach to asset quality management and recovery processes.
Treasury income has remained relatively consistent compared to the previous quarter, reflecting a slight decrease from INR 681 crores to INR 611 crores. This stability is perceived positively, given the volatility that can often challenge this segment of banking operations.
The outlook for the future is promising with expectations to continue growing operating profit while also anticipating a reduction in credit costs for the upcoming year. The company's management believes that they have adequate capital adequacy levels to sustain growth, signaling a position of strength for capital management and scalability.
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Ladies and gentlemen, good day, and welcome to the Union Bank of India Earnings Conference Call for the period ended December 31, 2023.The Bank is represented by the Managing Director and CEO; Ms. A. Manimekhalai; Executive Directors, Shri. Nitesh Ranjan, Shri. Nidhu Saxena, Shri. Ramasubramanian S., Shri. Sanjay Rudra, 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. [Operator Instructions] Please note that this conference is being recorded.Now, I hand over the call to Mr. Sunil Jadli, Deputy General Manager. Thank you, and over to you, sir.
Yes. Thanks, Sharon. Good afternoon, ladies and gentlemen. I, Sunil Jadli, Head of Investor Relations, welcome you all for the Union Bank of India earnings con call for the period ended December 31, 2023. The structure of the con call shall include a brief opening statement by respected MD and CEO madam and then the 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 investors' interaction may be forward-looking statements based on the current expectations. These statements involve a number of risks, uncertainties and other factors that may cause the actual results to differ from these statements. Investors are therefore requested to check this information independently before making any investments or other decisions.With this, I now request our respected MD and CEO madam for our opening remarks. Thank you, and over to you, ma'am.
Yes, good afternoon. I am sure that I'm perfectly audible to all of you. It is my pleasure to welcome our analysts and investors community for the Bank's third quarter financial results, that is for 31st December 2023. We appreciate your support and valuable feedback.On the Bank's performance for the Q3 versus the guidance that we have given, let me just tell you a few points. We have provided guidance of this current financial year with a target of 8% to 10% growth in deposits and 10% to 12% growth in advances. Against this, our deposits have exhibited a Y-o-Y growth of 10.1% and advances recorded a growth of 11.4%, affirming our alignment to the stated guidance for the financial year.We aimed for a NIM of 3% and to keep our GNPA below 6%. The NIM for the 9 months ended December stood at 3.10% and we have reduced gross NPAs to 4.83%, surpassing the guidance outlined for FY '24.Notably, our gross recovery for the 9 months for December 2023 stood at around INR 13,800 crores, while fresh slippages were restricted to about INR 7,960 crores. These figures are well within the guidance that we have given. That is, we said gross recovery will be INR 16,000 crores and slippages will be less than INR 12,000 crores.Our ROA for the quarter reached 1.07% and our credit cost is 0.56% in Q3 FY '24, achieving the milestones we originally projected for FY '25. The performance demonstrates that our financials are in alignment with the guidance provided at the beginning of the year and we are optimistic about exceeding the guidance set for FY '24.Now, let me briefly highlight the performance of our bank for the quarter ended December 2023. Our total business reached INR 20.68 trillion, with a deposit base of INR 11.72 trillion on advances of INR 8.96 trillion. Our operating profit reached INR 21,678 crore for the 9 months ended September 2023, registering a Y-o-Y growth of 16.27%, driven by 10.68% Y-o-Y growth in net interest income and 21.45% growth in non-interest income.The Bank achieved net profit, which has crossed INR 10,300 crores for the 9 months ended December '23 and with a Y-o-Y growth of 82.94%. Our CASA ratio is at 34.4% and CD ratio is at 77.8%. RAM portfolio has grown by 14% Y-o-Y as of December 2023 and our RAM share to corporate lending, the ratio between RAM and corporate is 56:44. We have seen a very good growth in our education loan and gold loan portfolio, which is 57% and 53% Y-o-Y.Gross NPA is reduced by [Indiscernible] Y-o-Y. Our net NPA has reduced by 106 bps. Our PCR has improved by 404 bps, and we are at 92.54%. Our CRAR is at 15.03% and CET ratio, CET1 ratio has improved to 11.71%.Now, we continue to enhance our digital capabilities, both onboarding new customers in our digital platform. We have close to about 25 million customers who are registered on our mobile platform called Vyom. We have centralized lot of our processes. And for the better penetration into the market, we are extensively utilizing the services of our UBISL, that is our subsidiary. And we are also using the requirements of these business correspondence for our business expansion. Our endeavors is encompassing wealth management, CRM Edge and many other such tools for enriching the overall customers' experience.In conclusion, we are witnessing and we are optimistic of a robust growth in the banking industry, aligning with the overall economic progress of the country. The bank is positioned to contribute to the positive trajectory of the banking sector.I will conclude my remarks for now, and we'll get into the Q&A session. Thank you.
