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CRISIL revises outlook on long-ter debt instruments of Union Bank of India

Posted On: 2021-03-03 06:18:03 (Time Zone: Arizona, USA)

CRISIL Ratings has revised its outlook on the long-term debt instruments of Union Bank of India to 'Stable' from 'Negative' while reaffirming its ratings at 'CRISIL AA+/CRISIL AA-'.

CRISIL Ratings has also withdrawn its rating on the Tier-II Bond Issue (Under Basel III) of Rs. 500 crore in-line with its withdrawal policy. CRISIL has received independent verification that these instruments are fully redeemed.

CRISIL Ratings had assigned Negative outlook on the long-term debt instruments on September 01, 2020, following resolution of 'Watch with Developing Implications'. The Negative outlook was assigned to reflect the potential stress that the bank's asset quality and, consequently, profitability could witness on account of the challenging macro environment.

The revision in the outlook to Stable factors in better-than-expected performance of the bank amid the current challenging macro environment. Profitability of the bank has witnessed an improvement with the bank reporting profit after tax (PAT) of Rs 1,576 crore in the nine months ended fiscal 2021, against substantial loss of Rs 6,614 crore in fiscal 2020. At the same time, provision coverage ratio (PCR) has also increased to 71% as on December 31, 2020 (coverage on pro-forma gross nonperforming assets [NPAs], excluding the Supreme Court dispensation on asset classification) from 68% as on March 31, 2020. The bank's capital position has also strengthened, supported by raising Rs 1,700 crore of Tier 1 bonds and Rs 2,000 crore of Tier 2 bonds in fiscal 2021, so far. As a result, the bank's common equity tier (CET)-1 ratio, Tier-I capital adequacy ratio (CAR) and overall CAR improved to 9.2%, 10.5% and 13.0%, respectively, as on December 31, 2020, from 8.6%, 9.8% and 12.1% as on March 31, 2020.

Overall asset quality has been supported by various schemes launched by the Government of India and the Reserve Bank of India (RBI). Nevertheless, Union Bank's pro-forma gross NPAs remained high at 15.28% as on December 31, 2020 (14.6% as on March 31, 2020). Reported gross NPAs on the same date, was 13.5%. The one-time restructuring scheme is expected to benefit reported NPA metrics. The bank plans to restructure around 3% of its advances.

The ratings continue to factor in expectation of strong support from its majority owner, the Government of India and its sizeable scale of operations. It also factors in the modest asset quality and earnings profile of the bank. The 'CRISIL AA-/Stable' rating on Tier I bonds (under Basel III) factors in the adequacy of Union Bank's eligible reserves to service coupon after adjusting for any medium-term impact of profitability on the bank's reserves position in a stress scenario.

While economic activity has started picking up, any sudden surge in Covid-19 cases leading to partial lockdowns could negatively impact the collections. Hence, the bank's asset quality and its consequent impact on earnings profile will continue to be closely monitored.

Shares of UNION BANK OF INDIA was last trading in BSE at Rs.39.9 as compared to the previous close of Rs. 38.8. The total number of shares traded during the day was 1733000 in over 3170 trades.

The stock hit an intraday high of Rs. 40.25 and intraday low of 39. The net turnover during the day was Rs. 68801091.

Source: Equity Bulls

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