In response to delayed rate cut expectations and heightened global inflation and geopolitical uncertainties, India’s UCO Bank is recalibrating its growth strategy. The bank is now focusing on expanding a profitable corporate loan portfolio and managing its cost of funds by prioritizing Current Account Savings Account (CASA) over term deposits.
The bank’s CEO, Ashwani Kumar, stated that the emphasis is on sustainable and profitable growth. The Retail, Agriculture & MSME (RAM) segment is identified as a key driver in this new strategy. Despite the strategic shift, the bank continues to engage in new lending activities. In the second quarter, it sanctioned about Rs 17,000 crore in loans and disbursed Rs 8,000 crore.
The RAM segment has shown promising results with a 17.61% year-on-year increase in advances, reaching Rs 90,046 crore. Conversely, corporate book revenue experienced a dip, falling to Rs 1,738 crore from Rs 2,088 crore in the preceding quarter.
UCO Bank plans to use its surplus Statutory Liquidity Ratio (SLR) deposits of Rs 23,400 crore for growth initiatives. Additional strategies include renewing government securities or using matured funds for credit expansion, depending on bond yields.
Currently, the bank’s Credit-Deposit (CD) ratio stands at 67.25%, which is lower than the industry average of 76%. Until the CD ratio aligns with the industry average, the net interest margin is projected to hover between 2.93% and 3%.
On another front, UCO Bank has received regulatory approval for Central Bank Digital Currency (CBDC) and is in discussions with NPCI. However, the bank’s plan to raise up to Rs 2,000 crore in equity has been postponed.
The September quarter saw a 20% year-on-year decline in net profit, totaling Rs 402 crore, due to higher operating expenses. Despite this, UCO Bank remains committed to its new growth strategy and the potential it holds for sustainable and profitable growth.
The InvestingPro real-time data and tips provide some interesting insights into UCO Bank’s performance and prospects. A couple of InvestingPro Tips that stand out include the fact that UCO Bank is a prominent player in the Banks industry and has been profitable over the last twelve months. This aligns with the bank’s current emphasis on sustainable and profitable growth.
On the flip side, the bank has been quickly burning through cash and suffers from weak gross profit margins, which could be a concern for investors. This could potentially be linked to the bank’s recent strategic shift and its efforts to expand a profitable corporate loan portfolio.
The bank’s stock has also fared poorly over the last month, but it’s worth noting that it has seen a large price uptick over the last six months and a strong return over the last five years. This suggests that, despite recent struggles, the bank has a history of delivering solid returns.
These insights only scratch the surface of what InvestingPro has to offer. For those interested in a more comprehensive analysis, InvestingPro provides an additional 8 tips for UCO Bank, which can provide further guidance for investors.
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