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In-line revenue; low opex, provision drive earnings beat NIMs improve 16bp QoQ to 2.80%

* Union Bank of India (UNBK) reported 1QFY27 PAT of INR53.3b (up 30% YoY/flat QoQ, 19% beat), led by lower opex intensity and lower-thanexpected provisioning.

* NII improved by 10% YoY/7% QoQ to INR100.4b (in line), aided by strong NIMs (up 16bp QoQ to 2.80% vs. MOFSLe of 2.60%). NIM reflation was largely on the back of lower cost of deposits.

* Loan book grew 13.3% YoY/1.8% QoQ to INR10.7t, while deposits declined 1.8% QoQ (up 3.5% YoY). This led to the CD ratio rising to 83.6%. Management aims to grow its loan book 1% higher than the system while improving the margin trajectory.

* Fresh slippages rose 3% QoQ to INR21.5b vs. INR21b in 4QFY26. GNPA/ NNPA ratios improved 17bp/1bp QoQ to 2.65%/0.47%. PCR was stable QoQ at 82.8%.

* We raise our estimates by 5% and project FY27E RoA/RoE at 1.3%/ 15.3%. Retain Neutral with a TP of INR190 (0.9x Mar’28E ABV).

LCR improves to 123%; CD ratio rises to 83.6%

* UNBK reported 1QFY27 PAT of INR53.3b (30% YoY, 19% beat). NII improved by 10% YoY/7% QoQ, with NIMs improving by 16bp QoQ to 2.80% (MOFSLe of 2.60%).

* Other income was down 15% QoQ (up 2.6% YoY) at INR46b amid healthy recoveries from NPAs and modest treasury profits.

* Opex declined 0.8% YoY/3.3% QoQ (6% lower than MOFSLe). C/I ratio, thus, declined to 45.3% (vs. 46.3% in 4Q). PPoP improved 15.8% YoY (up 0.6% QoQ) to INR80.0b (10% beat on MOFSLe).

* Advances growth was steady at 13.3% YoY/1.8% QoQ, led by strong growth in corporate (up 2.4% QoQ) and steady growth in the RAM segment (up 11.6% YoY/1.6% QoQ). Within retail, growth was led by VF (up 5.7% QoQ) and steady growth in housing (up 2.4% QoQ).

* Deposits grew 3.5% YoY/fell 1.8% QoQ to INR12.8t with a sharp drop in CA deposits. The CA book was down 12.0% QoQ (up 7.9% YoY), and the SA book was up 12.5% YoY/flat QoQ, leading to a stable CASA ratio of 35.1% (down 12bp QoQ). CD ratio picked up to 83.6% (up 296bp QoQ).

* Fresh slippages increased 3% QoQ to INR21.5b, while healthy recoveries and upgrades led to an improvement in the GNPA/NNPA ratios by 17bp/1bp QoQ to 2.65%/0.47%. PCR ratio was stable at 82.8%.

* The bank reported higher credit costs of 0.38% vs. 0.16% in 4QFY26 amid the creation of standard asset provisions of INR1b in 1Q. The bank expects additional ECL transition provisioning of INR60b, against which a management overlay of INR8b has already been made.

Valuation and view

UNBK reported a steady quarter on the back of lower opex intensity and lower-thanexpected provisioning, aided by NIM improvement. While loan growth was stable, deposit growth continued to lag loan growth, with the bank remaining cautious on bulk deposits, leading to an increase in LDR. Management has guided for loan growth to be 1% higher than systemic growth, with a continued focus on marginaccretive expansion. The bank has built a standard asset provision buffer of INR8b (including ~INR7b created in 4Q), while the estimated ECL transition impact stands at INR60b. Asset quality continued to improve overall, while credit costs normalized upward in 1Q. We raise our estimates by 5% and project FY27E RoA/RoE at 1.3%/15.3%. We expect an 11.8% CAGR in loans over FY26-28. We reiterate our Neutral rating on the stock with a TP of INR190 (0.9x Mar’28E ABV).

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