Credit ratings agency Fitch has affirmed that Union Bank of India continues to have low-default risk as it has the support from the government.
"Fitch Ratings has affirmed Union Bank of India's national long-term rating at 'AA+(ind)'. The outlook is stable," it said in a statement.
An 'AA' national ratings denote expectations of very low default risk relative to other issuers or obligations in the same country.
"Union Bank's national long-term rating is support-driven as there is high probability of support from the Government of India, if required, in view of the bank's high systemic importance and the government of India's 57.1%," Fitch said.
It, however, added that the rating is a notch lower than many of its peer banks and this reflect the Union Bank's moderate credit matrices.
The Union Bank is India's seventh-largest public sector bank and 10th largest commercial bank by assets, according to Fitch.
The ratings agency added that Union Bank's asset quality has deteriorated in the first half of the current financial year.
"Despite aggressive write-offs in FY11 and first half of FY12, gross non-performing loan ratio worsened to 3.5% in the first half of FY12 from 2.3% in FY11," it said.
It also warned against the high delinquency of the bank.
"While the pace of incremental delinquencies is likely to moderate, the bank's high exposure in select interest sensitive sectors [such as infrastructure and metals], stress in a few large accounts, and a changing loan-mix remain a cause of concern to asset quality," the agency said.
However, the bank's funding is largely through retail deposits and low cost current and savings deposits are at a healthy 32.1% in the first half of 2011-12. According to Fitch, this is better as compared to some large public sector banks.
It also said that the bank's internal accrual is modest and it would require additional capital to support its growth.
"While the agency notes a high probability of support from the government of India during stress, it envisages banks which perform better financially, to get precedence in receiving growth capital from the government," Fitch said.
Union Bank has 3,138 branches across the country, besides a small presence in the international market.
