UCO Bank: Navigating Growth with Digital Drive and Asset Quality Gains in Q2 FY26

UCO Bank has demonstrated a resilient performance in the second quarter of the fiscal year 2025-26, showcasing strategic clarity and disciplined execution. The bank reported a robust overall business growth of 13.23% year-on-year, reaching ₹5,36,398 crore. This growth was primarily fueled by a significant 16.56% increase in credit and a steady 10.85% rise in deposits. The management's focus on asset quality and digital transformation appears to be yielding positive results, positioning the bank for sustained momentum.

The bank's profitability metrics reflect a healthy trajectory. Operating Profit for the quarter surged by 12.64% year-on-year to ₹1,613 crore, while Net Profit grew by 2.82% to ₹620 crore. This was supported by a strong 10.08% growth in Net Interest Income (NII) and a commendable increase in fee-based income on a quarter-on-quarter basis. The global Net Interest Margin (NIM) stood at 2.90%, with the domestic NIM at 3.08%, indicating effective margin management. The cost of deposits decreased from 4.88% to 4.73% year-on-year, and the cost of funds reduced by 22 basis points to 4.57%, highlighting efficient liquidity management.

Strengthening the Core: Asset Quality and RAM Growth

UCO Bank's commitment to improving asset quality is evident in its declining NPA figures. Gross NPA reduced significantly by 62 basis points year-on-year to 2.56%, and Net NPA saw a 30 basis point reduction to 0.43%. The Provision Coverage Ratio (PCR) improved to 96.99%, with the tangible PCR (excluding TWO) reaching 83.68% compared to 77.65% a year ago. The slippage ratio remained within the guided range at 1.05%.

A key driver of credit growth was the Retail, Agriculture, and MSME (RAM) segment, which collectively grew by an impressive 22.87%, now constituting 65.23% of total advances. Retail advances alone grew by 25.40%, bolstered by strong performances in housing loans (18.94% growth) and vehicle loans (72.87% growth). Agriculture advances increased by 17.28%, and MSME advances grew by 23.80%. This diversified growth in the RAM sector underscores the bank's strategy to build a robust and granular loan book.

Digital Transformation and Strategic Initiatives

UCO Bank is aggressively pursuing digital transformation through 'Project Parivartan', which has already digitized 27 customer journeys, with 5 more in the pipeline. The bank's total digital business reached ₹10,554 crore by September 30, 2025. Mobile banking users have surged from 14 lakh in March 2023 to 57 lakh in September 2025, with the mobile banking app rating on Google Play Store improving to 4.8. Initiatives like tab banking, WhatsApp banking (offering 46 services in five languages), and the operationalization of CBDC for Android users are enhancing customer convenience and operational efficiency.

Looking ahead, the bank has outlined several strategic initiatives. It plans to open 150 new branches by March to boost Retail, Agri, and MSME outreach. Significant investments are being made in IT infrastructure, with a budget of ₹1,000 crore for enhancements in cyber security, robotic process automation, and new ATM functionalities. The bank has also received approval to open a GIFT City branch and is exploring co-lending tie-ups with NBFCs and IPO financing opportunities to diversify its revenue streams and expand its market presence.

Outlook and Investor Confidence

The management expressed confidence in achieving its full-year guidance across key parameters, including deposit growth (10-12%), credit growth (12-14%), and further reduction in NPAs. The capital adequacy ratio remains strong at 17.89%, with Tier 1 capital at 15.90%. Despite a de-growth in the corporate book due to a strategic decision to prioritize yields over volume, the bank's diversified growth strategy and robust digital push are expected to drive future performance. UCO Bank's consistent improvement in asset quality, profitability, and proactive strategic investments reinforce its commitment to sustainable growth and investor trust.