Anand Rathi has set a price target of Rs 221 for Union Bank of India, following strong Q2FY27 results. The bank recorded 19.4% credit growth and improved asset quality metrics. The report highlights the lender's strategy to build a buffer for new accounting rules as a key factor. Investors may focus on the bank's future credit expansion and how it manages these provisions.
Anand Rathi has set a price target of Rs 221 for Union Bank of India after the public sector lender reported steady performance in the second quarter of the 2027 fiscal year. The report highlights the bank’s ability to grow its loan book while simultaneously improving the health of its assets. The bank reported a return on assets of 1.4% and a return on equity of 16.2%, metrics that show how effectively the institution is using its capital to generate profit.
Union Bank saw credit growth of 19.4% year-on-year during this period. This growth was largely driven by demand from the corporate and micro, small, and medium enterprise segments. Along with this growth, the bank's asset quality showed signs of improvement. New bad loans, known as gross slippages, fell to 71 basis points from 82 basis points in the previous quarter. Similarly, net slippages decreased to 14 basis points from 37 basis points.
To prepare for upcoming regulatory changes regarding expected credit losses, the bank has proactively set aside a transition buffer of Rs 10 billion. This buffer is intended to help the bank manage the total anticipated impact of approximately Rs 55 billion from these new accounting requirements. Such proactive provisioning is a significant factor in how the bank plans to stabilize its balance sheet as it transitions to the new expected credit loss model.
In the broader context of the Indian banking sector, public sector lenders have been focusing on cleaning up their balance sheets and widening their profit margins over the past few years. The move toward the expected credit loss model is a major change for the industry, as it requires banks to account for potential loan losses earlier than they would under current systems. While building these buffers can impact short-term profitability, it is generally intended to strengthen the bank's long-term financial position.
The brokerage firm based its valuation on one times the projected price-to-adjusted book value for the 2029 fiscal year. This valuation method helps investors understand the price of the stock relative to the bank's net worth, after accounting for potential bad loans. Looking ahead, the key monitorables for investors will be whether the bank can consistently maintain its guided credit growth of 18% to 19% and how the implementation of new accounting standards affects its overall balance sheet and financial flexibility.