UCO Bank (UCOBANK) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the UCO Bank Q3 FY '26 Earnings Conference Call. Today, from the management side, we have with us Mr. Ashwani Kumar, MD and CEO; Mr. Rajendra Kumar, Executive Director; and Mr. Vijay Kamble, Executive Director. With this, I hand over the call to MD sir for his opening remarks, post which we'll have a Q&A session. Thank you, and over to you, sir.

Thank you. First of all, let me welcome all our analysts and investors to this post-December results con call. With me, I have our ED, Shri Sabooji, Shri Kambleji, our Corporate General Managers, CFO, CRO, CGM IT, CGM HR, all are available. First of all, let me -- I wish you all happy New Year. And now I'll just give you a small brief of the financial performance of the bank, though we have already uploaded the presentation. I believe that every one of you have gone through. But brief about the results of the bank, I would like to share with you all. So far as business growth is concerned, bank's business grew by 13.25% on a Y-o-Y basis, which was backed by deposit growth of 10.64% and advances growth of 16.74%. Deposit growth was backed by growth in CASA deposit by 11.49%. Within CASA, saving grew by around 10% and current grew by 23%. Our CASA ratio improved by 44 bps to 38.41% and we have been able to maintain our CASA in the range of 37% to 38% consistently for last 7, 8 quarters. In advances, the growth of 16.74% was backed by growth in the RAM segment, which increased -- improved by 25.86% and that was backed by growth in retail advances by 24.69% (sic) [ 28.18% ], agriculture by 23.56% (sic) [ 24.69% ] and MSME by 23.56%. In MSME, we have seen that last 3, 4 quarters, we are growing more than 20% consistently. Within retail, housing grew by 19%, vehicle grew by 73%. And RAM share in the overall credit mix works out to be around 66%. So far as NPAs -- capital adequacy of the bank is concerned, capital adequacy ratio of the bank stood at around 17.43% with Tier 1 capital 15.41% and CET1 at 15%. If we include this 9 months profit also, then our capital adequacy ratio stood at 18.67%. CD ratio of the bank has been improving on a quarter-on-quarter basis. In March '23, it stood at around 65%. Now in December '25, it has reached to 78.56%. So every quarter, there is an improvement in our CD ratio. Coming to profitability. Operating profit of the bank for this quarter stood at around INR 1,680 crore, registering a growth of 6% on a Y-o-Y basis. And net profit was INR 739 crore, registering a growth of 15.65%. During this period, NI, net interest income, grew by 11.27% on a Y-o-Y basis. And on a 9-month basis, it grew by 9.38%. Net interest margin improved to 3.08% on the global and domestic NIM stood at 3.27% as against 3.03% global and 3.23% in domestic last quarter. Our cost of fund also improved by [ 25.7 bps ], came down to 4.48%. Yield on advances stood at 8.06%. Cost-to-income ratio, that is an important parameter, it has again improved to now -- it has come down to 52.20%. It is a 330 bps reduction on a year-on-year basis. Return on asset, which is again an important parameter, it has improved to 0.83%. Last quarter, it was 0.71%. Fee-based income also grew by around 30% on a Y-o-Y basis, and on a 9-month basis, it grew by 22.46%. Then coming to asset quality. Gross NPA has improved to 2.41% as against 2.91%, that is a 50 bps reduction on a Y-o-Y basis. Net NPA also improved to 0.36% as against 0.63%, that is 27 bps reduction on a Y-o-Y basis. PCR improved to 97.32% and tangible PCR also now stand at 85.47%. Slippage ratio for the quarter improved to 0.85%. Slippages were mainly from the MSME, retail and agri and not from the corporate segment. So total slippages, INR 419 crores were from the RAM segment itself. And that majority of the slippages were less than INR 10 lakh accounts. If I have to look at SMA, more than INR 1 crore -- we always, in every quarter, declared more than INR 1 crore SMA book, INR 1 crore SMA book of the bank, SMA-0, 1, 2, all 3 segments put together is only INR 1,605 crore. That works out to 0.68% of the total book. And if you have -- if I look at SMA-1 and 2, that is only INR 848 crore, and that works out to less than 0.5% of the growth. And within the SMA book, if I have to look at the corporate SMA, SMA-1 and 2 in the corporate segment, it is only INR 316 crore. Coming to recovery. Recovery during this 9 months period is total recovery is INR 2,215 crore and against a target which we have