Moody's Investors Service has assigned a Baa3 rating to the proposed USD benchmark senior unsecured notes drawdown, issued by Union Bank of India (UBI, deposits Baa3 stable, BFSR D/BCA ba2 negative) from its USD 2 billion Medium-Term Note Program through its Hong Kong branch.

The proposed notes are expected to mature in 2019 and will be listed on the Singapore Exchange.

The rating outlook is stable.

The rating is subject to the receipt of final documentation, the terms and conditions of which are not expected to change in any material way from the draft documents reviewed by Moody's.

The Baa3 rating is underpinned by UBI's: franchise as the sixth largest public sector bank in India by assets; modest profitability; weak financial metrics, particularly its modest loss-absorption cushion versus its level of troubled assets, as shown by its problem loans as a percent of shareholders equity, and loan-loss reserves of 29.2% as of March 2013; weak capital position with a reported Tier 1 capital ratio under transitional Basel III rules of 6.8% as of December 2013; and close relationship with the government of India (Baa3 stable) as evidenced by the government's track record of capital infusions to the bank. As of December 2013, the government had a 60.1% stake in the bank.

While UBI's reported Tier 1 capital ratio of 6.8% does not reflect profits for the nine months ending 31 December 2013, it includes a recent capital injection by the government of INR5 billion. Nevertheless capital levels remain weak although the bank has shareholders' approval in place for raising equity through QIP route for an amount not exceeding INR13.9 billion.

Moody's believes that the probability of systemic support for UBI, if needed, is very high, and which results in a two-notch uplift of its global local currency deposit rating of Baa3 from its baseline credit assessment of ba2.

Shares of the bank declined Rs 3.15, or 2.04%, to trade at Rs 151.55. The total volume of shares traded was 141,836 at the BSE (11.12 a.m., Tuesday).