[Operator Instructions] We have our first question from the line of Mahrukh Adajania from Nuvama.
Ma'am my first question is on the wage provision. So, you have been providing at around INR 110 crore per month. I don't know if it's INR 105 crores or INR 110 crores, but somewhere around there. So, what has that increased to? And whatever catch-up provision you've made during the quarter, does that also include any catch- up on pensions from the new wage hike? Also, just in terms of wage provision, again, the increase Q-o-Q in wages is only INR 2 billion. So, has there been some additional provision and then some write-back also?
Yes, Mahrukh. Hi, this is Avinash Prabhu. So, as far as your question is concerned, yes, we were earlier providing at 15% and then we've increased that to 17% following the communication in that connection. So, we are providing now at a rate of INR 130 crores per month. So, the differential of about INR 200 crores to INR 250 crores -- INR 225 crores is what we've provided for in the December quarter.
So, that's for the first 11 months differential you've provided in that way?
Yes, that's right. And then as far as the pension-related provisions are concerned, we are in discussion with an actuary on that and we are waiting for some final guidelines in that connection. So, we will take a call on that in the Jan to March quarter.
Yes, okay. Okay, but my question was that, in employee expenses, you said that the backlog provision for 11 months was around INR 220 crores INR 225 crores. In addition, there'll be provision at INR 130 crore per month for this quarter, right? So, INR 390 crores. But if you see the increase in the wage bill, it has not gone up by INR 390 crores plus INR 225 crores, it's gone up by only around INR 200 crores. That was my question.
Yes. So, when we did this exercise, we also looked at what are the excess provisions that we would have in terms of the entire staff cost. And, therefore, we did that exercise for the December quarter, and therefore the net charge which you see, would be lower as compared to what you would expect.
Okay, okay. So, there would be some write-backs of earlier charges as well given how the wage has been settled, agreement.
That's right.
Okay. But from next quarter onwards, can we expect INR 130 crores into 3 as the additional provision?
Yes.
Got it. And pensions will be as and when?
That's right. That's right.
Okay. And just in terms of now this whole discussion around loan-to-deposit ratio, I know you are quite comfortable, your LCR has also been good. But would the -- like a lot of private banks are even admitted that RBI has had discussions around LDRs with them. Would you have had any such discussion with the regulator? Or if I have to frame my question differently, would you be maintaining your LDR at current levels? Would you mind increasing it or do you want to decrease it? Any target on LDR that you can give for fourth quarter and even for FY '25?
Actually, see, the Bank has been maintaining the CD ratio at about 76% to 77%. And you know that with the SLR and CRR and all those things, the banks can go up to 78% as your CD ratio. And my LCR is at 125% and I will continue to maintain, though the regulatory is about 100%. 100% is the LCR, we'll continue to maintain at 125%. We will be wanting to optimally utilize -- the liquidity that is there with us. So, I think, the LCR will be around 125% and I will keep the CD ratio at about 77% to 78%.
All right. And my last question is just on margins. So, do you expect margins to stay at current levels or given that there'll be heated competition in deposits in the fourth quarter, private banks may get aggressive given LDR discussions, do you expect any moderation in NIM from 3.1%? I know your guidance is 3%. You've maintained it above that, but...
Yes. We will, based on the various factors that we have taken into consideration, like our advances growth is quite good and our -- actually, our cost of deposits have also been almost flat kind of a thing. My MCLR advances are also increasing, plus my -- if you look at my MCLR base book is almost 48% to 49% of my total advances. Taking all those factors into consideration, I will be able to maintain the NIM of about 3%.
