UCOBANK - UCO Bank Share Price

In the Q3 FY26 earnings call, UCO Bank's management presented a positive outlook, citing a year-over-year business growth of 13.25%, underpinned by a 10.64% rise in deposits and a 16.74% increase in advances. Notably, advances in the RAM (Retail, Agriculture, and MSME) segment surged by 25.86%. Their net profit reached Rs.739 crores, reflecting a 15.65% growth year-over-year, while net interest income showed an 11.27% increase.

Key financial metrics highlighted include:

• Capital Adequacy Ratio (CAR) at 17.43%, improving to 18.67% when incorporating 9-months profit.
• Net Interest Margin (NIM) increased to 3.08%.
• Cost-to-income ratio decreased to 52.20%.
• Gross NPA reduced to 2.41%, with net NPA at 0.36%. The Provision Coverage Ratio (PCR) improved to 97.32%.

Management outlined several forward-looking initiatives including:

• Sustaining a credit growth target of 12-14%, with a consistent increase in retail and MSME loans.
• Plans for ongoing digital transformation through Project Parivartan, with over 30 digital journeys launched, totaling Rs.15,900 crores in digital business transactions.
• A budget exceeding Rs.1,000 crores allocated for IT and digital enhancements, with around Rs.700 crores already utilized.

Recovery efforts are also commendable, with Rs.2,215 crores reclaimed against a projected Rs.2,200-2,700 crores, evidencing effective asset management strategies. Looking ahead, management expressed optimism about maintaining growth trajectories across all key segments and emphasized a focus on cost management and service delivery improvements.

Question 1: "When you already achieved a handsome growth of almost about 11% in 9-months, why don't you just revise the overall year's credit target?"

Answer: Thank you for your compliments and raising this point. We maintain a conservative credit growth guidance of 12-14% due to muted growth in the corporate sector, primarily affected by pricing issues. Our PSU exposure has reduced by Rs.6,000 crores, impacting our overall growth. However, we consistently surpass our targets each quarter and expect to achieve our guidance while maintaining it within a reasonable margin.

Question 2: "What will be the total quantum of the ECL? Are you going to complete it in one or two years only?"

Answer: Our estimates suggest the ECL requirement will be in the range of Rs.2,500 to Rs.3,000 crores. We've already built approximately 50% of this amount, and with about 6 quarters to go until the June 2027 implementation deadline, we expect to meet the necessary provisions well within that timeline, likely even before the five years permitted.

Question 3: "Impact of the new labor code? How much is the impact?"

Answer: The impact from the new labor code is very insignificant for us, as we have a limited number of contractual employees. It's likely to be under Rs.25 lakhs in total. We do not foresee any substantial effect on our employee costs moving forward.

Question 4: "Is there any plan to raise further capital?"

Answer: We anticipate opportunities for both QIP and OFS to reduce the government's holding, which is currently at 90.95%. We already have board approvals in place and will enter the market for QIP when the timing is optimal, with an approval for Rs.2,700 crores already secured.

Question 5: "Can you comment on the treasury book given its contribution to profitability?"

Answer: Our treasury book has been maintained at a consistent level, with yield improvements seen since June. We are strategically building our treasury portfolio based on market opportunities while liquidating and adding to the book cautiously. We foresee no challenges regarding treasury income going forward, given our prudent investment strategies.

Question 6: "What is the outlook on G-Sec based on the current yield?"

Answer: We expect G-Sec yields to remain steady as markets stabilize. The RBI is actively managing liquidity conditions, making it unlikely we will see significant movement in yields in the near future. We maintain a neutral stance regarding G-Sec investments, waiting for economic data to guide future decisions.

Question 7: "What is the current status of your MCLR cuts?"

Answer: We have implemented a 30 basis point cut in MCLR. Future adjustments will be decided by our ALCO on a monthly basis, which means while reductions may occur, I can't provide specific forecasts beyond assessing each month's financial data.

Question 8: "How do you stand on the exposure to NBFCs?"

Answer: Our exposure to NBFCs is around Rs.27,000 crores, which is about 12% of our total lending book, and we've had no slippage other than minor previous issues in microfinance. Each proposal is analyzed for bankability, whether they are rated under investment grade or not, to ensure sound lending practices.

Question 9: "How is the international book shaping up in terms of growth?"

Answer: The international book is steadily increasing, with overseas deposits growing approximately 18%, and advances around 12%. While we receive proposals, we are selective and ensure profitability on the terms before proceeding with new loans.

Question 10: "What percentage of your deposit book has been repriced so far?"

Answer: About 75% of our deposit book has been repriced. The anticipation is that the remaining portion will be fully repriced by the first quarter of FY27. As for NIM, it should remain around 3%, provided that liquidity conditions do not change significantly.