City Union Bank Ltd Q3 FY2026 Concall Summary

Key Takeaways

• Record credit growth, leadership transition: Advances grew 21% YoY, the highest in 28 quarters, as the MD & CEO prepares to hand over after 15 years. The bank front-loaded provisions to leave a cleaner balance sheet.
• NIM is stabilising after a long repricing cycle: Deposits worth INR14,200 crores have repriced, and the shift to fixed-rate gold loans is now a tailwind. Management expects NIM to hold stable in Q4, within a 10 bps band.
• Asset quality has improved for 11 straight quarters: Gross and net NPA have fallen quarter-on-quarter for nearly three years, with recoveries consistently exceeding fresh slippages.
• The deposit engine is pivoting to wholesale testing: The bank tapped the CD market for INR1,150 crores in Q3, leveraging its AA rating, while insisting the core strategy remains granular retail deposits.
• What to watch next quarter: Whether the promised NIM stability materialises as the last INR1,782 crores of deposits reprice, and any RBI communication on the new MD & CEO appointment.

Leadership Transition & Provisioning

• MD & CEO tenure ending: Dr. N. Kamakodi’s 15-year term concludes on 30 April 2026, marking his 59th quarterly earnings call. The board has submitted a list of candidates to the RBI and is awaiting approval.
• Clean-up before handover: Management explicitly stated it is taking higher provisions to reduce net NPA and improve the coverage ratio ahead of the transition, having already achieved its targeted ROA of 1.5% plus.
• Board strengthened: Shri K. Subramanian, a chartered accountant with nearly four decades at TCS, has been inducted. Existing board member Professor V. Kamakoti was honoured with the Padma Shri.
• Net worth milestone: The bank’s net worth crossed the INR10,000 crores mark during the quarter.

Kamakodi: "See, the logic is when I hand over, I have to reduce the NPA level as much as possible. And we have achieved our targeted ROA of 1.5 percentage plus, and we are going for higher provision to improve the coverage ratio and also reduce the net NPA numbers."

Margin Dynamics

• Deposit repricing tailwind: INR14,200 crores of deposits have already repriced, with another INR1,782 crores due in the next couple of quarters. This faster repricing, combined with the shift to fixed-rate gold loans, drove the NIM improvement.
• Gold loan strategy shift: The bank moved its gold loan portfolio, now 30% of the book, to a fixed-rate structure. This insulates that portion from rate cuts and supports yield stability.
• Rate cut transmission muted: The 25 bps December RBI rate cut was fully passed through on EBLR-linked loans, but the overall impact on the bank was less than 25 bps because of the large fixed-rate gold book.
• Q4 NIM outlook stable: Management guided for a stable NIM in Q4, with a variance of plus or minus 10 bps, and cited a positive bias from the CRR cut flowing into next quarter.
• FY27 margin guarded: When pressed on the FY27 margin outlook, management declined to commit, citing uncertainty around the RBI rate cycle, but reiterated an endeavour to stabilise NIM in the 3.75% to 4% range.

Kamakodi: "Ask for 1 quarter at a time. The -- you are still not sure how the RBI rate cuts are, going to move. There are multiple factors which we have to look into. But whatever that happens, our endeavour is to have 3.75% to 4% is what we had done in the previous cycle for a few quarters. That stability is what we are targeting and trying to work out."

Asset Quality

• Eleven quarters of improvement: Gross NPA and net NPA have declined quarter-on-quarter for 11 consecutive quarters, close to three full years. Recoveries have exceeded slippages for several quarters.
• Technical write-offs deployed: The bank uses technical write-offs on accounts where maximum provisions have already been made, which helps manage reported gross and net NPA figures and offers taxation benefits. A continuous stream of recoveries flows from these written-off assets.
• ECL provision bias negative: Management noted a downward bias in ECL provision requirements over the last couple of quarters, driven by lower SMA numbers, but declined to disclose the exact quantum of provisions held versus required.
• Standard asset provision: The INR22 crores standard asset provision booked during the quarter is linked solely to balance sheet growth.

Kamakodi: "I also clearly said I will not be giving any exact number till other banks give the exact numbers. I stand to that statement. I will not be the one of the first banks to give that."

Loan Growth & Portfolio Mix

• Highest credit growth in 28 quarters: Advances grew 21% YoY, the fastest since FY80. The bank has now delivered double-digit credit growth for seven consecutive quarters.
• Core portfolio focus intact: Growth remains anchored in MSME, gold loans and secured retail. MSME yields held steady at 9.5%, with only a 10-15 bps fluctuation.
• Gold loan seasonal dip: The agricultural gold loan portfolio declined 2% QoQ due to seasonal harvesting factors; management expects a return to normal.
• Retail yield pressure contained: LAP yields have softened by 20-25 bps, but the bank’s negligible reliance on DSA sourcing, not beyond 10-15%, provides a cost advantage.
• Renewable energy portfolio progressing slowly: The IFC-linked solar portfolio is expected to be completed before the end of calendar year 2026, with progress described as slow and steady.

Deposits & Liquidity

• Wholesale market tested: The bank issued certificates of deposit worth INR49 crores in Q2 and INR1,150 crores in Q3, using its AA rating to open up the wholesale deposit market. Management stressed this is a market-testing exercise and the focus remains on granular retail deposits.
• Deposit growth guidance raised: The bank now expects deposit growth in the mid-to-high teens, revised up from an earlier low-to-mid teens outlook. Growth will be driven by retail term deposits and granular CASA.
• CD ratio target: Management wants to maintain the CD ratio between 85% and 86%.
• Industry pricing holding: Despite the RBI rate cut, the bank is not seeing a substantial reduction in rates on new files procured at the industry level, attributing the stickiness to the prevailing liquidity position.

Operating Costs & Tax

• Cost-to-income on track: The cost-to-income ratio showed a small reduction and remains within the guided 48% to 50% range for FY26.
• Q3 opex drivers itemised: The sequential increase in opex included a Diwali bonus provision, a INR6-7 crores salary increase, INR4 crores in higher depreciation, and INR9 crores in GST payments. Management stated there was nothing abnormal in the pattern.
• Labour code impact minimal: Retiral benefit calculations were already based on basic plus DA, so the new labour codes have no material impact. A marginal provision of INR2 crores was made for gratuity eligibility extending to employees with one year of service, down from the previous 10-year threshold.
• Lower tax rate to persist: The current effective tax rate of about 20% is expected to continue for at least another two to four quarters, possibly through the end of next year, contingent on the NPA slippage cycle which management sees as at least four to five quarters away.

Guidance & Commitments

Key Metrics