CRISIL 'AA+' for Union Bank

Rs4.5 Billion Bonds Issue
Rs2.5 Billion Bonds Issue
AA+ (Reaffirmed)
Rs4.0 Billion Bonds Issue
AA+ (Reaffirmed)
Rs1.7 Billion Bonds Issue
AA+ (Reaffirmed)
Fixed Deposit Programme
FAAA (Reaffirmed and continues to be under Notice of Withdrawal)

CRISIL has reaffirmed the AA+ rating on the full range of Union Bank of India's (Union Bank) financial instruments, based on the fact that its majority owner is the government of India (GoI). Several Indian banks exhibit strong liquidity, limited vulnerability to external capital flows, and the high likelihood of systemic support in the event of difficulty. Additionally, public sector banks such as Union Bank benefit from government support, emanating from its moral obligation as an owner.

Union Bank of India ranks among the 10 largest banks in the Indian banking system, with a market share of over 3 per cent of total deposits. The government of India holds a 60.85 per cent stake in the bank. Headquartered in Mumbai, it has a national presence with over 2,000 branches as on March 31, 2004, of which over 60 per cent were located in rural and semi-urban areas. The bank reported a profit after tax (PAT) of Rs 4.21 billion in the first half of 2004-05 as against Rs 3.25 billion for the corresponding period in the previous year. Union Bank reported a PAT of Rs 7.12 billion for the year ended March 31, 2004 with an asset base of Rs 578.32 billion.

The bank's standalone credit profile benefits from its comfortable liquidity and market position in the Indian banking sector. Its large, nationwide branch network gives it a healthy, stable and low-cost deposit base — low-cost current and savings deposits account for 36 per cent of its total deposits. These strengths are partly offset by its average asset quality and profitability (excluding profit on sale of investments), as well as its moderate capitalisation levels.

CRISIL feels that Union Bank's asset quality is average, even though its gross non-performing assets (NPA) are still high at 6.09 per cent, as on September 30, 2004. It also has low income diversity — with a core fee income of just 0.67 per cent of average funds deployed, as compared to 1.2 per cent for scheduled commercial banks. In terms of capitalisation, the bank had a 'tier I' ratio of 6.86 per cent, a Tier I capital of Rs 24.70 billion as on September 30, 2004 and a 'tier I' capital coverage for net NPAs of 2.92 per cent as on March 31, 2004.