City Union Bank Limited — Q1 FY26 earnings call

Call held 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

  • 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.

Key financials

  1. Net Profit (PAT) ₹306 Cr +15.9%YoY
  2. Credit Growth 16%
  3. Deposit Growth 20%
  4. Gross NPA 3% -22.9%YoY
  5. Net NPA 1.2% -35.8%YoY
  6. NIM 3.5%
  7. Operating Profit ₹451 Cr +20.9%YoY
  8. ROA 1.6% +2.6%YoY
  9. PCR (without TW) 61% +15.1%YoY
  10. SMA2 to Total Advances 1.6% -28.4%YoY
  11. Total Slippages ₹196 Cr -24.3%QoQ
  12. CASA ₹16,478 Cr +9.4%QoQ

What they filed

Q1 FY27: revenue up 23.7%, net profit up 25.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,434 1,479 1,533 1,605 1,653 +15%1,756 +19%1,856 +21%1,985 +24%
Net profit285 286 288 306 329 +15%332 +16%360 +25%383 +25%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • 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.
    PCR. In FY25, we increased our PCR without technical write-off to 60% to bring it closer to the industry level. For 1QFY26, PCR without TW had improved to 61%, which had improved from 53% last year. Similarly, PCR with TW stood at 79% for Q1 FY '26, which has improved from 73% last year.

Guidance & targets

Margin

  • NIM Margin · FY26 · High confidence 3.5%
    We also committed that NIM will be in the range of 3.5% in FY25-'26. Largely, we are in line with the expectations conveyed on the last quarter call, no surprises.

    — R. Vijay Anandh

  • NIM Margin · Q2 FY26 · High confidence 3.45-3.5%
    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.

    — R. Vijay Anandh

  • NIM Margin · Q3 & Q4 FY26 · High confidence 3.55-3.6%
    And probably in Q3, we will be around 3.55 and Q4, we should be around 3.55 to 3.6.

    — R. Vijay Anandh

Credit Growth

  • Overall Credit Growth Credit Growth · FY26 · High confidence 16%
    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,, as I said in my note. So till that time we don't see any risk. We will continue to grow at the same pace.

    — R. Vijay Anandh

  • Credit Growth vs Industry Credit Growth · Ongoing · Medium confidence 2-3% above industry
    With our growth engine up and running, we could see visibility in achieving mid-teen growth at least 2% to 3% over and above that of the industry.

    — R. Vijay Anandh

Profitability

  • ROA Profitability · Ongoing · High confidence 1.5% plus
    ROA is expected to remain at our current level of 1.5 plus.

    — R. Vijay Anandh

Efficiency

  • Cost to Income Ratio Efficiency · FY26 · High confidence 48-50%
    Our CIR will be in the range of 48 to 50% for the next few quarters.

    — R. Vijay Anandh

Asset Quality

  • PCR Asset Quality · FY26 · Medium confidence 63%
    We would be around 63%.

    — R. Vijay Anandh

  • Credit Cost Asset Quality · FY26 · High confidence 0.2-0.25%
    And to answer your question for the credit cost for the year, we should be somewhere between 0.2 to 0.25.

    — R. Vijay Anandh

  • Recoveries vs Slippages Asset Quality · Annual · High confidence Recoveries > Slippages
    And as we said before, on an annual basis, our recoveries will be more than slippages. This is number one.

    — R. Vijay Anandh

Branch Network

  • Branch Additions Branch Network · FY26 · High confidence 75-80 branches
    On an average, we have been doing 75 branches per year, and we should continue this. And Q2, Q3 will be more. In fact, as we speak in Q2, we have opened quite a substantial branches in the first week. So, we have already done with, I think, 8-10 branches, and we will continue with that. And we will be around 75-80 branches for the year.

    — R. Vijay Anandh

What to watch in Q2 FY26

NIM Trajectory

Next quarter (Q2 FY26)
Current 3.54%
Target 3.45-3.5% 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.

Risks & concerns

  • Building Stress in Asset Quality

    medium

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

    Analyst acknowledged

  • Delinquencies in Southern Regions (Micro LAP/LAP)

    medium

    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

  • Impact of US Tariffs on Textile Industry

    low

    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

Q&A highlights

8 direct
Growth Sustainability and Asset Quality Risk Direct
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

NIM Impact of Repo Rate Cuts Direct
My advances have brought down the yield by INR135 crores. My reduction in deposit rate has given me INR64 crores. This means I have INR135 crores on left side and INR64 crores of deposit on the right side, which is giving me a net impact of INR71 crores... we will be around 3.48-3.49. Hence, we are confident of maintaining this 3.5%.

Analyst sought clarity on how repo rate cuts affected NIM, and management provided a detailed breakdown of the impact on yields and deposits, reaffirming their 3.5% NIM guidance.

Asked by Mona Khetan

PCR Target for FY26/FY27 Direct
There will not be much. We will be around 61 now. We could move to 63, 64 max because, you know, it's completely a secured business, whatever we are doing. We have negligible unsecured in our book. So, probably 63 to 64, we can look at.

Analyst inquired about the bank's future PCR targets, and management provided a specific range, emphasizing the secured nature of their loan book.

Asked by Hardik

Credit Cost Guidance and Southern Delinquencies Direct
And to answer your question for the credit cost for the year, we should be somewhere between 0.2 to 0.25... Sir, we have just launched retail, you would be aware. And this is our second full quarter and it's too early for us to comment anything on the delinquency because as of now, we are not seeing anything.

Analyst asked for credit cost guidance and about reported delinquencies in Micro LAP/LAP in southern regions, which management addressed with a specific target and stated no issues in their new retail segment.

Asked by Parth Gutka

MSME Demand Environment and Stress Direct
The market as of now is flat, I would say. So, when we meet the existing customers, some of the industries are doing well and some are looking flat... As of now, the message from my existing-to-bank customers, we have not seen anything unusual. So, looks like it's stable and on track.

Analyst probed into the demand environment and potential stress in the MSME segment, a core area for CUB, with management indicating a stable but flat market and no unusual signs of stress.

Asked by Krishnan ASV

Textile Industry Exposure and Tariffs Direct
So, we have around INR1,000 crores-INR1,200 crores in our total exports. And out of that, even if I take 20% and the margins, they are saying, when we did have a discussion in the morning with few of the seasoned guys and who does a decent export, their version is 2%-3% compression, nothing beyond that.

Analyst asked about the impact of new tariffs on the textile industry, where CUB has exposure. Management quantified the exposure and potential margin compression, concluding it's 'nothing alarming'.

Asked by Krishnan ASV

Gold Loan Growth and Customer Segmentation Direct
So, it's a combo of both existing to bank and new to bank and broadly, it will be 85, 15, kind of stuff between ETB and NTB, number one. Number two, in terms of LTV, it is very clearly documented. Regulatory, we cannot give more than 75%.

Analyst questioned the significant sequential jump in gold loans, asking if it was from existing or new customers and about LTVs, to which management provided a breakdown and confirmed adherence to regulatory LTV limits.

Asked by Ajit Kabi

EBLR Pricing and Concessional Rates Direct
There is something called a strategic discount. When have a finer pricing and all, depending upon the competition and all, sometime there will be requirement at a different time period. So, those things normally, like say, get adjusted. I mean, this is like something like the discount is front loaded. So, when the rates decreases subsequently, those things get adjusted.

Analyst sought clarification on how CUB manages EBLR pricing, especially if prior concessional rates impact the pass-through of rate cuts, and management explained the concept of strategic discounts and adjustments.

Asked by Krishnan ASV

2 min read 5 chapters

Detailed narrative

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.

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.

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.

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%.

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.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls