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Adequate CET-1/LDR give comfort but LDR is high

UNBK saw a good quarter as core PPoP was a 3.2% beat driven by higher NII due to better reported NIM that increased by 6bps QoQ to 2.86% driven by (1) shedding of low yielding assets and (2) increase in LDR by 230bps QoQ to ~86%. Loan growth of 5.6% was broad based. FCNR(B) deposits of USD2.2bn were mobilized, of which 70% was leveraged. While loan growth is guided to mirror the system, we see loan CAGR of 12.5% over FY26-28E as we are watchful of deposit growth since LDR at ~86% provides limited headroom to grow. We keep multiple at 1.0x but raise TP to INR200 from INR190 as we roll forward to Sep’28 ABV. Retain ‘ACCUMULATE’.

Good quarter with beat on NII/NIM & asset quality:

NII was 5.7% higher at INR105.8bn (PLe INR100bn) due to better NIM (calc.) which was 2.89% (PLe 2.73%); reported NIM was up 6bps QoQ to 2.86%. Loan and deposit growth were broadly in-line at 19.4%/6.9% YoY. CASA ratio was stable QoQ at 34.9%. Other income was lower at INR46.5bn (PLe INR50.1bn) due to absence of PSLC, lower treasury/TWO recovery. Opex at INR71.3bn was 1.9% above PLe led by higher staff cost and other opex. Core PPoP at INR71bn was 3.2% above PLe. Asset quality improved; GNPA was lower at 2.42% (PLe 2.49%) due to lesser gross slippages at INR19.1bn (PLe INR22.6bn) and better recoveries at INR15.4bn (PLe INR14.6bn). Provisions were lower at INR7bn (PLe INR14.7bn). Core PAT was 17.8% above PLe at INR47.8bn. PAT was INR55.4bn

Loan growth was broad based: Loan growth at 5.6% QoQ was healthy and broad-based across SME (+7.2%), corporate (+6.6%), retail (3.4%) and agri (3.6%). SME growth was driven by increased private sector capex and economic activities across data centers, AI, renewables, power, steel and pharma. Corporate pipeline is healthy with sanction of INR1.25trn and pending proposals of INR680bn. Gold loan growth moderated amid process digitization and is expected to pick-up by Dec’26. FCNR(B) deposit accretion was at USD2.2bn, 70% of which was leveraged. Management aims to align its credit growth with system. We factor loan growth of 14%/11% for FY27/28E.

NIM improved QoQ; absence of PSLC drag fee income: Reported NIM improved QoQ as low yielding assets of INR330bn were shed off during Q2FY27. 53-55% of the loan book is linked to repo rate. Buffer provisions of INR2bn were created, taking total buffers to INR10bn against the estimated INR55bn (70bps CET-1) ECL impact. Other income declined by 5% QoQ, due to the absence of PSLC income vs INR2bn in Q1FY27.

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