Union Bank of India Ltd (NSE: UNIONBANK) Q2 2025 Earnings Call dated Oct. 22, 2024
Corporate Participants:
Ajay Bansal — Head of Investor Relations
A. Manimekhalai — Managing Director & Chief Executive Officer
Ramasubramanian S. — Executive Director
Unidentified Speaker
Sudarshana Bhat — Chief General Manager
Analysts:
Mahrukh Adajania — Analyst
Ashok Ajmera — Analyst
Jai Mundhra — Analyst
Nitin Aggarwal — Analyst
Clyton Fernandes — Analyst
Dixit Doshi — Analyst
Ashlesh Sonje — Analyst
Sushil Choksey — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Union Bank of India Earnings Conference Call for the period ended September 30, 2024.
The Bank is represented by the Managing Director and CEO, Ms. A. Manimekhalai; Executive Director, Shri Nitesh Ranjan; Shri Ramasubramanian S.; Shri Sanjay Rudra; Shri Pankaj Dwivedi and other members of the top management.
[Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Ajay Bansal, Deputy General Manager. Thank you and over to you, sir.
Ajay Bansal — Head of Investor Relations
Good afternoon, ladies and gentlemen. I, Ajay Bansal, Head of Investor Relations, welcome you all for Union Bank of India earning con call for the period ended September 30, 2024.
The structure of con call shall include a brief opening statement by respected MD and CEO ma’am, and then the floor will be open for interaction.
Before getting into the con call, I will read out the usual disclaimer statement. I would like to submit that the certain statements that may be discussed during the investor interaction may be a forward-looking statement based on the current expectation. This statement involves a number of risks, uncertainty, and other factors that cause the actual result to differ from the statement. Investors are therefore requested to check this information independently before making any investment or other decision.
With this, I now request our respected MD and CEO ma’am, for her opening remarks. Thank you and over to you, ma’am.
A. Manimekhalai — Managing Director & Chief Executive Officer
Good afternoon, everyone, and welcome to Union Bank’s financial results announcement for the second quarter ended September 30, 2024. Thank you for joining us today. I trust you have had the opportunity to review our results. I will provide you a brief overview of our performance and key highlights for this quarter.
Before diving into our financials, let’s touch upon the operating environment. The banking industry has seen credit growth outpace the profit growth, creating a competitive scenario for liabilities. However, the gap between credit and the profit growth is narrowing as per the latest RBI data.
Now, let’s take a look at our financial highlights for the quarter ended September 2024. We have achieved our highest ever operating profit and net profit for a quarter. Our operating profit reached INR8,113 crores, reflecting a 12.4% growth. Net profit stood at INR4,720 crores, showing a 34.4% year-on-year growth. ROA has improved to 1.35%, and ROE has reached 19.10% for Q2 FY ’25. Our capital adequacy ratio improved to 17.13%, with the CET ratio increasing to 13.88% as of September 2024. Gross NPA has reduced [Phonetic] by 202 basis points, while net NPA has reduced [Phonetic] by 32 basis points. The PCR has improved by 76 basis points to 92.79%. Our cost to income ratio improved to 43.56% for Q2 FY ’25, down from 44.08%, that was what was in the last quarter.
Our Q2 performance is broadly in line with our FY ’25 guidance. Deposit grew by 9.2% year-on-year, and advances by 9.6%. While deposit growth is within our target range of 9% to 11%, advances growth has been slightly muted than what the target that we had given. In the advances segment, we saw 12.3% growth in RAM lending, while corporate lending grew at moderate 6.3%. Our NIM stood at 2.97% for H1 FY ’25, and 2.90% [Phonetic] half year ended in FY ’25, aligning with our guidance of 2.8% to 3%. The decline in NIM is primarily due to adjustments in penal charges as per RBI guidelines, and a drop in our dummy [Phonetic] ledger recovery.
Asset quality continues to improve, with gross NPA reducing to 4.36%, aligning closely with our target of below 4% by March 2025. For Q2 FY ’25, gross recovery was INR3,932 crores, which is lower than slippages of INR5,219 crores, mainly due to a large ticket slippage from a single major account. In H1 FY ’25, we achieved a gross recovery of INR7,300 crores, in line with our annual target of INR16,000 crores. Total slippages stood at INR7,537 crores, as against our guidance of INR11,500 crores. We have consistently met and often exceeded our target, and we are confident in our ability to achieve the same for FY ’25.
We remain committed to the sustainable growth, ensuring a balanced focus on both top line and bottom line performance. We prioritize profitability and efficiency over chasing growth at any cost. Our CASA and retail term deposits account for 72% of our total deposits; a ratio we have maintained consistently. In our advances portfolio, we have targeted retail to corporate ratio of 55 to 45, and as of September 2024, we are at 57-43.
