Rationale

 Union Bank of India’s (Union Bank) ratings continue to be supported by its strong position in the Indian financial system as it is the fifth largest public sector bank with a market share of 5.0% and 5.1% in net advances and total deposits, respectively, as on December 31, 2025. The ratings also factor in the bank’s healthy earnings profile, driven by the moderation in credit costs with the reduction in fresh non-performing asset (NPA) additions, healthy recoveries/upgrades as well as the high provision coverage on legacy NPAs. The ratings remain supported by Union Bank’s well-developed deposit franchise, resulting in a high share of retail deposits and a strong liquidity profile. Union Bank’s capital cushions remain comfortably above the regulatory level, led by internal accruals and the previous capital raise via a qualified institutional placement (QIP) of Rs. 8,000 crore in FY2024. While the bank has demonstrated its ability to raise capital, the ratings continue to factor in its sovereign ownership and the track record of capital support from the Government of India (GoI) in the past, which is expected to be forthcoming, if required. While the net interest margins (NIMs) of bank had moderated in the past few quarters, the same witnessed some recovery in Q3 FY2026 driven by higher reduction in cost of funds. The margins are expected to trend lower for FY2026 as a whole compared to FY2025, while FY2027 is expected to witness improvement in margins. Additionally, the impact of transitioning to provisioning, based on the expected credit loss (ECL) framework, on its capital and profitability levels will remain monitorable. The ratings also note the vulnerable book (SMA-1 1 , SMA-2 and standard restructured book), which has moderated meaningfully from the much higher levels in the past; although it remains monitorable. Additionally, the bank’s ability to control fresh slippages, amid the likely impact of persisting geopolitical uncertainties, would remain monitorable for the asset quality. Nevertheless, Union Bank is likely to remain well placed to absorb these shocks through its operating profitability. ICRA also expects the bank to remain sufficiently capitalised with no regulatory or growth capital requirements in the near-to-medium term. The Stable outlook on the rating reflects ICRA’s expectation that the bank will be able to maintain a steady credit profile, with stable asset quality and healthy profitability and capitalisation profile.