UCO Bank Q1 FY27 Earnings Call: Management Confident on Growth Despite One-Time Tax Impact

What Happened ?

During the earnings call, management emphasized that business momentum remained strong across both assets and liabilities.

Growth continued to be led by:

• Retail lending
• Agriculture loans
• MSME financing
• Corporate credit
• CASA deposits

The bank also highlighted multiple digital initiatives, new banking products, technology upgrades and upcoming projects aimed at improving customer acquisition and operational efficiency.

key details

One-Time Tax Charge Reduced Reported Profit:

One of the biggest discussion points during the call was the lower net profit growth compared to operating profit.

Management explained that:

• Tax provision increased to ₹1,919 crore.
• This included a one-time Deferred Tax Asset (DTA) remeasurement charge of ₹1,237 crore.
• The adjustment resulted from moving to the new corporate tax regime where the applicable tax rate declined from around 35% to 25%.
• Without this one-off accounting adjustment, reported profit would have been significantly higher. 

Asset Quality Continues to Improve:

Management highlighted continued improvement in credit quality.

Key observations included:

• Gross NPA declined to 2.08%.
• Net NPA reduced to 0.25%.
• Credit cost remained well below guidance at 0.39% (annualized).
• Slippage ratio stood at only 0.63%, comfortably below the target of less than 1%.
• SMA book also declined compared to March 2026.

Management stated that no major stress is currently visible across any lending segment. 

Strong Momentum Across Loan Segments:

The bank reported broad-based growth across lending businesses.

• Retail
  • Retail advances grew 27.3% YoY.
  • Home loans continue growing around 20%.
  • Vehicle loans expanded 65% YoY due to a lower base, with management expecting sustainable growth of around 30% going forward.

• Agriculture
  • Agriculture advances increased 30% YoY.

• MSME
  • MSME advances grew nearly 19% YoY.
  • Management expects similar growth levels to continue.

Corporate: Corporate advances also recorded healthy growth.

Management indicated strong opportunities in:

• Infrastructure
• Renewable energy
• Transmission projects
• Steel
• Cement
• Ports

The bank is also selectively reducing exposure to lower-yielding government lending while increasing focus on better-yielding sectors.

Management Maintains Growth Guidance:

Although Q1 credit growth exceeded expectations, management decided not to revise full-year guidance immediately.

Current guidance remains:

• Credit growth: 12–14%
• Deposit growth: 10–12%
• NIM: 2.8–2.9%
• Credit cost: Below 0.75%
• RAM share of advances: 62–65%

Management noted that guidance may be reviewed after the second quarter if growth remains strong. 

Cost of Funds Stabilizing:

Management expects funding costs to remain stable.

Key comments included:

• Cost of funds declined to 4.36%.
• Most deposits have now been repriced after earlier repo rate changes.
• Yield on advances remains stable.
• NIM is expected to remain around or slightly above the guided range despite competitive lending markets. 

Digital Transformation Accelerating:

UCO Bank continues investing heavily in digital banking under Project Parivartan 2.0.

Major initiatives include:

• AI-powered UDAY chatbot
• Upgraded IVR services
• Digital home loan journey
• Unified Lending Interface (ULI) integration
• Document Management System (DMS)
• Digital marketing platform
• CBDC implementation
• CASA back-office digitization

The bank also reported that nearly 70% of fixed deposits are now opened through digital channels, compared with branch-led origination earlier.

Digital balance sheet size increased from approximately ₹25,000 crore to ₹35,000 crore within one quarter. 

New Banking Products Launched:

Management highlighted several customer-focused launches during the quarter:

• UCO Rising Star savings account for children.
• UCO Gig Scheme for gig workers.
• UCO Business Aarambh current account for startups.
• UCO 3-in-1 Account, integrating savings, Demat and trading services through a partnership with Aditya Birla Money.

These products are expected to improve customer acquisition and deepen relationships across different customer segments.

Upcoming Growth Initiatives:

Projects currently under implementation include:

• Omni-channel banking platform.
• Corporate Cash Management Services.
• Additional MSME digital loan journeys.
• Enhanced GST-based lending.
• Digital pre-approved personal loans.
• Opening of the GIFT City branch.
• Expansion of CBDC offerings.

Management expects these initiatives to further strengthen the bank’s technology capabilities and customer experience.

Expected Credit Loss (ECL) Readiness:

Management discussed preparations for the upcoming Expected Credit Loss (ECL) accounting framework.

Key updates:

• Preliminary assessment has been completed.
• Around 60% of the estimated transition requirement has already been provided through additional buffers.
• Remaining provisions are expected to be built over the next four to five quarters before implementation. 

ECLGS Support for MSMEs:

The bank has actively participated in the government’s ECLGS 5.0 scheme.

Current status:

• Sanctions: Around ₹2,150 crore.
• Disbursements: Around ₹1,700 crore.

Management believes the scheme will provide liquidity support to MSMEs without materially increasing credit risk. 

Risk Analysis

Summary:

• Management remains optimistic but acknowledged that banking performance depends on maintaining loan growth, stable margins and healthy asset quality.

Key Risks:

• Slower-than-expected credit growth.
• Margin pressure from interest rate movements.
• Increased competition across banking and NBFC sectors.
• Delays in digital transformation projects.
• Potential macroeconomic slowdown affecting borrower demand.

Worst Case:

• If loan demand weakens or funding costs rise materially, profitability and return ratios may remain below management’s long-term targets.

Risk Level: Medium

Company Commentary

• Management stated that business momentum remains healthy across Retail, Agriculture, MSME and Corporate banking.
• Asset quality continues to improve, digital transformation is progressing rapidly, and no significant stress is currently visible in the loan portfolio.
• The bank also expects profitability to improve after the one-time DTA adjustment, with ROA moving closer to 1% by the end of FY27.