Halister News

(Bloomberg) -- ICRA today cut ratings on UCO Bank’s lower tier 2 bonds to A+ from AA- and upper tier 2 notes to A- from A, the ratings company says in a statement on its website.

• Outlook on long-term rating of the lender is negative and could face challenges to meet increasing capital requirements under Basel III rules
• UCO’s weak operating and financial performance during last quarter and last fiscal year prompted the downgrade
• “Driven by consecutive years of losses during last two fiscals, and high levels of non-performing assets, the capitalization levels and solvency profile remain weak for the bank,” says ICRA in the note
  • “UCO has a large number of loans continuing to be classified as standard accounts. Hence the reported asset quality is likely to deteriorate further going forward:” ICRA note
• Despite equity raising of INR21.83b and issuing AT1 bonds of INR7.5b last fiscal year, the lender’s capital ratios remain weak with limited cushion to absorb future losses
• Tier 1 capital at 8.27% as on March 31 is marginally higher than the regulatory requirement of 8.25%
• ICRA expects the bank to need Tier 1 capital of INR30b-INR43b during this financial year and next, of which INR18b-INR30b has to be equity capital and balance AT1 bonds
• UCO’s distributable reserves have eroded significantly, thereby constraining the bank’s ability to raise AT1 capital; expects overall equity requirement to increase to meet Tier 1 capital need
• Ratings draws comfort from UCO’s majority sovereign ownership, and the lender’s healthy and stable deposits base
• Earlier story:
  • UCO Bank says RBI initiated prompt corrective action on bank

To contact the reporter on this story: Divya Patil in Mumbai at dpatil7@bloomberg.net To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net Ashutosh Joshi