| Q2 & H1 FY26 Earnings Conference Call
Summary : City Union Bank demonstrates strong Q2 FY'26 growth, improved asset quality with net NPA below 1%, and a positive outlook driven by strategic initiatives and stable margins.
Management Perspective positive : Management repeatedly highlighted exceeding expectations, achieving highest credit growth in a decade, continuous reduction in NPAs, and confidence in surpassing industry growth. They expressed a positive outlook for the second half.
Concall Report Analysis & Insights
Business Overview
- Registered 18% advance growth year-on-year in Q2 FY'26.
- Deposits grew by 21% to INR 69,486 crores in Q2 FY'26.
- Gross NPA reduced to 2.42% and Net NPA fell below 1% to 0.90%.
- Operating profit grew 15% to INR 922 crores in H1 FY'26.
- PAT increased 15% to INR 635 crores in H1 FY'26, with ROA at 1.59%.
Future Growth Prospects
- Expect mid-teen growth, 2-3% above industry average.
- Plan to build INR 2,500 crores renewable energy book in 24-30 months.
- Secured Retail and MSME portfolios will drive future credit growth.
- Anticipate stable Net Interest Margin (NIM) with positive bias in Q3 and Q4.
- Continued double-digit growth momentum for the past six quarters.
Management Insights
- "Our performance is in tune with our expectations, exceeding in some parameters."
- "We have achieved consistent double-digit growth for the past six quarters."
- "We are confident that we will surpass the industry-level growth in the future."
- "Net NPA numbers are reducing quarter-by-quarter for the last 10 quarters continuously."
- "Overall, in whatever visibility we have currently, the trend is positive."
Signs of Skepticism
- Management is reluctant to quantify cumulative ECL impact, stating it's 'too early'.
- ECL calculations are in a 'fluid stage' awaiting final guidelines.
- Exact credit cost depends on strategic decisions and is not yet fixed.
- Difficult to predict interest recovery beyond the current quarter due to variability.
Risk Factors
- Uncertainty regarding final ECL guidelines and provisioning impact.
- Potential for increased operational expenditure due to capacity creation.
- Minor exposure to U.S. exports (0.27% of loan book) limits tariff impact.
- Pressure from the field to slightly decrease agricultural gold loan rates.
Good To Know
- Bank celebrated its 120th 'Swadeshi Banking Legacy' anniversary.
- Celebrated its 122nd Foundation Day on October 31, 2025.
- Secured USD 50 million commitment from IFC for MSME renewable energy.
- MD & CEO transition process is underway, with RBI application by mid-December.
Key Drivers
- Strong credit growth momentum continues.
- Asset quality significantly improving.
- Renewable energy book expanding.
- Stable NIM with positive bias.
Key Analyst Discussions
Competitive Environment
- Credit growth is a mix of organic growth and takeovers from other banks.
- Targeting 2-3% growth above industry average without diluting risk.
Market Trends & Consumer Behavior
- CRR cut is expected to have a positive impact on NIM.
- No significant threat to asset quality from U.S. tariffs.
Financial Highlights
- NIM expansion driven by reduced cost of deposits (5.95% to 5.71%).
- Expect recoveries to surpass slippages for the next 2-3 quarters.
- Credit cost outlook is expected to remain stable.
- INR 18,000 crores of deposits repriced in H1, another INR 18,000 crores expected in H2.
Product Composition
- Renewable energy loans are fully secured, mainly for existing customers.
- Gold loan portfolio has 30% fixed rate, helping maintain margins.
- Non-agri gold loan yield is 11%, agri gold loan is about 10%.
Strategic Considerations
- Credit sourcing is primarily branch-driven (90% retail, 100% MSME/JL).
- Retail vertical and MSME sales capacity created post-COVID.
- Expect to add around 75 branches annually.
- Technology spend is 15-22% of PAT, no reduction foreseen.