City Union Bank Limited Q1 FY27 Earnings Call Summary

Event Participants

Executives

3
R. Vijay Anandh (MD & CEO), J. Sadagopan (CFO), V. Ramesh (Executive Director)

Analysts

11
Akhilesh, Aman, Jai Mundhra, Jayant Kharote, Param Subramanian, Parth Kothari, Pritesh Bumb, Punit Bahlani, Pushpit Jain, Sonal Mehta, Subramanian K.

Financials & KPIs

Geographic & Segment Commentary

• MSME: ~55%-60% of book; grew ~15%, constrained by ₹900 crore monthly repayments, utilization dropping from 73% to 70%, and a deliberate cautious pricing stance. Management expects MSME to grow 2-3% above system credit growth, supported by strong asset quality and demand across textiles, auto components, and paper packaging.
• Gold Loans: ~31%-32% of book; yields of 10%-10.5% (agri) and 11%-11.5% (non-agri); average gold yield at 10.6%. No yield cuts despite competition; rates raised 20-25 bps over the last year. Average LTV at 62.07%; agri LTV 5-7% higher. Branch expansion (700 → 800 → 1,000 branches) is a key growth driver.
• Secured Retail: ~10% of book target; yields at 9.6%-9.7%; a growth enhancer alongside gold loans while MSME remains core.
• Business Enterprises / Large Industries: Business enterprises (non-MSME) at ₹18,826 crore; large industries classified at turnover ≥₹750 crore. Sequential movement driven by utilization and yield-based exits — management held pricing discipline rather than chasing low-yield large corporate business.
• ECLGS: ₹800 crore disbursed to date against total eligibility of ₹2,000-2,500 crore; scheme provided working capital support with no visible stress in the portfolio.

Company-Specific & Strategic Commentary

• Leadership Transition: R. Vijay Anandh took over as MD & CEO, succeeding Dr. N. Kamakodi, who continues to head the bank's CSR foundation; board expressed gratitude for the smooth handover.
• Digitization & AI: Investments made in AI and automation across operational processes; management aspires to bring cost-to-income below 45% over a three-year horizon.
• Third-Party DSA Strategy: DSA-originated business capped at 1%-2% of the overall book to protect asset quality.
• Mutual Fund Deployment: ₹700 crore invested in mutual funds generating ₹12 crore income, classified under other income; adjusted investment yield would be 6.67% vs reported 6.42%.
• FCNR Opportunity: ₹150 crore mobilised under RBI's FCNR deposit relaxation window.

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Margin Outlook & Cost of Funds

• Question: What are the levers for margin improvement in FY27-FY28, given stagnant yields? (Parth Kothari, 360 ONE Capital)
• Answer: Yield discipline maintained across products — gold loans at 10.6%, retail at 9.6%-9.7%, MSME at 9.3%-9.4% — combined with conservative deposit pricing supports NIM of 3.7%-3.75% long term. (R. Vijay Anandh)
• Question: Why did cost of funds rise despite lower deposit costs? (Aman, ICICI Securities)
• Answer: Borrowing/refinance costs rose to ₹94 crore in Q1 from ₹72.50 crore in Q4; cost of deposits declined 4 bps QoQ to 5.56%. (Management)

Gold Loan Strategy & Competition

• Question: How is competition affecting gold loan growth and pricing? (Subramanian K., IIFL Capital; Punit Bahlani, Dolat Capital)
• Answer: No yield cuts; branch-driven customer franchise differentiates the bank; gold share guided at 31%-32%, with no major competitive threat seen. (R. Vijay Anandh)
• Question: Why not raise gold loan rates by 100 bps to calibrate growth? (Jai Mundhra, ICICI Securities)
• Answer: Agri gold loans priced 100 bps lower to support genuine post-harvest needs; non-agri at 10.5%-11%; may adjust only 10-20 bps if market moves. (R. Vijay Anandh)
• Question: How are gold price per-gram limits and LTVs calibrated? (Jai Mundhra, ICICI Securities)
• Answer: Price reset based on ~1-month gold price movement; current average LTV at 62.07%; would move to 65%/69%/73%/78% at 5%/10%/15%/20% gold price declines. (R. Vijay Anandh)