Let me share some of the significant developments during the quarter. We achieved a second position in the E7 [Phonetic] ranking for the first quarter. We ranked first under the theme Banking Towards Viksit Bharat and second in Customer Service Excellence, Effective Risk Management, and Developing Employees for Emerging Banking Priorities. We have opened 122 branches this financial year, up to September, including 12 focused branches in RUSU centers. We launched the Union Leap, a CASA transformation and business build project, deploying 1,250 relationship managers to drive new business acquisitions and engage existing customers.
Up to September 30, 2024, we added over 3.48 million CASA accounts, and our VYOM mobile registrations reached 29.1 million. Additionally, we onboarded 1,23,000 clients through our digital savings accounts. We introduced several new digital journeys, such as the PM Vishwakarma STP, KCC Renewal up to INR10 lakhs, GST Gain STP for fresh sanctions up to INR1 crore, and Union Nari Shakti STP for new-to-bank customers. Bank introduced the UPI Interoperable Cash Deposits into [Indecipherable], UPI Life Auto Top-up, UPI Circle functionality, and the ability to deposit into PPF and SSA accounts.
We inaugurated two rural self-employed training institutes in Mauganj, Madhya Pradesh and Palnadu, Andhra Pradesh, both fully managed by women staff to support women entrepreneurs. All rating agencies upgraded the Bank over the past year. In FY ’25, S&P Global revised our outlook to positive, with a BBB-positive rating, while In Rating and Brickwork upgraded us one notch to AAA with a stable outlook. We have also been added in the NIFTY Next 50 Index.
To conclude, Union Bank has consistently demonstrated strong, stable and sustainable performance. Our key initiatives, including enhanced underwriting capabilities, centralization, verticalization, HR transformation and a robust assurance framework are yielding positive results. We have significantly strengthened our digital capabilities through the VYOM app, digital onboarding, straight-through processing journeys, fintech partnerships, analytics and data lakes. We are committed to building on these initiatives to enhance our performance and customer experience further.
With that, we are now open to questions. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Mahrukh from Nuvama Wealth Management. Please go ahead.
Mahrukh Adajania
Yeah, good afternoon. Ma’am, the slippage — so I have two related questions. Firstly, that the slippage we are seeing in LC and others of INR34 billion should be from a single account that is in the news and that was discussed even last quarter, correct? Is that correct?
A. Manimekhalai
Yes, ma’am. It is only from a single account.
Mahrukh Adajania
Okay. Now, the thing is that in last quarter, you had disclosed that a couple of accounts had came to the SME list, right? And that is why there was a sharp increase in SME. So, if something has slipped from SME to slippage, I am guessing that this account was identified as SME, then why has the SME figure gone up quarter-on-quarter by INR7 billion? It should come down by the amount of slippage, correct? That is the other question.
Ramasubramanian S.
Madam, that is — see, this is only again a couple of accounts. This is — there, there was a — no, no, in the quarter two, there was a one or two days delay, which has come and it has been recovered. So, it was — on 30th of September, it was the position actually.
Mahrukh Adajania
Okay, but on 30th, the account that appears to have slipped in the corporate slippage was SMA last quarter, correct?
Ramasubramanian S.
No, see, actually in the last, if you are looking at quarter one, we made provision for two accounts.
Mahrukh Adajania
Correct.
Ramasubramanian S.
Out of that, one has slipped in the current quarter.
Mahrukh Adajania
Correct, correct.
Ramasubramanian S.
Another one is continuing in SMA. Though it was not there as a SMA on 30/6/2024.
Mahrukh Adajania
Sorry. The…
Ramasubramanian S.
See, the another account, it was not a SMA as on 30/6, though it has defaulted in some other bank.
Mahrukh Adajania
Okay. So, there was — you made provisions on two, of which one was not SMA in the first quarter.
Ramasubramanian S.
Yes.
Mahrukh Adajania
And — but now the increase in SMA is driven by only that account or by a couple of accounts?
Ramasubramanian S.
No, another account also, but that is only because one or two days delay, it has come back.
Mahrukh Adajania
Okay. Okay. And sir, which sectors would that belong, it’s corporate, government, what kind of sectors would the SMA that got upgraded subsequently belong to?
A. Manimekhalai
These are state government, ma’am, and these have come back to normalcy in this quarter.
Mahrukh Adajania
Okay. Okay. Perfect. Perfect. Thanks a lot. Thank you.
A. Manimekhalai
Thank you.
Operator
Thank you. The next question is from the line of Ashok Ajmera from Ajcon Global Services Limited. Please go ahead.
Ashok Ajmera
Good noon, ma’am and all the…
A. Manimekhalai
Good afternoon, Ajmera ji.
