"The affirmed rating reflects UBI's sound funding and liquidity positions and a very high likelihood of support from the government of India," S&P said in a statement. It retained the outlook on bank at stable.
The US-based agency said it expects the government to provide "timely and sufficient extraordinary support" to the bank if it comes under financial distress.
It anticipates UBI's asset quality to remain stressed over the next 12 months as the pickup in the economy and debottlenecking is likely to be gradual.
The bank's nonperforming loans (NPL) ratio increased to 7.1 per cent as of December 31, from 3 per cent on of March 31, 2013.
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UBI has been able to remain profitable in December quarter unlike some of its peers. "We anticipate that UBI's profitability will remain modest, and the government will continue to infuse capital into the bank," S&P said.
The stable outlook reflects our expectation that UBI will calibrate its growth to maintain its current capitalization over the next 12 months.
"The bank's inability to raise sufficient capital, such that it breaches the regulatory capital requirement, could lead to multiple notches of downgrade," it said.
Hit by mounting bad loans, many leading PSU banks like Bank of India and IDBI have reported highest ever quarterly losses totalling over Ra 12,000 crore, while banking major like SBI and PNB have reported sharp erosion in profits in December quarter.