CRISIL said that 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 31 December 2020 from 68% as on 31 March 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.

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 31 December 2020 (14.6% as on 31 March 2020).

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.

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, CRISIL further said.

Union Bank was nationalised in 1969. The government's ownership stood at 89.1% as on 31 December 2020, post issuing shares under amalgamation to the shareholders of Andhra Bank and Corporation Bank.

The bank reported a profit of Rs 1,576 crore on total income (net of interest expense) of Rs 26,072 crore in the nine months ended 31 December 2020, against Rs 543 crore and Rs 25,741 crore, respectively, in the corresponding period of the previous year.

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