Ashok Ajmera
Yeah, yeah. Good afternoon just started. Okay. Ma’am, compliments to you, especially as regards the profitability of the Bank is concerned. You are very, very conscious about it and quarter after quarter, you are declaring a very good profit. So, my compliments to the entire team and you for the same. I think our profit after tax has come up to almost INR4,700 crores. I think one of the highest quarterly profits.
Having said that, ma’am, I have got some questions on your comments and maybe my concern on especially the business growth. So, while you say that year-on-year, I mean, if you take the whole year, then it’s okay, 9%, 7%, that’s okay. But if you look at the current half year of FY ’25, our deposit has grown only by 1.67% and our credit has grown only by 2.5% [Phonetic]. So, especially on the credit side, if you look at it, if you take your target of 13%, which means about INR1,17,000 crores in this financial year should be, whereas the total credit expansion is only INR23,947 crores. It means in the remaining six months, starting from October to March now, you will have to have the credit increased by about INR93,000 crores. Similar story on deposit side also.
So, how confident and sure you are that in almost remaining five months now, one month, of course, you must have done some business, INR93,000 crores is not a small amount, so, how do you see the visibility from the sanction pipeline, from the new proposals which are coming in, which are in the second sanctioning stage and the proposals which were sanctioned, are already in the disbursement stage? So, can you give some little more detailed break up on this, that how are we going to achieve this INR90,000 crores, INR93,000 crores credit in this [Technical Issues]? This is a very, very important point which will take the time forward. So this is my first question.
A. Manimekhalai
Sure. Ajmera ji, I will answer your question. First, I will look at the low growth in the advances. The corporate loan, especially on T-bill linked loans, we were not very aggressive. We let go some of the advances which were yielding us slightly lesser rate of interest. We had built this book when we had surplus liquidity in the system. So, we have brought down our T-bill book to a considerable extent. Our NBFC book has also been reduced from whatever it was in December ’23 to now. We have brought it down considerably. That’s the area where we have — why we have declined on our corporate book.
Now, if you are asking us with regard to what is our pipeline pending for disbursements and sanctions, if you remember, we had set a guidance of 11% to 13% credit growth for FY ’25. We have almost about INR75,000 crores pending for disbursements and sanctions, out of which INR36,000 crores is pending for disbursement and INR39 crores of sanctions is pending for sanctions actually.
Now, we have — on the corporate side, we have good sanctions under road, power, real estate, telecom, iron and steel, cement. All these areas, we are seeing — we have got good sanctions. We are also focusing on sunrise sectors like the renewable energy, EVs, semiconductors, data centers, tourism. These are the areas that we are looking at. So, we hope that — we also are hoping that there would be a capex coming back in this quarter and so that we can revise whatever sanctions we have got on hand and see that they are disbursed. That is with our credit growth.
With regard to advance — deposits growth, of course, we had given a guidance of 9% to 11% and we have stuck to that guidance. We have done about 9.26% growth in our deposits trend [Phonetic]. However, CASA has declined a little, but if you look at the numbers that we have, we have added absolute numbers to the — close to about INR8,000 crores in our CASA book and retail term deposit has also seen a healthy growth. We have taken lot of measures to see that our CASA increases. Like, we have opened, as I said in the very beginning, 122 branches, out of which 12 branches are in the RUSU centers. Premium branches have been opened. We have strengthened our BC model. We have got more than 21,000 BC models. We have launched special deposit schemes so that we can garner more deposits. We have also separately introduced something called [Technical issues] excellent sale in the bank, which is dedicated to give top-notch service to our customers. So, we are looking at lot many things like this.
We are also having a micro-market strategy. We are focusing on growth hotspots in the country. We have identified about 51 hotspots in the country where we will be seeing this growth. So, overall, I can say that the Bank is — our focus is very clear. We would like to increase our deposits. We would like to increase our customer base. In the very beginning, I have told you that we added close to about 34.80 lakh CASA accounts, out of which, about 15 lakh customers are from the rural and semi-urban areas.
So, these many strategies that we have got, I am sure that we will be able to increase my advances portfolio and my deposit portfolio also. Thank you.
Ashok Ajmera
Thank you, ma’am, for such an elaborate answer. And I am sure with you being there all the time, you have been performing better than the targets and this year also, you may do some magic to reach that figure of the credit and deposits both. Having said that, ma’am, while we are comfortable on the, I think, recovery front, target of INR16,000 crores, we have already achieved INR7,300 crores. So, we are more or less there. But on the slippage front, out of INR11,500 crore of target for FY ’25, we have already, I think, slipped about INR7,537 crore. And we have a very strong SME pipeline in the sense that a lot of these accounts — SME2 is also INR1,664 crore. So, going forward, on the slippages front, are we comfortable? I mean, our slippages in the coming six months now, the remaining six months, will not be more than INR4,500 crore or INR4,000 crore, so as to meet the target of — I mean, to be limited to the target of INR11,500 crore?
