City Union Bank Ltd Q1 FY2026 Concall Summary

Key Takeaways

• PAT crosses INR300 crores for the first time: Net profit rose 16% YoY to INR306 crores, driven by 16% credit growth and a 27% jump in other income.
• Asset quality improved for the ninth straight quarter: GNPA fell to 2.99% from 4.66% in 2QFY24, while recoveries of INR187 crores nearly fully offset fresh slippages of INR196 crores.
• NIM held at 3.54% despite front-loaded rate cuts: The bank passed on repo rate reductions earlier than expected, but still reaffirmed its full-year NIM guidance of 3.5% plus or minus 10 bps.
• Deposit growth of 20% outpaced credit growth of 16%: Concentrated efforts on the liability side pushed deposits to INR65,734 crores, comfortably funding the loan book expansion.
• What to watch next quarter: Whether the Q2 NIM lands in the guided 3.45–3.5% band as deposit repricing kicks in, and if the retail engine sustains its INR825 crores quarterly run-rate.

Margin Trajectory & Rate Sensitivity

• Rate cut impact was front-loaded: The bank passed on the full 50 bps repo rate cut to EBLR-linked advances much earlier than management had anticipated, resulting in a net negative impact of INR71 crores (INR135 crores lost on advances, INR64 crores gained on deposits).
• Deposit repricing lags, creating a Q2 trough: The bulk of term deposit repricing happens at the end of Q2 and into Q3, so management expects a few basis points of incremental NIM compression in Q2 before a recovery to 3.55% in Q3 and 3.55–3.6% in Q4.
• Strategic EBLR discount acts as a buffer: Some borrowers received concessional pricing earlier; when RBI cuts rates, those discounts get adjusted, meaning the effective pass-through can be lower than 100% of the rate cut. This practice has been in place for 7–8 years without regulatory issues.
• Margin levers are emerging: A rising CD ratio and the recent CRR rate cut could further strengthen margins, while the removal of LCR constraints on the liability side provides additional flexibility.

Kamakodi: "Even after having the 50 basis point rate cut, which was front loaded, which we actually expected only towards the end of the current calendar year, even though it got implemented much earlier, we are still sticking with the expectations, which we shared during the last con call."

Asset Quality & Slippage Dynamics

• GNPA fell below 3% for the first time in the cycle: Gross NPA improved to 2.99% from 4.66% nine quarters ago, while net NPA dropped to 1.2% from 1.87% YoY. PCR without technical write-offs rose to 61% from 53% last year.
• Recoveries matched slippages almost exactly: Total slippages were INR196 crores, total recoveries INR187 crores, yielding a net addition of just INR9 crores. Management is confident recoveries will exceed slippages for the full year.
• MSME dominates the slippage pool but remains secured: MSME contributed INR148 crores of the INR196 crores in fresh slippages; other segments (agri, CRE, educational loan, wholesale trade) were negligible. The entire MSME book is secured, with no unsecured exposure.
• SMA-2 improved to 1.59% from 2.22%: The early-warning metric is flat to marginally down from Q4, and management sees no unusual pattern or emerging stress in the SMA space over the next 6–9 months.
• Provisioning math is shifting favorably: Write-offs were taken in D2 and D3 accounts where provisions already existed at 50–80%, while new additions of ~INR180 crores are mostly SSA requiring only 15–25% provisions. Restructuring provisions are being reversed after successful 12-month repayment periods.

Vijay Anandh: "Whatever the commitment I am giving is basis today's number. And as I said, SMA-2 is 1.59% of my advances, we just come down from 2.22%. And even from Q4, it is more or less flat or marginally down. So, we don't see much issue on MSME secure."

Credit & Deposit Growth

• Credit grew 16% YoY, the highest June-to-June pace: Advances rose from INR46,548 crores to INR54,020 crores, driven by improved efficiency from the digital lending process. Management aims to sustain mid-teen growth at 2–3% above the industry rate.
• Deposits grew 20% to INR65,734 crores: Concentrated efforts on the liability side pushed deposit growth above expected levels for Q1, comfortably funding the loan book.
• Gold loans jumped 11% sequentially: The portfolio is 85% existing-to-bank and 15% new-to-bank, with LTVs well below regulatory thresholds. Gold loans are looking extra lucrative because yields are supportive and the fixed-rate nature insulates them from the declining interest rate scenario.
• Retail engine delivered INR825 crores in quarterly disbursements: Combining LAP, housing loans, affordable housing, and Micro LAP, the retail book is scaling through both branches and the DSA channel in an 80-20 mix. The bank will expand into affordable housing and Micro LAP through its home branches.
• Personal loans are relationship-only: The bank gives personal loans exclusively to existing MSME customers as part of a holistic relationship; no personal loans are extended to new-to-bank customers.

Fee Income & Other Income

• Other income rose 27% to INR244 crores: A major contributor was treasury profit of INR64 crores, reflecting favorable market conditions.
• Bancassurance income is seasonal but structurally higher: Q1 FY26 fee income was INR15.74 crores versus INR12 crores in Q1 FY25. The quantum jump from FY24 (INR54.64 crores) to FY25 (INR97.56 crores) came from tying up with multiple insurance companies after previously relying solely on LIC. Management expects the same quarterly pattern as last year (Q1: 12, Q2: 18, Q3: 16, Q4: 51).
• Fee-to-assets ratio is not a material focus: Management deflected a question on the fee-to-assets trend over the medium term, noting the number is not materialistically big and the quantum jump from adding multiple insurers cannot be extrapolated year after year.

MSME & Sectoral Exposure

• MSME remains the heart of the book and is fully secured: The bank has no unsecured MSME exposure. Competition from large private banks has always existed, but management argues banking is a commodity business where service convinces customers.
• Tariff impact on textiles is manageable: Management reached out to customers immediately after tariff news. Only 20% of export exposure is US-oriented; customers reported margin compression of 2–3%. Most players have diversified to European markets, and the overall impact is not alarming.
• Demand environment is flat but not deteriorating: Some industries are doing well, some are flat. SMA metrics show no unusual pattern, and the bank does not see emerging asset quality risk in the MSME space over the next 6–9 months.

Kamakodi: "See, as I had been repeatedly saying in my multiple con calls, this is basically a commodity business and you need to continuously convince the customer that you are providing service for whatever price he is paying."

Guidance & Commitments

Key Metrics