City Union Bank Limited — Q4 FY25 earnings call

Call held 2 May 2025

Management summary

City Union Bank delivered a strong performance in Q4 and full FY25, achieving double-digit growth in both advances and deposits. The bank significantly improved its asset quality, with Gross NPA falling to 3.09% and Net NPA to 1.25%, while also enhancing its provisioning coverage. Profitability metrics like PAT, ROA, and NIM remained robust, supported by strategic exits from low-yielding assets and digital lending initiatives.

Highlights

  • Gross advances grew 14% to Rs. 53,066 crores for FY25.

  • Deposits increased 14% to Rs. 63,526 crores for FY25.

  • Gross NPA reduced by 90 bps to 3.09% in FY25 from 3.99% in FY24.

  • Net NPA reduced by 72 bps to 1.25% in FY25 from 1.97% in FY24.

  • PAT grew 11% to Rs. 1,124 crores for FY25.

  • Cost-to-income ratio for FY25 was 47.77%, below the 48-50% expectation.

  • ROA for FY25 was 1.55%, exceeding the long-term average of 1.5%.

  • The Board recommended a dividend of Rs. 2 per share (200% on face value of Rs. 1).

Key financials

  1. Gross Advances ₹53,066 Cr +14%YoY
  2. Deposits ₹63,526 Cr +14%YoY
  3. Gross NPA 3.1%
  4. Net NPA 1.3%
  5. NIM 3.6% +0.02%QoQ
  6. PAT ₹1,124 Cr +11%YoY
  7. Cost-to-Income Ratio 47.8%
  8. ROA 1.6%
  9. PCR (without technical write-offs) 60%
  10. Slippages ₹815 Cr
  11. Recoveries ₹1,042 Cr
  12. Interest Income ₹5,834 Cr +11%YoY
  13. Operating Profit ₹1,679 Cr +11%YoY
  14. Other Income ₹898 Cr +21%YoY

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
  • Dividend ₹2/share (final)
    The Board of Directors recommended a dividend of Rs. 2 per share on the face value of Rs. 1 per equity share at 200% for the year ended 31st March 2025, subject to the approval by the shareholders in the ensuing Annual General Meeting.
  • Liquidity Liquidity disclosed The bank aims to keep its Loan to Deposit Ratio (LDR) at 85%.
    we wanted to keep the LDR at 85. So that is the number which we are looking at and our growth will also be basis the same.

Guidance & targets

Credit Growth

  • Overall Credit Growth Credit Growth · FY26 · Medium confidence 2-3% more than systemic growth
    If you see the visibility, we would be 2%-3% more than the credit growth.

    — Vijay Anandh

Profitability

  • Net Interest Margin (NIM) Profitability · FY26 · High confidence 3.6% +/- 10 bps
    We are at 3.6. We will be plus or minus 10. As we spoke in the call, we have reduced our SB rate and TD rate. Eventually, we will start seeing this in the next 2-3 quarters. So we will be in the range of 3.6 plus or minus 10 bps as confirmed in the call.

    — Vijay Anandh

  • Return on Assets (ROA) Profitability · FY25 · High confidence 1.5%
    We also said our ROA would be back on our long-term average of 1.5% and this trend will continue.

    — Vijay Anandh

Asset Quality

  • Net NPA Asset Quality · FY25 · High confidence 1%-1.25%
    We said we would reach between 1%-1.25% of net NPA for FY 2025 and we would explore the possibility of improving the provisional coverage ratio.

    — Vijay Anandh

  • Slippages Asset Quality · FY26 · High confidence Rs. 650-700 crores

    Previously Rs. 800 crores → Rs. 650-700 crores

    So we gave a guidance of Rs. 800 crores for the current year and we closed at Rs. 815 and for the next year, we will be around Rs. 650-Rs. 700 crores.

    — Vijay Anandh

  • PCR (without technical write-offs) Asset Quality · FY25 · High confidence 60%
    We have reached our desired levels of 60% PCR without technical write-off within this year.

    — N. Kamakodi

Efficiency

  • Cost-to-Income Ratio Efficiency · FY25 · High confidence 48%-50%
    our cost to income ratio we said would be around 48%-50% for the current year and once the full benefits of digital lending and other initiatives transfer into growth, the CIR will start coming down.

