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Home >Markets >Stock Markets >UCO Bank shares surge post exit from PCA framework. Should you buy the PSU stock?

The Reserve Bank of India (RBI) said on Wednesday that it has taken UCO Bank out of its prompt corrective action (PCA) list after finding that the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio. The central bank had imposed the lending curbs on the state-owned bank in May 2017.

Shares of UCO Bank surged over 11% to 14 per share on the BSE in Thursday's early deals as it the Kolkata-based lender is out of the PCA framework which was placed four years ago due to its deteriorating financial health, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

“UCO Bank has been taken out of prompt corrective action framework (PCAF) of RBI Bank has given a commitment of complying with: Minimum Regulatory Capital (Tier I was at 11.14% in FY21), Net NPA (3.94% as of FY21), Leverage Ratio (11.2x as of FY21). The stock is buzzing today after this news because it is a very positive trigger for the bank as they can grow their business from here." said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Though, Meena believes that there is still lots of concerns for some of the small PSU banks like UCO Bank. “Investors are advised 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. Technically, 16 is a critical hurdle for it and only a decisive move above 16 level can lead to a move towards 20/22 levels. On the downside, 13-12 is a strong demand zone," he added.

The central bank in March removed another state-run lender, IDBI Bank Ltd, from its PCA list. Following UCO Bank’s exit, Indian Overseas Bank and Central Bank of India remain under the PCA framework. Under RBI rules, prompt corrective action is triggered if a bank has breached certain regulatory thresholds in bad loans and capital adequacy.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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