Okay, ma'am. Thank you so much and all the best.
We have our next question from the line of Ashok Ajmera from Ajcon Global.
Thank you for this opportunity, and congratulations, madam, once again for the fantastic set of numbers. I think, the Union Bank has really accelerated its entire business growth. You talk about recovery, it's phenomenal growth over last 1, 1.5 years. So, congratulations for that.Having said that, madam, our credit growth, like advances have gone rapidly much beyond even the targets. Like, if you -- you've given the target of 10%, 12%, but if you look at only up to December, 9 months, it is almost already now 10.62%. And the way you are going from September to December, you have gone, if you take another 4% or 5%, it means are we talking about almost about 15% to 16% growth in the credit?
Thank you, Ajmera ji. But we would like to -- whatever guidance that we had given in the beginning of the year at 10% to 12%, it will be moderated, and we will be at 10% to 12% as per the guidance that we have given.
Okay. So, you are being conservative. And the major growth has come from the -- contributed in the agriculture space and also in the industrial -- industry, NBFC and HFC space. So, whether -- I mean, what kind of opportunities are we finding in these 2 areas, especially the agriculture?
Yes. So, we have seen good growth in our overall advances segment. And, of course, our growth of agriculture sector is at the tune of about 17.88%. And out of this, I know the major growth has come from the gold loan sector. Now gold loan, if you see, has contributed to almost -- there is a Y-o-Y growth of 53%. And that is what it's contributing to the agriculture sector growth.
All right, ma'am. Now, taking to some other targeted numbers, like slippages, you've kept very much in control and against INR 12,000 crores of -- I think, so far in 9 months, it is only about INR 8,000 crore or so. And similarly, for the recovery also from the targeted INR 16,000 crore, you're almost near to INR 14,000 crore already. So, whether you would like to revisit these numbers or you will give a surprise on that also?
Sir, we will give you a very positive surprise on the slippages and for recovery. Both though we have, set INR 12,000 crores and INR 16,000 crores, we would like to surpass those numbers. That is one number that we will really want to surpass.
Coming on to this capital adequacy CRAR, and you have already raised the earlier INR 5,000 crores at INR 86.55 per share. But now considering your results and the performance, our share price also gone up substantially. Is it not the time again to raise some more funds?
So, we are looking at that. Regarding raising of capital, actually, we have got Board approval to the tune of about INR 8,000 crores to raise equity capital. Out of that, as you already mentioned, INR 5,000 crores is what we have raised as QIP. Another INR 3,000 crores, we will be coming out probably during this FY itself.
Oh, that's a good news, because it's a good price to -- at which to issue the shares. And, ma'am, one question on the treasury. If you look at the segment-wise, our treasury profits income has gone down to INR 848 crores from INR 1,145 crores. But, overall, can you give some color on the overall treasury operations considering all kind of incomes and the profit books. And even on the equity books also, I think, you have a book of INR 4,000 crore, INR 5,000 crore. There also we might have made good profit, because the entire market has run up considerably high. So, some color on that ma'am?
Thank you, Ajmera ji. Our treasury income is around the same level. The previous quarter, it was INR 681 crores and now it is INR 611 crores. It largely depends upon the 10-year benchmark yield. And in October, the RBI announced that they will come with the OMO sales due to which the yield increased. But later on, with the U.S. announcing that rate cuts will be there after few quarters, then it softens. So, coming in the near future also, it depends upon the geographical factors and the inflation, which has come -- which has slightly increased. So, in spite of that, we are building the book from low yielding income to the bigger -- the securities which are giving higher income. And we will continue and maintain the same level of profitability. The treasury income at the same level, we will try to maintain.
My last question in this round, ma'am. On the effect of the RBI norms on the risk
So, [Indiscernible] is about [ INR 26,000 crores ]. That is including personal loans, credit card loans and loans to NBFCs. And, therefore, CRAR is about 60 basis points on [ order book ]. Total reduction in CRAR we would have seen, but that is also because of the increase in the lending portfolio.
Can you repeat how much total will be impact on the bps? How many -- what is the percentage -- percentile or bps, total impact?
60 basis points. That is the impact of CRAR. Is your question is around -- on return on equity or what?
Yes, yes. CRAR. No, this is all right. 60 basis point is the total impact, isn't it?
