City Union Bank Ltd Q4 FY2026 Concall Summary

Key Takeaways

• Record business growth, cleanest books in decades: Total business grew ~24% YoY, the highest since FY13, while gross NPA fell below 2% for the first time in 11 years and SMA 2 improved for four straight quarters.
• NIM held near-flat despite rate cuts: NIM slipped just 2 bps QoQ to 3.87%, aided by LCR calculation changes that gave elbow room for a higher CD ratio; full-year NIM improved 14 bps YoY.
• Gold loan discipline protected the book: Management kept per-gram lending at ~₹10,000–₹10,300 even when gold crossed ₹15,000–₹16,000, building in a cushion that insulates the 30%+ gold loan portfolio from a 10–15% price correction.
• ROA exit rate guided higher: The bank expects to exit FY27 with ROA between 1.65% and 1.67%, at least 10 bps above the FY26 level, as elevated credit costs recede.
• What to watch next quarter: Whether the US-Iran conflict begins to show up in asset quality, the pace of deposit cost movement after the tactical rate fine-tuning, and any early signal on the ECL transition's steady-state credit cost.

The Quarter: Growth, Margins & Asset Quality

• Advances growth hit a 13-year high: 26% YoY advance growth was the highest credit growth the bank has ever recorded, achieved through consistent double-digit expansion over the last eight quarters and concentrated in core MSME, gold loans, and secured retail.
• Deposits kept pace: 23% deposit growth was granular, driven by both CASA and retail term deposits; the bank retired some certificates of deposit in Q4 and substituted them with retail term deposits.
• NIM stayed in a tight band: NIM for Q4 was 3.87% vs 3.89% in Q3, a 2 bps dip; full-year NIM improved 14 bps YoY to 3.74% because LCR calculation changes provided elbow room for a slightly higher CD ratio, which positively contributed to margin.
• Yield on advances proved resilient: Despite a 25 bps rate cut, yield on advances fell only 13 bps YoY to 9.80% because 30% of the book is fixed-rate gold loans carrying double-digit yields, and over ₹5,000 crores of incremental loans were booked in H2 at enhanced yields.
• Cost of deposits ticked up tactically: A 3 bps QoQ increase came from fine-tuning retail term deposit rates by 10–25 bps to ensure deposit flow supports credit growth; management cautioned not to read too much into the move.
• Other income compensated for weak treasury: Other income grew 16% in FY26 despite limited treasury profit opportunity, driven by insurance commission, processing charges, and other fee income.
• Cost-to-income improved sequentially: The ratio fell from 48.56% in Q3 to 46.15% in Q4; the full-year figure of 47.93% landed within the 48–50% guidance band.
• Asset quality reached a 22-year best: Recovery of ₹231 crores exceeded slippage of ₹199 crores in Q4; gross NPA fell below 2% after 11 years; SMA 2 improved sequentially for four consecutive quarters from 1.59% in Q1 FY26 to 0.72% in Q4 FY26.
• Provision coverage ratio caught up: PCR with technical write-offs improved to 84% from 78% YoY; PCR without technical write-offs improved to 65% from 60% YoY, part of a multi-quarter plan to bring it closer to industry levels.
• Credit cost ran below long-term average: Net provision after recoveries from written-off assets was 0.04% in FY26, versus a 15-year average of ~0.60%; FY25 was 0.09%.

Kamakodi: "And perhaps I can even say this is perhaps the best asset quality point in terms of both SME portion also in my last 22 years of stint in the bank."