And coupled with that, one more question, ma’am, because I may not be allowed to ask in this round, the question. If you look at the note number 20, in the last June quarter, we said that we have done the — we have made the additional provision on prudential basis on advances of INR1,239 crore, which has come down in this quarter to INR553.93 crores. So, in fact, we have written back an additional prudential provision of INR685 crore in this quarter. So, had that not been there, our NPA provision would have gone up. So, it means it would have been INR3,200 crores. So, what is this mystery? I mean, why have we reduced this provision, which was already made in June 2024 of INR1,239 crores, now reduced to INR553 crore?
A. Manimekhalai
So, I will answer your question with regard to slippage first. Though we had given a guidance of INR11,500 crores, we have already crossed about INR7,300 crores in this quarter itself, in the second quarter itself. But if you see, the only one large slippage, that’s the reason that the slippages are quite high in this quarter. If you look at the actual slippages that happened in this quarter, it is just about INR1,604 crores. So, slippages are under control. If not for that one big slippage, we would have contained our slippage to a very great extent.
And with regard to what is talking about — the second part of the question is also answered. Because of this reason, only the provision that we made in the first quarter of INR1,200 crores, because that slipped into an NPA, that’s the reason that it is showing that numbers.
Ashok Ajmera
Oh yeah, yeah, yeah. All right, ma’am. If time permits, I will come again. I’ve got some more small two, three questions and observations.
A. Manimekhalai
Sure, sure, sure. Thank you.
Operator
Thank you. The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Jai Mundhra
Yeah. Hi, good afternoon, ma’am. And thanks for the additional disclosures. Ma’am, just wanted to check on the account that slipped. How much have we provided? And what is your sense on the eventual haircut or the time line of the resolution because that account is supposed to be sovereign? So, if you can share your thoughts there.
A. Manimekhalai
Jai, we have provided close to the extent of 20% as per the norms. And with regard to recovery part of it, lot many things are happening at the background, at the government level, at the bank level. Many things are in process and we hope that the recovery comes very soon.
Jai Mundhra
All right. But, ma’am, what could be eventual haircut, ma’am? Should it be less than 20% or it could be even more than 20%?
A. Manimekhalai
No, we are not talking about any haircut as of now, Jai, on this account.
Jai Mundhra
Okay, sure. Second, ma’am, the account that is still the second account, right, which was talked about last quarter, is the account still in SMA 0, right?
A. Manimekhalai
Yes, yes, it is.
Jai Mundhra
Okay. And, ma’am, so how is it possible in the sense that last quarter it was also relatively stretched and 90 days have passed and it’s still in SMA 0? Is there some special dispensation left?
Ramasubramanian S.
Yeah, Jai, if you’re looking at it, last quarter, it was — it has started showing stress in other banks. Though it was not SMA there, it was — it started showing sickness in other banks. So we, as a prudential measure, we have done our provisioning — standard of the provisioning, we have done it. Still, the unit is running, cash flows are there, they are able to pay, but we can see some delay, some recessing plans are being worked out.
Jai Mundhra
Okay. So there is no dispensation, just that, as of now, the account is still in SMA 0.
Ramasubramanian S.
Yeah, there is nothing.
Jai Mundhra
Okay. And we have around INR550 crores, standard of this provisioning against…
Ramasubramanian S.
Yeah, yeah, that’s right.
Jai Mundhra
Sure. And secondly, sir, this — we understand that margins are okay, but accounting-wise, there is a change and hence the penal interest has 11 basis point impact. So thanks for that disclosure. But if I remember correctly, this new circular was effective from April 1, right? So how should — I mean, why is the impact in this quarter and how should one look at in the next quarter?
Unidentified Speaker
No, no, so Jai, yeah, you’re right, it was April 1, but the higher impact came in this quarter. There was not much of an impact in the April-June quarter. But in the July to September quarter, the impact was higher. So it was about 11 bps in the September quarter. And for the six months, the impact is 6 basis points.
Jai Mundhra
Right, so even in third quarter, if hypothetically, a person is charged penal interest, then this may impact third quarter also, right? I mean, this is not done…
Unidentified Speaker
Yes, yes, yes, but it will continue.
Ramasubramanian S.
[Speech Overlap] other income.
Unidentified Speaker
Yeah, but Jai, it’s really only a movement from net interest income to non-interest income. So, I mean, there’s no change in the operating profit, it’s just a movement between lines, like as you’re aware.