[ Yes, it is ].
[Operator Instructions] We'll take our next question from the line of Swechha Jain from Whitestone Financial Advisors.
My first question is, from FY '25, will we do a tax provision at 25% in P&L?
Yes. In fact, for FY '23 as well, we have filed our returns based on a 25% tax rate. And for FY '24 also, we'll be doing that. So, your question is relating to FY '25, that will continue.
Okay. Okay. And, sir, recently, there was a company called BGR Energy Systems, which defaulted on its loan. So, if you could just give some sense how much exposure we have in BGR Energy Systems, and how much have we already provided for?
Madam, normally, we avoid company specific questions on the investor call. But it is not much, I can say that. And most of them are in a project bank guarantees, which has been given, and we are also closely monitoring on it.
Okay. But any -- so how much have you provided? Like, have you provided for it completely or lot of provision is left on that? If you could give some sense?
This is on [ energy ] business only. So, actually, there is no involvement of NCRBD, it is not there. And I can say that the amount is very meagre.
Okay. Okay. Okay. And, sir, my last question is actually a follow-up regarding the wage provision. So, I just wanted to understand, probably I think I joined the call little late. So, you are saying in this quarter, we've already provided for the 17% wage revision, right, from [ 15. ], it has increased.
We've provided at 17%. Yes.
Okay. So that additional impact for 9 months was 200...
INR 233 crores.
INR 233 crores for 11 months of last year, right?
Yes.
Yes.
Okay. And going forward, what would be this number be? So, going forward, what would be the run rate?
INR 130 crores
INR 130 crores per month.
Okay. So, that INR 130 crores is at 17%, right?
Yes. At 17%, right.
We have our next question from the line of Rakesh Kumar from B&K Securities.
So, firstly, ma'am, this -- what is the total recovery that we have done, like, apart from the recovery on the written-off loan.? So, what is the other recovery number that we have accrued to the P&L in this quarter?
Yes. The total recovery that we have made in this quarter is close to INR 5,900 crores.
So, I think, ma'am, this number, like, if we exclude, like you know, for INR 5,962 crore number, if we exclude the cash recovery and upgradation number and the recovery and written-off number, any other number that is occurring to the P&L in this quarter?
Yes. Basically, the recovery consists of 4 components. One is in the ledger balance recovery, other is the technically written-off accounts where we are recovering. That is almost INR 995 crores is the recovery in the written-off accounts. And we also are recovering the interest component of the NPA account. So that is approximately INR 900 crore. So, altogether it comes to INR 5,500 crore of recovery during the Q3 quarter -- INR 5,900 crores of recovery in the Q3 quarter.
Okay. And how much that number was for in Q2, sir?
Q2, it was INR 5,600 crores or INR 5,500 crores.
Okay. Okay. And sir, this cumulative provision that we are holding for wage revision is INR 1,764 crore and how much that number was ma'am, in Q2 end, cumulative provision for the wage revision?
It will be [ INR 390 ] crores. It might be less than INR 500 crores, because we've taken -- the normal impact is about INR 330 crores, and plus we've taken about INR 200 crore, so it will be about INR 500 crores.
INR 500 crores of [ exposure ], we have made additional.
Okay. And how much this number, this INR 1,764 crore number, so where this number would -- like, what is the -- like where we are planning to take it to?
Another INR 390 crore every -- another INR 390 crore every quarter sir.
Every quarter till -- how many quarters, sir?
INR 130 crore per month, INR 390 crore a quarter.
No, see, we are providing INR 130 crores per month. And till the wage settlement finalizes and we get the approvals, right, we will keep providing. And once it is fully -- it is finalized, then it will become our expenses. It will come in the salary.
Correct. And this tax number, ma'am, so like this quarter also the tax provision, tax rate, like including -- like you know reversal number, DTA reversal number, it is around 35%, 36%. So, how much that number would be for Q4?
Yes. It will stay at the 35% mark for this year. And then next year onwards, you'll see a reduction to about 25%, 26%. And that's because we're giving impact to the reversal of the DTA built up in earlier years. So, you had to reverse that and that's the reason why it'll be roughly about 35% for the entire year.