given -- guidance we have given of INR 2,200 crore to INR 2,700 crore. During these 3 months, the recovery this quarter was INR 383 crore and last quarter, it was INR 366 crores. So that is on the recovery front. Our recovery and upgradation is always in excess of the slippages during the quarter. If I have to look at the efficiency of the bank, business per employee improved to INR 26.12 crore in December '25 as against INR 23 crore in December '24. Similarly, business per branch also improved to INR 166.32 crore as against INR 149.74 crore in the last financial year. As far as some provisions which banks have been carrying, there is a buffer or floating provision, you can say, or you can say that forward-looking provision towards ECL, we have already started making the provision. This quarter, we have made additional provision in the standard book. So now the overall provision which we carry forward-looking provision is INR 1,252 crores, which includes INR 530 crore of forward-looking provision, which we have made earlier year. So total provision towards ECL today stands at INR 1,252 crore. As far as LCR is concerned, 112% LCR is maintained by the bank. These are all about the performance of the bank. Now a few of the initiatives which the bank started this year and previous year, we have already completed those initiatives. A few of the initiatives bank is now planning in this year also. I'll just highlight a few of them. Previously, we started the digital transformation project, Parivartan. Bank has already implemented, more than 30 journeys have been made live and which in retail, agri, MSME and liability segment as well. So total around INR 15,900 crore of digital business book has been built by the bank. And of that, more than 2 lakh customers have been given credit through digital means. So through STP journey, 2 lakh customers have been given loans by the bank. Today, when I speak, more than 50% of our FDs are made digitally. Loan against FDs, more than 50% is happening digitally. More than 61% accounts are opened through Tab Banking digitally. And mobile banking users have also increased 4x over the last 2 years. Now it stands at more than 64 lakh. Bank's mobile app rating continues to be at 4.8, which is one of the best mobile app rating of the bank. WhatsApp Banking, we started last year. Now we have reached -- we are giving 47 services through WhatsApp Banking, 8 regional languages plus Hindi and English. So total 10 languages are there in WhatsApp Banking. In almost -- less than 1 year, 17 lakh customers are now using WhatsApp Banking. In addition to this, CBDC has also been implemented. PMS has been implemented. Learning and development center of excellence has been made. Then new treasury solution, which we were talking last year, that has gone live this quarter. Then data center consolidation also we talked last year. So this -- the last quarter, that has also gone live now data center consolidation at Kolkata has happened. Then API gateway also have been implemented. We have already completed our automation of ALM, TPM solution, application performance monitoring system has been implemented. And in order to improve and to gauge the level of customer service and customer resolution grievance resolution mechanism, we have started a feedback mechanism also where customers are giving feedback about the -- our services by our staff members. That is also now happening. Now MuleHunter and I4C integration is also completed. So these were the initiatives which we had started and they are already completed now. What we are planning is omnichannel experience that omnichannel project is already on way. In next year, it will be completed. Cash management services, then supply chain finance, robotic process automation, ForEx travel card, CASA back office, DMS, IDEM cybersecurity. Then 10 more digital journeys are in pipeline in the project Parivartan. Then we are -- last year, we revamped our call center. Now we are planning to make call center as a profitable center by using call center for the digital services like digital cross-selling of the products and digital journeys also. As far as IT expenditure is concerned, we have kept a budget of more than INR 1,000 crore, around INR 700-odd crore has already been now spent. So next quarter, we will be -- hopefully, we will be completing the digital budget -- IT budget also. So thank you very much. And now we are available for your question and answers. We are open for that. Thank you.

