City Union Bank Limited — Q2 FY26 earnings call

Call held 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

  • 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.

Key financials

  1. Advances ₹57,561 Cr +18%YoY
  2. Deposits ₹69,486 Cr +21%YoY
  3. Gross NPA 2.4% -18.9%QoQ
  4. Net NPA 0.9% -44.4%YoY
  5. NIM 3.6% +2.5%QoQ
  6. ROA 1.6% +2.6%QoQ
  7. PAT ₹329 Cr +15%YoY
  8. Cost-to-Income Ratio 49.2% +2.1%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.

Guidance & targets

Credit Growth

  • Overall Credit Growth Credit Growth · FY26 · High confidence mid-teens, at least 2-3% over industry
    With a growth engine up and running, we could see visibility in achieving mid-teen growth at least 2-3% over and above the industry.

    — R. Vijay Anandh

NIM

  • Net Interest Margin NIM · Q3 and Q4 · High confidence stable with positive bias

    Previously range of 3.5% → stable with positive bias

    During Q3 and Q4, we expect a stable NIM with positive bias.

    — R. Vijay Anandh

ROA

  • Return on Assets ROA · FY26 · High confidence current level of 1.5%
    ROA to be expected in the range of the current level of 1.5%.

    — R. Vijay Anandh

Cost-to-Income Ratio

  • Cost-to-Income Ratio Cost-to-Income Ratio · FY26 · High confidence 48% to 50%
    Our cost-to-income ratio will be in the range of 48 to 50. These were the expectations that we shared.

    — R. Vijay Anandh

Asset Quality

  • Net Slippages Asset Quality · next 2-3 quarters · High confidence negative (recoveries surpass slippages)
    We were thinking till Q2, but it looks like we might get into Q3 and Q4 as well.

    — R. Vijay Anandh

Renewable Energy Book

  • Renewable Energy Loan Book Renewable Energy Book · next 24 to 30 months · High confidence INR 2,500 crores
    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.

    — R. Vijay Anandh

Branch Expansion

  • New Branches Added Branch Expansion · per year · High confidence 75 branches
    Every year, we have been adding 75 branches. That trend will continue.

    — R. Vijay Anandh

Technology Spend

  • Technology Expenditure as % of PAT Technology Spend · foreseeable future · Medium confidence 15-20%
    Typically, the expenditure spent on technology, both on hardware, software, AMCs, everything put together, the trend in the industry has been about 20% of your PAT, approximately. 15% to 20% or 20% to 22%.

    — Dr. N. Kamakodi

What to watch in Q3 FY26

Net Slippage Trend

next 2-3 quarters
Current Recoveries (INR 303 crores) > Slippages (INR 156 crores)
Target Continued 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.

Risks & concerns

  • ECL Implementation Uncertainty

    medium

    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

  • Elevated Cost-to-Income Ratio

    medium

    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

  • Pressure on Agricultural Gold Loan Rates

    low

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

    Management acknowledged

  • Impact of US Tariffs on Asset Quality

    low

    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

Q&A highlights

5 direct, 1 evasive
Renewable energy loan underwriting and nature Direct
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

ECL provisioning impact and credit cost outlook Partial
So, unless we get specific guidelines in the final circular, most of the calculations are still in the fluid stage... Even the reduction of SMA from Q1 to Q2 resulted in a substantial reduction of ECL provisioning requirements... what I can definitely say is that it is not going to be as alarming.

Highlights the uncertainty around new ECL norms but provides reassurance that the impact is not expected to be severe, partly due to improving asset quality metrics like SMA.

Asked by Rohan Mandora

MD/CEO transition timeline Direct
The last date that is given in the advertisement for the receipt of the application form is on, 7th, that is this Friday... we should be in a position to send by say at least mid-December, on the 4th or 5th of December.

Provides a clear and specific timeline for a critical leadership transition, reducing investor uncertainty.

Asked by Jai Mundhra

Cost of deposits repricing and impact on NIM Direct
In the second half, there may be around INR 30,000 crores of deposits to be repriced precisely. Every month, we are expecting around INR 3,000 crores to get repriced. Already, it was around INR 18,000 crores done in the first half of the year.

Quantifies the significant portion of deposits due for repricing, which is a key driver for NIM expansion and cost of funds management.

Asked by Gaurav Jani

MSME asset quality outlook and stress levels Direct
As of now, we don't see any undue stress building into the MSME portfolio at this point in time. That is why we are able to see the net NPA numbers coming below 1% after almost a decade or so.

Reassures investors about the health of the MSME book, a core segment, and links it to the overall improvement in asset quality.

Asked by Akshay Badlani

Personal loan reclassification and data discrepancy Evasive
Sir, we will come back to you. We will just check and come back to you separately.

An analyst flagged a significant increase in personal loan reclassification numbers QoQ, which management could not immediately explain, indicating a potential area for further clarification.

Asked by Pritesh

Growth drivers (people vs. technology) and elevated OPEX Direct
growth will be a mix of both people and technology... the expenditure spent on technology... the trend in the industry has been about 20% of your PAT... elevated cost-to-income ratio compared to our 10-year average. So, once productivity comes over there, the cost-to-income ratio will also start seeing a downward trend.

Explains the rationale behind current OPEX levels and the long-term strategy for operational efficiency, linking investments to future productivity.

Asked by Krishna

2 min read 6 chapters

Detailed narrative

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%.

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%.

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.

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.

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.

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.

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