Got it. Sir, margin, if we look at margin number, it is looking bit suppressed. If we take -- also take into account the way the cash to NDTL number has come down by around 200 bps. And also, there is a reduction in the investment deposit ratio and LCR has fallen by around 20% from 145% to 125% around. So, what is the sustainable margin that we see in Q4, and maybe till the time the interest rate is like kind of going up or maybe end up broadly in the similar range, then how do we expect the margin to behave, because we are eating into the liquidity it seems?
Yes. See, as you know, in the banking sector itself, there is a challenge in [ taking ] a deposits now. There will be always -- that is going forward also, that challenge is going to continue for the time being, at least for the current quarter. So, we expected that there will -- the way we are now growing the credit, what we are doing, we are seeing that we are repricing some of our actually NBFC portfolios to a little higher rate, so that we try to protect the 3% which we have given a guidance for the margins for the current year.
We have our next question from the line of Rushil Dedhia from Antique Stock Broking.
Hi. Sir, I just wanted the number for the risk-weighted assets, if you can help me with that?
Number of risk weighted assets [Indiscernible]
We are not able to hear you. Can you please repeat your question, please?
Ma'am, I just wanted the number for the risk-weighted assets.
Yes. It's INR 658,000 crores.
We have a next question from the line of Jai from ICICI Securities.
Thanks for the opportunity, ma'am. I have 2 questions. First is on pension provisions, right, regarding now that we have stepped up from 15% to 17%. If you can ballpark hint, what could be the likely pension hit because of this increase in the rates? And what is the provisions that we have set aside for the likely retirement liability?
Yes. Pension benefits comes under the defined benefits and provision from the pension requirement is made on the basis of the actuarial valuations. When actuarial valuations are done, it takes basically -- 2, 3 components are there. One of the important component is the return on assets. At present, the returns are -- yields are good. Market returns are good. So, return -- and that is giving benefit for the actuarial valuation also. And we have made the adequate provision which is required under the defined benefit guidelines as per the accounting practice standard, AS-15.
So, no, that is right, sir. But if you can highlight what is the outstanding provision that you may have, and what could be the additional provisions required on pension because of this hike?
Jai, are you referring to the wage revision, or are you referring to the usual...
Not the -- the wage revision related pension.
INR 1,754 crores. Wage revision provision as of 31st December is INR 1,754 crore.[Audio Gap]
Mr. Jai, to answer your question, like I mentioned earlier, we've made provision for the 17% wage hike up to December. And as far as the retirement benefits are concerned, that has not been taken into account. We are in touch with actuary to estimate that amount, and we're waiting for final guidelines and confirmation on that. So, we don't have an estimate at this point in time.
Have we used any ad hoc provisions there, sir? I mean, we would have some provisions for sure, right?
No, we are making provisions, but that is the usual provision that we make per quarter towards actuarial valuation, but that is not towards the Bipartite agreement, sir.
Okay. But, last time, if you recall, sir, I mean, this is in every year of -- every 5 year, we see this. If you can roughly recall what could have been the retirement liability in the last Bipartite? And could that be a significant amount?
Yes, Jai, we will look into the numbers, and we'll come back to you on that.
Sure. Sure, ma'am.
Thank you.
And ma'am, my second question is, while our cost of deposit has been very calibrated this quarter, but we have seen like, few banks, like State Bank also, they have increased the deposit rates in the shorter tenure. How would you look at the deposit cost going ahead in the near term?
No, we have also increased the rate of interest for the shorter tenure up to 50 basis points. So, [ ROE ] is also in line with market and -- that is the expectation of [Indiscernible] was increased.
And, at this point of time, are you seeing any pressure on the bulk term deposit rate or the bulk TD rate is more or less similar to the retail TD rate? Is there any differential?
Nothing significant. It is very close to what we have been offering under the new rates.
Last question, ma'am. Post this RBI circular on higher risk weights to NBFCs, what's -- I mean, any median rate yield hike that you would have effected towards NBFCs? Is there any -- and how are you seeing the reaction from the borrowers?
Yes, we have -- close to about 60% was the impact on our CRAR because of the NBFC guidelines, and we have some -- few of the NBFCs who have come for renewal and review, we have already raised the interest rate to about 15 basis points to 20 basis points. Going forward also we'll be doing the same thing.
