Uco Bank. GICS Industry : Commercial Banks Sub Industry : Diversified Banks Website : Key Stock Indicators

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1 GICS Industry : Commercial Banks Sub Industry : Diversified Banks Website : Uco Bank Key Stock Indicators NSE Ticker : UCOBANK CMP as on 11 May 2011 Rs/share : 99.9 Shares outstanding (mn) : Bloomberg Ticker : UCO:IN 52 week range up to 11 May 2011 (Rs)(H/L) : 152.4/68.3 Free Float (%) : 31.9 Face value per share : 10.0 Market Cap as on 11 May 2011 (Rs mn) : 62,658 Average daily volumes (12 months) : 4,281,121 Div.Yield (%): 2.7 P/BV (x): 0.9 Beta (2 year) : 1.1 UCO bank was incorporated in 1943 as United Commercial Bank; it is a commercial bank and a Government of India (GOI) undertaking. The bank is engaged in providing commercial banking services to individuals and corporate. UCO bank offers treasury operations, corporate/wholesale banking, retail banking and other banking operations. The bank offers services like deposit, housing loan, education loan, personal loan, car loan and also offers international banking services. KEY HIGHLIGHTS Broad scale of operations UCO bank had an asset base of Rs bn as on March 31, 2010 which accounted for ~2.7% and 2.4% of total deposits and advances respectively in India. The bank s deposits and advances registered a CAGR of 23.6% and 20.6% respectively over the past three years. As on March 31, 2010 it had deposits of Rs.1224 bn and advances of Rs.825 bn. The bank has a pan India presence with a healthy network of 2202 domestic and 4 overseas branches with 608 ATMs facilitating ~ 1.33 mn card holders as on March 31, 2011.The bank s entire branch network has now been covered under core banking solutions (CBS) which puts the bank in a position to compete with other larger banks. Moderate capitalization with modest resource profile UCO bank has moderate capitalization supported by capital infusion aggregating to Rs bn by Government of India (GoI) through perpetual non cumulative preference shares in the past two and half years. The bank s Tier I Capital Adequecy Ratio (CAR) under Basel II stood at 7.5% as on December 31, The bank s modest resource profile is marked by lower than industry average share of current account and savings account (CASA) deposits in its total deposits. The bank continues to face challenges in improving the proportion of retail deposits (savings account and term deposits) in total deposits and is therefore highly dependent on bulk deposits and certificates of deposits (CDs) for its growth. The bank s CASA deposits, at 24.8% as on December 31, 2010 was lower than the industry average of 35% on the same date. The bulk deposits and CDs constituted ~45% of the total deposits. Key Financial Indicators MAR 08 MAR 09 MAR 10 Net Interest Income (Rs Mn) 14,877 16,447 23,241 Non Interest Income (Rs Mn) 7,721 10,199 9,659 PAT (Rs Mn) 4,122 5,577 10,122 Net Interest Margin (NIM) (%) Capital adequacy ratio (%) Net NPA ratio (%) EPS (Rs) Book value Div. Yield (%) P/E (x) P/BV (x) ROA (%) n.m. : Not meaningful Shareholding (As on March 31, 2011) Government ownership provides stability GoI is the majority shareholder in UCO bank with shareholding of 63.59% as on December 31, This gives stability to the bank both on an on going basis and in the event of distress. In , GoI has committed infusion of Rs bn in PSBs as additional capital to help the banks maintain Tier I CAR of 8% and to increase its stake in a few PSBs to at least 58%. The government has stated it will maintain overall CAR of PSBs at ~12%, so that the banks can grow their balance sheets and remain competitive. Indexed price chart KEY RISKS Risk of non payment by customers Average asset quality Credit risk on account of slowdown in economy Stock Performances vis à vis market Returns YTD 1 m 3 m 12 m UCOBANK NIFTY Note: 1) YTD returns are since Apr 1, 2010 to May 11, ) 1 m, 3 m and 12 m returns are up to May 11, 2011 CRISIL COMPANY REPORT 1

