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Union Bank of India Credit Rating Reaffirmed, Outlook Remains Stable
CARE Ratings has reaffirmed Union Bank of India’s credit ratings with a “Stable” outlook, citing strong capital levels, improved profitability, and continued Government of India support.
Author: Ashish Shan
Published: 2 hours ago
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The rating agency maintained a CARE AA+ (Stable) rating for the bank’s perpetual bonds and CARE AAA (Stable) for Tier II bonds. These reaffirmations reflect the bank’s financial strength and systemic importance in the Indian banking sector.
Union Bank Financial Performance: Profit and Capital Strength
Union Bank reported a capital adequacy ratio (CAR) of 18.30% in June 2025, significantly higher than the regulatory requirement. Its CET-I ratio of 15.30% provides a comfortable cushion to support loan growth.
The bank posted a net profit of ₹17,987 crore in FY25, up from ₹13,648 crore in FY24. Return on total assets (ROTA) improved to 1.25%, while pre-provision operating profit (PPOP) rose to ₹31,090 crore.
Key takeaway: Union Bank’s profitability and capital position remain among the strongest in the public sector banking segment.
Asset Quality Improvement Boosts Stability
The bank’s asset quality has improved over the past year:
- Gross NPA declined to 3.60% in FY25 from 4.76% in FY24.
- Net NPA fell to 0.63%, supported by strong provisioning.
- Provision coverage ratio (PCR) stood at nearly 95%.
This improvement has reduced credit risks, though asset quality is still moderate compared to larger PSU peers like SBI and PNB.
Deposit Growth and CASA Ratio: Challenges Ahead
While Union Bank’s balance sheet remains strong, its deposit growth (7.2% in FY25) lagged behind the industry average of 10.7%.
The CASA ratio slipped to 32.55%, reflecting a higher reliance on bulk deposits and increasing the cost of funds. Improving the low-cost deposit base will be crucial for sustaining profitability and net interest margins (NIM).
Liquidity Position Remains Strong
Union Bank reported a liquidity coverage ratio (LCR) of 131.72% and NSFR of 120.65%, both well above the required 100%. It also holds excess statutory liquidity ratio (SLR) securities worth ₹63,613 crore, providing a strong buffer in case of liquidity needs.
Risks That Could Affect Union Bank’s Ratings
CARE Ratings identified three major risks for Union Bank:
- Reduction in Government stake below 51% (currently at 74.76%).
- Net NPA rising above 3% on a sustained basis.
- Profitability pressures leading to weaker capitalisation.
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Additionally, the vacant MD & CEO position since July 2025 could affect leadership stability and strategic decision-making.
About Union Bank of India
Founded in 1919, Union Bank of India is the fifth-largest public sector bank in India by total business. After the merger of Andhra Bank and Corporation Bank in 2020, UBI expanded to a network of over 8,600 domestic branches, 9,000 ATMs, and overseas offices in Dubai, Sydney, and London. The Government of India owns 74.76% of the bank, ensuring strong systemic support in line with its role in India’s financial ecosystem.
About CareEdge
Established in 1993, CareEdge Ratings is one of the leading credit rating agencies in India. Registered under the Securities and Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the Reserve Bank of India. With an equitable position in the Indian capital market, CareEdge Ratings provides a wide array of credit rating services that help corporates raise capital and enable investors to make informed decisions. With an established track record of rating companies over almost three decades, CareEdge Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the methodologies congruent with the international best practices. CareEdge Ratings has played a pivotal role in developing bank debt and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit. For more information: www.careratings.com
Conclusion: A Stable Outlook for Union Bank
Union Bank of India stands on a solid financial footing with improving profitability, strong capital adequacy, and better asset quality. While challenges remain in deposit mobilization and leadership continuity, its government backing and franchise strength ensure stability.
For investors and stakeholders, UBI’s reaffirmed ratings signal confidence in its ability to sustain growth and manage risks in the evolving Indian banking landscape.
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