City Union Bank Limited

Private Sector Bank

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Cumulative Returns and Drawdowns



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asof: 2025-12-03

City Union Bank (CUB) Analysis: Headwinds, Tailwinds, Growth Prospects, and Key Risks

Overview: City Union Bank (CUB), a 121-year-old private sector bank listed on NSE/BSE (Scrip: CUB/532210), reported robust Q2/H1 FY26 results (ended Sep 30, 2025). Key highlights include 21% YoY deposit growth to ₹69,486 Cr, 18% advances growth to ₹57,561 Cr, 15% PAT growth to ₹329 Cr (Q2) / ₹635 Cr (H1), improving NPAs (GNPA 2.42%, NNPA 0.90%), and strong CAR at 21.68%. Focus remains on granular MSME/retail/trading loans (42% of advances), with digital push and South India dominance (557/901 branches in TN). Below is a structured analysis based on the provided filings.

Tailwinds (Positive Drivers)

  • Strong Balance Sheet Growth: Deposits +21% YoY, advances +18% YoY, total business +20% YoY. CASA at 28% supports stable funding; CD ratio healthy at 83%.
  • Asset Quality Improvement: GNPA down 112 bps YoY to 2.42%; NNPA down 72 bps to 0.90%. PCR at 82% (incl. TW). Slippages controlled via recoveries/upgradations.
  • Profitability Resilience: ROA stable at 1.59% (Q2), ROE 13.35%; NIM 3.63% (sequential uptick). PAT growth 15% YoY despite higher opex.
  • Capital Strength: CAR 21.68% (Tier-1 20.71%), well above RBI norms; supports growth without dilution.
  • Digital & Operational Momentum: New UPI features (e.g., Circle, Help, Multi-Signatory), awards (AI/ML, cybersecurity), MSME corporate card, digital lending. 901 branches (new in Bengaluru).
  • Granular Portfolio: Top-20 exposure <7%; gold loans 28% of advances (low LTV ~61%, GNPA 0.9%). MSME/trading focus yields higher returns.

Headwinds (Challenges)

  • Margin Pressure: NIM slight YoY dip (3.63% vs. 3.67%); cost of deposits stable but yield on advances marginally down (9.66% vs. 9.81%). Rising deposit costs (5.71%) amid rate environment.
  • Cost Inflation: Opex +20% YoY (employee costs +22%); CIR up to 49.16% (from 47.06%). Efficiency ratio 48.66%.
  • Provisioning Needs: Bad debt provisions ₹110 Cr (H1); ECL contingency ₹10 Cr added. Restructured standards at 1.03% of advances.
  • Regional Concentration: 83% branches/deposits in South India (TN 63%); vulnerable to regional slowdowns.
  • Macro Sensitivity: MSME/agri focus (40%+ advances) exposed to economic cycles, monsoon risks.

Growth Prospects

  • High Double-Digit Trajectory: 10-year CAGR >10% in business/profits; H1 FY26 sustains 15-20% YoY growth. Target: Continued 15-18% advances expansion via MSME/retail (gold loans +13% QoQ).
  • Branch/Digital Expansion: 901 branches (Pan-India push); digital products (UPI innovations, CUB Desire/Depend, WhatsApp banking) to boost low-cost deposits/CASA.
  • Yield Enhancement: Trading/MSME (42%) higher yields; digital lending, PSLC trading (purchased ₹118 Cr, sold ₹114 Cr).
  • Profitability Upside: ROA/ROE sustainable at 1.5-1.6%/13%; NIM stabilization via deposit re-pricing. Dividend track record (121 years profitability).
  • Market Opportunity: Untapped MSME segment; partnerships (fintechs like Perfios, TVS Credit) for scalability. FII headroom 14% (current 26%).

Key Risks

Risk Category Description Mitigation
Credit/Asset Quality MSME slowdown, gold price volatility (28% advances); reclassified non-UDYAM loans. Granular portfolio, collaterals (residential/PG), PCR 82%; recoveries strong.
Interest Rate Rate cuts/hikes squeeze NIM; deposit competition. Fixed-rate migration, granular deposits (no CDs/bulks).
Operational/Cyber Rising opex/CIR; digital expansion risks. Efficiency 48.66%; cybersecurity awards; robust governance (7/10 indep. directors).
Regulatory RBI norms (e.g., PSLC, restructuring disclosures); Basel III Pillar 3 (LCR/NSFR on website). High CAR; compliant (e.g., unhedged FX provision ₹2.72 Cr).
Liquidity/Market Funding reliance on deposits; FPI flows volatile. LCR/NSFR compliant; diversified investors (HDFC/SBI AMCs top holders).
Macro/Geopolitical Regional (South India) exposure; inflation/recession. Diversified sectors (no infra/consortium); 121-yr stability.

Summary: CUB exhibits strong tailwinds from growth, asset quality fixes, and digital agility, positioning for 15%+ earnings CAGR. Headwinds like costs/NIM are manageable with healthy capital. Growth prospects solid in MSME/retail, but risks center on credit cycles and macros. Investment View: Positive for long-term; attractive at current valuations (ROE>peer avg, low NPAs). Monitor NIM/CIR in upcoming quarters. (Analysis based solely on provided Q2 FY26 docs; cross-check latest market data.)

   

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