Target: ₹200CMP: ₹168.80Union Bank of India’s earnings were higher than our estimates on the back of NIM reflation and improving operating leverage. Loan growth (+13.3 per cent year-on-year) sustained the improving trajectory (Q1FY26: 8 per cent), although it remains below system-wide trends (+16-17 per cent).The bank is re-scaling its loan book over the past two quarters with aspirations for higher loan growth. Deposit mobilisation has been relatively subdued (+3.5 per cent), with greater focus on CASA (35.1 per cent) and retail term deposits, as per the management. The focus on improving the quality of deposits (granular retail deposits) alongside higher deposit mobilisation is becoming a challenge, translating into higher C/D ratio. While FCNR deposits and liquidity management could provide near-term respite on margins, structurally higher funding costs, softer treasury income and upward normalisation of credit costs are likely to keep the earnings growth muted.We expect credit costs to average 51 bps during FY27-28E, owing to rising stress in the MSME portfolio and pick-up in credit growth. Asset quality remained steady in a seasonally-weak quarter as the bank made an additional provisioning buffer of ₹100 crore, factoring in global macros. Given it is gradually getting back on the growth runway, margin-accretive growth will be critical alongside higher deposit mobilisation, while maintaining the quality of deposits. We maintain ADD with an unchanged TP of ₹200 (1.0x March 2028 ABVPS).Published on July 16, 2026