.Union Bank (UNBK) reported a 4QFY26 PAT beat, aided by strong TWO recoveries of Rs 15.7bn and lower opex (-7% yoy). NIMs slid 12bps qoq, reflecting the full-quarter impact of the Dec’25 repo cut and a corporate-led loan growth (credit growth +6% qoq; corporates +9% qoq). Core credit costs remained benign at 16bps; additionally, the bank created Rs 7bn of provisions to strengthen standard asset coverage.
·While we believe UNBK is on track to deliver FY27E RoA of 1.1%+, NIM resilience remains the key monitorable, particularly as it targets to sustain current levels of 2.6% while delivering guided credit growth of 13-14%. NIM performance will depend on incremental spreads, as the bank appears to have limited balance sheet surplus liquidity for redeployment, with LCR at 113% and investments/assets at 21%.
· We cut FY27 NIM estimates by 5bps and tone down fee growth assumptions, resulting in a 3.4% cut to PPOP. However, following cumulative standard asset provisions of
Rs 19.5bn in FY26, we lower FY27 credit cost assumptions to ~50bps. As a result, FY27 earnings estimates remain largely unchanged. Retain LONG with a Mar’27 TP of Rs 210 (vs Rs 215 earlier), based on 1.1x Mar’28 ABV.
NIMs decline 12bps qoq as repo cut bites: NIMs declined to 2.64% (-12bps qoq), reflecting the transmission impact of the Dec’25 repo cut (EBLR: 54%, MCLR: 36%) and a sharp rise in corporate-led credit growth. In its bid to offset pressure on yields, UNBK has exited Rs 350bn of IBPC and Rs 300bn of sub-6% yielding corporate book. The bank also maintained the share of RTD + CASA at 79%, with SA deposits growing 8% qoq (deposits: +6.9% qoq). Management aims to defend current NIM levels.
Business growth healthy; asset quality strong: Advances saw a strong sequential pickup of ~6.1% qoq, led by corporate loans (+9.3% qoq), while RAM remained steady (+3.7% qoq) across retail (+3.1% qoq), MSME (+3.7% qoq) and agriculture (+4.6% qoq). On the liability side, deposit growth was largely driven by retail term deposits, while CASA improved, with the ratio rising ~126bps qoq to ~35.2%, reflecting the ongoing shift away from bulk deposits. Asset quality remained robust, with GNPA/NNPA improving to ~2.8% (-24bps qoq)/~0.48% (-3bps qoq), supported by strong recoveries and controlled slippages. Provisioning buffers were healthy, with PCR stable at ~83%, while credit costs stayed benign at 16bps.
NIMs hold the re-rating key – retain LONG: 4Q earnings were ahead of our estimates, with NII broadly in line. However, a 12bps qoq NIM compression and LCR moderation to 113% make it challenging for the bank to deliver guided credit growth while protecting profitability, especially as the incremental cost of liabilities rises in FY27. With systemic LDR at ~82%, competitive intensity for deposit mobilisation remains elevated. While we remain comfortable on asset quality and opex trajectory, the key monitorable for re-rating remains the bank’s NIM trajectory. Retain LONG with a Mar’27 TP of Rs 210.