CUB - City Union Bank Ltd Share Price

Management of City Union Bank provided optimistic guidance for the upcoming financial periods during the Q2 FY26 earnings call. They expect growth to remain robust, particularly emphasizing their goal of achieving credit growth at least 2-3% above the industry average. Specifically, they project a mid-teen growth for the full year, with recent performance showing an 18% advance growth for Q2 FY26, which is the highest quarterly growth in a decade.

Key points mentioned include:

• Deposits rose by 21% year-on-year, reaching INR 69,486 crores, aligning with credit growth.
• The bank anticipates a net interest margin (NIM) of approximately 3.5%, with NIM recorded at 3.63% for Q2 FY26, up from 3.54% in Q1 FY26.
• Return on assets is expected to remain stable at around 1.5%, with an ROA of 1.59% reported for Q2 FY26.
• The cost-to-income ratio is forecasted to hover between 48-50% for FY26, with Q2 FY26 recorded at 49.16%.
• Asset quality continues to improve, with gross NPA reducing to 2.42%, and net NPA at 0.90%"”the latter being below 1% for the first time since FY14.

Management is also focusing on renewable energy financing, aiming to build a loan book of INR 2,500 crores over the next 30 months, supported by a USD 50 million loan from IFC. This shift reflects a strategic pivot towards sustainable finance as they participate in India's transition to carbon neutrality by 2070.

Overall, management expresses confidence in maintaining growth momentum and believes the recent company transformations will support continued positive performance in the future.

Here are the major questions asked during the Q&A section of the earnings transcript along with detailed responses:

1. Parth Gutka: What factors are considered when underwriting loans in renewable energy? Are these loans secured? What was the interest rate on maturing borrowings?

   • We have been funding solar projects for existing customers, ensuring they are secured. We aim to grow this book from INR 500 crores to INR 2,500 crores over 30 months. Regarding the interest rate, we had borrowings reduced from 8% to 6.5%.

2. Rohan Mandora: What segments are driving credit growth and how are these loans originated?

   • Credit growth is driven entirely by branch distribution; we do not use third parties for MSME sourcing. For retail loans, 90% is sourced by our branches, while 10% is through third parties.

3. Rohan Mandora: Can we maintain negative net slippage in the coming quarters?

   • We expect to maintain negative net slippage through Q3 and Q4, as recoveries have consistently surpassed slippages.

4. Anand Dama: Can you provide guidance on credit costs given the recent trends in net slippage?

   • We anticipate continued recoveries surpassing slippages, indicating stable credit costs for the next two quarters. We aim for a credit growth of 2-3% above the industry average.

5. Jai Mundhra: Does net interest income include any NPA recovery components?

   • Yes, it includes INR 15 crores from NPA recoveries this quarter, compared to INR 7 crores last quarter.

6. Sameer Bhise: Are you confident about increasing growth guidance from mid-teens to high teens?

   • If the market conditions are favorable and risk is managed well, we are open to growing beyond our expected mid-teens guidance.

7. Param Subramanian: Can you comment on CASA growth and its impact on deposit costs?

   • We have dedicated a team to focus on CASA, leading to a growth of around 16%. This has occurred despite a decline in deposit costs, as we ramped up efforts at the branch level.

8. Gaurav Jani: What proportion of deposits are maturing in the second half?

   • We expect around INR 30,000 crores of deposits to be repriced in the second half, around 45-50% of total deposits.

9. Akshay Badlani: How do you perceive asset quality in the MSME sector going forward?

   • We do not see undue stress in our MSME portfolio presently. The significant reduction in SMA numbers is encouraging, suggesting improving asset quality.

10. Krishna: How will you balance people-led growth with technology-led growth?

    • Growth will be a mix of both. Our tech spending typically aligns with 15-20% of PAT, reflecting our commitment to investing in technology while expanding our workforce as required.

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