Ind-Ra assigns UBI's tier 2 bonds AA-plus with rating watch evolving
Sep 11, 2020
Mumbai (Maharashtra) [India], September 11 : India Ratings and Research (Ind-Ra) said on Friday it has assigned Union Bank of India's (UBI's) tier two bonds an AA-plus rating and placed it on rating watch evolving (RWE).
The ratings were placed on RWE following the proposed amalgamation of Corporation Bank and Andhra Bank with UBI with the UBI being the anchor bank post amalgamation. Subsequently, post receiving all the necessary regulatory approvals, the amalgamation came into effect from April 1.
The key reasons for placing the ratings on RWE were scale of amalgamation, potential integration-related challenges that may be encountered in the process, and harmonisation of non-performing asset (NPA) recognition and provisioning.
"The RWE on UBI's long-term issuer rating and tier two bonds reflects the potential stress the bank may face in terms of its asset quality and incremental provisioning requirement, eventually pressurising the bank's capital buffers in the near-term due to the challenging macro-economic environment," said Ind-Ra.
The RWE also factors in the increase in UBI's systemic importance post its amalgamation with Corporation Bank and Andhra Bank and continued support from the government given its majority shareholding at 89.1 per cent.
Ind-ra said the RWE indicates that the rating may be affirmed, upgraded or downgraded.
The agency expects to resolve the RWE once it has more clarity on the impact of potential stress on asset quality and capital buffers of the bank caused due to COVID-19 pandemic. The banks' asset quality, provisioning requirements, capital position, and the government's consequent stance and actions towards the bank will be a key monitorable.
UBI's ratings other than AT1 bonds reflect its systemically important position and Ind-Ra's expectations that the bank will continue to receive support from the government.