    — Vijay Anandh

Retail Lending

  • Retail Exit Number Retail Lending · FY26 · High confidence Rs. 3,000 crores
    So to be precise, we are looking to exit this year with Rs. 3,000 crores. Rs. 3,000 crores should be the exit number for retail for this year as we speak.

    — Vijay Anandh

Branch Expansion

  • Number of New Branches Branch Expansion · FY26 · High confidence 50-75 branches
    So this year, from 875, probably we will be taking it to about another 50-75 basis points, 75 branches. If let us say, things are favorable, we may also open few more branches.

    — N. Kamakodi

What to watch in Q1 FY26

Credit Growth vs Systemic Growth

Next quarter (Q1 FY26)
Current 14% for FY25, double-digit in all 4 quarters
Target 2-3% more than systemic growth for FY26

Why it matters

To verify if the bank is gaining market share and achieving its ambitious growth target.

If you see the visibility, we would be 2%-3% more than the credit growth.

Risks & concerns

  • Geopolitical situations and economic turbulence

    medium

    Management hopes existing situation continues without turbulence, but acknowledges external factors.

    Management acknowledged

  • Decreasing interest rate cycle impact on NIM

    medium

    Bank has migrated gold loans to fixed rates and reduced deposit rates to cushion the impact.

    Management acknowledged

  • Impact of Tamil Nadu government bill on loan recovery

    low

    Management clarified that the law does not apply to RBI-regulated entities like City Union Bank.

    Analyst downplayed

Q&A highlights

8 direct
FY26 Growth Outlook Direct
If you see the visibility, we would be 2%-3% more than the credit growth.

Provides specific forward-looking guidance on loan book expansion relative to the broader market.

Asked by Sameer Bhise (Dymon Asia)

FY26 NIM Outlook and Rate Cut Transmission Direct
We are at 3.6. We will be plus or minus 10. As we spoke in the call, we have reduced our SB rate and TD rate. Eventually, we will start seeing this in the next 2-3 quarters. So we will be in the range of 3.6 plus or minus 10 bps as confirmed in the call.

Clarifies the bank's expected NIM range for the next fiscal year, considering deposit rate reductions and fixed-rate gold loans.

Asked by Sameer Bhise, Dhaval Gala (Ambit Capital), MB Mahesh (Kotak Securities), Puneet (Macquarie Capital)

Cost of Deposits Trajectory Direct
The cost of deposit is because of TD. And we have currently the TD rate only in the month of April, number one. Number two, our SB rate also, we cut only in the February last week, so that is the reason why the cost of deposits is slightly higher. ... So when the older deposit is getting matured now, we get that benefit on the reduced rate of interest in the term deposit today and so it has potential to cushion whenever we get into the reducing interest rate cycle.

Explains the current elevated cost of deposits and the expectation for it to decline as repricing of TDs and SB rates takes effect.

Asked by Jai Mundhra (ICICI Securities)

MSME Growth and Digital Lending Impact Direct
Out of this Rs. 6,500 crores growth, about Rs. 4,000 crores growth has come from the MSME. For example, this should give you some idea, definitely the digital lending for MSME through our Newgen software which was guided by BCG last year. It has helped us to accelerate our credit growth per se, so less than Rs. 7.5 crore, the decision is by and large now taken by the system with minimum manual intervention. So that is now helping us to proceed further. Actually speaking, the outstanding MSME growth was 23% for the current Financial Year.

Highlights the significant contribution of MSME to overall credit growth, driven by new digital lending software.

Asked by Jai Mundhra (ICICI Securities)

FY26 Slippage Outlook Direct
So we gave a guidance of Rs. 800 crores for the current year and we closed at Rs. 815 and for the next year, we will be around Rs. 650-Rs. 700 crores. That is the number we are looking at. But in terms of provisions, we will also have, D1, doubtful 1 to doubtful 2 extra provisions we will have for the year which we may have to take. Otherwise, we are quite confident of recovery, will be more than slippages for the current year as well.

Provides clear guidance on expected slippage levels for the upcoming fiscal year, indicating continued asset quality improvement.

Asked by Bunty Chawla (IDBI Capital)

Retail Portfolio Strategy and Growth Target Direct
Our focus on LAP and HL will continue. Also for through our branch network, we are focusing on affordable home loans. ... So to be precise, we are looking to exit this year with Rs. 3,000 crores. Rs. 3,000 crores should be the exit number for retail for this year as we speak.

