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Key Takeaways
UCO consolidates balance sheet for profitable growth
UCO Bank's (UCO) new management (Mr Arun Kaul joined in September 2010)
identified four challenges (liability franchise, assets, HR and business process) that
were hurdles in improving the bank's operating metrics and is taking remedial steps
so that the bank can post sustained, profitable growth.
The management intends to de-bulk (70% of the book towards corporate loans and
30%+ bulk deposits) its balance sheet and focus more on SME and retail segments
on the assets side and retail deposits and CASA deposits on the liabilities side.
Focus on CASA deposits
Reliance on bulk deposits for rapid growth in the past (31% CAGR over FY07-10),
slow branch and ATM roll out and backwardation in technology led CASA ratio to
decline from 29% in FY07 to 22% in FY11.
With systems and processes in place and the bank on a 100% CBS platform, UCO is
leveraging its position by offering new products and increasing customer acquisitions.
Further it aims to increase its branch and ATM network from 2,200 and 800 to 3,000
each by end of FY13 respectively. The new branches and ATM's are being opened to
target new growth areas and increase brand visibility.
De-bulking of the balance sheet and improved product have led CASA ratio to improve
to ~26% in 1QFY12 and the management expects it to improve further.
Strengthening of the system and process
Slippages over the past few quarters have been at en elevated level (2% in 1QFY12
and 3.3% in FY11 against 1.6% in FY10) as UCO continued to clean up its balance
sheet and migrated its portfolio (INR0.5m and above) through system-based
recognition of NPAs.
UCO is expected to transit its remaining portfolio in 2QFY12, which may lead to
further pressure on asset quality, post which slippages is expected to decline.
UCO has tightened its credit appraisal and divided its offices into four major verticals
(headquarters, regional and zonal offices and branches) against three earlier, to
increase the monitoring and selection process.
As far as stress assets are concerned, UCO has established a separate recovery cell
and 5-6 separate branches will focus only on recovery of bad assets.
Valuation and view
The management is taking steps to improve UCO's asset and liability profile, which
in turn helps in improving margins. Near term asset quality pressure is likely to
continue due to system-based NPA recognition. The stock trades at 0.8x PBV and
5.7x PE FY11. Not Rated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
UCO consolidates balance sheet for profitable growth
UCO Bank's (UCO) new management (Mr Arun Kaul joined in September 2010)
identified four challenges (liability franchise, assets, HR and business process) that
were hurdles in improving the bank's operating metrics and is taking remedial steps
so that the bank can post sustained, profitable growth.
The management intends to de-bulk (70% of the book towards corporate loans and
30%+ bulk deposits) its balance sheet and focus more on SME and retail segments
on the assets side and retail deposits and CASA deposits on the liabilities side.
Focus on CASA deposits
Reliance on bulk deposits for rapid growth in the past (31% CAGR over FY07-10),
slow branch and ATM roll out and backwardation in technology led CASA ratio to
decline from 29% in FY07 to 22% in FY11.
With systems and processes in place and the bank on a 100% CBS platform, UCO is
leveraging its position by offering new products and increasing customer acquisitions.
Further it aims to increase its branch and ATM network from 2,200 and 800 to 3,000
each by end of FY13 respectively. The new branches and ATM's are being opened to
target new growth areas and increase brand visibility.
De-bulking of the balance sheet and improved product have led CASA ratio to improve
to ~26% in 1QFY12 and the management expects it to improve further.
Strengthening of the system and process
Slippages over the past few quarters have been at en elevated level (2% in 1QFY12
and 3.3% in FY11 against 1.6% in FY10) as UCO continued to clean up its balance
sheet and migrated its portfolio (INR0.5m and above) through system-based
recognition of NPAs.
UCO is expected to transit its remaining portfolio in 2QFY12, which may lead to
further pressure on asset quality, post which slippages is expected to decline.
UCO has tightened its credit appraisal and divided its offices into four major verticals
(headquarters, regional and zonal offices and branches) against three earlier, to
increase the monitoring and selection process.
As far as stress assets are concerned, UCO has established a separate recovery cell
and 5-6 separate branches will focus only on recovery of bad assets.
Valuation and view
The management is taking steps to improve UCO's asset and liability profile, which
in turn helps in improving margins. Near term asset quality pressure is likely to
continue due to system-based NPA recognition. The stock trades at 0.8x PBV and
5.7x PE FY11. Not Rated.
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