Union Bank CEO Attributes Slow Loan Growth in September Quarter to Capex Slump and Competitive Pricing

Union Bank CEO Attributes Slow Loan Growth in September Quarter to Capex Slump and Competitive Pricing

Union Bank of India’s loan growth in the September quarter fell short of expectations, driven by sluggish corporate capital expenditure (capex) demand and a competitive lending environment, according to the bank’s CEO and Managing Director A. Manimekhalai. Speaking to reporters on Tuesday, Manimekhalai revealed that corporate loan growth had slowed to 6.3%, bringing down the bank’s overall loan growth to 9.6%, compared to the system-wide growth of over 13%.

The CEO explained that the bank had anticipated a boost in private sector capex, which did not materialize, leading to muted growth in corporate advances. The bank also opted out of several lending opportunities due to a "war on pricing" among lenders vying for big corporate accounts, impacting the overall loan book.

“We had to let go of many accounts due to interest rate reasons, which affected our loan growth. We are hopeful that the capex cycle will revive soon,” Manimekhalai stated. She also mentioned that competition for a shrinking pool of projects made the lending environment more challenging. As a result, Union Bank’s corporate advances now account for 43% of the loan portfolio, down from the targeted 45%.

While the bank reported a pipeline of Rs 39,000 crore awaiting sanction and Rs 75,000 crore in pending loan disbursements, the bulk of new proposals in the corporate sector have yet to emerge. The sectors with upcoming proposals include infrastructure (roads, power), real estate, telecom, steel, cement, renewable energy, semiconductors, and data centers.

Manimekhalai emphasized that the bank remains committed to profitability over aggressive loan growth, noting that it would not sacrifice the bottom line to grow its top line. The lender had reported a 34% increase in net profit for the September quarter, reaching Rs 4,720 crore.

The bank does not expect any significant rise in slippages unless an unexpected event occurs, and it is performing well in unsecured advances, where some competitors have faced difficulties. Union Bank may also consider raising capital in the next quarter, depending on market conditions, though its current reserves are adequate to support loan growth for another year.