Summary of earnings call for City Union Bank Ltd published on 07 Nov, 2025
City Union Bank Limited
Q2 FY26
Call date · November 03, 2025
1 · Management Commentary
Key Positives
- Advances grew 18% YoY to INR 57,561 crores, the highest Q2 credit growth in a decade.
- Deposits rose 21% YoY to INR 69,486 crores; CASA growth at 16% YoY.
- Gross NPA reduced to 2.42% (from 2.99% in Q1 FY26 and 3.54% in Q2 FY25); net NPA at 0.90%, below 1% after 46 quarters.
- PCR (with technical write-off) improved to 82% (from 75% last year).
- NIM increased to 3.63% (from 3.54% in Q1 FY26); cost of deposits declined to 5.71%.
- ROA stable at 1.59%; PAT for Q2 FY26 at INR 329 crores (up 15% YoY).
- Consistent negative net slippages; recoveries continue to outpace slippages.
Key Negatives
- Cost-to-income ratio increased to 49.16% (from 48.12% in Q1 FY26); H1 FY26 at 48.66%.
- OPEX growth at 20% for the quarter, above business growth.
- Yield on advances declined 15 bps sequentially to 9.66%.
- ECL provisioning remains an area of uncertainty; no specific quantification yet.
Forward Guidance
- Capex: Continued investment in technology (15–20% of PAT); ongoing branch expansion (~75 branches/year).
- New products/segments: Focus on renewable energy lending (target INR 2,500 crores book in 24–30 months); no new gold loan products yet.
- Client wins/losses: Not specifically disclosed.
- Revenue/margin outlook: NIM expected to remain stable with positive bias; credit growth to be 2–3% above industry; cost-to-income to hover around 48–50%.
- Strategic initiatives: Capacity expansion in secured retail and MSME verticals; continued focus on sustainable finance (IFC USD 50mn term loan for MSME renewable energy).
2 · Q&A Highlights
Q 1 (Composite): What is driving the strong credit and deposit growth, and is this sustainable?
A (Management):
• Growth driven by capacity expansion in secured retail and MSME, gold loan momentum, and transformation projects (e.g., BCG); guidance remains 2–3% above industry growth, with sustainability dependent on market conditions and risk appetite.
Q 2 (Composite): Outlook and impact of ECL (Expected Credit Loss) provisioning?
A (Management):
• Too early to quantify; significant reduction in SMA and restructured book will mitigate impact; expect convergence between IRAC and ECL requirements; not expected to be alarming.
Q 3 (Composite): Margin/NIM sustainability and drivers of recent expansion?
A (Management):
• Margin expansion due to lower cost of deposits (repricing of high-cost term deposits), stable gold loan yields, and repricing of borrowings; NIM expected to remain above 3.5% with positive bias.
Q 4 (Composite): Asset quality trends, especially in MSME, and outlook for credit costs?
A (Management):
• Asset quality improving; SMA and NPA levels at multi-year lows; recoveries expected to continue outpacing slippages for next few quarters; credit cost to remain stable.
Q 5 (Composite): CASA growth and cost of deposits—what is driving the improvement?
A (Management):
• Dedicated teams and branch focus driving CASA growth; not directly linked to loan growth; cost of deposits benefiting from repricing of maturing high-cost deposits.
Q 6 (Composite): OPEX and cost-to-income ratio—reasons for increase and future trend?
A (Management):
• OPEX growth due to capacity creation in new verticals and sales; cost-to-income ratio elevated but expected to moderate as productivity improves.
Q 7 (Composite): Branch expansion and technology spend—future plans?
A (Management):
• Plan to add ~75 branches annually; technology spend to remain at 15–20% of PAT, in line with industry trends.
Q 8 (Composite): Management transition—timeline and process?
A (Management):
• Application process for new MD/CEO underway; to be sent to RBI by mid-December, as per regulatory guidelines.
3 · Other Key Numbers
- Advances: INR 57,561 crores (Q2 FY26); up from INR 48,722 crores (Q2 FY25)
- Deposits: INR 69,486 crores (Q2 FY26); up from INR 57,369 crores (Q2 FY25)
- CASA growth: 16% YoY
- Average CD ratio: 83%
- Cost of deposits: 5.71% (down from 5.95% in Q1 FY26)
- Yield on advances: 9.66% (Q2 FY26); 9.81% (Q1 FY26)
- Gross NPA: 2.42% (Q2 FY26); 2.99% (Q1 FY26); 3.54% (Q2 FY25)
- Net NPA: 0.90% (Q2 FY26); 1.62% (Q2 FY25); INR 513 crores (Q2 FY26)
- SMA (0/1/2): 5.60% (Q2 FY26)
- SMA2 to total advances: 1.34% (Q2 FY26); 1.59% (Q1 FY26); 2.03% (Q2 FY25)
- Exposure to US exports: INR 154 crores (0.27% of loan book); textile exposure to US: 0.12% of loan book
- PCR (with technical write-off): 82% (Q2 FY26); 75% (Q2 FY25)
- PCR (without technical write-off): 63% (Q2 FY26); 55% (Q2 FY25)
- Interest income: INR 1,653 crores (Q2 FY26); INR 1,434 crores (Q2 FY25)
- Other income: INR 503 crores (H1 FY26); INR 418 crores (H1 FY25)
- Operating profit: INR 922 crores (H1 FY26); INR 802 crores (H1 FY25)
- PAT: INR 329 crores (Q2 FY26); INR 285 crores (Q2 FY25); INR 635 crores (H1 FY26); INR 550 crores (H1 FY25)
- Cost-to-income ratio: 49.16% (Q2 FY26); 48.12% (Q1 FY26); 48.66% (H1 FY26); 48.15% (H1 FY25)
- ROA: 1.59% (Q2 FY26); 1.55% (Q1 FY26)
- IFC commitment: USD 50 million, 3-year term loan for MSME renewable energy
- Renewable energy lending: >INR 500 crores financed in current year; target INR 2,500 crores in 24–30 months
- Gold loan yields: Non-agri ~11%; agri ~10% (some products below 10%)
- NPA recovery in NII: INR 15 crores (Q2 FY26); INR 7 crores (Q1 FY26)
- Repriced deposits: ~INR 18,000 crores in H1 FY26; ~INR 9,000 crores in Q2 FY26; another INR 17,000–18,000 crores to be repriced in H2 FY26
- Restructured book: INR 593 crores (down from INR 2,248 crores in FY22)
- Technology spend: 15–20% of PAT
- Branch addition: ~75 branches/year planned
- OPEX growth: 20% (Q2 FY26); H1 FY26 at 17%
- Personal loans: Reclassification from INR 1,300 crores (Q1) to INR 2,600 crores (Q2); details to be clarified separately
- Tier-1 capital: Not disclosed (excluding H1 profits; to be updated post-audit)