Jai Mundhra
Right, right. No, that is — thanks. Thanks for the clarification. Last thing, sir, the cost of deposit has increased, right, Q-o-Q, at least that looks slightly steep. We have been very calibrated in the deposit growth, CASA is also reasonably okay. What explains the rise in cost of deposit? Thank you.
A. Manimekhalai
Yeah, Jai, the cost of deposit, Y-o-Y, is almost increased by 35 bps. Now, the Bank had the slow rate of growth in CASA, that’s another — that’s a reason for this increase in cost of deposit. Plus the Bank had also introduced a few specifically designed product for garnering retail term deposit. This was the high cost deposit that we had taken up. It’s not because that we had taken bulk deposit, but it was only for the growth of retail deposit that we had taken. So, that is the reason for the increase in the cost of deposits.
Jai Mundhra
Understood, ma’am. That is very, very helpful. Thank you.
Operator
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal Financial Services Limited. Please go ahead.
Nitin Aggarwal
Hi, good afternoon, everyone. Ma’am, I have two questions.
Operator
Sorry to interrupt you, sir. I would request you to please use your handset.
Nitin Aggarwal
Hello, is it better now?
Operator
Yes, sir.
Nitin Aggarwal
Hi, good afternoon, everyone. I have two questions. One is, ma’am, if you can talk about is how much is the interest reversal this quarter, because with this large, like, corporate slippage, has the margin been further impacted due to that? Or is this like the base that we need to work forward with in the next quarter?
A. Manimekhalai
The interest reversal from this large account is about INR45 crores.
Nitin Aggarwal
Okay, so not much. Okay.
A. Manimekhalai
Yeah, not much. Yeah.
Nitin Aggarwal
Right, ma’am. And secondly, is there any lumpy recovery that we are looking at? Because we have maintained our recovery guidance for the year while first half is tracking well, but we carry 100% provisions on the NCLT book, even the SR book is fully provided, so, any recoveries that we are expecting in the next two quarters?
A. Manimekhalai
We have a very healthy book of about INR81,000 crores. And we hopefully want to get some good recovery from these accounts. So, lot many things are happening at a sprint to recover from the TW, technically written-off accounts. And we also have the bankers put a lot of efforts in one-time settlement actually. And SARFAESI, we have done very well under SARFAESI, we have done — under OTS, we have bought out a scheme for INR1-crore-and-below accounts. And we have, in this half year, settled close to 2,50,000 accounts. And that is one area where we have seen good recovery. SARFAESI also, I think among the public sector banks, we are one of the — highest number of SARFAESI auctions we have done. That is another place we have seen. But with regard to a bigger recovery, chunky recovery, we hope that there are some recoveries from NARCL and NCLT.
Nitin Aggarwal
Right. And the last question is on the net profits that we have reported, which is a very sharp jump, like almost 28% sequential increase. So, like this is a ROA of 1.3 plus and so how should we look at it? Why did we not use this extra profit this quarter to make provisions, given that SMA number is still unchanged despite this slippage? So what is the thought process behind this high profits?
Unidentified Speaker
Yeah, so Nitin, we did the standardized provisioning in the last quarter. At this stage, we did not see a need for an incremental provisioning. Our provisioning coverage ratio anyway stands at about 92.5%. So we thought that we won’t need any additional provisioning for this quarter. If there is a requirement, we will look at provisioning in subsequent quarter, but we did not see a need to make additional provisioning this quarter.
Nitin Aggarwal
Okay, got it. Thank you so much, and wish you all the best.
Operator
Thank you. The next question is from the line of Rakesh Kumar from B&K Securities. Please go ahead. Mr. Rakesh, I would request you to unmute your line and speak, please. Due to no response from the current participant, we will move on to the next participant. The next question is from the line of Clyton Fernandes from Sundaram Mutual Fund. Please go ahead.
Clyton Fernandes
Yes, [Indecipherable].
Operator
Sir, I would request you to please use your handset.
Clyton Fernandes
Okay, hold on. Is it better now?
Operator
Yes, sir.
Clyton Fernandes
Yeah. My question is actually on credit cards. [Technical Issues]
Operator
We have lost the connection of the current participant. We will move on to the next participant. The next follow-up question is from the line of Ashok Ajmera from Ajcon Global Services Limited. Please go ahead.
Ashok Ajmera
Thank you for giving this opportunity again. Ma’am, if you look at the note number 15, it says that in this quarter, one new SR has been added. I would just like to know the amount in the account for this SR and how much — what was the outstanding and how much amount for which the SR has been issued? Because 15% must have been the cash, if it is NACRL or what is the status of this SR?
Unidentified Speaker
Ajmera ji, I will connect with you offline on this one.
