Union Bank Q1 FY26: Profit up 12%, NPA ratio improves

Results snapshot and why it mattered

Union Bank of India reported its Q1 FY26 results for the quarter ended June 30, 2025, showing higher profit alongside improving asset quality. Net profit rose 12% year-on-year to ₹4,116 crore, supported by higher overall income and lower provisions. The quarter also highlighted a familiar pressure point for lenders - net interest margin (NIM) compression that weighed on net interest income (NII). Even so, headline asset-quality ratios moved closer to the bank’s guided range, and provision coverage strengthened.

Key profit and income numbers for Q1 FY26

Total income increased to ₹31,791 crore in Q1 FY26 from ₹30,874 crore a year earlier. Interest income rose to ₹27,296 crore from ₹26,364 crore, while interest expense increased to ₹18,183 crore, reflecting higher funding costs. Net interest income declined to ₹9,113 crore from ₹9,412 crore in the year-ago quarter. The bank also reported that non-interest income fell to ₹4,486 crore, with the period seeing a sharp quarter-on-quarter decline.

Margin pressures show up in NII

Union Bank’s NIM stood at 2.76% in Q1 FY26, down 29 basis points year-on-year and 11 basis points sequentially. The bank reported a 16 bps year-on-year increase in the cost of deposits to 5.53%. At the same time, yield on advances declined 22 bps year-on-year to 8.50%. The combined effect of higher deposit costs and slightly lower asset yields explains the drop in NII despite a rise in interest income.

Operating profit moderated as costs and mix shifted

Operating profit fell 11% year-on-year to ₹6,909 crore, compared with ₹7,785 crore in Q1 FY25. The reported moderation in profitability was also reflected in operating profit as a share of average total assets, which came in at 1.60% in Q1 FY26 versus 2.12% in Q1 FY25. Alongside core income trends, the bank disclosed trading gains of ₹961 crore in Q1 FY26. Return on assets (RoA) stayed above the 1% mark at 1.11% for the quarter.

Fee, treasury, forex and recovery trends

Within non-interest income, core fee income declined 23% to ₹2,219 crore, and recoveries dipped 11% to ₹850 crore. Forex income improved 35% to ₹265 crore, while treasury income surged 129% to ₹1,153 crore. Overall non-interest income was reported at ₹4,485.78 crore for the quarter ended June 2025. These components show that treasury and forex supported the quarter even as fee income and recoveries softened.

Asset quality improved; provisioning burden reduced

Asset quality showed improvement in key ratios. Gross non-performing assets (GNPA) as a percentage of gross advances declined to 3.52% as of June 30, 2025, from 4.54% a year earlier. Net NPA fell to 0.62% from 0.90% in the same period. Provisions for bad loans declined to ₹1,153 crore in Q1 FY26, down from ₹1,651 crore last year. The provision coverage ratio improved to 94.65% from 93.49%, an increase of 116 basis points.

Credit and deposit growth: RAM remained the growth engine

The bank reported total business of ₹22,14,422 crore as on June 30, 2025, up 5.01% year-on-year. Gross advances rose 6.83% year-on-year to ₹9,74,489 crore, while total deposits grew 3.63% year-on-year to ₹12,39,933 crore. The Retail, Agriculture and MSME (RAM) segment grew 10.34% year-on-year, with retail advances up 25.63% and MSME advances up 17.65%. RAM advances were 58.11% of domestic advances, aligning with management commentary around the guided mix.

Capital and return ratios stayed supportive

Capital ratios strengthened year-on-year. The capital adequacy ratio (CRAR) stood at 18.30% as of June 30, 2025, compared with 17.02% a year ago. CET-1 improved to 15.30% from 13.81% over the same period. Return on equity (RoE) was reported at 15.15% and RoA at 1.11% for Q1 FY26, with RoA up 5 basis points from 1.06% in June 2024.

Summary table: reported metrics for Q1 FY26

Market impact: what investors typically track from this print

The quarter combined two opposing trends - profit growth and asset-quality improvement on one side, and NII decline due to NIM compression on the other. Lower provisions and improved PCR indicate a lighter credit-cost burden relative to the same quarter last year. The RAM-led growth profile, including retail and MSME expansion, points to continued focus on priority segments, while the slower deposit growth underscores the funding-cost backdrop. Investors also tend to track whether treasury and trading gains remain supportive when core fee income is under pressure.

Analysis: what the numbers say about the operating environment

Union Bank’s Q1 FY26 results reflect a banking environment where funding costs have moved up faster than lending yields, squeezing margins. In that context, stable profitability depends heavily on controlling credit costs and maintaining asset-quality momentum. The decline in provisions alongside lower GNPA and NNPA is a key supportive factor for earnings quality in this quarter. At the same time, the drop in operating profit year-on-year signals that core profitability is not expanding at the same pace as reported net profit.

Conclusion and what to watch next

Union Bank of India’s Q1 FY26 performance showed a 12% rise in net profit to ₹4,116 crore, driven by higher total income and lower provisions, even as NII declined and NIM slipped to 2.76%. Asset quality improved with GNPA at 3.52% and NNPA at 0.62%, while PCR rose to 94.65%. Investors will likely watch the trajectory of margins, deposit costs, and the sustainability of non-interest income components such as treasury and forex in coming quarters.