Union Bank FY26 Profit Hits ₹18,697 Crore Amid Deposit Strategy Shift

Union Bank of India reported its full fiscal year FY26 net profit reached ₹18,697 crore, with interest income surpassing ₹1.06 lakh crore for the period. The bank's strategy involved reducing expensive bulk deposits, which aims to improve funding costs and overall margin stability.

Financial Highlights & Strategic Deposit Shift

The bank strategically reduced its holdings of high-cost bulk deposits by ₹70,000 crore. This action helped boost its Current Account Savings Account (CASA) ratio to 35.21% from 32.51% over the year, signaling a shift towards cheaper, more stable retail funding.

Advances grew by 9.74%, while overall deposit growth was a more modest 2.72%. To fund its advance growth, the bank raised ₹46,000 crore through various bond issuances.

Asset quality showed improvement, with Gross Non-Performing Assets (GNPAs) falling to 2.82% compared to the previous year. Capital adequacy ratios remained strong, with CRAR at 18.10% and CET1 at 15.69%.

However, the fourth quarter of FY26 saw fresh slippages rise to ₹2,023 crore from ₹1,660 crore in the third quarter. Net Interest Margins (NIMs) also dipped to 2.64% in Q4 from 2.76% in Q3.

The bank also proactively set aside ₹700 crore in Q4 for the upcoming Expected Credit Loss (ECL) framework implementation, noting a current ECL shortfall of ₹4,300 crore.

Why the Deposit Strategy Matters

This strategic shift from expensive bulk deposits to retail CASA is essential for protecting and improving the bank's Net Interest Margins (NIMs) in a competitive market. A higher CASA ratio means the bank incurs lower interest expenses.

Furthermore, proactive provisioning for ECL demonstrates preparedness for evolving regulatory accounting standards, strengthening the bank's balance sheet against potential future credit losses.

The Bank's Evolution

Union Bank of India, a major public sector bank, underwent a significant merger with Andhra Bank and Corporation Bank in April 2020 to achieve greater scale and efficiency. Public sector banks have historically faced challenges with high Non-Performing Assets (NPAs). Since its merger, Union Bank has focused on improving asset quality and profitability, contributing to a general decline in GNPA ratios.

Key Developments and Future Preparedness

The bank's funding mix is becoming more stable and cost-effective due to increased reliance on retail deposits. Asset quality continues to strengthen, reflected in the lower Gross NPA ratio, while capital adequacy remains robust, providing a buffer against unforeseen risks. The bank is also preparing for future accounting standards like ECL by increasing its provisions.

Management has projected ambitious credit growth of 13-14% for FY27, signaling confidence in future expansion.

Potential Risks Ahead

Investors are watching for a potential uptick in loan defaults, as fresh slippages rose in Q4 FY26, suggesting possible stress in newer loan accounts. Management also noted that global events affecting energy-sensitive sectors and remittances could impact loan performance. Ongoing provisioning for the ECL framework will likely weigh on short-term profitability.

Performance Against Peers

Union Bank's FY26 net profit of ₹18,697 crore is strong, exceeding PNB (approx. ₹10,000 Cr) and Bank of Baroda (approx. ₹14,000 Cr), though below State Bank of India (approx. ₹40,000 Cr). Its Gross NPA of 2.82% is better than PNB (5.7%) and BoB (3.5%) but slightly higher than SBI (2.7%). However, Union Bank's Q4 NIM of 2.64% is lower than its peers, underscoring the importance of its current strategy to defend margins.

Key Financial Metrics

• CASA ratio increased from 32.51% (FY25) to 35.21% (FY26) on a standalone basis.
• Gross NPA improved from 4.19% (FY25) to 2.82% (FY26) on a standalone basis.
• Net Interest Margin (NIM) stood at 2.64% in Q4 FY26 (Standalone).

Investor Watchlist

Key areas for investors to track include the bank's ability to successfully defend and improve Net Interest Margins (NIMs) in FY27, its success in achieving the guided credit growth target of 13-14% for FY27, and trends in fresh slippages and asset quality in upcoming quarters. The bank's effectiveness in acquiring low-cost retail deposits to fund growth and the resolution progress of assets currently in the National Company Law Tribunal (NCLT) pool will also be closely monitored.