Union Bank of India Credit Rating Affirmed at BBB/Stable

S&P Global Ratings has reaffirmed the Issuer Credit Ratings of Union Bank of India at 'BBB/Stable/A-2'.

The bank has disclosed board-approved plans to raise Rs 3,000 crore in equity and Rs 5,000 crore via debt in fiscal 2027.

Reader Takeaway: Strong government support anchors the bank's stability, while the upcoming ECL framework transition poses credit cost pressures.

What just happened

S&P Global Ratings has maintained its 'BBB/Stable/A-2' issuer credit rating for Union Bank of India. The rating agency highlighted that the bank’s capital position is expected to remain stable over the next 12 to 24 months. The agency assumes a high likelihood of government support if the bank faces financial distress, a factor that continues to underpin the bank's credit profile.

Why this matters

The reaffirmation provides confidence regarding the bank's solvency as it prepares for significant capital management moves. The bank intends to raise Rs 3,000 crore in equity and up to Rs 5,000 crore through Additional Tier 1 and Tier 2 debt instruments by fiscal year 2027. This move is designed to ensure the Risk-Adjusted Capital (RAC) ratio stays within the projected 8.7%-9.2% range without relying on direct government capital infusion.

Risks to watch

Investors must watch for potential margin and cost volatility. S&P forecasts that weak loan ratios may drift upward to 3.5%-3.7% over the next two years. Furthermore, the mandatory transition to the Expected Credit Loss (ECL) framework starting April 1, 2027, will require the bank to set aside roughly Rs 5,400 crore. Additionally, a lower proportion of low-cost CASA deposits compared to private peers could continue to weigh on net interest margins.

Context metrics

S&P projects the bank's loan growth to land between 11% and 13% for fiscal years 2027 and 2028, with the bank focusing specifically on the retail, agriculture, and MSME (RAM) segments to drive this expansion.