ICRA has reaffirmed the rating for lower tier-II bonds programme aggregating to Rs 6.50 billion of United Bank of India (UBI) at [ICRA]A+ rating for Rs 5.75 billion upper tier-II bond programme of UBI at [ICRA]A-. The outlook on the long term ratings of the bank has been revised to 'Negative' from 'Stable'.

The rating agency said, ''The revision in outlook reflects significant continued pressure on earnings and solvency of UBI due to deterioration in asset quality as well as limited visibility on capital availability to fully support credit growth while meeting regulatory minimum requirement.''

The ratings continue to draw comfort from Government of India's (GoI) majority ownership (82% as on Dec. 31, 2015), the bank's well established franchise in Eastern and North Eastern regions.

ICRA further said, ''However, UBI's low earnings remain a credit concern, further in light of low tier I capital; UBI's tier 1 capital requirements are large in relation to its market capitalisation at 190%-260% will have to mobilize significant equity / tier I from non government sources.''

Sharp deterioration in asset quality is due to higher than anticipated stress, slower than expected pace of recovery and weak outlook for several credit intensive sectors.

Recognition of stress was reflected in Q3, FY16 asset quality indicators for UBI, when RBI post its 'asset quality review' directed banks to bring consistency in NPA recognition for stressed accounts.

''UBI's gross NPA % increased from 8.90% as on September 2015 to 9.57% as on December 2015, and is expected to further worsen in Q4, FY16. Higher than expected slippage in UBI’s asset quality has led to further dilution in earnings in relation to the risk,'' added ICRA.

Shares of the company gained Rs 0.2, or 1.13%, to trade at Rs 17.85. The total volume of shares traded was 9,522 at the BSE (12.02 p.m., Monday).