City Union Bank’s (CUB) strategy of granular asset profile, focusing on short and long-term loans to the agricultural sector, has strengthened its balance sheet. The bank has clocked a 20 per cent Compounded Annual Growth Rate (CAGR) in the last decade and analysts remain positive on the bank’s prospects.
This 115-year old niche player from Tamil Nadu operates 700 branches and 1788 ATMs across India. About 90 per cent of its services are present in south India.
As of June 30, 2020, the bank’s loan book constituted MSMEs at 32 per cent, agriculture at 16 per cent and commercial trading at 13 per cent. CUB’s deposits and advances for the first quarter (Q1) of Financial Year (FY) 2021 saw a 5 per cent growth. Year-on-Year (Y-o-Y) growth was 7per cent. “We expect deposits and lending to grow at a CAGR of 7.7 per cent and 10.6 per cent respectively over FY21-22 estimates,” says an analyst at Geojit Financial Services.
The bank’s Net Interest Income (NII) rose to 6 per cent during Q1 Y-o-Y, whereas Net Interest Margin (NIM) was 3.90 per cent. As of June 30, 2020, CUB’s net profit was down 17 per cent to Rs 154 crore in Q1 FY2021 as against Rs 186 crore in Q1 FY2020 due to a Rs 100 crore provision made towards COVID-19 contingencies.
CUB’s net Non-Performing Asset (NPA) stood at 3.9 per cent in Q1, while its provisions coverage ratio was 68 per cent. Although 78 per cent of its customers operate cash credit accounts, the bank’s management doesn’t expect high slippages in mid and large corporate books during Q2 and Q3. This is despite offering moratorium options to all its eligible customers. “In our Q1FY21 result update, we have assessed that the management’s commentary on expected stress or NPA, after moratorium and restructuring, indicated a firm grip and visibility on the overall stress levels,” says an analyst at Nirmal Bang.
A Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) was unveiled by the finance ministry under its Rs 20 lakh crore economic stimulus. The scheme aims to boost the Micro, Small and Medium Enterprises (MSMEs) sector following distress caused by the pandemic. The management expects this scheme to play a crucial role in improving its activities and cash flow. The bank has sanctioned Rs 1,583 crore and disbursed Rs 1,218 crore under this scheme to non-individuals in business lines. “Our positive bias on the stock stems from the fact that the management seems to have a high degree of clarity, in terms of incoming stress, historical track record and relatively stronger earnings profile, over the forecast period,” says an analyst at Nirmal Bang.