UCO Bank's profit rise came mostly from tax as it provides early for 2027 rules

UCO Bank's net profit for the September 2026 quarter was 26.8% higher than a year earlier. The figure that says more about the state of the business is pre-tax profit, which rose 3.9%. The gap between the two has one cause, a much smaller tax bill, and behind the slow pre-tax line sits a second story: the bank is setting money aside early for an accounting change that arrives in April 2027.

Start with tax. Last quarter the bank's tax charge took 26.2% of its pre-tax profit, against 39.5% a year earlier. The drop follows the bank's move to India's new, lower corporate tax regime; the cost of that switch was a one-time write-down of deferred tax assets in the quarter before, which is why that quarter's net profit looked weak. Applying last year's rate to this year's pre-tax profit, a calculation from the reported figures, shows that most of the year-on-year rise in net profit came from the lower rate, and the share stays above half even against the lower rates of the two quarters before the switch. Because the write-down has already been taken, the lower rate should carry into later quarters; it is a change in the bank's tax position, not a one-off gain.

The lending business itself did grow. Net interest income, the gap between what the bank earns on loans and investments and what it pays depositors, plus fees and other income, rose by ₹357 crore from a year earlier. Operating costs and provisions together rose by ₹317 crore, so almost all of the extra income was spent before it reached pre-tax profit. Costs were not the main drain. The bank's own measure of operating profit, which is struck before provisions, rose 16.04%, and it said its costs took a smaller share of income than a year earlier. Most of the extra spending was provisions.

A large part of those provisions is a deliberate choice. At the April 2027 transition Indian banks move to expected-credit-loss accounting, which makes them provide for losses they expect on loans rather than waiting for loans to go bad. UCO Bank booked ₹570 crore of provisions for that change last quarter, more than half the quarter's pre-tax profit. Management put the bill at the transition at ₹3,200 crore or more and said it already holds about ₹2,500 crore against it, which leaves at least ₹700 crore still to build, by our arithmetic. The chief executive, Rajendra Saboo, said the rest would come "as and when the profitability permits us", so the pace of that charge is management's choice and not a fixed amount per quarter.

The bill has also grown. In January the bank's estimate topped out at ₹3,000 crore; the buffer it held in April was smaller than today's. Most of the build has come this quarter, and part of it has been absorbed by a larger requirement. Asked whether the estimate had changed in three months, Mr Saboo said it was "not materially different", slightly higher because of the bigger loan book.

The loan book explains why the bank can afford to pay this early. Gross advances were 24.7% higher than a year earlier, against the 12-14% credit growth the board set as guidance in April. In July management said it would review that guidance after the second quarter; this time Mr Saboo said guidance set at the start of the year is something "we don't change during the year". The growth has not come with worse loans so far: the share of bad loans fell from a year earlier. The weaker spot is funding: the share of cheaper current and savings deposits eased to 36.77% from 36.94% the quarter before, still below the bank's guided range.

For a holder, the quarter splits into two parts. The tax saving should last, and the business before provisions is growing. What reaches pre-tax profit over the next two quarters depends in part on how fast management chooses to close the remaining expected-loss gap before the transition.