🧠 At a Glance
Union Bank of India has transformed from a bad loan graveyard to a PSU turnaround story — with profits growing at 50% CAGR over 5 years and stock up 3x from COVID lows. But here’s the kicker: it still trades at P/E of 6 and below book. So what’s holding it back — ghosts of NPAs past or PSU stigma?
🧾 1. The Business – Sarkari Bank, Desi Ambitions
- Full-service public sector bank offering:
- Retail banking (home, auto, personal loans)
- MSME & corporate lending
- Government biz (e.g., pension disbursements)
- Merchant banking, wealth management, insurance tie-ups
- Absorbed Andhra Bank + Corporation Bank in April 2020 as part of mega PSU bank merger plan.
- Branch Network: 8,900+ branches, 11,000+ ATMs, and Digital offerings like UnionNXT.
📈 Fastest-growing mid-sized PSU bank post-merger in terms of PAT, ROE, and retail book.
📊 2. 5-Year Financial Report Card – From NPA Hell to Profit Heaven
📉 Historical Snapshot (₹ in Cr)
| FY | Revenue | Net Profit | ROE % | GNPA % | Net NPA % |
|---|---|---|---|---|---|
| FY21 | 69,311 | 2,863 | 6% | 13.74% | 4.62% |
| FY22 | 68,230 | 5,265 | 8% | 11.11% | 3.68% |
| FY23 | 81,163 | 8,512 | 11% | 7.53% | 2.14% |
| FY24 | 1,00,376 | 13,797 | 16% | 6.03% | 1.28% |
| FY25 | 1,08,417 | 18,027 | 17% | 5.13% | 0.98% |
- 🧠 5Y Profit CAGR: 50.7%
- 💸 Dividend payout improving: 21.4% in FY25
- 📉 Gross NPAs fell from 13.7% → 5.1%
- ⚙️ Loan book expanded ~12% CAGR since FY21, driven by RAM (Retail, Agri, MSME)
Conclusion: Most improved PSU bank? Probably. Most rewarded? Not quite.
✅ 3. What’s Going Right
📌 Key Positives
✅ Asset Quality Miracle
Net NPA now below 1%. From zombie to Zomato-level credit hygiene.
✅ Return Ratios Climbing
ROE now 17%, ROA at ~1% — rare for PSU banks not named SBI.
✅ Valuation Still Dirt Cheap
- P/E = 5.9x
- P/BV = 0.94x
- Dividend Yield = 2.6%
✅ Retail > Corporate Shift
Retail book is now 39% of total advances, vs 33% in FY21. Less volatility, higher NIMs.
✅ Digital Push Working
UnionNXT, tablet onboarding, 90%+ of transactions digital. Not as flashy as HDFC — but getting the job done.
🚨 4. Where It Still Feels Very “Sarkari”
📌 Key Risks
❌ Contingent Liabilities = ₹6.3 Lakh Crore
Yup. You read that right. That’s 6x its balance sheet. Most are off-balance-sheet guarantees and letters of credit, but worth monitoring.
❌ Interest Coverage = Low
Suggests tight spreads, even with high margins. PSU banks don’t have the pricing power of Kotak or ICICI.
❌ Capital Dilution History
Equity base grew from ₹3,400 Cr in FY20 → ₹7,738 Cr in FY25. Mostly due to government recapitalization.
❌ Still PSU Culture
Yes, they’re improving. But IRCTC-level transformation? Not yet. Customer service, decision speed, and tech adoption still lags private peers.
🔬 5. Peer Comparison – PSU Bank Smackdown
| Bank | CMP ₹ | P/E | ROE % | Div Yield | GNPA % | Net NPA % |
|---|---|---|---|---|---|---|
| Union Bank | ₹140 | 5.9x | 17% | 2.6% | 5.1% | 0.98% |
| BoB | ₹232 | 5.8x | 17% | 3.6% | 2.92% | 0.68% |
| SBI | ₹785 | 9.0x | 17% | 2.0% | 2.42% | 0.57% |
| PNB | ₹103 | 6.4x | 13% | 2.8% | 5.73% | 0.96% |
| Canara Bank | ₹105 | 5.4x | 16% | 3.8% | 4.23% | 1.17% |
🔍 Union is undervalued vs SBI, and its ROE is higher than PNB, Canara, with GNPA improving fast. Yet — valuation is stuck in 2021.
🧠 6. Promoter Pulse & Ownership Trends
- Promoter (Govt of India): 74.76%
- FIIs: 7.1% (up from 1.6% in FY22!)
- DIIs: 11.6%
- Public float: Just 6.5%
📈 Strong DII/FII interest — rare for PSU banks outside SBI. Clearly, institutions see value.
💸 7. Valuation – What’s It Worth Sober?
- FY25 EPS = ₹23.62
- CMP = ₹140
- P/E = 5.9x
- Book Value = ₹149 → P/BV = 0.94x
📌 EduInvesting Fair Value Range
| Scenario | P/E | EPS | FV | Upside/Downside |
|---|---|---|---|---|
| Bearish (8% growth) | 5x | ₹24 | ₹120 | -14% 🔻 |
| Fair Value (ROE 17%) | 8x | ₹24 | ₹192 | +37% 📈 |
| Bull Case (Re-rate + higher ROE) | 10x | ₹26 | ₹260 | +85% 🚀 |
🎯 FV Range: ₹120 – ₹260
At ₹140, you’re buying a bank with improving NPAs, rising ROE, growing FII interest — at below book value. If this were private sector? It’d be ₹350+.
🧾 Final Word: PSU Ka HDFC in the Making?
Union Bank’s story is not a turnaround — it’s already turned. The only thing that hasn’t caught up? Its valuation.
So, if you like PSU dividends, improving metrics, and stocks priced like second-hand laptops — this may be your hidden gem.
But if you expect fast tech disruption, high margins, and snazzy fintechs — look elsewhere. Union still carries some Sarkari lag.
🏷️ Tags: Union Bank, PSU Banks, NPA Recovery, Government Bank Stocks, Dividend PSU, Banking India, EduInvesting Recap
✍️ Written by Prashant | 📅 20 June 2025
