Fitch Rates UCO Bank with Long-Term IDR of BBB-, Citing State Support and Improved Financial Health

Fitch Rates UCO Bank with Long-Term IDR of BBB-, Citing State Support and Improved Financial Health​

Fitch Ratings has assigned a Long-Term Issuer Default Rating (IDR) of 'BBB-' with a Stable Outlook to UCO Bank, reflecting structural improvements in the bank's financial profile and its connection to government support. The ratings committee considered operational factors, capital buffers, and asset quality while assigning the rating actions.

The full range of ratings assigned by Fitch Ratings includes:

Key Drivers and Operational Strengths​

Fitch noted that the bank's IDR and GSR are equalized with India's sovereign rating (BBB-/Stable). This assessment is based on the high probability of extraordinary state support, considering the government's 91% ownership of UCO Bank and its track record of supporting state-owned institutions.

The Viability Rating (VR) received positive backing due to structural improvements in asset quality, capitalization, and profitability, which Fitch expects to be sustained within an improving operating environment.

UCO Bank maintained a strong capital position, with its common equity Tier 1 (CET1) ratio rising to 16.4% in FY26 from 16% in FY25, making it one of the highest among Indian state banks. The bank's funding and liquidity score was assigned 'bbb-', supported by high depositor confidence stemming from its state linkages. At FYE26, low-cost deposits accounted for 36% of total deposits, while nearly 88% of non-equity funding came from deposits.

Growth Appetite and Asset Quality Status​

The bank’s franchise is characterized by a vast network of about 3,400 branches supporting its growth in granular retail loans. Retail, agriculture, and MSME (RAM) loans constituted 58% of total loans at the end of FY26.

UCO's risk profile score was assessed at 'bb-' due to significant loan expansion. Loan growth stood at 19.5% in FY26, compared to 17.8% in FY25 and 15.6% in FY24. Management anticipates that loan growth will normalize to the 12%-14% range in FY27, though Fitch expects it to exceed this projection.

Regarding asset quality, the score was set at 'bb-'. The impaired-loan ratio decreased to 2.2% in FY26 from 2.7% in FY25, attributed to lower fresh bad loans, although strong loan growth and write offs were also factors. UCO's above-average loan loss coverage was reported at 88%.

Profitability Outlook and Sensitivity​

Fitch expects UCO Bank’s core profitability to remain intact until FY28. The operating profit/risk-weighted asset (OP/RWA) ratio is expected to decline to 2.2% in FY27 from 2.6% in FY26, recovering back up to 2.5% in FY28.

The ratings are subject to several sensitivities. A negative rating action could occur if the sovereign's support for UCO Bank were deemed weakened, or if Fitch assessed a material deterioration in the bank's risk profile. Conversely, positive developments, such as an upgrade to the operating environment score, could lead to a corresponding increase in the VR and other related scores.

UCOBANK Stock Price Movement​

UCO Bank shares rallied on Monday, gaining 2.78% to settle at ₹26.66, after closing significantly higher than the previous day's close of ₹25.88. The stock saw brisk trading activity during the session, with a total traded volume reaching 16.56 million shares.