[Operator Instructions] The first question is from the line of Ashok Ajmera.

Can you hear me?

Yes, yes, Ajmeraji, now can hear you.

Sir, compliments to you, Ashwani sir, Sabooji, Kamble sir and the entire top management and the entire management of UCO Bank for a fantastic results, even continuously, I mean, maintaining good results quarter after quarter, and this quarter is no exception. So my compliments to you for the same. In fact, generally, there will be a concern on the credit growth in most of these banks, bearing some 2, 3 banks. But in your case, you have excelled very well on the credit also 10.73% only in 9 months against your whole target of the whole year of 11 -- 13% to 14%. So my -- of course, on the deposit side, in 9 months, we are only 5.63%. So my first question is, sir, on the credit growth, 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 because your CD ratio is still comfortable, good LCR and deposit also, I'm sure you will meet the target of 10%, 11%, which has been given. So this is my first question. And sir, I need your comments and feedback on this, please.

Yes. Thank you, Ajmeraji. Thank you for your compliments. And you see the bank has been consistently showing stable growth in each of the parameters quarter after quarter. So far as credit growth is concerned, if you look at on a quarterly basis, Y-o-Y basis, we are growing more than 15%. But on a conservative basis, we always keep our guidance 12% to 14% because in this current market, when -- though we are growing well in RAM, but in corporate -- if you look at our corporate credit growth, there is slight muted growth in the corporate segment that is basically because of some pricing issues. If you go deeper into the details, you will find that our PSU exposure has come down by around INR 6,000 crore. So if you look at our corporate growth -- corporate book, so INR 6,000 crores means around 8% to 9% of exposure, 8% to 9%. So had that been, our corporate credit growth would have been better and our overall credit growth would have been much better. So looking into all those things, we always keep our guidance within the trend -- slightly higher than the trend rather, I will say, because when we look at the economy and the credit growth in the overall system, we don't want to outgrow beyond a reasonable margin. So that is the reason we are keeping our growth targets within. But every quarter, if you see, we have been surpassing our target. So we expect that we will be achieving and surpassing that credit growth target also. But we'll continue to keep our credit growth target of 12% to 15% -- 14%.

Yes. Why I said, sir, that because our base is still comparatively small in the size of near to the, say, Bank of Maharashtra and some of the other banks, like so here, there is a lot of scope and you have got a strong team, strong management, strong balance sheet also. Your provisioning is almost about 97%, 98% already there. And I think the current underwriting book is also very good as I see. So anyway, sir, now coming to this, you have already talked about ECL provisioning of INR 1,252 crores of this. But sir, what would be the total quantum of the ECL if you have done some calculation and whether you are going to complete it in 1 or 2, '27 and '28 only or you are going to also take the benefit of that 5 years, sir, in that?

See, if you look at our back of the envelope cash calculation, which we have done, it should be in the range of INR 2,500 crore to INR 3,000 crore currently as per our estimates. So around 50% of that, if I take a lower band of INR 2,500 crores, so 50% of that we have already built in, right? And I expect now we have still 5 -- 6 quarters rather because in June '27, we have to go live on that, right? So we have 6 quarters. This quarter, we have also again built around INR 200-odd crore towards ECL. So going by this trend, if profitability supports, everything supports, I believe we should be near to our requirement by the time it is implemented. We should be near to. And if at all not, then probably within 1 year, I think we should be in a position to achieve what is required to be achieved. So I don't think that bank will need a longer period of 5 years' time, which is required, which is permitted because we have already started building and I expect that by June, we should be near to the numbers required.

Sir, my second question is on the impact of this labor code, new labor code. Have you calculated like because I don't find in this quarter, any hit has been taken, rather the -- I think the -- if you look at the employee cost, which is lesser than the last quarter. So how much impact do you see? Is it significant or it's a small impact, which you are in the normal course going to pass on it?

It's very insignificant because we have a very small number of contractual employees. We don't have a large number of contractual employees. It is very insignificant. It may not be even INR 25 lakh.

Sir, my next question is, sir, on the capital raise. You had done the QIP INR 2,000 crores in, I think, the March '25 quarter. And still, the government holding is very, very high, 90.95%. So is there any plan in the immediate future? You must have got already the approval, I suppose. But are you planning to raise any -- I mean, doing any further QIP or government is going to planning for any OFS to reduce the government holding?

See, there are 2 ways. One is QIP, one is OFS. I think OFS is already -- government is planning -- 2 banks, it is already done. I think 2, 3 banks are there in the pipeline. We may see that any time they will -- there will be OFS also. So by that, it will come a little bit lower. As far as requirement of capital is concerned, I have already shared that we are adequately capitalized. Otherwise, if we add our 9 months profit, even with these profits itself, we are more than 18% CRAR. But nevertheless, we have to achieve the requirement of SEBI also by bringing down the shareholding of the government to 75%. So we have already taken Board approval, AGM approval, EGM approval, all approvals are in place. At the right and opportune time, we'll come to the market for QIP also. We have taken approval of INR 2,700 crore from the Board.

Sir, my last question in this round is on the treasury book, some color on that because our treasury income, though in this quarter is a little better than the last quarter. But overall, if you see the treasury income contribution is coming a little down in the overall banking profitability. So going forward, how do we see our treasury behaving, sir?

See, if you look at our treasury book, we have been maintaining this book almost at the constant level. We are not outgrowing. And if we look at March, from March a little bit, we have increased -- from September rather after June. March to June, we have not grown our treasury book. That was within the range itself because that time, the yield was low. After June, the yields have again spiked. So we have started building up in some SBLs and all that. So wherever we are getting an opportunity through OMO, we are exiting also and we are buying OMO also. So if you see our yield also is improving and our, I think, modified duration is around in the range of 3.6. So we are well placed as far as treasury book is concerned. We don't foresee any challenge as far as income from the treasury book is concerned because very cautiously, we are investing and liquidating the treasury portfolio.

