Fitch Ratings has reaffirmed the credit ratings of Union Bank of India and Punjab National Bank (PNB) at ‘BBB-‘ with a stable outlook. The rating agency cited factors such as government support, a favorable economic environment, improved risk profile, better asset quality, and strong liquidity as key reasons behind the affirmation.
Upgrade in Viability Ratings
In a positive development, Fitch has upgraded the Viability Rating (VR) of both banks from ‘b+’ to ‘bb-‘. This upgrade reflects the steady improvement in their financial performance and risk management practices. The Government Support Rating (GSR) for both banks has also been affirmed at ‘BBB-‘, highlighting the Indian government’s majority stake in these institutions.
Stable Outlook Reflects Government Backing
Fitch stated that the Indian government’s 75% ownership in Union Bank of India and 70% in PNB plays a crucial role in their ratings. The high level of government support and the systemic importance of these banks in India’s financial sector contribute to their stability.
Additionally, the growth of the Indian economy is expected to help both banks maintain profitability in the medium term, provided they continue to manage risks effectively.
Union Bank of India: Stronger Risk Profile & Asset Quality
Fitch has revised Union Bank of India’s asset-quality outlook to positive from stable, expecting further reductions in its impaired-loan ratio. The bank’s risk profile score has also been upgraded to ‘b+’ from ‘b’, driven by:
- Better loan diversification
- Lower corporate loan risk
- Limited exposure to unsecured retail loans
However, Fitch noted that the bank’s historical risk appetite and cyclical growth patterns could still pose challenges during difficult financial conditions.
Punjab National Bank: Profitability & Asset Quality Improve
For PNB, Fitch highlighted its large nationwide presence, which supports business growth and profitability. The bank’s risk profile score has been upgraded to ‘b+’ from ‘b’, due to:
- Diversified loan mix
- Reduction in bad loans
- Limited exposure to unsecured retail loans
PNB’s asset-quality outlook has been revised to positive, as its impaired-loan ratio fell to 4.1% in the first nine months of FY25, down from 5.7% in FY24. Additionally, PNB’s earnings and profitability score has improved to ‘bb-‘ from ‘b+’, as its profits exceeded Fitch’s expectations.
Conclusion
The ratings reaffirm Fitch’s confidence in the financial stability of Union Bank of India and PNB, backed by government support, improved asset quality, and stronger risk management. If both banks continue to enhance their financial health, they could see further rating improvements in the future.
