City Union Bank Limited — Q4 FY26 earnings call

Call held 27 Apr 2026

Management summary

City Union Bank reported a strong Q4 and FY26, achieving its highest business growth in recent years at 24% YoY, with advances growing 26% to INR66,698 crores. Asset quality significantly improved, with Gross NPA falling to 1.91% and Net NPA to 0.68%. The bank's PAT for Q4 FY26 was its highest ever at INR360 crores, marking a 25% growth. Dr. N. Kamakodi concluded his 15-year tenure, passing leadership to Shri R. Vijay Anandh, who outlined a vision for continued growth in MSME, gold loans, and secured retail for FY27.

Highlights

  • Highest business growth in recent years at 24% YoY for FY26, highest since FY2013.

  • Advance growth of 26% for Q4 FY26, reaching INR66,698 crores from INR53,066 crores in Q4 FY25.

  • Gross NPA reduced to 1.91% in Q4 FY26 from 2.17% in Q3 FY26, falling below 2% after 11 years.

  • Net NPA reduced to 0.68% in Q4 FY26 from 1.25% in Q4 FY25, a 57 bps YoY reduction.

  • PAT grew 25% in Q4 FY26 to INR360 crores from INR288 crores in Q4 FY25, marking the highest ever in a single quarter.

Concerns

  • Cost of deposits increased marginally by 3 basis points in Q4 FY26 to 5.60% for the full year.

  • Potential impact of US-Iran conflict on asset quality is being closely monitored, though no impact observed yet.

  • Elevated operating expenses are expected for FY27, in the range of 15-18% over last year, due to branch expansion.

Key financials

  1. Advances ₹66,698 Cr +25.7%YoY
  2. Deposits ₹78,308 Cr +23.3%YoY
  3. Gross NPA 1.9% -38.2%YoY
  4. Net NPA 0.68% -45.6%YoY
  5. PAT ₹360 Cr +25%YoY
  6. NIM 3.9% -0.51%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 The bank can maintain its Liquidity Coverage Ratio (LCR) and has elbow room to extend another INR3,000 crores in advances without needing to increase deposits. With over 20% Tier 1 equity, the bank expects reduced ECL provisioning requirements under new regulations.
    We can, in fact, still maintain the liquidity coverage ratio, and we can go for another INR3,000 crores of advances without increasing the deposits and that much elbow room is also available. These sorts of tactical decisions we take depending upon the day-to-day ALM and the regulations that are prevailing, and don't read too much into a 3 basis point thing. ... And since we have 20% plus Tier 1 equity, let's say I don't think we will let's say the ECL provisioning requirement may not be there in the future, which is also a good news which we just we are receiving.

Guidance & targets

Advances

  • Advances Growth Advances · FY27 · High confidence 2-3% over industry credit growth
    So, in terms of vision for '26-'27, with respect to advances, we should be 2% to 3% over and above the credit growth of the industry.

    — R. Vijay Anandh

Loan Portfolio Composition

  • MSME Proportion Loan Portfolio Composition · FY27 · High confidence 55-60%
    MSME proportion will continue to dominate with 55%, 60%

    — R. Vijay Anandh

  • Gold Loan Proportion Loan Portfolio Composition · FY27 · High confidence 30-35%
    followed by JL with 30% to 35%

    — R. Vijay Anandh

Business Mix

  • Third-party business proportion Business Mix · FY27 · High confidence 1-2%
    Our business through third-party on an overall bank book we envisage to be only between 1% to 2%.

    — R. Vijay Anandh

Efficiency

  • Credit-Deposit Ratio (CDR) Efficiency · FY27 · High confidence 85-87%
    Our endeavour on the CDR continues to be 85% to 87% based on the credit growth.

    — R. Vijay Anandh

Revenue Mix

  • Fee Income to Other Income Ratio Revenue Mix · FY27 · High confidence 55-60%
    With respect to fee income to other income, we will be in the range of 55% to 60% as like last year, contribution of fee income to other income.

    — R. Vijay Anandh

Operating Expenses

  • Operating Expenses Growth Operating Expenses · FY27 · High confidence 15-18% over last year
    We expect an elevated operating expenses for the current year in the range of 15% to 18% over the last year.

    — R. Vijay Anandh

Profitability

  • Return on Assets (RoA) Profitability · FY27 · High confidence 1.65-1.67%

    Previously 1.56% → 1.65-1.67%

    Absolutely, sir. I think we should exit this year with at least 10 bps more in ROA, so we should be there between 1.65% to 1.67%.