Ashok Ajmera
Pardon?
Unidentified Speaker
I will connect with you offline on this one — on this query of yours.
A. Manimekhalai
No, the details are not presently with us. We will connect to you offline.
Ashok Ajmera
All right, ma’am. There is no issue. Yeah, so my question was also on one of the — my colleague which asked and he went out of the line, is increase in the credit cost, so to 1.09% from 0.73% in last quarter. So what is the overall target of the credit cost for the whole FY ’25, ma’am, on this?
A. Manimekhalai
No, credit cost, we would like to keep it at 1% or below 1% anytime. And that is how it was behaving for all these quarters. But for that one slippage that happened in this quarter, that is the reason that the credit cost has shot up. Otherwise, it was always under control and below 1%.
Ashok Ajmera
Okay. Ma’am, as usual, one question is on the treasury front. Now, with all kinds of different views coming and even the Honorable RBI Governor’s tone also, looking at the increase in the inflation rate and earlier, the expectation of rate coming down and now recently again reading his statement, even after taking a pause, again to be very, very little more [Indecipherable]. So what are your views on going forward on the treasury and the performance of the treasury looking at the rate scenario in the country by our — I mean, Reserve Bank of India, not comparing with the U.S. Fed? So, what are our views going forward on the profit income from the treasury and also revaluation of its assets and other [Technical Issues]?
Sudarshana Bhat
Ajmera ji, thank you very much for the question. As we projected during the first quarter of the financial year, that lot of things will come into action like indexation — bond indexation and borrowing cut and all those things and subsequently a rate cut by Federal Reserve in September, 50 basis points instead of 25 basis points. Subsequently, European Central Bank and Bank of India also cut the rate by 50 basis points and 25 basis points and RBI stance on the outlook from neutral to accommodation. These all given a clear indication about the outlook, very good in the futuristic view of the market. Subsequently, during the recent conversation, there is a clear cut indication that inflation is very high and RBI may not be in a position to cut the rate in the near future unless the probability of very visible, but there are some political situations in Federal Reserve, in U.S. also that election is matter [Phonetic].
All those things given a mixed reaction into the market, but however, the global condition as well as Indian market conditions are very favorable in the coming days because after the Diwali, the new year, the market react in a positive manner because of the ample liquidity availability and stability of the rupee because in spite of INR40,000 crores to INR50,000 crores of outflow in the FIS [Phonetic] on account of the redemption of the equities, still rupee is at a level of INR84 level, that gives a clear indication in the market as well as to the market participation that there will be stability in the liquidity as well as interest rate outlook. We are hopeful that we have positioned ourselves in the coming days to take the advantage of the market, whatever the things have happened, based on the projection, we have booked the profit. In the next two quarters also, we take a defensive and positive view of all those factors and give a decent 20% to 25% growth in the treasury income.
Ashok Ajmera
Oh, that’s good. That’s always very positive and your actions are definitely — is getting good profits to the Bank. So, thank you very much for this elaborate commentary on that. Thank you, ma’am, for the second opportunity. Thank you.
A. Manimekhalai
Thank you.
Operator
Thank you. The next follow-up question is from the line of Mahrukh from Nuvama Wealth Management. Please go ahead.
Mahrukh Adajania
Yeah. Hi. Thank you. I just wanted to check that, last quarter, the penal interest was applicable only on incremental loans and this quarter, it’s on outstanding loans. Is that understanding correct? So then…
Unidentified Speaker
Yeah, yeah. Yeah that’s right. That’s correct.
Mahrukh Adajania
Okay. So, then next quarter, incrementally, the impact should be lower. It will continue, but it should be a lower impact, right, just on NII. I know it comes back as non-interest, but just asking.
Unidentified Speaker
Yeah, it should. Yeah, yeah. We will, of course, have a deeper look at that. But, yeah, it could be lesser. But the impact will still be there and it will probably be higher than Q1.
Mahrukh Adajania
Right. Right. Got it. Got it. And then if you just see the other interest, right, other interest as in that interest from interbank funds and maybe RBI, it’s gone up by INR1 billion. So, that’s just because of liquidity or what?
Unidentified Speaker
This is on account of the available liquidity surplus that has been deployed to get a decent return, madam.
Mahrukh Adajania
Okay. So, the FX swap income will be how much from that?
Unidentified Speaker
So, that will be around INR700 crores to INR750 crores, madam.
Mahrukh Adajania
That is the same like last quarter.
Unidentified Speaker
Yeah, yeah. It will be there.
Mahrukh Adajania
Okay. Okay. Perfect. Thank you. Thanks.
Operator
Thank you. The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited. Please go ahead.
Dixit Doshi
Yeah, thanks for the opportunity. My first question is, can you give a breakup of our MCLR link and external benchmarking loan?