[Operator Instructions] We have next question from the line of Sushil Choksey.

Yes, Chokseyji, I think you need to unmute. I think there may be some network issue or something.

You can take somebody else also otherwise then -- if Sushil is taking some time...

Yes, sir, please go ahead with your question. If you have any further questions?

Yes, yes. So sir, my third in this round. You have got -- I mean, in this quarter, you performed very well on the NIM front also. The NIM is 3.08% as against, I think, your guidance of 2.9% or 3%. So going forward, even in the -- I mean, going back even in the last quarter, it was 2.9% and now 3.08%. So going forward, with all the kind of impact of the earlier liability mismatch and other thing and the deposit getting into -- in the picture because now the -- I think button will get reduced. So do you think that the NIM will further keep improving or improve in the coming quarter to finish a good FY '26?

I think NIM will continue to be in this trajectory only because if you look at the pace of reduction in the deposit rate, that is not in line with the reduction in the repo rate, still deposit is at a very reasonably high rate, not at a lower rate. So I believe that the NIM should be in the range of this trajectory only going forward in the next quarter.

Okay, sir. Sir, in the case of this SMA, though the SMA numbers are very much under control and where rarely you see this kind of only 0.68% or 0.5% for the corporate book, the entire SMA, including, I think, in your case, even SMA-0 also. But you said that corporate SMA was around -- something around INR 300 crore or something, isn't it, in SMA-2, INR 316 crores. So is it 1 or 2 chunky, I mean, bigger accounts which have slipped to SMA-2 or it's -- I mean, a variety of the corporate accounts, sir?

This is not SMA-2. This is all SMA, 0, 1, 2 put together is INR 316 crore. So this is not only 2, 0, 1, 2 put together.

[Foreign Language] 0, 1, 2 put together. And there are various corporates, not some...

Sorry, sorry, sorry, INR 316 crores is corporate only, corporate SMA-2. Sorry.

Yes, SMA-2, that is why I raised that question that whether...

The total is INR 511 crores, SMA-2 is INR 316 crores. See, it's not a 1 or 2 accounts. There are a few accounts which are in SMA-2. But if you look at the SMA-0 -- SMA-1 is zero. So there are certain accounts, which were there in SMA-0, they will come back to SMA-0 because of some reason, they have come to SMA-2.

No, no. By the time like we have already 1 month -- like we are in January, so whether this SMA-2 was under control -- I mean, regularized or...

Yes.

Okay. So no chance of slipping into the NPA.

Yes, yes.

Can we discuss something more?

So we'll take the next question from the line of Sushil Choksey.

Sushil unmute [Foreign Language]. I think he's not able to unmute.

We've already unmuted him.

He's logged in from 2 screens.

Congratulations to UCO management for a very stable number. And sorry for all the hiccups, which we are having with various technology platforms. Sir, seeing our result, if I have to look at growth, which is the core understanding which we need to have in the current economy. PSU banks is a flavor of the season, stock market as well as on credit performance. What we should look forward from UCO in the quarter to come by and for the year of '26?

See, if you look at our growth, more particularly credit growth and you look at the composition of credit growth, the proportion of each segment in the credit growth, and not only in December quarter, but previous quarters as well. So every quarter, like I'll take the example of retail. So retail is growing more than 20% for last 4, 5 quarters. And within retail, housing is in the range of 18% to 19% to 20%, 18%, 19%, 20%. Car loan growth is 40%, 50%, 60%, 70% in this range, car loan growth is there. So retail is growing. Each segment is growing and both the segments, major components of retail, housing and car are growing in proportion. So there is no challenge on the credit growth concern. And the subsequent quarters also, we will continue to grow in the same way because there is a set pattern and stability is there. It's not that one-off quarter, we have grown and one-off quarter, we have not grown. Similarly, agri also. Agri also quarter-on-quarter, consistently, we are growing. This quarter, growth was around 23%, 24%. And previous quarter, it was in the range of 20%, 17%. So 17%, 20%, 23%. Similarly, MSME for last 3 quarters, it is more than 20%. Prior to that, there was some slowness in the MSME, but last 4 quarters, it is 18%, 20%, 23%, plus 23%. And similar growth we can see in next quarter also. And how and why this growth is coming? Because last year, we revamped our underwriting standards. We started retail hubs and MSME and agri hub. Now the decision-making has happened centrally. Our TAT has improved. As a result, the quality of underwriting has improved and service delivery time has also improved. So that is leading to the credit growth in various segments. So next quarter, I think '24 -- in the fourth quarter, similar trends you will see, and we will achieve our guidance, which we have already given at the start of the financial year.