Details the bank's retail lending focus and sets a specific growth target for the retail portfolio for FY26.

Asked by Anand Dama (Emkay Global)

Branch Expansion Strategy and Geographic Focus Direct
So this year, from 875, probably we will be taking it to about another 50-75 basis points, 75 branches. If let us say, things are favorable, we may also open few more branches. ... Proportionately, the Tamil Nadu based branches in terms of percentage is holding or coming down. So we are almost reaching a stage of exhausting the TN expansion. So incrementally except for the unbanked, rural and regulatorily to be opened branches, we will have proportionately higher number of branches in the non-Tamil Nadu states.

Outlines the bank's branch expansion plans and its strategic shift towards increasing presence outside Tamil Nadu.

Asked by Pritesh (DAM Capital)

Impact of Tamil Nadu Government Bill on Loan Recovery Direct
Yes, this law doesn't apply to RBI regulated entities, you are right, particularly for the banks. So we don't anticipate any, let us say, issue because of this law, any new impact because of this.

Addresses a potential regulatory risk, clarifying that the new state law on coercive loan recovery does not apply to RBI-regulated banks, thus mitigating concern.

Asked by Ajit Kumar (JM Financial)

2 min read 6 chapters

Detailed narrative

FY25 Performance Overview

City Union Bank reported a robust financial year 2025, with both gross advances and deposits growing by 14% each, reaching Rs. 53,066 crores and Rs. 63,526 crores respectively. The bank's PAT increased by 11% to Rs. 1,124 crores, while its ROA stood at 1.55%, surpassing the long-term average of 1.5%. The Board recommended a final dividend of Rs. 2 per share, representing 200% on a face value of Rs. 1.

Credit Growth & Asset Quality Improvement

The bank achieved double-digit credit growth across all four quarters of FY25, a feat not seen since FY2018-19. This growth was achieved despite a strategic reduction of Rs. 1,250 crores in low-yielding assets, including Rs. 1,100 crores from Interbank Participation Certificates (IBPC) and Rs. 150 crores from NBFC funding. Asset quality saw significant improvement, with Gross NPA reducing by 90 bps to 3.09% and Net NPA by 72 bps to 1.25% for FY25. The Provision Coverage Ratio (without technical write-offs) also improved to 60% from 52% last year.

Deposit Growth & Cost of Funds

Deposits mirrored the advances growth at 14% for FY25, with CASA contributing 29% of total deposits. The bank's CD ratio stood at 84%. While the cost of deposits for Q4 FY25 was 6.02%, up from 5.75% in Q4 FY24, management expects this to normalize as recent reductions in Savings Bank and Term Deposit rates, implemented in February and April respectively, take effect in the coming quarters.

Profitability & Efficiency

Net Interest Margin (NIM) for both Q4 FY25 and the full FY25 remained stable at 3.60%, with management guiding for a range of 3.6% +/- 10 bps for FY26. The Cost-to-Income Ratio for FY25 was 47.77%, below the initial expectation of 48-50%, partly due to the postponement of some retail vertical expenses to FY26. Other income saw a 21% increase to Rs. 898 crores, driven by a 79% rise in insurance commission and a 67% increase in loan processing charges.

Digital Initiatives & Retail Strategy

The bank's digital transformation efforts are gaining traction, exemplified by the successful pilot launch and subsequent live operation of co-branded credit cards with IPL franchises, featuring a fully digital and paperless customer journey. The retail lending journey, which commenced in the second half of last year, is expected to contribute significantly to credit growth in FY26, with a target to reach an exit number of Rs. 3,000 crores for the retail portfolio by FY26. The bank is also expanding its branch network, targeting 50-75 new branches in FY26, with a strategic focus on increasing presence in non-Tamil Nadu states.

Outlook & Guidance

For FY26, City Union Bank anticipates credit growth to be 2-3% higher than the systemic growth. The bank aims to further improve asset quality, targeting slippages between Rs. 650-700 crores. Management expressed confidence in maintaining ROA around 1.5% and NIM within the 3.6% +/- 10 bps range, leveraging the benefits of deposit repricing and a shift to fixed-rate gold loans to navigate the decreasing interest rate cycle.

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