We recently interacted with senior management and select business heads of City Union Bank (CUBK). The bank reiterated its growth guidance of 12–14% YoY for FY25 and acceleration to 15–16% YoY for FY26.
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We are impressed by the new LOS/IT system and scalability/uniformity it brings to the business, underwriting and monitoring. The quality of leads has improved dramatically and causes of rejections are well understood by the business teams instilling institutional learning. CUBK aims to improve the share of ‘green’ cases, from currently 15–20% to 35–40% over the medium term, leading to better efficiency and productivity. The initial results have been encouraging with a rise in throughput and miniscule (<0.4%) SMA2+NPA. The interaction has boosted our confidence on ~15% loan growth estimates (unchanged) for FY26E. Its recent 50–75bps rate cut in saving balances, in select buckets, should partly cushion NIM. The bank assured of no adverse impact on its derivative book.
Outlook
CUBK does not see any material headwinds in its gold loan business due to the recent guidelines. Our PAT estimates are revised up by 2/1% for FY25/FY26. Retain BUY; INR 200 TP unchanged, valuing the stock at ~1.45x FY26E ABV, in-line with RoAs.
