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UCO Bank shares spike 16% after RBI lifts PCA restrictions, but experts say avoid

Santosh Meena of Swastika Investment says, technically, Rs 16 is a critical hurdle for the stock and only a decisive move above it can lead to a move towards Rs 20-22 levels.

September 09, 2021 / 01:41 PM IST
 
 
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UCO Bank shares saw strong buying demand, rising as much as 15.9 percent on September 9 after the Reserve Bank of India lifted Prompt Corrective Action (PCA) restrictions on the bank.

The stock was trading at Rs 14.17 on the BSE, rising 10.62 percent with a market capitalisation of Rs 16,941.59 crore at 12:50 hours IST.

"The performance of the UCO Bank was reviewed by the Board for Financial Supervision under the RBI. As per published results for the year ended March 31, 2021, the bank is not in the breach of the PCA parameters," said the RBI in its press release published on September 8.

The RBI further said UCO Bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments.

Taking all the above into consideration, the central bank has been decided that UCO Bank is taken out of the PCA restrictions subject to certain conditions and continuous monitoring.

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The bank has been in the PCA list since May 2017 and had been barred from increasing risk-weighted assets due to high NPA ratios and negative returns on assets.

Also readExplainer| UCO Bank out of RBI’s PCA watchlist, lending curbs after 4 years. What is PCA all about?

The public sector lender has capital adequacy ratio at 14.24 percent and CET-I Ratio at 11.32 percent as on June 2021, while gross non-performing assets (NPA) reduced to 9.37 percent as of June 2021, from 9.59 percent in March 2021, and net NPA declined to 3.85 percent from 3.94 percent in the same period QoQ.

The bank has seen a significant growth in profit at Rs 101.81 crore for the quarter ended June 2021, rising sharply by 374.42 percent compared to Rs 21.46 crore in the same quarter last year, partly on a low base in Q1FY21. Net interest income grew by 15.27 percent year-on-year to Rs 1,460.24 crore in Q1FY22, the highest in last 23 quarters.

"The stock is buzzing today after this PCA news because it is a very positive trigger for the bank as they can grow their business from here but there is still lots of concerns for some of the small PSU banks like UCO Bank," said Santosh Meena, Head of Research at Swastika Investmart.

So he advised investors to avoid this stock and focus on SBI from this space which has huge potential to outperform from here.

"I will also suggest using the current rally as an exit opportunity in UCO Bank," he said.

Santosh Meena of Swastika Investment says, technically, Rs 16 is a critical hurdle for the stock and only a decisive move above it can lead to a move towards Rs 20-22 levels. "On the downside, Rs 13-12 is a strong demand zone."

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Sep 9, 2021 01:41 pm

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