Union Bank of India remains a constructive story after Anand Rathi Share and Stock Brokers reiterated a BUY call with a 12-month target price of Rs 206, implying meaningful upside from the current Rs172 share price. The research house says the bank has moved past last quarter’s concerns, with stronger credit momentum, a healthier funding mix, and comfortable liquidity. It highlighted improved CASA, a firmer LCR, and resilient asset quality as the main reasons the stock still deserves a premium re-rating. The report also argues that profitability should stay steady, while credit growth may accelerate further into FY27-FY28.

What changed in the quarter

The headline number is simple: growth has re-accelerated. Union Bank’s credit growth rose to 13.3% year on year in Q1FY27, up from 10.5% in Q4FY26, led by MSME and corporate lending. This is important because loan momentum had been a concern in the previous quarter, and the latest numbers suggest that pressure is easing. The bank also reported a steady quarter with RoA of 1.4% and RoE of 16.7%, reinforcing the view that earnings quality remains decent.

Funding and liquidity

The liability side improved as well, which matters for a lender trying to balance growth with discipline. CASA ratio rose to 35.1%, while LCR strengthened to 121% from 114% in the prior quarter. That combination indicates a more stable deposit profile and better liquidity cover, especially after a period when bulk deposits had weighed on sentiment. The management said it has already raised US$106 million through the FCNR(B) route and is aiming to mobilise US$1.5-2 billion in total, which should support future funding needs.

Why it matters: better CASA and LCR reduce the risk of expensive funding, support margins, and make future loan growth more believable.

Profitability remains resilient

Margins moved in the right direction, with NIM improving 16 bps quarter on quarter to 2.8%. The improvement came from a higher loan-to-deposit ratio, a small reduction in cost of funds, and better asset yields. Core operating profit grew 34% year on year after adjusting for treasury gains, showing that underlying operations remain healthy rather than being driven only by one-off gains. Anand Rathi expects margins to stay near current levels and sees RoA staying above 1.1% over FY27-FY28.

Asset quality stays contained

Asset quality was another key comfort point in the report. Gross slippages came in at 82 bps, while net slippages were 37 bps, with improvement seen across segments. The bank also expects a Rs110 billion impact from the ECL transition, while Rs60 billion in the current book can be utilised toward that requirement. For investors, the significance is clear: the balance sheet is not flashing stress, and that lowers the odds of unpleasant surprises in the near term.

Valuation and target

Anand Rathi values Union Bank at 1x FY28e P/ABV and uses a 12-month two-stage DDM model to arrive at a target price of Rs206. That target is materially above the prevailing Rs172 share price in the report, which explains why the firm continues with a BUY rating. It also revised estimates upward, including FY27e PAT by 9.1% and FY28e PAT by 12.0%, suggesting greater confidence in earnings durability.

Investor levels to watch

For market participants, the report effectively frames a simple setup around the current stock price. Anand Rathi’s target is Rs206, which acts as the first major upside marker, while Rs172 is the current reference level in the report. On the downside, investors may watch the recent base near the 52-week low of Rs125 as the broad longer-term support zone mentioned in the key data section. The stock also sits below its 52-week high of Rs205, meaning the revised target is close to the prior peak and not wildly stretched.

Practical view: Rs172 is the immediate benchmark, Rs206 is the research-led target, and Rs125 is the major historical support zone.

What could go wrong

The report is not blind to risk. Anand Rathi flags two main threats: lumpy slippages in the corporate book and lower-than-estimated credit growth. Either issue could slow the stock’s re-rating if the next few quarters disappoint. Still, the base case remains constructive because the bank has already shown better growth traction, stronger liquidity, and healthier funding quality.

Final Words for Investors

This is a classic bank re-rating setup: improving growth, stable profitability, and reduced worry around liquidity. Anand Rathi’s BUY call rests on a cleaner funding profile, solid asset quality, and a credible path to stronger credit expansion. For investors tracking PSU banks, Union Bank now looks less like a turnaround bet and more like a steady compounder with room to rerate if execution holds.