Portfolio Construction & Risk Guardrails

• MSME dominates the mix: MSME is targeted to stay at 55–60% of the portfolio, with gold loans at 30–35% and the remainder in secured retail; third-party business on the overall bank book is envisaged at only 1–2%.
• Gold loan share has a hard ceiling: Management views 30–32% as the upper band; any increase beyond that would be only 1–2% in fluctuation, and crossing 30% must be taken "with a pinch of salt."
• Gold price discipline was deliberate: Even when gold crossed ₹15,000–₹16,000 per gram, the bank never offered more than ₹10,500 per gram, and typically stayed at ₹10,000–₹10,300; experience from the 2014 gold crash, when the bank lost only ~₹5 crores, informed this approach.
• Underwriting is built for multiple cycles: The bank designs filters to have "sufficient resilience to run over through multiple business cycles," not just for one or two downturns; management acknowledges that incremental slippage of 1–2% may still come from economic cycles.
• MSME demand is capacity-driven: Growth in MSME loans is attributed to units reaching near-capacity levels and going for expansion, increased utilization of CC limits, and the lowest SMA levels seen in the bank's core geography; capacity utilization in the economy is approaching 70%, with expansions typically starting above 84–85%.
• CGTMSE cover is negligible: Only 2–3% of loans are covered under CGTMSE or other government schemes, per an analyst's math.
• No US-Iran impact yet, but vigilance is on: The bank is closely monitoring the conflict; so far there has been no reflection on asset quality, and the portfolio has shown continuous improvement even after the conflict's onset.

Kamakodi: "When the price increase was too sharp, we all adopted a wait-and-watch policy, and I don't think any bank ever offered, say, a per-gram rate beyond INR11,000 and all. Even INR10,500 was something that was maximum even at the peak level of INR15,000, INR16,000, whatever that happened."

Leadership Transition

• MD & CEO change at the top: Dr. N. Kamakodi completed his maximum permissible tenure of 15 years on 30th April 2026; Shri R. Vijay Anandh takes charge from 1st May 2026.
• Successor presented his vision: Vijay Anandh outlined his FY27 vision on the call; Kamakodi stated that futuristic questions would be answered by the successor, while present and past questions would be handled by him.
• Board refresh underway: Independent Directors Shri V. N. Shivashankar and Dr. Sridhar IAS retired on 6th February after completing eight-year tenures; Shri K. Subramaniam, a chartered accountant and seasoned IT executive with AI and risk management expertise, was co-opted as Additional Director (Independent Director) and approved by shareholders via postal ballot.
• Former Chairman returns to the board: Shri R. Mohan, who previously served as Non-Executive Chairman, was inducted as Additional Director.
• Kamakodi offered continuing roles: The Board offered Dr. Kamakodi a non-executive director position, subject to regulatory comfort, and an honorary position as Chairman of the City Union Bank Foundation, the CSR arm, which he accepted.

Kamakodi: "It's a moment of relief, because over the period of time handling things -- I mean, I was in fact telling, had I known it was going to be having so much weight, probably I would have thought multiple times before taking charge."

FY27 Outlook: Growth, Margins & Returns

• Credit growth to outpace the system: Advances are targeted to grow 2–3% over and above industry credit growth, continuing the mid-teen to high-teen trajectory.
• NIM expected to stay stable: Management expects NIM within a narrow band of 5–10 bps either way; LCR calculation changes provide elbow room for a slightly higher CD ratio, which will have a positive contribution to margin.
• ROA exit rate guided to 1.65–1.67%: The bank expects to exit FY27 with at least 10 bps more in ROA, up from the FY26 level of 1.56%, which itself was at par with the 15-year average.
• Cost-to-income to stay in the 48–50% band: Full-year FY27 operating expenses are expected to be elevated, growing 15–18% over FY26, partly because 70 branches were opened in the first month of the fiscal year.
• Branch expansion pace unchanged: The bank plans to continue opening ~75 branches per year; 50 of the planned 75 for FY27 were opened in April itself, with the remaining 25 to open towards year-end.
• Fee income contribution to rise: Fee income is targeted to contribute 55–60% of other income.
• Product launches on the way: Segment-specific products for women and senior citizens are being launched, along with enhanced product propositions in savings and current accounts.
• Credit cost expected to halve over the long term: Management expects at least a 50% reduction from the ~0.60% average net credit cost over the next 15 years, aided by AI-based underwriting and improved loan origination systems, though individual years may have aberrations.

Kamakodi: "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."

Guidance & Commitments

Key Metrics