Union Bank of India — Credit Ratings, 11-03-2025: Credit Rating- Revision

Fitch Ratings has affirmed Union Bank of India at 'BBB-/Stable' and upgraded its Viability Rating (VR) to 'bb-' from 'b+'. The strong assessment of government support stems from the bank's significant linkages to the Indian sovereign, reflecting a high probability of state intervention if required.

The bank's improved financial profile is attributed to a more stable operational environment and ongoing risk management enhancements. Notably, the impaired-loan ratio has shown improvement, decreasing to 3.9% in the first nine months of FY25. This positive trend in asset quality, alongside a rise in the common equity Tier 1 (CET1) ratio to 15.5%, signals improved capital buffers and risk management practices.

Profitability also appears to have peaked, with the operating profit/risk-weighted assets (OP/RWA) ratio increasing to 3.4%. However, a decline in net interest margin and expected limitations on further profitability expansions may pose challenges ahead. Customer deposits continue to be robust, comprising around 97% of total non-equity funding, projecting a stable liquidity position.

Given the upgraded VR, the outlook for Union Bank appears cautiously optimistic, yet investors should remain vigilant regarding the bank's exposure to economic fluctuations and potential volatility stemming from government influence. The strong government backing provides a safety net, but operational efficiency and risk management practices must continue evolving.

Investor insight: hold, with close monitoring of financial stability and market conditions.