Union Bank of India to sell Rs 3,000 crore worth of troubled accounts to NARCL

Union Bank of India has announced its plan to sell eight troubled accounts amounting to Rs 3,000 crore to the national bad bank, National Asset Reconstruction Company Limited (NARCL), during the current fiscal year.

The bank has experienced a substantial increase in its net income, reaching Rs 3,236 crore in the June 2023 quarter, attributed to better asset quality and improved recoveries.

Union Bank had previously sold three accounts worth Rs 900 crore to NARCL in the last fiscal year, successfully recovering 33 per cent of the amount.

The troubled accounts 

According to A. Manimekhalai, the chief executive and managing director of the bank, they have identified a total of 42 troubled accounts with an outstanding balance of Rs 10,000 crore, which they plan to sell to NARCL. The aim is to sell at least eight of these accounts to the central government-owned bad bank within this fiscal year.

The bank has been proactive in dealing with non-performing assets (NPAs) and was one of the first lenders to sell its NPAs to NARCL during the initial phase of such transactions.

In the past, Union Bank had successfully recovered Rs 20,000 crore through various means, including write-offs, upgrades, and one-time settlements. However, this year, the bank expects the recovery amount to be around 25 per cent of the previous year's figure, mainly due to the substantial reduction in bad assets.

Out of the Rs 20,000 crore recovered previously, Rs 5,500 crore was achieved through cash recovery. The bank estimates this cash recovery figure to decline to Rs 4,500 crore in the current fiscal year.

Bad loan down 

Due to the significant reduction in bad assets, the bank's overall gross bad loan ratio has decreased by 288 basis points to 7.34 per cent (Rs 60,104 crore), and net NPAs have reduced by 173 basis points to 1.58 per cent (Rs 12,138 crore). The bank aims to further bring down these figures to under 6 per cent by March.

Consequently, the provisions for bad loans have decreased to Rs 1,984 crore from Rs 3,653 crore, reflecting the bank's improving financial health.

In addition to its efforts in handling bad assets, Union Bank is planning to raise Rs 10,000 crore in equity capital. Manimekhalai clarified that this capital infusion is not intended to bolster the core capital base, but rather to meet the Securities and Exchange Board of India's (SEBI) requirement of having a minimum 25 per cent public float.

Out of the total capital raising plan, Rs 8,000 crore will be raised as equity capital, and the remaining amount will constitute tier 1 and tier 2 capital. Manimekhalai asserted that the bank is already adequately capitalised and the fundraising is primarily to fulfil the mandatory public float rule.

Currently, the government holds an 83.49 per cent stake in Union Bank, and as per SEBI's listing rules, it needs to reduce its stake to 75 per cent.

The bank's core capital stands at 15.95 per cent, up from 14.42 per cent, with the CET 1 (Common Equity Tier 1) ratio at 12.34 per cent, a significant improvement from the previous 10.68 per cent.

Union Bank's impressive financial performance is reflected in its 107.7 per cent rise in profit, reaching Rs 3,236 crore from Rs 1,558 crore, attributable to a considerable reduction in bad loans and an improvement in interest income.

During the same period a year ago, the bank's total income also rose from Rs 20,991 crore to Rs 27,381 crore, with interest income contributing significantly, increasing from Rs 18,174 crore to Rs 23,478 crore.

(With PTI Inputs)