Sir, if we sustain our RAM growth with retail growth as a part of the story, our margins in home loans, our margins on auto loans and how our margins on the other products where we are likely to be, whether it's education or any other loans where we think we'll grow well. I understand that home loan in India is not -- I mean there is a big market yet to happen looking at the urbanization and development. Education within India itself can become big with all the noise which is coming from Mr. Donald Trump. So keeping in mind what product is very profitable, I understand second-hand car market, you are far ahead of many banks. And I think leading PSU banks also have opened their eyes that Mr. Ashwani Kumar is doing well at UCO BANK on this product, let's look at it. So can you highlight all these products? What will lead to a betterment compared to competition and where we can grow faster?

Yes. If you look at our -- first, let me talk about -- you talked about margins. Our growth has come mainly from RAM segment. Even then our margins have improved. If you go back to the history, our margin used to be 2.8% NIM. So now we have already crossed 3%, and we are consistently above 3% in last quarter, I think 3.03%; this quarter, 3.08%, we have improved our margin. So we are growing each segment and we are growing in profitable segments. If you look at the segment where we are growing, car loan growth, our growth is around 70%. We have revamped our entire product profile of car loans, education loans and home loans, so agriculture loan. MSME, more than 30 products we have launched in last 2 years' time for various schemes to cater to the requirements of our MSME customers. So the NIM is coming from -- better NIM is coming from MSME segment, even education loan, secondhand car loan, even car loan also because when we take car loan, we have the opportunity of taking his CASA account also. So salary account, current account, in case he's a business man or family accounts, similarly -- so we don't look at purely a transaction of housing loan and car loan, we look at the whole bouquet of products, which we are able to offer him and generate some revenue by way of cost reduction through CASA or by cross-selling of the product. So that is the way you can see that many of the banks, you can see there is a CASA reduction over a period of time, right? But if you look at our bank for last, I think, March '23 onwards, we are continuously maintaining our CASA ratio in the range of 37% to 38%. So we have not seen decline in our CASA ratio, except in 1 quarter, it was 36.91%. But again, next quarter, it was 38%. So overall, the strength from where the margins are coming through cross-sell also, through generating their CASA accounts, and we'll continue to explore and deepen the relationship with our customers. And another important thing which is adding to our margins is our digital journeys. In last 1 year itself, we have digitized 30 journeys, and we have built a book of around INR 15,000 crore in the digital journey. More than 50% FDs are happening online through mobile banking and loan against FD. So all this is adding to a reduction in my cost also. So that is the way on a progressive basis, we are trying to improve our cost also and income also by combination of various products and services.

Sir, reply to my question, I accept that you are able to master CASA also along with selling retail products. On a hypothetical or reality, on an average basis, if I'm generating 100 loans, how many accounts are converting to other products?

See, our endeavor is to get at least one more product from each customer. Our endeavor is there. But definitely, not every customer -- maybe 40% to 50% of the customers we are able to onboard on some other products.

Okay. Now looking at geographies where we are stronger compared to pan-India basis, how is the behavior on acceptance of our new products, existing products and saving products? Are we able to penetrate better compared to where we stand today or the outlook is getting better or we need to enter with new geographies and new branches for expansion?

See, if you look at our strength currently, more than around 30% plus branches are in East and Northeast and similar is the trend in North. So far as expansion is concerned, we are more focused for expansion towards western and southern part because there our presence is slightly less and they are the more contributing states in the GDP of the economy. So that is one strategy we are working that we are planning to open branches in those geographies where the GDP contribution is higher. And we also look at the PIN code-wise deposit and credit profile of the area while we open the branches, number one. Number two, as far as the penetration of products in the areas where we have strength or not, that itself speaks about the quality of our CASA, which we have maintained. Our CASA account, had we not penetrated in those areas, we could not have -- would not have been able to maintain our CASA in the range of 37% to 38%. We have revamped our entire saving or current account products, entire saving. And we are more focused towards the salary. Recently, the Ministry of Finance has announced a comprehensive salary package for the central government employees where our bank is also participating and we'll be opening now more and more salary account of various central government employees as well. And the benefits will continue to come to the bank. So that is the way we are working and where we have strength, we are giving better products also to those areas. Apart from product, the differentiator, I think, will be more important is the customer service where -- and the ambience of the branches. In these 2 fronts also, bank is continuously working to see that our customers get better quality of service and quality of resolution of their grievance also improve. So on these fronts also we are working.