2 BACKGROUND UCO bank was incorporated in the year 1943 and then in 1969 the bank was nationalized and 100% ownership was taken over by the GoI. In 2003, the bank made its initial public offering resulting in dilution of GoI s ownership. As on December 31, 2010, GoI holds a 63.59% stake in the bank. UCO bank is engaged in providing commercial banking services to individuals and corporates. The bank offers various deposit products such as no frills savings bank account, money back recurring deposits, fixed deposit with cheque facility, two way deposits, long term fixed deposits, current account in foreign currency, fixed deposits in foreign currency, tax saver term deposits and current accounts with free remittance facilities. Bank s loan products include housing loan, education loan, personal loan, car loan, trade loan, cash rental loan, working capital financing and term loans for agriculture and other loan schemes. In addition the bank offers various international banking services, which comprise foreign currency loans, finance/services to exporters and importers, remittances, forex and treasury services, resident foreign currency deposits, correspondent banking services, and various general banking services. It provides international banking services for customers including corporate, nonresident Indians, overseas corporate bodies and foreign companies individuals. COMPETITIVE POSITION Peer Comparison Uco Bank Bank of India Corporation Bank IDBI Bank Ltd. Net Interest Income (Rs Mn) 23,241 58,328 22,114 23,860 PAT (Rs Mn) 10,122 17,844 6,911 10,205 Net Interest Margin (NIM) (%) Capital adequacy ratio (%) Net NPA ratio (%) EPS (Rs) Book value P/e (x) P/BV (x) ROE (%) ROA (%) FINANCIAL PROFILE Strong growth in NII and PAT in FY10 UCO bank witnessed a significant growth of 41.3% in its NII for FY10 and it stood at Rs.23.2 bn as against Rs.16.4 bn in FY09 backed by strong y o y growth in deposits and advances by ~ 22.1% and 19.6% respectively. The bank recorded a strong growth of ~27% in agriculture landing and 35% in MSME loans. Strong growth in PPP coupled with bringing down the cost of funds substantially by shedding high cost deposits and improvement in yield on advances boosted PAT by 81.5% to Rs.10.1 bn in FY10 from Rs.5.5 bn in FY09. Key Financial Indicators Mar 08 Mar 09 Net Interest Income (NII) (Rs Mn) 14,877 16,447 23,241 Pre provisioning profit (PPP)(Rs Mn) 10,238 12,852 17,798 PAT (Rs mn) 4,121 5,577 10,121 NII growth (%) PAT growth (%) Net Interest Margin (NIM) (%) Capital adequacy ratio (%) Net NPA ratio (%) UCO bank s yearly average cost of deposits dropped to ~5.9% in FY10 against 6.6% in FY09 because of reduction in high cost deposits partly because of decline in interest rates. This helped to grow the net interest margin (NIM) by ~30 basis points to 1.9% in FY10 from 1.6% in FY09. The bank is well capitalized, with a capital adequacy ratio (CAR) of 13.2% at the end of March 31, 2010 as per Basel II norms as, compared with 11.9% as on March 31, The bank has raised subordinated debt of Rs. 13 bn by issue of unsecured redeemable bonds of Rs.5 bn as Upper Tier II capital and unsecured redeemable bonds of Rs.8 bn as subordinated debt under Tier II capital. The bank has also redeemed Rs.1.5 bn of subordinated debt instruments under Tier II capital during the year. INDUSTRY PROFILE Banking The Indian banking system emerged relatively unscathed from the global economic downturn of While credit growth slowed down, banks were able to control the level of non performing assets (NPAs), thanks partly to the Reserve Bank of Indian allowing one time restructuring of accounts. NPAs as a proportion of gross advances increased slightly from 2.3 per cent as on March 31, 2009 and 2.5 per cent as the end of March 31, The government has been supporting the growth of public sector banks by infusing capital as per requirement. The government is expected to continue to maintain its strong support for the banking system, while simultaneously imposing stringent prudential norms to ensure its orderly growth. Aggregate y o y bank credit growth was 22 per cent as of the first week of November 2010, primarily supported by large borrowings for 3G spectrum and broadband wireless access auctions. Despite hike in deposit rates by 50 bps (on an average) in the first half of , the deposit growth rate has been per cent till 5th November, This is primarily because of investors preferring to channelise their savings to other avenues on account of negative real interest rates on bank deposits. For inflows to revive, the deposit rates will need to be more attractive. Realising this, several banks increased their deposit rates by a further bps in the first week of October CRISIL COMPANY REPORT 2

