Detailed Narrative
Robust Credit and Deposit Growth
City Union Bank reported a strong 14.6% year-on-year growth in gross advances, reaching INR50,409 crores in Q3 FY25. This marks the third consecutive quarter of double-digit credit growth. Total deposits also saw an 11% year-on-year increase to INR58,271 crores, with CASA deposits growing 5% year-on-year to INR16,132 crores. The bank aims to maintain a CD ratio of approximately 85% to support its credit growth.
Significant Asset Quality Improvement
Asset quality showed substantial improvement, with Gross NPA % sequentially decreasing to 3.36% in Q3 FY25 from 3.54% in Q2 FY25 and 4.47% in Q3 FY24. Net NPA % also reduced to 1.42% in Q3 FY25 from 1.62% in Q2 FY25 and 2.19% in Q3 FY24. Slippages for the quarter stood at INR201 crores, while recoveries were higher at INR249 crores, leading to negative net slippages. The bank's PCR without technical write-off improved to 59% from 55% in Q2 FY25, and with technical write-off, it reached 77%.
Stable Profitability and Margins
The bank's Net Interest Margin (NIM) for Q3 FY25 was 3.58%, an increase from 3.50% in Q3 FY24, with a yield on advances of 9.81%. Operating Profit grew 20% year-on-year to INR436 crores, and Profit After Tax (PAT) increased 13% year-on-year to INR286 crores. The Cost-to-Income Ratio improved to 46.58% from 48.64% in Q3 FY24. Management expects NIM to remain stable around 3.60% +/- 10 bps, despite potential yield moderation from future rate cuts.
Strategic Focus on Secured Retail and MSME
The bank's credit growth is primarily driven by core advances and gold loans, with 62% of the INR6,392 crores growth coming from core advances. The focus remains on secured lending, particularly in MSME, loan against property, and affordable home loans. Retail contribution is currently 2%-2.5% of the total loan book, with a target to increase to 8%-9% in the next 3-4 years. The new co-branded credit card with CSK is aimed at existing customers for brand awareness, not a shift to unsecured retail.
Branch Expansion and Digital Initiatives
City Union Bank is on track to expand its branch network to 850-875 branches by March 31st, focusing on growth in North and West regions in addition to Tamil Nadu. The bank has also initiated digital lending processes and is deploying DSAs in new regions. These initiatives, coupled with new product offerings like affordable home loans and micro loans, are expected to support continued credit growth.
Outlook and Future Strategy
Management is confident in achieving 12%-14% credit growth over the next 2-3 years and maintaining Net NPA between 1%-1.25% for FY25. Slippages are projected to be below INR800 crores for FY25 and INR700 crores for FY26, with recoveries expected to outpace slippages. The bank anticipates its Cost-to-Income Ratio to be in the 48%-50% range for FY24/25, with further improvement expected as retail business matures. RoA is targeted to remain above 1.5%.