CARE has assigned a 'CARE AA' rating to UCO Bank's (UB) proposed Tier II Capital Bonds issue of Rs 300 crore (Series V - unsecured and subordinated, including a greenshoe option of Rs 50 crore).
This rating draws strength from the government of India's (GoI) significant stake in UB, the bank's over 60-year track record, its all-India network of branches, a high proportion of low cost deposits versus a moderate level of gross NPAs, a cushion in the form of unrealised gains on investments, its improving financial position and technology orientation.
The rating is constrained by UB's higher dependence on treasury gains, which are vulnerable to the vagaries of the money market, its high proportion of net NPAs to net worth and the average credit quality of its borrowers. UB's ability to sustain its profitability in the wake of hardening interest rates as well as its capability to keep a tight leash on incremental NPAs would remain key rating sensitivities.
Incorporated in 1943, UB is one of the 14 major commercial banks which were nationalised in 1969. The GoI currently holds about a 75 per cent equity stake in the bank, which has 1,705 branches and a staff strength of over 25,000. UB has made significant progress in technology, with 845 computerised branches which cover 86 per cent of its business volume. Over the years, UB has witnessed an improvement in asset quality and a reduction in gross and net NPAs from 12 per cent and 6.4 per cent respectively (March 31, 2001) to 6.9 per cent and 3.6 per cent (March 31, 2004). The proportion of net NPAs to net worth, though has improved over the years, is still high at 50.4 per cent (March 31, 2004). Total income grew at a CAGR of about 14 per cent from FY 2000 to FY 2004, with a year-on-year (YoY) growth of about 9 per cent in FY 2004, mainly contributed by higher treasury profits from FY 2000 to FY 2003. In FY 2004, treasury profits declined owing to hardening of interest rates.
PAT has also shown continuous growth except for FY 2001. Capital adequacy ratio improved to 11.9 per cent (March 31, 2004) from 10 per cent (March 31, 2003). UB's working results for the quarter ended June 30, 2004 showed improvements over the corresponding quarter in the previous year.