City Union Bank: A New Yorker’s Take on the Oldest Private Sector Bank in India

Market Woes and Stock Performance

The ET Intelligence Group points out a woeful performance by City Union Bank. The stock plummeted by a hefty 11% over the last month. Meanwhile, the broader BSE Bankex index only shifted downward by a mere 1%. This dip comes despite the country’s oldest private sector bank pushing ahead with progress in asset quality and loan book expansion. Why? Well, higher provisioning, margin pressure, and a dip in current savings account deposits have nudged up the cost of funds.

Tapping into Tamil Roots but Growing Beyond

Hailing from Kumbakonam, City Union Bank has a strong, unbreakable bond with Tamil Nadu. It’s like a borough in New York where you know everyone. Yet, one can’t survive on connections alone, and thus, the bank is branching out. Presently, 65% or 533 of its 822 branches are housed in Tamil Nadu, contributing 73% to its business. Yet, the focus is shifting. From 69% dominance four years ago, it’s beginning to carve a presence outside its home turf.

Diversifying the Loan Portfolio

The bank isn’t just sitting pretty on its laurels. With a lion’s share of its loans aimed at MSMEs and agriculture—42% and 18% respectively—CUBK’s advancing proudly displayed a 15% growth to ₹50,409 crore. Meanwhile, deposits gently ballooned by 11% to ₹58,271 crore at December 2024’s close.

Tackling the CASA Conundrum and Provisioning

Hold the champagne just yet; however, as there’s still work to be done. The bank’s CASA concentration at 27.7% tells a sobering tale. That, combined with a rising cost of funds, which leapt to 4.8% from 3.9% since March 2022, demands attention.

Yet, City Union Bank isn’t buckling under pressure. Its provisioning coverage ratio rose to 77%, way up from last year’s 71%. Though still high, the gross non-performing assets have dipped to 3.4% in December from 4.5% a year earlier, signaling emerging improvement.

A Concerted Push for Growth and Earnings

On the earnings front, the numbers are vibrant. The December quarter ushered in a stride in net interest income up by 14% to ₹587.7 crore, with net profit climbing by 13% to ₹286 crore. Icra, the credit rating stalwart, cheered the efforts, revising the bank’s outlook from "stable" to "positive" last November.

Elara Capital’s Bold Prediction

Elara Capital is bullish on this turnaround. In its recent report, it underscores the strategic shifts. Its enhancing retail sales teams and diving headfirst into digital transformation have raised eyebrows, albeit encouraging ones. The brokerage now pins the stock’s target price at ₹205 from an earlier ₹188, forecasting a price-book multiple of 1.4.

Looking Forward

With the new narrative taking shape, City Union Bank is mixing the old with the avant-garde. Like New Yorkers, it’s adapting, it’s evolving, and more importantly, it is looking beyond its traditional borders. This time, with a keen eye on strengthening its pillars in the broader financial marketplace.

In the world of finance and banking, adaptability isn’t just an option—it’s the only road to survival, much like our beloved city that never sleeps.