UCOBANK Q3 FY26 earnings call.
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UCO Bank delivered a resilient Q3 FY26 with PAT of Rs 739 crore (+15.65% YoY), driven by strong RAM segment growth of 25.86% YoY and margin expansion. NIM improved to 3.08% (global) and 3.27% (domestic) from 3.03% prior quarter, supported by 257bps reduction in cost of funds to 4.48%. Asset quality strengthened significantly—GNP improved to 2.41% (50bps YoY improvement) and NNP to 1.36% (27bps improvement)—with PCR at 97.32%. The bank has begun building ECL provisions (Rs 1,252 crore buffer) ahead of the June 2027 RBI ECL implementation deadline. Capital position remains robust at 17.43% CAR (18.67% including 9M profits). Management guided sustained credit growth of 12-15% for FY26, with CASA stable at 37-38% for seven consecutive quarters. Key risk: NIM trajectory depends on deposit repricing completion (75% repriced) and any rate cuts in FY27.
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Guidance to track
- Management maintained conservative guidance despite achieving 16.74% YoY advance growth in Q3. Strong RAM momentum expected to continue in Q4, with corporate growth muted due to selective pricing.
- NIM expected to remain in the 3%+ range. With 75% of deposit book already repriced and remaining to be repriced by Q1 FY27, margin pressure from liability side should ease.
- Budget of Rs 1,000 crore set for FY26 with Rs 700+ crore already spent. Next year spend to be Rs 800-1,000 crore covering omni-channel, CMS, supply chain finance, RPA, cybersecurity, and call center transformation.
- Bank estimates total ECL requirement at Rs 2,500-3,000 crore; currently 50% built. With Rs 200+ crore being added quarterly, management expects to meet requirement by RBI implementation deadline without needing full 5-year amortization.
Risks flagged
- Bank has Rs 2,000 crore export credit exposure with ~5% (Rs 100 crore) in countries affected by tariffs and sanctions. Management acknowledged impact on customers but viewed domestic consumption as able to absorb surplus production.
- 9-month deposit growth of 5.63% trails credit growth of 10.73% and full-year target of 10-11%. Rising CD ratio (78.56%) could constrain future lending capacity if deposit accretion doesn't accelerate.
- Bank has taken 30bps MCLR cut already with monthly reductions based on RBI formula. While 75% deposits repriced, further MCLR cuts could compress margins in a rate-cut cycle.
- PSU exposure reduced by Rs 6,000 crore (8-9% of corporate book) due to pricing issues. While improving portfolio quality, this constrains overall credit growth and forces reliance on lower-margin retail segments.
Key quotes
- Every proposal is examined from the bankability angle. If the proposal is bankable, we say yes even if it is a triple B or double B. There is no no-go area for any segment.
- Had PSU exposure not reduced by Rs 6,000 crore, our corporate credit growth would have been much better and overall credit growth would have been higher.
- Going by this trend, if profitability supports, I believe we should be near to our ECL requirement by June 2027. We should not need the full 5 years permitted by RBI.
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