A. Manimekhalai
Yeah, MCLR is about 47%. That’s the breakup and the remaining 49% is EBLR — 43% is EBLR. Out of that, repo is 29% and 17% is CBLR. This is base rate and other rates.
Dixit Doshi
Okay. Now, my second question is regarding your outlook on the NIM. So, where do you see our NIMs over next three, four quarters? Because even without the interest rate cut by the RBI, we are seeing the pressure on the NIM. So, if not in December, let’s say in January, February, we will see a rate cut. So, how do you see your NIM over next two, three quarters?
A. Manimekhalai
Yeah, we had given a guidance at the beginning of the year that the NIM would be in the range of 2.8% to 3%. And currently, our NIM is about 2.97%. And with a good MCLR book that we have, we will be able to keep our NIM at that range only, 2.8% to 3%.
Dixit Doshi
Okay. Okay. That’s it from my side. Thank you.
A. Manimekhalai
Thank you.
Operator
Thank you. The next question is from the line of Ashlesh Sonje from Kotak Securities. Please go ahead.
Ashlesh Sonje
Hi, team, congratulations. Couple of questions…
Operator
Sorry to interrupt you, sir. I would request you to please use your handset.
Ashlesh Sonje
I hope this is better. Couple of questions from my side. Firstly, on this PSU exposure default, it seems that the government is now fine with PSU entities defaulting on bank loans. How does it change your view on lending to PSU entities, going ahead?
Ramasubramanian S.
See, we have to understand that the default can happen from any — whether it is a private or PSU. It is under some of the critical areas. Because of that, it is happening. We also — there is no special dispensation is being given by the Bank in appraising or underwriting the PSU loans also. So, we follow the same structures only and we are doing it. So, I don’t find any difference in underwriting or there is any — separately we are doing any underwriting standards for the PSU. So, this is a known [Phonetic] business risk which the banks are undertaking and the pricing also is depending on that only.
Ashlesh Sonje
Understood. Sir, and just to clarify, in the past, have you experienced a loss on any of your PSU exposures in the history?
Ramasubramanian S.
No, I am not able to get the question.
A. Manimekhalai
PSU exposures.
Unidentified Speaker
In the past, any such instance? Any such instance in the past?
Ramasubramanian S.
No, I think some long time back, there were — one or two were there actually.
Ashlesh Sonje
Okay, understood. And second question on the cost of deposits. What proportion of your term deposits are yet to be repriced fully to the fresh TD rates?
A. Manimekhalai
No, except for your core deposits of CASA, the retail term deposits will be repriced as and when the date of contract comes in, it has to be repriced.
Ashlesh Sonje
Okay, but any sense of…
A. Manimekhalai
But one thing is, most of the deposits, 70% of my deposits are in the one year range, so after a year, it will come out for repricing.
Ashlesh Sonje
Okay, understood. And last one is a clarification. Under your fee-based income, there is an item called Others, which has increased 50% Q-o-Q, to INR1,167 crores. Is it fair to assume that this is the penal charges-related income?
Unidentified Speaker
Yeah, yeah, penal charges is a part of that Others, you’re right.
Ashlesh Sonje
Okay, understood. Those are all the questions I had. Thank you.
A. Manimekhalai
Okay, thank you.
Operator
Thank you. The next follow-up question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited. Please go ahead.
Dixit Doshi
Yeah, just one clarification. So the account which got slipped is PSU, but the account – the other account which is in the SMA, that’s also PSU or that is some private account?
Ramasubramanian S.
Yeah, that is also PSU only.
Dixit Doshi
And both are state government or central government — central PSU?
Ramasubramanian S.
No, PSU is central government.
Dixit Doshi
Okay, so the one which is slipped is central government and the other one is a state government?
A. Manimekhalai
Both are…
Ramasubramanian S.
No, no. State, that is a different context. Other than these two, there was one or two accounts which the state government party [Phonetic] had given. It was for one or two days. It came as a SMA on September, which was cleared subsequently.
Dixit Doshi
Okay, okay, okay. Thank you. That’s it from my side.
Operator
Thank you. The next question is from the line of Sushil Choksey from Indus Equity Advisors. Please go ahead.
Sushil Choksey
Congratulations to team Union for the stable result.
A. Manimekhalai
Thank you, Choksey ji.
Sushil Choksey
So my first question is credit visibility in terms of sanction pipeline which is unavailed and what kind of visibility for the growth in the second half, specifically in view of the guidance which you have given to the previous questions?
