Fitch upgrades viability rating for PNB and Union Bank of India

Both showed improved risk profile with better financial performance

Global rating agency Fitch on Tuesday upgraded the viability ratings (VR) for two public sector lenders, Punjab National Bank and Union Bank of India, from “b+” to “bb-”, on the back of improvement in their risk profile.

 

It also affirmed long-term issuer rating of “BBB-” for New Delhi-based PNB and Mumbai-based Union Bank.

 

Fitch said in a statement that there is a supportive operating environment for Indian lenders in the country, which has strong medium-term growth potential with a large and diversified economy.

 

The agency has projected economic growth of over 6 per cent in the financial year ending March 2025 (FY25) and FY26, driven by domestic demand, government capex and improving capacity utilisation. The growth will support Indian banks’ ability to sustain profitable business in the medium term, if risks are effectively managed, Fitch added.

 

As for Union Bank, the VR upgrade to “bb-” is supported by ongoing improvements in its risk profile, which are also reflected in its financial performance in recent years. The financial performance remains a key consideration in assessment due to Union Bank’s volatile past and vulnerability due to moderate buffers.

 

Union Bank’s profitability has peaked. The operating profit/risk-weighted asset (OP/RWA) ratio rose to 3.4 per cent in the first nine months of 2024-25 (9MFY25), from 3.2 per cent in FY24. It was driven by higher non-interest income and lower risk density than we expected, despite an 18 basis points fall in the net interest margin to 2.9 per cent.

 

“We expect further reductions in the OP/RWA to be limited, as margins will most likely only fall slightly in the medium term, and the core metric should remain at around three per cent,” Fitch said.

 

Rating agency said the upgrade of PNB’s viability rating “bb-” factors in ongoing improvements in risk profile, reflected in financial performance improvements that have surpassed expectations and are likely to continue.

 

However, the risk profile remains a key consideration in our assessment of the bank’s overall intrinsic credit profile, given its highly volatile past and vulnerability because of moderate buffers, it added.