CRISIL has downgraded rating for UCO Bank‘s tier-II bonds from “AA-“to “A+” on significantly higher-than-expected deterioration in asset quality, which impacted the bank’s profitability for the quarter ended June. The bank’s asset quality will continue to remain under pressure over the next few quarters, CRISIL. The stretched cash flow of highly leveraged corporates and limited recovery of non-performing assets (NPAs) will continue work as a drag on the bank’s asset quality.

• The bank reported a net loss of Rs 440 crore for the quarter ended June 30. This was primarily because of high provisioning costs of 2.6 percent of average total assets in the first quarter of the current financial year.
• Its gross NPA’s increased to 17.2 percent as on June 30, 2016, from 15.4 percent as on March 31, 2016, and 6.8 percent as on March 31, 2015.
• The rating on the Kolkata-based public sector lender’s certificates of deposit programme has been reaffirmed at ‘A1+’.
• The ratings continue to reflect the expectation of strong support from its majority owner, the Government of India (GoI-77.54 percent stake), both on an ongoing basis and in the event of distress.
• UCO Bank has adequate capitalization, backed by regular government support. Its tier-I and overall capital adequacy ratio (CAR) of 7.7 percent and 9.9 percent, respectively, as on June 30, 2016.
• Its asset quality will remain under pressure in the near term, given its large exposure to vulnerable sectors such as infrastructure, construction, and iron and steel, amid the weak commodity price cycle and the inability of leveraged players to sell assets.
• Therefore, the bank’s ability to contain deterioration in its asset quality, and hence, profitability, remains a key monitorable.
• The bank reported a loss of Rs 2,800 crore for fiscal 2016 as against net profit of Rs 1,140 crore in fiscal 2015.