Union Bank shares in news as ICRA ups credit rating, revises outlook

Shares of Union Bank of India Ltd (Union Bank) will be in focus on Friday morning after the credit rating agency ICRA upgraded the rating of Union Bank's Tier-2 bonds to AAA from AA+ and revised its outlook on the bank to ‘Stable’ from ‘Positive’ earlier. ICRA said the upgrade in the long-term rating of Union Bank was on account of sustained improvement in earnings profile, led by a decline in fresh non-performing asset (NPA) additions and healthy recoveries & upgrades, in addition to high provision coverage on legacy NPAs. This has resulted in a moderation in the credit costs, the rating agency said.

"Moreover, the capitalisation levels and solvency profile have strengthened gradually on the back of the improvement in the internal capital generation levels," the rating agency added.

ICRA said Union Bank’s capital cushions remain comfortably above the regulatory level, strengthened by a capital raise via a qualified institutional placement (QIP) amounting to Rs 5,000 crore in the September quarter.

"While the bank has demonstrated its ability to raise capital, the ratings continue to factor in its sovereign ownership and the demonstrated track record of capital support from the government of India (GoI) in the past, which is expected to be forthcoming if required. Union Bank’s systemic importance in the banking system has also increased, following its merger with erstwhile Andhra Bank and Corporation Bank, with a market share of 5.5 per cent in advances and 6.2 per cent in total deposits as on June 30, 2023," ICRA said.

The ratings, ICRA said, were also supported by the bank’s well-developed deposit franchise, resulting in a high share of retail deposits and a strong liquidity profile. The vulnerable book (SMA-1

1, SMA-2 and standard restructured book) has moderated meaningfully, even as it remains relatively elevated in relation to standard advances and the core capital, ICRA said.

"While any macro-economic shock could impact the bank’s asset quality and profitability profile, the performance of the residual vulnerable book would remain a near-to-medium-term monitorable. Union Bank is expected to remain well placed to absorb these shocks through its operating profitability. ICRA also expects the bank to remain sufficiently capitalised with no need for regulatory or growth capital requirements," ICRA said.

Union Bank shares settled at Rs 106.05 on Thursday, down 0.75 per cent.

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