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    City Union Bank

    CUB
    Financial Services·3 Nov 2025
    Management Summary

    City Union Bank delivered a strong Q2 FY26, marked by robust double-digit growth in both advances and deposits. Asset quality showed significant improvement with Net NPA falling below 1% after a decade. NIM expanded due to efficient fund management, and the bank is strategically investing in renewable energy and capacity creation, expecting continued growth and eventual moderation in its cost-to-income ratio.

    Highlights

    8

    • Advances grew 18% YoY to INR 57,561 crores in Q2 FY26.

    • Deposits grew 21% YoY to INR 69,486 crores in Q2 FY26.

    • Gross NPA reduced to 2.42% in Q2 FY26 from 2.99% in Q1 FY26.

    • Net NPA fell to 0.90% in Q2 FY26, below 1% after 46 quarters.

    • Net Interest Margin (NIM) expanded to 3.63% in Q2 FY26 from 3.54% in Q1 FY26.

    • Profit After Tax (PAT) for Q2 FY26 was INR 329 crores, a 15% YoY increase.

    • Return on Assets (ROA) stood at 1.59% in Q2 FY26, up from 1.55% last quarter.

    • The bank aims to build a renewable energy book of INR 2,500 crores in the next 24-30 months.

    What Changed2

    vs Q3 FY26

    Guidance items11 → 8 (-3)Risks discussed2 → 4 (+2)

    Key financials

    Single quarter

    08 metrics
    1. 01Advances₹57,561 Cr+18%YoY
    2. 02Deposits₹69,486 Cr+21%YoY
    3. 03Gross NPA2.4%-18.9%QoQ
    4. 04Net NPA90%-44.4%YoY
    5. 05NIM3.6%+2.5%QoQ

    Guidance & targets

    8
    CategoryTargetPriority
    Credit Growth
    Overall Credit Growth
    mid-teens, at least 2-3% over industry
    		High
    NIM
    Net Interest Margin
    stable with positive bias
    		High
    ROA
    Return on Assets
    current level of 1.5%
    		High
    Cost-to-Income Ratio
    Cost-to-Income Ratio
    48% to 50%
    		High
    Asset Quality
    Net Slippages
    negative (recoveries surpass slippages)
    		High
    Renewable Energy Book
    Renewable Energy Loan Book
    INR 2,500 crores
    		High
    Branch Expansion
    New Branches Added
    75 branches
    		High
    Technology Spend
    Technology Expenditure as % of PAT
    15-20%
    		Medium

    Net Slippage Trend

    next 2-3 quarters
    CurrentRecoveries (INR 303 crores) > Slippages (INR 156 crores)
    TargetContinued negative net slippage (recoveries > slippages)

    Why it matters

    Sustained negative net slippage is crucial for ongoing asset quality improvement and lower credit costs.

    For Q2 FY'26, the total slippage is INR 156 crores, while the total recovery is INR 303 crores... We were thinking till Q2, but it looks like we might get into Q3 and Q4 as well.

    How to verify

    key_financials.metrics[label='Total Slippage'] and key_financials.metrics[label='Total Recovery']

    Risks & concerns

    4
    RiskSeverity

    ECL Implementation Uncertainty

    ECL computations are in a fluid stage, awaiting final guidelines, making precise calculations difficult, though management expects the impact not to be alarming. — Both acknowledged

    medium

    Elevated Cost-to-Income Ratio

    The cost-to-income ratio is currently elevated due to incremental expenditure for capacity creation in various verticals, but is expected to trend downwards as productivity improves. — Management acknowledged

    medium

    Pressure on Agricultural Gold Loan Rates

    There is pressure from the field to slightly decrease agricultural gold loan rates, which management is monitoring. — Management acknowledged

    low

    Impact of US Tariffs on Asset Quality

    The bank's exposure to US exports is minimal (0.27% of loan book), with no material impact on asset quality foreseen despite uncertainties. — Management downplayed

    low

    Q&A highlights

    7

    “It is not a new area. We have been funding solar. That is why we mentioned in the call that we have financed more than INR 500 crores, which is a completely secured book for the existing Bank customers. And we continue to build this book. And that is what we mentioned. We plan to take this book from INR 500 crores to INR 2,500 crores, mainly for existing customers, in the next 30-month period, which is 2.5 years from now.”

    Clarifies the bank's approach to a new growth segment, emphasizing security and focus on existing customers.

    asked by Parth Gutka

    2 min read6 chapters

    Detailed Narrative

    01

    Robust Growth Across Key Metrics

    City Union Bank demonstrated strong performance in Q2 FY26, achieving double-digit growth in both advances and deposits. Advances grew 18% year-on-year to INR 57,561 crores, with a sequential growth of over INR 3,500 crores (7%) in Q2 alone. Deposits also saw a 21% year-on-year increase, reaching INR 69,486 crores, and a sequential growth of INR 3,700 crores (6%). The average CD ratio for the quarter stood at a healthy 83%.

    02

    Significant Asset Quality Improvement

    The bank reported substantial improvements in asset quality, with Gross NPA reducing to 2.42% in Q2 FY26 from 2.99% in Q1 FY26. Net NPA fell to 0.90%, marking the first time it has been below 1% in 46 quarters. This improvement was driven by strong recoveries totaling INR 303 crores, significantly exceeding total slippages of INR 156 crores. The SMA numbers also showed a positive trend, reducing to 5.60%.

    03

    NIM Expansion and Efficient Fund Management

    Net Interest Margin (NIM) expanded to 3.63% in Q2 FY26 from 3.54% in Q1 FY26, surpassing the anticipated range. This was primarily attributed to a 24 basis points sequential reduction in the cost of deposits, which decreased from 27% to 28% (Q1 to Q2 FY26) and the stable yields from fixed-rate gold loans. The bank expects to reprice approximately INR 30,000 crores (45-50% of total deposits) in the next half, further supporting NIM stability with a positive bias.

    04

    Strategic Focus on Renewable Energy and MSME

    City Union Bank is actively pursuing strategic growth avenues, particularly in renewable energy. The bank secured a USD 50 million term loan from IFC to support MSMEs in transitioning to energy-efficient solutions. It has already financed over INR 500 crores in renewable energy projects this year and aims to build a total book of INR 2,500 crores in this segment within the next 24-30 months, primarily for existing, secured customers. This complements its core strength in MSME and secured retail lending.

    05

    MD/CEO Transition Progress and Outlook

    The process for the appointment of a new Managing Director and CEO is progressing as per regulatory timelines. Applications were due by November 7th, 2025, and the bank anticipates submitting its recommendation to the RBI by mid-December 2025, well within the 4-month window required before the current term expires on December 31st. Management expressed confidence in a smooth transition.

    06

    ECL Provisioning and Cost-to-Income Outlook

    While the implementation of Expected Credit Loss (ECL) norms is in a 'fluid stage' pending final guidelines, management believes the impact on provisioning will not be alarming, partly due to the significant reduction in SMA numbers. The cost-to-income ratio for Q2 FY26 stood at 49.16%, slightly elevated due to investments in capacity creation. However, management expects this ratio to hover around 48-50% for FY26 and trend downwards as these investments yield productivity.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.