3 ANNUAL RESULTS Income statement (Rs million) Mar 08 Mar 09 Net Interest Income (NII) 14,877 16,447 23,241 Non Interest Income 7,721 10,199 9,659 Total Income 22,599 26,646 32,901 Pre provisioning profit (PPP) 10,238 12,852 17,798 Provisions 5,751 6,376 7,341 PBT 3,788 5,640 9,716 TAX PAT 4,122 5,577 10,122 Balance Sheet (Rs million) Mar 08 Mar 09 Equity Capital 7,994 5,494 5,494 Reserves 16,675 22,322 30,505 Shareholders Funds 24,669 27,816 35,998 Deposits 799,089 1,002,216 1,224,156 Borrowings 46,659 58,374 74,138 Other Liabilities & Provisions 22,937 23,481 34,296 Deferred tax liability : asset Sources of funds 893,355 1,111,824 1,367,749 Cash & Balances with RBI 57,027 65,889 72,427 Balances with Banks & money at Call 24,008 42,646 8,616 Investments 242, , ,214 Advances 550, , ,045 Net Fixed Assets 2,250 2,437 2,493 Other Assets 16,755 18,966 23,952 Application of funds 893,355 1,111,824 1,367,749 Ratios Mar 08 Mar 09 Loan book growth (%) Deposit growth (%) NII growth (%) PAT growth (%) Tax rate (%) n.m Dividend Payout (%) ROA (%) Credit Deposit ratio (%) NIM (%) CASA (%) CAR (%) Tier I Capital (%) Provision Coverage Ratio (%) Net NPA (%) n.m.: Not meaningful QUARTERLY RESULTS Profit and loss account (Rs million) Dec 10 % of Rev Dec 09 % of Rev Sep 10 % of Rev Dec 10 % of Rev Dec 09 % of Rev No of Months Interest Earned 28, , , , , Interest Expended 18, , , , , Net Interest Income 10, , , , , Operating Profit 7, , , , , PBT 3, , , , , PAT 3, , , , , CRISIL COMPANY REPORT 3

4 FOCUS CHARTS AND TABLES Shareholding pattern (Per cent) Jun 2010 Sep 2010 Dec 2010 Mar 2011 Promoters Fll Dll Others Board of Directors Directors Name Subodh Kumar Goel Arun Kaul Nallappa Ranganathan Badrinarayanan Achintan Bhattacharya Virendra Kumar Dhingra Jai Dev Gupta Sanjeev Jain Ajai Kumar Satya Prakash Mangal Sebastian Luckose Morris Akhruzzaman Rahaman Jagdish Chand Shandil Uma Shankar Ram Avtar Sharma Samir Kumar Sinha Kothandaraman Vijayan Ram Avtar Yadav Designation Chairman & Managing Director, Wholetime Director Managing Director Executive Director Nominee Director Goi Director Nominee Director Goi Executive Director, Director Representing Shareholders, Director Representing Officers Nominee Director, Director Representing Workmen, Director Representing Shareholders Additional Disclosure This report has been sponsored by NSE Investor Protection Fund Trust (NSEIPFT). Disclaimer This report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL COMPANY REPORT 4

5 CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoever to the subscribers / users / transmitters / distributors of this report. For information please contact 'Client Servicing' at , or via e mail: clientservicing@crisil.com. CRISIL COMPANY REPORT 5