If enacted, Union Bank of India may oversee the effect of the RBI project financing draft. A Manimekhalai

If enacted, Union Bank of India may oversee the effect of the RBI project financing draft. A Manimekhalai

On May 10, UBI revealed that its net profit for the fourth quarter of the fiscal year 2023–24 increased by 19% year over year to Rs 3,311 crore. Better asset quality and higher interest revenue are the reasons behind this.

On May 11, A Manimekhalai, managing director and chief executive officer of Union Bank of India (UBI), said that the lender could handle the consequences in the event that the Reserve Bank of India's (RBI) stricter draft project financing guidelines were put into effect.

During the press conference after the results report, Manimekhalai said, "We assume that as and when RBI finalizes the guidelines, the impact that are going to come on the banking industry will be very very manageable number."

As per the proposed guidelines, lenders would need to reserve five percent of the loan amount throughout the building phase of a project. When a project starts up, this percentage will drop to 2.5 percent. The necessary provisions will be further reduced to one percent after the project generates enough cash flow to pay off its present debt.

A five percent provision must be made by the lenders, and it must be made gradually: two percent in FY25, 3.5 percent in FY26, and five percent by FY27. Presently, on project loans that are neither past due or under stress, lenders must hold a provision of 0.4 percent.

The anticipated start date of a project's commercial activities should also be clearly visible to banks, who should therefore make additional reserves in case such operations are delayed. If an infrastructure project is delayed for more than three years, the loan should be reclassified as stressed rather than normal.

Additionally, the RBI requested that the lenders maintain close oversight of any potential stress.

Furthermore, Manimekhalai said that project financing accounts for just 28% of the bank's corporate book, with 68% of the funded projects having already been finished. "Cashflows are visible," the speaker said.

The accounts

On May 10, UBI revealed that its net profit for the fourth quarter of the fiscal year 2023–24 increased by 19% year over year to Rs 3,311 crore. Better asset quality and higher interest revenue are the reasons behind this.

The bank's interest income increased 19.75% year over year to Rs 26,350 crore during the January–March quarter.

The bank's gross non-performing asset (NPA) ratio was 4.76 percent during the reporting quarter, compared to 4.83 percent during the previous quarter and 7.53 percent over the previous year.

As of March 31, 2023, the net NPA ratio was 1.03 percent; which is lower than 1.08 percent on December 31, 2023, and 1.70 percent on March 31, 2023.