Summary
City Union Bank Limited - Q3 FY 2026 Earnings Call Summary Monday, February 02, 2026 4:00 PM IST
Event Participants
Executives 4 Dr. N. Kamakodi (MD & CEO), Mr. J. Sadagopan (CFO), Mr. R. Vijay Anandh (Executive Director), Mr. V. Ramesh (Executive Director)
Analysts 7 Anand Dama (Emkay Global), Gaurav Jani (Prabhudas Lilladher), Haresh Kapoor (360 One Capital), Jignesh Shial (Ambit Capital), Param Subramanian (Investec), Pritesh Bumb (DAM Capital), Sameer Bhise (Dymon Asia), Subramanian K. (Itus Capital)
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Deposits | ₹70,516 crores | +21% YoY, +21% QoQ; Growth aligned with advances; granular retail remains the focus. |
| Total Advances | ₹60,892 crores | +21% YoY; Highest credit growth since FY 2018; 7th consecutive quarter of double-digit growth. |
| Gross NPA (GNPA) | 2.17% | -119 bps YoY, -25 bps QoQ; Continuous reduction in absolute and percentage terms for 11 quarters. |
| Net NPA (NNPA) | 0.78% (₹469 crores) | -64 bps YoY; Dropped below the ₹500 crore mark for the first time in recent history. |
| Provision Coverage Ratio (PCR) | 83% | +600 bps YoY; Includes technical write-offs. PCR without technical write-offs stands at 64%. |
| Net Interest Margin (NIM) | 3.89% | +26 bps QoQ; Driven by deposit repricing benefits and higher yields from fixed-rate gold loans. |
| Operating Profit | ₹513 crores | +18% YoY; Performance in line with 21% overall business growth. |
| Net Profit (PAT) | ₹332 crores | +16% YoY; 9M FY26 PAT stands at ₹967 crores. |
| Return on Assets (ROA) | 1.53% | Marginal sequential decrease but remains above the long-term target of 1.50%. |
| Capital (Net Worth) | ₹10,000+ crores | Crossed the ₹10,000 crore milestone during the current quarter. |
Geographic & Segment Commentary
- MSME & Retail: MSME remains the core engine of growth with yields holding steady at approximately 9.5%; Secured retail focus remains on LAP and Home Loans. LAP yields are around 9.4-9.5%, while Home Loans range between 8.8% and 9%.
- Gold Loans: Represents 30% of the total loan book; comprises both Agri (18-24 month tenure) and Non-Agri (12-month tenure) segments. The segment is now transitioning to a fixed-rate regime to support NIM stability, with an average LTV of 55% on a portfolio basis.
- Wholesale/Treasury: Bank utilized its new AA rating to test certificate of deposit (CD) markets with ₹1,150 crores in Q3 to gain experience and manage short-term liquidity.
Company-Specific & Strategic Commentary
- Management Succession: MD & CEO Dr. N. Kamakodi’s 15-year tenure ends April 30, 2026; a list of candidates has been submitted to the RBI for approval.
- Digital & Board Strategy: Inducted Shri K. Subramanian (ex-TCS) to the Board to leverage his 38 years of technology and finance experience for digital initiatives.
- Product Innovation: Progressing on a renewable energy/solar portfolio (IFC-linked) with a goal to complete specific disbursement targets by calendar year-end 2026.
- Asset Quality Management: Strategic use of technical write-offs and aggressive provisioning (₹74 crores for NPAs vs ₹40 crores in Q2) to hand over a cleaner balance sheet to the successor.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Advance Growth | Mid-to-high teens for FY26 | Targeting 2-3% above industry growth; maintain focus on MSME and Gold Loans. |
| NIM | 3.75% to 4.00% | Expecting stable margins in Q4 (+/- 10 bps) supported by ₹1,782 crores in upcoming deposit repricing. |
| Cost-to-Income | 48% to 50% | Expected to remain within this range for the full year FY26. |
| ROA | 1.50% Plus | Management committed to maintaining performance above the long-term 1.5% threshold. |
Risks & Constraints
| Risk | Context |
|---|---|
| Interest Rate Risk | Potential RBI repo rate cuts may impact the 48% of the book linked to EBLR; however, a 25 bps cut in Dec was largely offset by deposit repricing. |
| Transition Risk | Management change in April 2026 poses execution risk; current CEO is focused on maximizing provisions and cleaning the book before exit. |
| Deposit Competition | While credit growth is high (21%), maintaining matching granular deposit growth in a tight liquidity environment remains a constant challenge. |
Q&A Highlights
Margin Drivers & Yields
- Question: What explains the jump in interest on advances despite industry-wide rate cuts? (Anand Dama)
- Answer: Benefits came from repricing ₹14,200 crores in deposits and moving the 30% gold loan portfolio to fixed rates. Reduced CRR and a higher CD ratio also contributed (Vijay Anandh/Kamakodi).
Opex & One-offs
- Question: What drove the sequential increase in other opex? (Anand Dama/Param Subramanian)
- Answer: Primarily business-as-usual costs: ₹9 crore increase in GST payments, ₹4 crore higher depreciation, and ₹3-4 crore in salary/bonus adjustments. No material change in DSA sourcing (Kamakodi).
Asset Quality & Provisions
- Question: Why are provisions higher this quarter despite lower slippages? (Sameer Bhise)
- Answer: Strategic decision to improve PCR and reduce Net NPA below ₹500 crores before the CEO transition. Standard asset provisions also rose by ₹22 crores due to balance sheet growth (Kamakodi).
Transmission of Rate Cuts
- Question: How will the December 25 bps repo cut impact the bank? (Rohan M)
- Answer: Full transmission occurred for EBLR loans. The total impact is roughly ₹11 crores per quarter, which is expected to be offset by term deposit repricing in Q4 (Vijay Anandh/Kamakodi).
Key Takeaway
City Union Bank delivered a landmark quarter, crossing ₹10,000 crores in net worth and achieving its highest credit growth since FY 2018 at 21% YoY. This growth was balanced by a matching 21% increase in deposits, though management is utilizing certificate of deposits to supplement retail liquidity. Strategically, the bank is focusing on MSME and a fixed-rate gold loan book (30% of total) to protect NIMs, which improved to 3.89%. Asset quality reached a multi-year high with Net NPA falling to 0.78% and SMA-2 below 1%, aided by a “clean-up” strategy of higher provisioning and technical write-offs ahead of the CEO transition in April 2026. Looking forward, the bank expects mid-to-high teen growth and stable ROAs of 1.5%+ while awaiting RBI approval for its next leadership.
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