Detailed Rationale

Crisil Ratings has reaffirmed its short-term rating on the certificate of deposit programme of UCO Bank at ‘Crisil A1+’.

 

The overall rating continues to reflect the expectation of strong support from the Government of India (GoI) and moderate resource profile. These strengths are partially offset by average, albeit improving, asset quality and earnings.
 

The bank reported a total business of Rs 5,13,527 crore as on March 31, 2025, marking an annual growth of 14.12%. Total business further grew to Rs 5,23,736 crore on June 30, 2025.
 

Asset quality has also exhibited gradual improvement over the past few quarters – evidenced in gross non-performing assets (NPAs) remaining stable at 2.69% as on March 31, 2025 (2.63% as on June 30, 2025), as compared to 3.46% a year earlier, supported by controlled slippages and growth in loan book. Net NPAs have also declined substantially to 0.50% (0.45% as on June 30, 2025) from 0.89% over the same period. As on March 31, 2025, standard restructured advances accounted for 0.77% of the bank advances.
 

Return on average assets (RoA), have increased to 0.71% in fiscal 2025 from 0.53% for the previous fiscal – on account of growth in net interest income. For Q1 2026, annualised RoA was 0.67%.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of UCO Bank and has factored in the strong support that the bank is expected to receive from GoI, both on an ongoing basis and in the event of distress.

Key Rating Drivers & Detailed Description

Strengths:

• Expectation of strong support from GoI: The government is expected to continue providing strong support to the bank, both on an ongoing basis and in the event of distress. The bank has high strategic importance to GoI which is its majority shareholder, and also the guardian of India's financial system. Stability of the banking sector is of prime importance to the government, considering the sector’s criticality to the economy, the strong public perception of sovereign backing for PSBs, and adverse implications of any PSB failure, in terms of political fallout, systemic stability, and investor confidence. The majority ownership creates a moral obligation on the government to support PSBs, including UCO Bank.

 

GoI has supported UCO Bank with a cumulative infusion of Rs 22,645 crore over fiscals 2016-2025. Since then, Tier 1 and overall capital-to-risk weighted assets ratio (CRAR) have shown healthy improvements and stood at 16.37% and 18.49%, respectively, as on March 31, 2025, aided by improved accruals. As on June 30, 2025, Tier 1 and CRAR were 16.36% and 18.39%, respectively.

 

• Moderate resource profile: Total deposits increased by 11.6% y-o-y to Rs 2,93,542 crore as on March 31, 2025 (Rs 2,98,635 crore as on June 30, 2025). The ratio of current account and savings account (CASA) deposits to total deposits was 34.6% as on June 30, 2025, and 35.7% as on March 31, 2025. Of the CASA deposits, saving deposits accounted for 86%, and remaining 14% comprised current deposits. Additionally, cost of deposits inched up to 4.85% in fiscal 2025 from 4.78% in fiscal 2024.

 

The bank is expected to maintain its resource profile, supported by its established market position in eastern India, which has supported its stable deposit franchise over the years.

 

Weaknesses:

• Average, albeit improving, asset quality and profitability: Asset quality has improved in fiscal 2025 with gross NPAs of 2.69% as on March 31, 2025, (2.63% as on June 30, 2025), as compared with 3.46% a year ago. The improvement was driven by slippages remaining controlled at Rs 2,249 crore, despite a marginal rise from Rs 2,073 crore of slippages reported in fiscal 2024 and Rs 2,097 crore in fiscal 2023, though significantly lower than Rs 6,122 crore in fiscal 2022 (Rs 631 crore in the first three months of fiscal 2026). Slippages to net advances were 1.24% in fiscal 2025 and 1.17%[1] for the three months ended June 30, 2025. Majority of stress in the corporate book is already recognized, and fresh slippage in this segment is expected to be relatively low. As on March 31, 2025, standard restructured advances accounted for 0.77% of the bank portfolio. Net NPAs were 0.50% in fiscal 2025 (0.45% as on June 30, 2025) and 0.89% in the last fiscal. The bank maintained a healthy provision cover of 96.88% as on June 30, 2025.

 

The bank’s strategy to grow more granular assets in the retail, and micro, small and medium enterprise (MSME) segments, and adoption of a conservative approach while lending to corporates, augurs well for the asset quality.