    — R. Vijay Anandh

  • Net Interest Margin (NIM) Profitability · FY27 · Medium confidence Stable, narrow band (5-10 bps)
    We expect the stable net interest margin for the current financial year '27 with almost in the same narrow band of maybe 5 to 10 basis points this way or that way, but we hope to maintain that.

    — N. Kamakodi

Asset Quality

  • Credit Cost Asset Quality · Next 15 years · Medium confidence 50% reduction from 0.60% average

    From 0.60% today

    Now with the improved underwriting based on the AI and the improved LOS and all, my expectation is that at least there has to be 50% reduction in this number in the next 15 years or so.

    — N. Kamakodi

What to watch in Q1 FY27

Return on Assets (RoA)

FY27
Current 1.56% (FY26)
Target 1.65-1.67%

Why it matters

RoA is a key profitability metric, and achieving this target under the new MD will be crucial for investor confidence.

Absolutely, sir. I think we should exit this year with at least 10 bps more in ROA, so we should be there between 1.65% to 1.67%.

Risks & concerns

  • Impact of US-Iran conflict on asset quality

    medium

    Management is closely monitoring the situation for any reflection on asset quality, though none observed so far.

    Management monitoring

  • Potential economic downturn

    medium

    Management acknowledges that an economic downturn could affect existing customers, but underwriting filters are designed for multiple business cycles.

    Management acknowledged

  • Elevated operating expenses due to branch expansion

    low

    Operating expenses are expected to be 15-18% higher in FY27, primarily due to the planned opening of 75 new branches annually.

    Management acknowledged

Q&A highlights

7 direct
Gold Loan Risk Management Direct
So, keeping all those things into account, when they say the gold price crossed beyond say INR12,000 and things like that, we did not increase the per gram rate beyond that. So, when it went to that INR15,000, INR16,000 and all, we had continued to give at the range of around INR10,000 per gram, or not, we had never crossed INR10,300 or something like that.

Analyst questioned the bank's strategy for gold loan risk given recent price volatility; management explained their conservative lending practices.

Asked by Jai Mundhra

Cost of Deposit Trend Partial
But what I have to say is that it gave us a sufficient cushion so that we could even retire the high cost certificates of deposits and things like that. See, the one thing you have to keep in mind is that the 3-basis point, 5-basis point difference could happen even because of the variations in the average CASA rates.

Analyst probed if the marginal increase in cost of deposits indicated a new trend; management clarified it was due to tactical adjustments and CASA variations.

Asked by Jai Mundhra

Yield on Advances and NIM Sustainability Direct
So even though you have only that mathematically speaking, only that let's say 65 percent of the portfolio or sort of incrementally the yields are holding up, and that's why we are able to see the margins holding to a greater extent.

Analyst questioned how NIM was maintained despite a YoY drop in yield on advances; management highlighted the fixed-rate gold loan portfolio and stable incremental yields.

Asked by Jai Mundhra

ROA Target for FY27 Direct
Absolutely, sir. I think we should exit this year with at least 10 bps more in ROA, so we should be there between 1.65% to 1.67%. That's the number probably we will plan basis the retail income deliverable and little bit of cost-to-income coming down.

Analyst asked for a forward ROA target; the incoming MD provided a specific target for FY27.

Asked by Jai Mundhra

Impact of New ECL Regulations Direct
Looks like it has now asked the banks to adjust in the opening balance itself in the reserve so that no impact on the P&L. And since we have 20% plus Tier 1 equity, let's say I don't think we will let's say the ECL provisioning requirement may not be there in the future, which is also a good news which we just we are receiving.

Management shared real-time positive news about new ECL regulations potentially reducing future provisioning requirements.

Asked by Jai Mundhra

MD's Post-Retirement Role Direct
I'm honoured by this question and Board also asked me for my comfort to join the Board in the non-executive capacity, which I'm honoured for that offer. So, it depends upon the regulatory comfort. ... I'll be honoured to take the position of Chairman City Union Bank Foundation.

Analyst inquired about Dr. Kamakodi's future plans after stepping down as MD & CEO, revealing his potential continued association with the bank.

Asked by Jai Mundhra

Internal Gold Loan Portfolio Limit Direct
See, on gold loan, basically, the 30, 31, 32 itself is like say we are almost at the upper band. Even if it is a, what is that sweet Kheer, you will not be able to take beyond couple of cups or so. You need limit for everything. Maybe there could be that 1% or 2% here and there increase. So that 1% or 2% fluctuations could be there, but when it crosses 30, at least we have to take it with a pinch of salt is the approach which we keep for the gold loan, and this is something which we have to accept.

