CUB - City Union Bank Ltd Share Price

In the earnings call for Q4 FY2026, management of City Union Bank provided an optimistic outlook for the upcoming financial year 2027. R. Vijay Anandh, the incoming MD and CEO, emphasized a growth target for advances of 2% to 3% above the industry's credit growth, which is projected to be in the mid to high teens. The bank aims to maintain a strong focus on MSME loans, accounting for 55-60% of the portfolio, with gold loans at 30-35% and secured retail products making up the remainder.

Key points from management regarding the outlook include:

1. Branch Expansion: The bank plans to open around 75 branches in FY2027, adding to its recent milestone of 1,000 branches.
2. Operating Expenses: A projected increase in operating expenses of 15% to 18% compared to last year is anticipated.
3. Fee Income Stability: The share of fee income is expected to remain stable at 55% to 60% of total other income.
4. Credit Deposit Ratio: The credit deposit ratio is targeted to stay within the range of 85% to 87% in line with credit growth.
5. Asset Quality: Management noted significant improvement in asset quality, with gross NPA decreasing to 1.91%, down from 3.09% in the previous year.
6. Return on Assets (ROA): The ROA for the upcoming year is aimed to be between 1.65% and 1.67%, reflecting better efficiency and improved profitability.

Management is optimistic about the bank's potential under the new leadership and aims to build on existing strengths while navigating potential challenges in the market.

Q&A Section Summary

Question 1: "My first question is regarding gold loan. How do we manage the risk management for those portfolios that have originated at higher gold prices?"

Answer: I believe we have sufficient buffer built into our gold loans. Prior to the gold price increases, we maintained conservative lending practices, with LTVs at respectable levels. So, even if prices drop, we are well-positioned. We've learned from past experiences, and our risk management strategies prevent exposure resulting from price volatility.

Question 2: "Does the recent increase in the cost of deposits indicate a potential rise in future costs?"

Answer: The 3-basis point increase is mainly due to tactical decisions rather than systemic changes. Our CD ratio remains favorable, and we are capable of managing liquidity without significantly raising costs. We believe the cost of deposits will stabilize and remain manageable in the near term.

Question 3: "When do you foresee achieving a higher ROA, like 1.7% or 1.8%?"

Answer: I believe we can aim for an ROA between 1.65% to 1.67% for the next year, largely driven by improvements in retail income and better cost-to-income management. While we hope to achieve this, we also need to continue monitoring economic conditions closely.

Question 4: "Do you have an upper limit on how much gold loans the bank can take?"

Answer: Yes, we do; we currently sit at around a 30-32% ratio for gold loans. Any increase will only be incremental, as we need to keep risk management in mind. A disciplined approach ensures we do not overextend in this area.

Question 5: "What is the primary nature of demand for MSME loans you're observing?"

Answer: Demand stems from multiple factors"”working capital utilization has increased, and many businesses are reaching capacity levels, prompting expansion needs. We're witnessing a combination of cash flow requirements and utilization of existing credit facilities.

Question 6: "What proportion of your loans is covered under government schemes?"

Answer: Currently, around 2% to 3% of our loans are covered under schemes like CGTMSE. Many customers prefer offering additional collateral to secure better rates rather than opting for premium-based coverage.

Question 7: "How do you foresee the steady state credit costs evolving with the new ECL regulations?"

Answer: I anticipate significant reductions in credit costs over the next 15 years, considering our improved underwriting processes and technology adoption. Historically, our credit costs have seen fluctuations, but we expect future reductions.

This summary captures the major questions and answers from the Q&A section of the earnings conference call for City Union Bank, with each answer staying within the specified character limit.