Public sector banks continue to dominate banking in India and Union Bank of India is among the leading nationalised banks in the country. UBI recently announced a ₹3000 crore QIP (qualified institutional placement) issue that caused a 7% jump in the Union Bank share rate.
This article analyses Union Bank’s share price, financials, competitive position, government backing, and more. Assess if this government-owned bank makes for a good investment choice.
About Union Bank of India
The Union Bank of India ranks highly among India’s government-owned financial institutions. The Government of India owns 76.49% of the paid-up capital of the bank. The Bank, which is based in Mumbai, India, was established as a limited company in 1919.
In 2020, Andhra Bank and Corporation Bank merged into Union Bank of India officially. It has grown to include an extensive network of over 18,900 BC Points, 76,300 staff members, 9800 ATMs, and 8450 local branches.
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Union Bank of India shares news: Price surges 7% on QIP announcement
The Union Bank QIP announcement of a ₹ 3,000-crore issue price took place on February 20. QIPs allow listed companies to obtain funds without following regulatory requirements.
On February 21, the Union Bank of India shares increased by 6 per cent in early transactions. An increase from Union Bank’s closing price of ₹ 141.10 on Tuesday brought the floor price of the issuance up to ₹ 142.78 per share.
During its meeting on February 20, 2024, the Committee of Directors for Raising Capital Funds agreed that the company could raise ₹3,000 crores by selling shares to qualified institutions. This is as long as all the necessary regulatory and legal approvals are met.
Union Bank shares reached an intraday high of ₹150.8 per share on the NSE, a 6.87% rise, after the QIP release. The stock lost some of its early gains but was trading at ₹148 per share, an increase of 4.89%, at 12:56 PM. The stock has also shown multi-bagger gains in the last year, increasing by about 101%.
It has gained for four consecutive months, with a 5.6% increase in February alone. Before this, in January 2024, it increased by 17.5%, in December 2023, by 10.4%, and in November 2023, by 6.15%.
The stock price of Union Bank has increased by more than 23.19 per cent so far this year and by more than 113% in the last year. Union Bank of India’s net profit increased 60% year-on-year (YoY) to ₹ 3,590 crore in the third quarter of FY24. Its net profit was ₹ 2,245 crore in the same period as the previous year.
Morgan Stanley Capital International (MSCI), a worldwide producer of indexes, added Union Bank of India and four other Indian organisations to their Global Standard Index recently.
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Union Bank of India’s competitors
Some of the competitors of Union Bank of India (as of February 22, 2024) ranked by market capitalisation (₹ cr.) are:
- State Bank of India (678,627.49)
- Bank of Baroda (140,247.34)
- Punjab National Bank (139,454.51)
- Indian Overseas Bank (128,158.36)
Financials
| Metric | Value |
| Market capitalisation (₹ Cr.) | 107,332 |
| Book value per share (₹) | 98.68 |
| Dividend Yield | 2.07% |
| ROCE | 2.05% |
| ROE | 11.72% |
| Face value | 10 |
Investing in Union Bank of India
Pros
- The government’s strong backing
In India, financial institutions are overseen by the central government, which also happens to be the largest stakeholder in public sector banks (PSBs). Because the banking sector is so important to the economy, the public has full confidence that the government supports PSBs like Union Bank.
- Sufficient funding
As of March 31, 2023, the central government owned 83.5% of the bank. In the financial year 2023, the bank was able to raise a total of ₹2,200 crore via Tier 2 bonds and ₹1,833 crore from Tier 1 bonds.
- Operations on a large scale
As of March 31, 2023, Union Bank has a 6% stake in deposits and advances inside the domestic financial system. There was a 13% increase, from ₹7,16,408 crore to ₹8,09,905 crore, in gross advances between 2022 and 2023.
- Strong financial performance
Union Bank of India has a high capital adequacy ratio of 16.04%, which indicates its capacity to face financial volatility and meet regulatory criteria. Moreover, the company has increased its net profits by an average of 29.5% every year for the last 5 years. This shows that the company has been consistently growing its earnings and has had a strong performance.
Cons
- Union Bank of India has a high PE ratio of 8.22. It indicates that the company is overvalued and may face higher risks in future.
- The 8.66% return on equity that Union Bank of India has achieved over the last three years indicates that the bank is not providing sufficient earnings to its shareholders, compared to the industry average of 12.930 % (as of 2023). Reasons for a low return on equity might include a lack of development potential, costly expenses, or poor management decisions.
- The high level of ₹6,51,666 crore in contingent liabilities indicates that Union Bank of India may have to pay out money in the future if certain things happen.
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Shareholding pattern of Union Bank of India
The shareholding pattern (as of December 2023) of Union Bank of India is as follows:
Promoters: 76.99%
Foreign Institutional Investors (FIIs): 3.97%
Domestic Institutional Investors (DIIs): 12.28%
Public: 6.76%
Conclusion
To conclude, the ₹3000 crore QIP issue highlights Union Bank’s efforts to strengthen its capital base for expansion. Companies often use QIPs in an effort to enhance their operational capabilities. For this reason, investors may expect increased earnings.
However, while UBI seems poised for growth given the government’s support, investors should assess its financial metrics and ability to compete with private sector competitors.