Analyst asked about internal limits on gold loan exposure, and management clarified their cautious approach around the 30-32% mark.

Asked by MB Mahesh

Drivers of MSME Loan Demand Direct
On the MSME front, the growth is because of the combination of all the factors which you mentioned. In fact, you may recall when the RBI policy statement was given out, it in fact talks about the capacity utilization of the economy has in fact increased, which went to about 70% post COVID.

Analyst sought clarity on the nature of MSME demand; management linked it to increased capacity utilization and economic expansion post-COVID.

Asked by MB Mahesh

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Detailed narrative

Strong FY26 Performance and Leadership Transition

City Union Bank concluded FY26 with robust performance, achieving its highest business growth in recent years at 24% YoY. This marks a significant milestone, as it's the highest growth rate since FY2013. Dr. N. Kamakodi, the outgoing MD & CEO, completed his 15-year tenure, during which the bank saw its market capitalization grow 11x to INR19,450 crores and net worth increase 10x to INR10,459 crores. Shri R. Vijay Anandh will assume the role of MD & CEO from May 1, 2026, with a vision for continued growth.

Robust Credit and Deposit Growth

The bank reported a 26% advance growth in Q4 FY26, with total advances reaching INR66,698 crores, up from INR53,066 crores in Q4 FY25. Deposit growth also matched this pace, increasing by 23% to INR78,308 crores in Q4 FY26 from INR63,526 crores in Q4 FY25. The full financial year saw an incremental credit growth of INR13,600 crores, demonstrating consistent double-digit growth over the last eight quarters. The bank's strategy focuses on core MSME, gold loans, and secured retail, avoiding riskier segments.

Significant Asset Quality Improvement

Asset quality showed continuous improvement, with Gross NPA reducing to 1.91% in Q4 FY26 from 2.17% in Q3 FY26, marking the first time it has fallen below 2% in 11 years. Net NPA also decreased significantly to 0.68% in Q4 FY26 from 1.25% in Q4 FY25, a 57 bps YoY reduction. Total SMA (0, 1, 2) declined sequentially to 2.47% in Q4 FY26 from 3.68% in Q3 FY26, and SMA 2 to total advances stood at 0.72%. Recoveries of INR231 crores in Q4 FY26 exceeded slippages of INR199 crores.

Profitability and Efficiency Gains

Net Interest Margin (NIM) for FY26 stood at 3.74%, a 14 bps improvement over 3.60% in FY25, while Q4 FY26 NIM was 3.87%. Interest income grew 21% in Q4 FY26 to INR1,856 crores and 18% for the full year to INR6,870 crores. The Cost-to-Income Ratio improved to 46.15% in Q4 FY26 and was 47.93% for the full year, within the guided range of 48-50%. Profit After Tax (PAT) for Q4 FY26 was INR360 crores, a 25% growth YoY and the highest ever in a single quarter, contributing to an 18% YoY PAT improvement for FY26 to INR1,326 crores.

Strategic Focus for FY27 under New Leadership

Shri R. Vijay Anandh outlined the strategic direction for FY27, targeting advances growth 2-3% above the industry average. The bank will continue its focus on MSME (55-60% of portfolio) and gold loans (30-35%), with secured retail as an additional enhancer. The Credit-Deposit Ratio (CDR) is targeted at 85-87%, and fee income is expected to contribute 55-60% to other income. The bank also opened its 1,000th branch, enhancing its distribution capacity, though this will lead to elevated operating expenses of 15-18% over last year for FY27.

Conservative Gold Loan Strategy

Management reiterated its conservative approach to gold loans, a key growth driver. Despite market gold prices reaching INR15,000-16,000 per gram, the bank maintained its lending rate at around INR10,000-10,300 per gram. This strategy, informed by the 2014 gold price crash, provides a significant cushion against potential price drops. Internally, the bank views gold loans at 30-32% of the portfolio as the upper band, allowing for only minor fluctuations to manage risk effectively.

Impact of New ECL Regulations

The bank received news during the call regarding new ECL regulations, which will require banks to adjust provisions in the opening balance rather than impacting the P&L. Management views this positively, stating that with over 20% Tier 1 equity, the bank's future ECL provisioning requirements may be reduced. This regulatory change is expected to provide more flexibility and potentially improve future profitability.

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