Union Bank of India said that S&P Global Ratings revised its rating outlook on the bank's credit rating to 'positive' from 'stable' while reaffirming the long-term and short-term ratings at 'BBB-' and 'A-3', respectively.
S&P Global Ratings stated: "The outlook revision reflects our view of a one-in-three possibility of an upgrade of the bank over the next 12-24 months. This could happen if Union Bank's risk-adjusted capital (RAC) ratio improves to sustainably above 7% and we raise the sovereign credit rating on India (BBB-/Positive/A-3).
In our view, Union Bank's announcement on June 12, 2024, that it will raise INR 60 billion common equity, together with lower risk weights in the event of an upgrade of India, could keep the bank's RAC ratio at about 7%, our threshold for an adequate assessment for capital and earnings. The fund raising is in addition to the bank's INR 80 billion qualified institutional placement in fiscal 2024 (ended March 31, 2024).
In our view, Union Bank's latest fundraising also provides growth capital for the bank. We expect loan growth of 12%-13% for Union Bank over the next two fiscal years, primarily driven by retail, agriculture, and micro, small and midsize enterprises. The bank's likely growth is in line with our expectation for the banking sector in India.
The positive outlook on Union Bank reflects the bank's improving capitalization and the outlook on India. We expect the likelihood of government support for the bank to remain very high over the next 24 months.
We believe Union Bank's financial profile will continue to improve, aided by better operating conditions, and the bank's stabilizing earnings and improving asset quality. In our view, the public sector bank will maintain its solid funding and liquidity profile over the next two years supported by high customer confidence in the Indian banking system, the credit rating agency further said.
Union Bank of India is engaged in the business of treasury operations, corporate and wholesale banking, retail banking operations and other banking operations. The Government of India held 74.76% stake in the bank as on 31 March 2024. As on 31 March 2024, the bank has 8,466 branches including foreign branches and 8,982 ATMs.
The public sector bank's standalone net profit rose 18.99% to Rs 3,310.55 crore on 13.87% increase in total income to Rs 31,057.52 crore in Q4 FY24 over Q4 FY23.
The scrip shed 0.75% to currently trade at Rs 144.80 on the BSE.
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