A. Manimekhalai
Okay, we had given a guidance of 11% to 13%. We have got a healthy pipeline actually. If you see our sanctions, in this quarter, we have got about INR76,000 crores of sanctions for the current quarter and out of this, INR36,000 crores is pending for disbursement. So we have got a healthy pipeline also and we hope that if the capex cycle comes back, we will be able to disburse much faster and whatever the sanction limits that we have got, that also remains to be disbursed.
Sushil Choksey
Ma’am, the visibility is more coming from private sector or public sector?
A. Manimekhalai
It’s more on the public sector. We have roads and some of the private sectors also in the area of real estate, telecom, iron and steel, sunrise sectors like the renewable energy, semiconductors, data centers, tourism. There are many areas that we have given. Sports [Phonetic] are there. So many areas we have given our sanctions.
Sushil Choksey
Ma’am, how is the visibility in the festive season where retail loans are concerned, specifically car loans, housing loans? With the environment being so competitive and wage being offered by majority banks are pretty low, so how is the visibility there?
Unidentified Speaker
In retail loans we have grown last quarter in the range of 5.88%.
A. Manimekhalai
Choksey ji, actually, we have done very well in the last quarter in the sector of retail loans. Home loans and vehicle loans, we saw about close to about 15% growth and a very good growth in our education loan sector also. Festive seasons are usually the time when retail registers a higher growth and we hopefully want to see a better growth in our vehicle loan sector, home loan sector in this quarter also.
Sushil Choksey
Ma’am, my next question is more pertaining to treasury. So you can answer or Mr. Bhat can answer.
A. Manimekhalai
Yeah, Mr. Bhat is there to answer.
Sushil Choksey
So, ma’am, the world expects little volatility with U.S. presidential election. RBI governor has made very specific that early rate cut is not required but it seems that 2025 rate cut is certain, maybe in the first quarter or later part. In view of the volatility which is there in the money market led by treasury and exchanges both, how are we garnering to position ourselves by encashing sufficient treasury and converting into corporate loans or retail loans where the arbitrage is visible at 1.7% to 3% depending what loans are you sanctioning.
Sudarshana Bhat
As far as volatility is concerned, yes. After the governor’s statement and U.S. elections outcome, there will be clarity on the volatility. Till that time, expectation of the futuristic things happening, market will position themselves in the exchange market. But as far as India is concerned, RBI is quite visible to have stability in the exchange rate in spite of so much volatility in the global exchange rate. But Indian rupee is very stable, defensive at INR84 to INR84.10 [Phonetic] level, that indicates a clear cut direction from the reserve bank that they want to stabilize the rupee. Once the rupee stability happens, almost all other factors like liquidity, interest rate and various other factors in spite of the geopolitical conditions and crude oil prices uptick and global imbalances, still Indian conditions are far favorable.
We as treasury along with the relationship team coordinate with the various corporates to encourage the benefit of getting more and more business opportunity in respect of the foreign exchange, interest rate products and other sectors so that we can definitely margin ourselves and generate additional fee income by way of exchanging the information and timely interaction with them and giving the market outlook to generate additional business as well as overall growth in both the treasury, credit and whatever the aspect available from the segment.
Sushil Choksey
So is the foreign exchange income, FX arbitrage income, which was very sustainable compared to other banks, likely to be visible in the second half?
Sudarshana Bhat
Yeah, because this depends on the liquidity condition, we are having comfortable liquidity and there is a good arbitrage opportunity available because expectation of the interest rate cut in the U.S. by 200 basis points in the next one year. So there is a spike in the premium market that will be able to generate a decent arbitrage as and when the liquidity available into the system.
Sushil Choksey
Best wishes for festive season and the year to come for Union Bank.
Sudarshana Bhat
Yes.
Operator
Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Unidentified Speaker
Just before that, there was a question from Ajmera ji on the SR in note number 15. So the amount is not material, it is only INR2 crores. So that covers that question as well.
Operator
Thank you.
Unidentified Speaker
Yeah. Thank you everyone for joining on the call. As we have discussed during the call that the Bank’s performance in the Q2 has been in line with the guidance and there were certain developments during the quarter in terms of the slippages of one large account, which also we had guided actually in the con call of the first quarter. Other than that, everything has been in line. Also, that’s all the initiatives that Bank has taken during the current year, particularly in terms of CASA mobilization and which we have spoken earlier also. Hopefully, in the second half of the year, we should see good outcome out of that as well as some of the steps that we have taken for MSME loan growth, both in terms of the product and the reach-out through specific branches. I think that should also see the positive outcome.
And thirdly, on the digital area also, we have taken several initiatives. We have been talking about that. Hopefully, in the second half that we are in, we will see some of these getting rolled out for our customers and creating value for the Bank.
So thank you once again for joining and for your feedback.
A. Manimekhalai
Thank you, everyone.
Operator
[Operator Closing Remarks]