[Operator Instructions] We'll take our next question from the line of Rishikesh from RoboCapital.
Did we just say that we would be doing QIP this year? So, are we saying in this financial year or this calendar year? And also, if you could indicate the size of the QIP?
Yes. So, if you are looking at it, we already have a Board approval, which we have to complete it, I think, before this financial year, we have to raise the QIP. We have Board approval for INR 8,000 crores. Already, we have raised around INR 5,000 crores. Another INR 3,000 crores anytime during that quarter, we may be able to do that.
Okay. Okay, and also, my second question is with respect to the credit cost. What is credit cost do we see going ahead in FY '25 and FY '26?
See, already, what we expected was the credit cards will be coming down for our bank. We were expecting that we will be going below 60 by the end of March '25 actually. But already we have achieved that. So, going forward, we expect that it will be around 50 bps only in the coming days, because of leave of slippages which has happened in the bank.
So, for coming 1 and 2 years, are we expecting 50 bps of credit cost, is that correct?
Yes, that is what we are expecting, subject to the same cycle continues.
We have a follow-up question from the line of Ashok Ajmera from Ajcon Global.
Thanks for giving the opportunity again. Ma'am, we have been talking in last few quarters about the recovery in the cumulative written-off accounts. So, I think, if I'm correct, in the last quarter, you had said that your total return of account -- I mean, amount is around, I think, INR 72,000 crores. So, if you add another INR 9,000 crores, it becomes -- I mean, INR 81,300 crores. And you said we have already recovered INR 1,500 crores, and this year, we plan to recover INR 4,000 crores. So, now, we have recovered another INR 1,026 crores. So, do you think -- does it mean that in this current quarter of January-March, we plan to recover around INR 2,400 crores from the written-off accounts?
No, we have given a guidance for INR 4,000 crores, I think. So, already we have reached to INR 2,700 crore already we have reached. So, remaining INR 1,300 crores definitely we will achieve this quarter.
All right. I think last quarter that INR 1,600 crore figure was not right, it seems?
[Indiscernible]
Yes. Yes, correct. So, that figure, I think, was almost INR 1,700 crores. So around INR 1,300 crores, INR 1,400 crores we can expect in this quarter?
Yes. Yes.
I was -- just there was one question for which answer was given about the total recovery of this INR 5,962 crore. So, if you look at the cash recovery, INR 2,725 crores, upgradation INR 1,388 crore and recovery from written-off account of INR 1,026 crores. So, total, it becomes INR 5,139 crores. So, what was the remaining component of INR 800 crores, INR 900 crores?
Remaining component is the interest on the NPA accounts, which we have recovered.
All right. All right. I mean, that has made a major difference.
Yes. So, there are 2 components which goes to P&L, one is the recovery in written-off, other is the interest which we recovered from the NPA borrower.
That's right. That's right. So, ma'am, thank you very much, and all the best for the next quarter.
[Operator Instructions] We have a question from Ashlesh Sonje from Kotak Securities.
First question is on the term deposits front. We have increased the rate we are offering on the term deposit 1 to 2 year bucket, the peak rate by about 25 basis points in the December month. Any reason why we have done that, because we are already offering -- we were already offering premium rates as compared to SBI or Bank of Baroda?
The rates were increased to be in the market. There is no additional increase. Even if you see the other banks, including the State Bank of India, they've also increased in the last fortnight or so. All the banks have gone up and increased the rates.
Okay. But we are already at a premium, is there some pressure in terms of deposit acquisition which prompted us to increase rates?
No, there is no as such pressure on the deposit. We've -- just to be the market in line with the overall peers, we had been doing that.
Understood. And now that we have raised deposit rates, where do we expect the overall cost of deposits to stabilize?
This cost of deposits has gone up by 6 basis point. That's all. I think, right now, we are not seeing any increase in the rate in the near future, but we'll watch the market and accordingly price it.
Okay. But the repricing should lead to...
The cost of deposits have gone by 6 bps and even on yield on advances also we have reduced by 6 bps. So, going forward, there is a challenge on deposits and there will be a little bit of increase in our cost of deposits. But we'll just wait and see as to how much -- in fact, we are comfortable with our liquidity right now. And plus, we also have -- close to about INR 60,000 crores of SLR business. So, going forward, depending on my advances, the way the advances increase, I will be able to take the deposits. As of now, we are not seeing a very, very substantial increase in my cost of deposits.
