UCO Bank — Q2 FY25 earnings call

Call held 21 Oct 2024

Management summary

UCO Bank delivered a strong Q2 FY25 performance characterized by significant profit growth and margin expansion. The bank successfully rebalanced its portfolio toward higher-yielding RAM segments, which helped offset rising costs of funds. While asset quality remains healthy with improving NPA ratios, the quarter saw a specific slippage in a large government-linked telecom corporate account, which management has already partially provisioned for.

Highlights

  • Net Profit grew 50% YoY to ₹603 crores for the quarter; half-year profit up 84% to ₹1,154 crores

  • Net Interest Margin (NIM) expanded to 3.10% from 2.84% YoY, driven by a 52 bps improvement in yield on funds

  • Gross NPA improved significantly to 3.18% from 4.14% YoY, while Net NPA reached 0.73%

  • Credit growth stood robust at 18% YoY, outperforming the bank's guidance of 12-14%

  • RAM (Retail, Agri, MSME) segment grew 20% YoY, with Retail advances specifically surging 29.36%

  • CD Ratio improved to 71.77% from 67.25% YoY, with a target to reach 75% by March 2025

  • CASA ratio maintained at 38% despite industry-wide pressure on low-cost deposits

  • Provision Coverage Ratio (PCR) remains high at 95.92% as of September 30, 2024

Key financials

  1. Net Interest Margin 3.1%
  2. Gross NPA 3.2%
  3. Net Profit ₹603 Cr +50%YoY
  4. Credit Growth 18% +18%YoY
  5. CASA Ratio 38%
  6. Operating Profit ₹1,432 Cr +45.8%YoY

What they filed

Q1 FY27: revenue up 8.7%, net profit up 8.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue6,078 6,220 6,745 6,436 6,537 +8%6,652 +7%6,656 −1%6,996 +9%
Net profit607 640 666 607 620 +2%740 +16%801 +20%656 +8%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Advances
₹1.79L Cr Total
  • RAM (Retail, Agri, MSME) ₹1.08L Cr 60.4%
  • Retail ₹47,039 Cr 26.2%
  • Overseas Book ₹24,000 Cr 13.4%

Guidance & targets

Market Share

  • CD Ratio Market Share · by March 2025 · High confidence 75%
    Our target is to reach to 75% [CD Ratio]... our intention is to achieve it by March 2025.

    — Mr. Ashwani Kumar, MD & CEO

Volume

  • Credit Growth Volume · FY25 · Medium confidence 12-14%
    Credit growth, our guidance was 12-14%. Overall credit growth is 18%.

    — Mr. Ashwani Kumar, MD & CEO

  • Deposit Growth Volume · FY25 · Medium confidence 8-10%
    We have given a guidance of deposit growth of 8-10%, where now the growth for this September Quarter was 10.57%.

    — Mr. Ashwani Kumar, MD & CEO

Other

  • Recovery from Written-off Accounts Other · FY25 · Medium confidence ₹1,700 crores
    So, our endeavour will be that full year we continue to maintain that last year's recovery at least, 1,700 crore.

    — Mr. Ashwani Kumar, MD & CEO

  • Digital STP Journeys Other · by March 2025 · High confidence 25
    Looking forward, we plan to launch 25 journeys by March 2025.

    — Mr. Ashwani Kumar, MD & CEO

Capex

  • IT Budget Spend Capex · FY25 · High confidence ₹1,000 crores
    Bank has earmarked around 1,000 crore budget for IT... I believe, by the end of this year, we will be through with this 1,000 crore of budget.

    — Mr. Ashwani Kumar, MD & CEO

Risks & concerns

  • Corporate Slippages

    medium

    A single corporate account (telecom/govt entity) of ₹245 crores slipped this quarter, contributing to higher-than-expected slippages of ₹800+ crores.

    Both acknowledged

  • Interest Rate Cycle Impact

    medium

    Potential RBI rate cuts in the next 6 months could compress NIMs; management plans to counter this by improving CASA and retail term deposit mix.

    Analyst acknowledged

  • Agricultural Slippages

    low

    Agri slippages were ₹206 crores vs ₹48 crores QoQ, but management clarified this is a seasonal half-yearly phenomenon in line with previous years.

    Analyst downplayed

Areas of evasion (1)

  • Specific details on the 'big account' expected for recovery in the next quarter were kept vague.

Q&A highlights

3 direct
Large Corporate Slippage Direct
Yes... there was one corporate account having an exposure of around 245 crores. That slipped in this quarter.

Confirms that a government-linked telecom entity caused a significant portion of the quarter's slippages, which management has already provisioned at 50%.

Asked by Mr. Sushil Choksey

Credit Pipeline and Growth Targets Direct
Currently, the way the projects and sanctions are, around 8,000 crores sanctions are already there... we don't feel any problem, any issue in achieving our 14% growth target.

Reveals a strong unavailed corporate credit pipeline of ₹8,000 crores, supporting the bank's confidence in meeting full-year growth targets.

Asked by Mr. Ashok Ajmera

Overseas Loan Book Strategy Direct
Overseas book... we have not grown our overseas book, basically, because we are not getting good margins. Current margin is around 1.4-1.5.

Explains the stagnation in the ₹24,000 crore overseas book as a deliberate choice to prioritize domestic margins over low-yielding international assets.

Asked by Mr. Amit Mishra

2 min read 5 chapters

Detailed narrative

Strategic Rebalancing Drives NIM Expansion

UCO Bank's NIM improved to 3.10% from 2.84% YoY, a significant feat given the rising cost of funds (up 32 bps). This was achieved by aggressively rebalancing the loan portfolio away from low-yielding AAA-rated corporate advances toward the RAM segment, which offers better yields. The yield on funds improved by 52 bps, effectively outpacing the increase in deposit costs.

Asset Quality and the Telecom Slippage

While Gross NPA fell to 3.18%, the bank faced a total slippage of over ₹800 crores during the quarter. A key driver was a single government-linked telecom corporate account with an exposure of ₹245 crores. Management has already made a 50% provision against this account and remains confident in maintaining a Gross NPA target of less than ₹6,000 crores for the year.

Aggressive CD Ratio Target for FY25

The bank has set an ambitious target to increase its Credit-Deposit (CD) ratio to 75% by March 2025, up from the current 71.77%. To achieve this, management is intentionally guiding for higher credit growth (12-14%) relative to deposit growth (8-10%). They plan to utilize surplus liquidity currently held in SLR and HQLA investments to fund this credit expansion.

Project Parivartan: Digital Transformation

UCO Bank has launched 'Project Parivartan' to digitize 25 retail asset and liability journeys by March 2025. Currently, nine journeys are live, including GST Smart Finance and Pre-Qualified Personal Loans. The bank has earmarked ₹1,000 crores for IT spending this year, with 36% already incurred, aiming to shift toward a 'digital balance sheet' by next fiscal year.

CASA Retention Strategies

Despite intense competition for deposits, UCO Bank maintained its CASA ratio at 38%. Key initiatives include the 'Pink Basket' of deposit products for women (UCO Aparajita, Jaya Lakshmi) and the deployment of a 300-member zonal resource team dedicated to account opening. Management believes these retail-focused efforts will help insulate margins if the interest rate cycle turns.

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