 

Also, the increasing proportion of high-yield retail, agriculture, and MSME segments have resulted in steady improvement in net interest margin to 2.81% in fiscal 2025 (2.64% for the three months ended June 30, 2025) from 2.59% in fiscal 2024. Profitability has further benefited from controlled credit cost of 0.64% for fiscal 2025 and fiscal 2024 and, is lower than 1.17% for fiscal 2022. RoA was 0.71% in fiscal 2025, and 0.53% in fiscal 2024, and net profit was Rs 2,445 crore compared to Rs 1,654 crore, for the same comparable period. For three months ended June 30, 2025, net profit was Rs 607 crore (annualised RoA 0.67%).

 

While asset quality has stablised in the last few quarters, the ability to manage collections and control credit costs, particularly that from the restructured book, and sustain improvement in profitability - will remain key monitorables.

[1] Annualised, Slippage ratio= Slippages in Q1FY26/ Net Advances as on March 31, 2025

Liquidity: Strong

Liquidity remains supported by the strong retail deposit base. The liquidity coverage ratio stood at 126% as on June 30, 2025, and was higher than the regulatory requirement. The excess statutory liquidity stood at Rs 14,803 crore (around 5.4% of net demand and time liabilities) as on March 31, 2025. Liquidity benefits from access to systemic sources of funds, such as the liquidity adjustment facility from the Reserve Bank of India and call money market.

 

ESG profile

Crisil Ratings believes the Environment, Social and Governance (ESG) profile of UCO Bank supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator. The sector has a reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

UCO Bank has an ongoing focus on strengthening the various aspects of its ESG profile.

 

Key ESG highlights of UCO Bank:

• UCO Bank’s Scope 1 and 2 emissions at ~2.4 tCO2e per Rs in turnover. Further, the bank’s water consumption intensity is in line with the Central Ground Water Authority (CGWA) estimates of 45 liters per employee per day.

 

• The bank has launched green deposits to raise funds for financing green sectors and has raised Rs. ~46 crores as of March 31, 2025.

 

• UCO bank’s turnover rate at ~3% and gender diversity at ~29% is better compared with its peers. Further, it has a strong rural presence with ~34% and ~27% of the bank’s branches are in rural and semi-rural areas, as of March 31, 2025, which is higher compared with the peers.

 

• UCO Bank’s governance structure is characterized by 50% of its board comprising of independent directors, 1-women director, presence of independent board chairperson, dedicated investor grievance redressal system, and extensive financial disclosures.

 

There is growing importance of ESG among investors and lenders. The commitment of UCO Bank to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to domestic capital markets.

Rating sensitivity factors

Downward factor:

• Material reduction in shareholding and/or expectation of support from GoI
• Decline in the capital adequacy ratio (CAR) to below minimum regulatory requirements (including capital conservation buffer, which is tier I of 9.5% and overall CAR of 11.5%)
• Continued losses and sustained deterioration in asset quality

About the Bank

UCO Bank was founded in 1943 as United Commercial Bank. It was renamed as UCO Bank by an Act of Parliament in 1985. In 2003, the bank made its initial public offering, resulting in dilution of government ownership. GoI owned 90.95% stake in the bank as on June 30, 2025. As on June 30, 2025, the bank had total advances and deposits of Rs 2,25,101 crore and Rs 2,98,635 crore, respectively.

 

Profit after tax (PAT) was Rs 2,445 crore and total income (net of interest expenses) was Rs 14,037 crore in fiscal 2025, as against a net profit of Rs 1,654 crore and total income (net of interest expenses) of Rs 11,366 crore for fiscal 2024. PAT and total income (net of interest expenses) was Rs 607 crore and 3,400 crore as on June 30, 2025.

Key Financial Indicators

Particulars	Unit	FY25	FY24
Total assets	Rs crore	3,62,481	3,23,691
Total income (net of interest expense)	Rs crore	14,037	11,366
PAT	Rs crore	2,445	1,654
Gross NPA	%	2.69	3.46
Overall capital adequacy ratio	%	18.49	16.98
Return on assets^	%	0.71	0.53

 

Particulars	Unit	Q1FY26	Q1FY25
Total assets	Rs crore	3,65,704	3,31,671
Total income (net of interest expense)	Rs crore	3,400	3,089
PAT	Rs crore	607	551
Gross NPA	%	2.63	3.32
Overall capital adequacy ratio	%	18.39	17.09
Return on assets*^	%	0.67	0.67

*annualized

^Return on assets = PAT/ Average of total assets in current and previous fiscal

Any other information: Not applicable