Understood. And, secondly, on the yield front, do you expect any further benefit coming in from repricing of MCLR-linked loans?
I do have about INR 62,000 crores of my advances still, which are yet to be repriced. INR 62,000 in domestic advances in MCLR has to be repriced during Q4. So, considering the existing MCLR advances, we hope to see some increase in our yield on advances also.
Okay. And just one last question. If I look at the corporate slippages, there was a slightly -- there was a slight increase sequentially to INR 600 crores, any lumpy slippage there?
No, it's only 2 accounts in the corporate book has slipped. And we are hopeful that the recovery will happen in one particular account. Other accounts, some other issues are there, but in one account we are expecting the recovery.
Okay. Any sector that these accounts you want to call out?
Pardon?
Which sector are these accounts from?
These are from the industry -- textile is one and other is the infrastructure.
Understood. Thank you. Thanks a lot.
Additional increase of INR 200 crores in the existing NPA.
We have a next question from the line of Sushil Choksey from Indus Equity Advisors.
Congratulations to team Union Bank for excellent performance. Ma'am, we've done exceedingly well on most of the fronts, whether it is fundraising, margins, profitability. Now, you've taken such good steps as a team, what initiatives are we doing to bring our cost to income down. You've initiated on wealth management cross-selling. How are we empowering our bank human resource to be future-ready in terms of technology as well as all the new initiatives taken?
Okay. Yes. So, in terms of the capabilities that Bank is building and you also talked about how we are building the human resources for the future, including using the technology. So, you'll be aware that bank has taken multiple initiatives also for digitizing the HR processes, and we have achieved most of those. On top of that, we are investing a lot in learning and development, newer skill sets, hiring of -- lateral hiring for the various skill sets that we have been doing.And, also, you will note that technology and digital is not only for the consumer-facing assets, but across the Bank, including HR, recovery processes, we have implemented technology. On top of that, how the future growth we'll be able to take. One, as you rightly said about our subsidiary, that UBISL, we are using it as a sales engine. And today, it is supporting the Bank through their presence across the country with more than 4,500 staff that they have for sourcing the retail and MSME loans. And, also, they are helping us in centralization of many back-office processes.So, that is one area where we'll be able to acquire the customer at a cost lesser than the cost of acquiring a customer at the branch level as well as we'll be able to kind of cross-sell to the customers also through this. And, also, you note that we have also invested in technology across the gamut of the customer lifecycle, right from sourcing, underwriting, monitoring and so on. For example, CRM is already an implemented tool in the bank and not within the bank, like this tool is also helping our UBISL team, our BCs to actually generate and source the lead.We have recently onboarded our partner for building a digital contact center, which going forward will be more outbound call center services, and that will also be generating the business and revenue for the bank. So, bank is actually investing across the business domains and capabilities, so that the current rate of growth that we are seeing and profitability that we are witnessing will be actually able to ramp up over the current rate in the coming years.
Can you quantify the amount and kind of human resource you're building for doing this capability?
Amount of -- can you please repeat?
How much amount do you [Technical Difficulty]
I'm sorry, your voice is muffled, Mr. Choksey.
How much have you invested?
How much have we invested?
We are taking almost close to about 75 to 100 people from outside who are domain experts in the various capabilities actually. In HR, like, we have created the ULA, the Union Learning Academy, so we have taken people in that area. We have taken in the respect of cybersecurity, we have taken, in digital front, we have taken. So, these are the areas that we are looking at and capabilities are being built across various domains.And with regards to cost to income, I think we are the least in the industry right now. And if you take for the past almost like 7 or 8 quarters, we have brought it down to very much lower than what it was earlier. So, cost to income is already at the lower end. But anyway, with all the capabilities that ED has already explained, I'm sure that we will be able to maintain the cost-to-income ratio.
Ma'am, because you've done well, the expectations will be higher.
Yes, thank you. Yes, we will meet the expectations of the market.
