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    City Union Bank

    CUB
    Financial Services·31 Jul 2025
    Management Summary

    City Union Bank delivered a strong Q1 FY26 performance, achieving record-high PAT and robust double-digit growth in both credit and deposits. Asset quality continued its improving trend with significant reductions in both gross and net NPAs, supported by enhanced PCR. The bank maintained healthy NIMs and ROA, indicating sustained operational efficiency and profitability despite market fluctuations.

    Highlights

    8

    • Net Profit (PAT) reached INR306 crores, marking a 15.9% YoY growth and crossing the INR300 crores mark for the first time in the bank's history.

    • Credit growth stood at a robust 16% YoY, with advances increasing from INR46,548 crores to INR54,020 crores.

    • Deposits grew by 20% YoY, reaching INR65,734 crores, surpassing expected levels.

    • Gross Non-Performing Assets (GNPA) reduced to 2.99% from 3.88% YoY, and Net NPA reduced to 1.2% from 1.87% YoY.

    • Provision Coverage Ratio (PCR) without technical write-off improved to 61% from 53% last year.

    • Net Interest Margin (NIM) for the quarter was 3.54%, with a yield on advances of 9.81%.

    • Operating Profit grew by 20.9% YoY to INR451 crores, driven by a 27% increase in other income.

    • Return on Assets (ROA) was 1.55%, maintaining consistency above 1.5% for the last five quarters.

    What Changed2

    vs Q2 FY26

    Guidance items8 → 11 (+3)Risks discussed4 → 3 (-1)

    Key financials

    Single quarter

    12 metrics
    1. 01Net Profit (PAT)₹306 Cr+15.9%YoY
    2. 02Credit Growth16%
    3. 03Deposit Growth20%
    4. 04Gross NPA3.0%-22.9%YoY
    5. 05Net NPA1.2%-35.8%YoY

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    Provision Coverage Ratio (PCR) without technical write-off improved to 61% in 1QFY26 from 53% last year. PCR with technical write-off stood at 79% for Q1 FY26, up from 73% last year.

    Guidance & targets

    11
    CategoryTargetPriority
    Margin
    NIM
    3.5%
    		High
    Margin
    NIM
    3.45-3.5%
    		High
    Margin
    NIM
    3.55-3.6%
    		High
    Credit Growth
    Overall Credit Growth
    16%
    		High
    Credit Growth
    Credit Growth vs Industry
    2-3% above industry
    		Medium
    Profitability
    ROA
    1.5% plus
    		High
    Efficiency
    Cost to Income Ratio
    48-50%
    		High
    Asset Quality
    PCR
    63%
    		Medium
    Asset Quality
    Credit Cost
    0.2-0.25%
    		High
    Asset Quality
    Recoveries vs Slippages
    Recoveries > Slippages
    		High
    Branch Network
    Branch Additions
    75-80 branches
    		High

    NIM Trajectory

    Next quarter (Q2 FY26)
    Current3.54%
    Target3.45-3.5% for Q2, 3.55-3.6% for Q3/Q4

    Why it matters

    NIM is a key profitability driver, and management has provided specific quarterly targets that need to be tracked for consistency.

    Well, overall, we have said that we will be around 3.5 for the year. Next quarter we should, that is this quarter, Q2, we should be around 3.45 to 3.5. That's the number which we are looking at. And probably in Q3, we will be around 3.55 and Q4, we should be around 3.55 to 3.6.

    How to verify

    key_financials.metrics[label='NIM']

    Risks & concerns

    3
    RiskSeverity

    Building Stress in Asset Quality

    Multiple financial institutions are reporting building stress in asset quality, though CUB has not seen it yet. — Analyst acknowledged

    medium

    Delinquencies in Southern Regions (Micro LAP/LAP)

    Reports of delinquencies in Micro LAP and LAP portfolios in southern states, but CUB's new retail segment has not shown this trend. — Analyst downplayed

    medium

    Impact of US Tariffs on Textile Industry

    New 25% US tariffs could lead to 2-3% margin compression for 20% of CUB's INR1000-1200 crores export book, but many clients have diversified to European markets. — Analyst acknowledged

    low

    Q&A highlights

    8

    “Sir, we will continue to grow at the same level what we are growing subject to the market conditions are conducive and our overall numbers of SMA-0-1-2 on track... So till that time we don't see any risk. We will continue to grow at the same pace.”

    Analyst questioned if the current 16% growth rate is sustainable given potential micro disruptions or asset quality risks, to which management affirmed confidence in maintaining the pace.

    asked by Anand Dama

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Financial Performance and Profitability

    City Union Bank reported a Net Profit (PAT) of INR306 crores for Q1 FY26, marking a 15.9% year-on-year growth from INR264 crores in 1QFY25, and crossing the INR300 crores milestone for the first time. The Return on Assets (ROA) stood at 1.55%, consistently above 1.5% for the last five quarters. Operating profit grew by 20.9% YoY to INR451 crores, supported by a 27% increase in other income to INR244 crores.

    02

    Robust Credit and Deposit Growth

    The bank achieved a 16% year-on-year credit growth, with advances increasing from INR46,548 crores to INR54,020 crores in Q1 FY26. Deposit growth was even stronger at 20% YoY, reaching INR65,734 crores, surpassing expected levels. The average CASA increased by 9.4% quarter-on-quarter to INR16,478 crores, and the cost of deposits reduced to 5.95% from 6.02% in the previous quarter.

    03

    Continued Asset Quality Improvement

    Asset quality showed significant improvement, with Gross NPA reducing to 2.99% in 1QFY26 from 3.88% in 1QFY25, and Net NPA falling to 1.2% from 1.87% YoY. The SMA2 to total advances ratio improved to 1.59% from 2.22% last year. Total slippages for the quarter were INR196 crores, while recoveries stood at INR187 crores, with management confident that annual recoveries will exceed slippages.

    04

    Net Interest Margin (NIM) and Interest Income Dynamics

    The Net Interest Margin (NIM) for 1QFY26 was 3.54%, with a yield on advances at 9.81%. Interest income grew by 15.6% YoY to INR1605 crores. Management noted a net impact of INR71 crores from repo rate cuts (INR135 crores reduction in advances yield offset by INR64 crores gain from deposit repricing), and expects NIM to be around 3.45-3.5% in Q2 and 3.55-3.6% in Q3/Q4, maintaining the FY26 guidance of 3.5%.

    05

    Strategic Focus on Branch Expansion and Digital Lending

    The bank plans to add 75-80 new branches in FY26, with significant additions expected in Q2 and Q3. Digital lending processes have enhanced efficiency, contributing to consistent credit growth. The retail segment, including LAP, HL, and Micro LAP, contributed INR825 crores in the quarter, with 80% of sourcing from branches and 20% from DSAs.

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