Government of India ownership with track record of support:
UCO Bank, headquartered in Kolkata, is among the 14 banks nationalised in 1969. The Government of India (GoI) holds 95.39 percent stake in UCO Bank as on December 31, 2022, which is one of its largest shareholdings in any public sector bank. The bank has a pan-India presence through a network of 3122 branches of which 30 percent branches are in the eastern region of India and the balance are spread across other regions. UCO Bank has a moderate international presence with 2 overseas branches, one each in Hong Kong, Singapore and a representative office in Tehran, Iran. The bank plays a vital role in supporting the financial inclusion initiatives of the Government in the east and the north-eastern regions.
Acuité believes that GoI will continue to provide support to UCO Bank given its fairly reasonable presence particularly in eastern region and its key role in the penetration of financial services and social development therein. The continued ownership of GoI coupled with timing and magnitude of support will, nevertheless, be the key monitorables.
 
Healthy resource franchise in its area of operations:
UCO Bank has established presence in eastern region as depicted by 946 branches (30 percent of branch network) as on December 31, 2022. Further, the bank reported around 62 percent of its branches in the rural and semi-urban regions thereby facilitating the mobilisation of small ticket deposits. The CASA (Domestic) base stood at Rs. 89,185 Cr. (37.94 percent of the total domestic deposits) as on December 31, 2022 (Rs. 82,670 Cr. (38.63 percent of the total domestic deposits) as on December 31, 2021. The bank’s CASA share continued to compare favourably with its peers among mid-sized public sector banks. 

Acuité expects UCO Bank to benefit by way of a sovereign parentage, lower cost of funds on the back of its healthy resource profile.

Improvement in Financial Performance

The bank turned profitable since FY2021. The bank is reporting profits (Profits After Tax)of Rs. 930 Cr. as on March 31,2022 as against Rs.167 Cr. as on March 31, 2021, and losses of Rs.2,437 Cr. during FY2020. This improvement was supported by lower cost of funding (3.12 percent as on March 31,2022 (4.35 percent as on March 31,2021) that led to Net Interest Income (NII) of Rs.6473 Cr. during FY2022 (FY2021: Rs.5480 Cr.). Also, higher treasury income (interest on investments and trading profits) contributed to uptick in operating profits. Resultantly, ROAA stood at 0.44 percent as on March 31,2022 as compared to 0.12 percent as on March 31,2021. For 9MFY2023, the Bank reported PAT of Rs. 1281 Cr. as against PAT of Rs. 617.59 Cr. during 9MFY2022.

Moderate Asset Quality & profitability albeit improving  

The bank saw an improvement in asset quality with GNPA at 7.89 percent as on March 31,2022(9.59 percent as on March 31,2021). Acuité notes that this improvement in asset quality is also attributed by high write offs at Rs.3,851 Cr. during FY2022 (FY2021: Rs.9411 Cr.). Although the asset quality is at an improving trend, it still remains moderate as depicted by GNPA of 5.63 percent with a PCR (including technical write offs) of 93.58 percent as on December 31,2022. Assets in SMA-1 and SMA-2 category stood at Rs. 3357 Cr. and Rs. 2888 Cr. respectively as on December 31, 2022 (Rs. 3661 Cr. and Rs. 2969 Cr. as on December 31, 2021) while restructured assets stood at Rs. 4763.59 Cr as on December 31, 2022. Acuité expects slippages to be lower compared to what the bank has witnessed in the past few years, leading to further reduction in GNPA and NNPA.
Further, while Acuité takes cognizance of improvement in the banks operating performance over the last few quarters, its profitability (ROAA) remains moderate at 0.68 percent during Q2FY23 which exposes the bank to asset quality shocks.