Okay. Ma'am, my last question, how are we positioned for 2024 as treasury market has surprised a bit in this quarter and may surprise the world in '24, because India has a pride place in terms of inclusion in various indices, and the collection on corporate tax collection may not put pressure on government borrowing. If such situation arises, how are we placed for the year. Yes?
Yes. So, I think, if we particularly talk about the treasury markets and the outlook, which is there globally and in India, obviously, the rate which is at the peak today is expected to remain there for quite some time. And in our estimate, not earlier than the second half of the current calendar year, we'll be able to see some kind of rate cuts. So, in that sense, treasury market would remain tight.But if we talk about it from the Bank's perspective, our focus is not to make treasury as a key pillar of profitability, but rather focus on the advances, because you have been noticing over the past many quarters that we have been investing a lot in different kind of opportunity in the asset market, like be it the gold loan, be it auto loans, be it education loans, everywhere we are building capabilities, and that is our objective.Treasury we'll definitely focus on the -- for the trading capabilities, and we have very good set of dealers across the FX and the fixed income side. So, other than that, it will only be a kind of tool for managing the liquidity for the Bank. But, obviously, I think, for the investors, they should not look at similar kind of profitability which treasury has given in the last 3 to 5 quarters.
We have our next question from the line of Swechha Jain from Whitestone Financial Advisors.
Hi, ma'am. Sorry. Just a follow-up. If you could give me again the breakdown of that INR 5,900 crores of recovery, I kind of missed some numbers there?
The total recovery during Q3 is INR 5,900 crore, [ INR 5,935 crore ], out of that, INR 2,700 crore is the recovery by way of the ledger balance recovery and there is an upgradation of INR 1,388 crore. In addition to that, the write-off recovery is around INR 1,026 crore and dummy ledger recovery, which is the interest recovery, is around INR 995 crore. So, altogether, it comes to INR 5,962 crore of recovery.
Okay. And this INR 2,700 crore is what we had guided by year end should be INR 4,000 crores. So INR 1,300 crores should roughly be again in Q4, right?
Yes. Yes.
Okay, okay.
From the write-off, no?
That is correct.
We have our next question from the line of Rahil Shah from Crown Capital.
Have you shared any ROA guidance for this year and next year as well?
No, we are not revising our guidance for the current year. So, we are sticking to our guidance, and we hope to perform much better than whatever the guidance that we have given. And as far as the next year guidance for FY '25, we will be like -- the country's GDP will be close to about 7% or 7.2%. So, we hope to -- the thumb rule is, we will do about 1.5x the GDP growth. So, accordingly, we will be taking our guidance for '24-'25.
Okay. But just the ROA guidance for this year, can you please repeat it?
The guidance for the current year, of course, advances growth, we said 10% to 12%, we are today at 11.4%.
ROA ma'am.
ROA was -- the guidance was to reach 1% and that we have already reached, because actually for FY '25, FY '25 our guidance was 1%, that which we have already reached in the September quarter.
We have our next question from the line of Rakesh Kumar from B&K Securities.
So, just one question with respect to our deposit composition. Bulk deposit has still kind of gone up as a proportion compared to September quarter and short-term rates are rising in the system. And, like, as we were discussing, the LCR also has fallen quite a lot. It had happened in Q2 also and in Q3 also, it has happened. So, margin guidance that we have of 3%, so, are we expecting 10 bps, 15 bps sequential fall in the margin considering all these points, deposit, bulk deposit rates and all?
See, it is just not the deposit rate or how I raise my deposits impacting my margin. So, I am not looking any downward impact in my margins right now. There are a lot of other contributory factors to maintaining my margin. So, I am sure that I will not be able to -- I will be able to maintain my margin at 3%.
Mr. Rakesh Kumar?
Yes, 9 months margin is at around 3.1%?
Correct.
Yes.
So, would that be the number for Q4 also or -- because the guidance is at 3%?
Yes, I will be able to maintain it at 3% or little above that also.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.
Yes. So, we, at the outset, thank all the investor community who had been always participating in all our con calls very actively and taking the guidance from the bank and also giving lot of suggestions, which we have been taking and looking at how we can improve upon our financial and overall performance. So, thank you for that. And thank you for attending the con call. Thank you.
Thank you all of you. Thank you.
Thank you.
On behalf of Union Bank of India, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.