Union Bank of India: Governance Failures and Regulatory Penalties Undermine Trust

The past year has been tumultuous for Union Bank of India, with a series of leadership upheavals, regulatory penalties, and ESG controversies casting doubt on the bank's governance structure and long-term stability. Despite strong financial performance in recent quarters, these systemic risks threaten to erode investor confidence. This article examines how governance failures and regulatory non-compliance are material risks to the bank's valuation and why investors should proceed with caution.

Leadership Chaos and Governance Concerns

Union Bank's executive leadership has been in constant flux since early 2024. The most notable departure was that of A. Manimekhalai, who stepped down as Managing Director & CEO on June 3, 2025. Her exit followed allegations of misgovernance tied to a controversial ₹7.25 crore book procurement deal for “India@100: Envisioning Tomorrow's Economic Powerhouse”, which lacked board approval. The board's objections to her tenure extension—despite her eligibility for an extra year—highlighted deepening trust issues.

Meanwhile, Pankaj Dwivedi, an Executive Director, faced a demotion to General Manager in April 2025 after the Delhi High Court ruled his appointment violated vigilance norms. This judicial rebuke underscored regulatory scrutiny of the bank's hiring practices. Even recent leadership changes, such as the appointment of Shri Vipan Singh as Head of Audit & Inspection, fail to offset the perception of instability.

Regulatory Penalties Signal Systemic Weaknesses

The Reserve Bank of India (RBI) has penalized Union Bank repeatedly for compliance failures. In May 2025 alone, the bank was fined ₹63.6 lakh for failing to transfer funds to the Depositor Education and Awareness Fund (DEAF) and for violating agricultural lending norms by requiring collateral for loans below ₹1.6 lakh. Earlier penalties in 2024–2025 totaled over ₹6.5 million, including a ₹3.7 million fine by the Financial Intelligence Unit-India (FIU) for anti-money laundering lapses.

While these penalties are small relative to the bank's ₹49.85 billion net profit for Q4 2024–2025, they reveal recurring operational and compliance flaws. As Glass Lewis' ESG Controversy Alert noted, such breaches indicate weak internal controls—a red flag for investors.

ESG Risks and Investor Confidence

Union Bank's ESG Risk Rating of 360/1020 (per Glass Lewis) places it significantly below global peers like Santander Bank Polska (151/1020) and Bank of Ireland (163/1020). This rating reflects governance gaps, regulatory penalties, and transparency concerns. The book procurement scandal, for instance, raised questions about conflicts of interest, while the FIU penalties hint at anti-corruption vulnerabilities.

Investors using Glass Lewis' tools now receive alerts on these risks, which could deter capital allocation. Without clear progress on governance reforms, the bank risks losing institutional investor support, particularly from ESG-focused funds.

Investment Thesis: Sell Until Reforms Materialize

Despite strong financial metrics—such as a 50.6% year-on-year net profit jump—the governance and regulatory risks overshadow near-term gains. Key concerns include:
1. Leadership instability: Frequent executive changes suggest a lack of long-term strategic vision.
2. Recurring penalties: Reflects a culture of non-compliance.
3. ESG rating lag: Indicates misalignment with global standards.

While the bank's capital raise of up to ₹60 billion and growing retail loans (25.6% YoY) offer short-term resilience, these positives are insufficient to offset structural risks. Until the bank demonstrates improved governance, transparency, and regulatory adherence, a “sell” stance is warranted.

Conclusion

Union Bank of India's governance failures and regulatory penalties are not mere isolated incidents but symptoms of deeper institutional weaknesses. Until the board addresses these issues—through stronger oversight, ethical procurement policies, and compliance overhauls—investor confidence will remain fragile. For now, the risks outweigh the rewards, and investors are better advised to wait for tangible reforms before reconsidering the stock.