MSME Growth & Utilization

• Question: Why is MSME growing at ~15% when system is 20%+? (Subramanian K., IIFL Capital)
• Answer: Three factors explain the gap: ₹900 crore monthly repayments, utilization down from 73% to 70%, and cautious pricing; expects MSME to grow 2-3% above system. (R. Vijay Anandh)
• Question: Could competition be driving utilization down? (Pritesh Bumb, DAM Capital)
• Answer: No — utilization tracks business needs; as primary banker for most clients, the bank monitors cash flows closely and considers 70% comfortable. (R. Vijay Anandh)

Asset Quality & Credit Costs

• Question: What are comfortable credit cost and slippage levels over 1-2 years? (Sonal Mehta, Princeton Capital)
• Answer: Steady-state credit cost of 0.4%; FY27 slippages of ₹700-750 crore (1.2%-1.3%); recoveries have exceeded slippages for ~10 quarters and this trend is expected to continue. (R. Vijay Anandh)
• Question: Can you quantify SMA buckets as of June? (Jai Mundhra, ICICI Securities)
• Answer: SMA-0 at 1.2%, SMA-1 at 0.7%, SMA-2 at 0.9%; total 2.85%, down sharply from 7.12% in June 2025 and 10.78% in September 2024. (R. Vijay Anandh)

ECL & Capital

• Question: What is the ECL provisioning plan? (Punit Bahlani, Dolat Capital)
• Answer: Largely secured book keeps ECL at ~0.45% of loans, consuming ~0.6%-0.65% of CAR; incremental flow-based provisions are negligible. (R. Vijay Anandh)
• Question: ECLGS participation and progress? (Pritesh Bumb, DAM Capital)
• Answer: ₹800 crore disbursed to date against total eligibility of ₹2,000-2,500 crore; scheme came at the right time and supported working capital cycles with no visible stress. (R. Vijay Anandh)

Profitability & Operating Leverage

• Question: Why guide ROA at 1.55% when OpEx growth is controlled? (Jayant Kharote, Axis Capital)
• Answer: Staff hikes from July 2026 and front-loaded branch openings push CIR to 47%-48%; other income of ₹243 crore in Q1 should scale to ₹300-320 crore by Q4 as in FY26, enabling exit ROA of 1.6%-1.65%. (R. Vijay Anandh)
• Question: Cost-to-income potential over a 3-4 year horizon? (Akhilesh, North Rock LLC)
• Answer: Aspiration is below 45%, supported by AI and automation investments across operations. (R. Vijay Anandh)

Portfolio Mix & Exits

• Question: What explains the sequential surge in the large industry book? (Pushpit Jain, Ambit Capital)
• Answer: Movements reflect utilization and pricing; some customers exited due to yield pressure as the bank held its rates rather than compromising pricing. (R. Vijay Anandh)
• Question: What is the "business enterprises" segment? (Jai Mundhra, ICICI Securities)
• Answer: Non-MSME loans without Udyam Registration Certificate; large industries classified at turnover ≥₹750 crore and above. (R. Vijay Anandh)

Macro & Sector Outlook

• Question: What is driving such strong MSME optimism? (Param Subramanian, Investec India)
• Answer: Strong momentum in Tiruppur textiles (aided by the EU-India trade agreement), Sriperumbudur auto components, and paper/corrugated packaging in Kangayampalayam; domestic consumption largely insulated from West Asia crisis. (R. Vijay Anandh)

Key Takeaway

City Union Bank delivered a record Q1 FY27 with PAT of ₹383 crore (+25% YoY) and operating profit of ₹581 crore (+29% YoY) — both highest in bank history — on 25% YoY advances growth to ₹67,645 crore and 21% deposit growth to ₹79,342 crore. Asset quality improved for the 12th consecutive quarter, with GNPA at 1.73% and NNPA at 0.61%, recoveries of ₹206 crore exceeding slippages of ₹195 crore, and SMA to advances below 1%. Management guides FY27 credit growth at 2-3% above industry, NIM at 3.65%-3.7% (from 3.78% in Q1), credit cost ~0.4%, slippages of ₹700-750 crore, CIR of 47%-48%, and ROA of 1.55%+ with exit ROA of 1.6%-1.65%, supported by fee income scaling to ₹300-320 crore by Q4. Key watch points include rising deposit competition, MSME utilization (down to 70% from 73%), and execution under new MD & CEO R. Vijay Anandh, with ECLGS (₹800 crore disbursed, ₹2,000-2,500 crore eligible) providing a near-term cushion.