An excellent earnings call with Dr. Kamakodi, CEO of City Union Bank. Always great to listen to him though it was an average quarter for CUB. Thoughtful and clear presentation and answers.
https://www.youtube.com/watch?v=y85PIlDDRiw.
A few takeaways:
Q3 – Slower growth (deposits up 5% and advances up only 2%) but expected to improve. FY24 growth guidance lowered to below 10% from 12-14% earlier. ROA at 1.49% in Q3 FY24 (vs 1.69% in Q2 FY24 and long term avg of 1.5%). Net NPA and GNPA are lower, provisions lower. NPA recoveries are better than slippages. Cost-to-income ratio at elevated levels (48%+) due to automation investments (with BCG), to be higher for two more quarters. NIM and Net Interest income lower with cost of funds higher. One-off FITL (Funded Interest Term Loan) impact in Q3 on NIM – portion of unserviced interest income reversed due to restructuring during Covid period. PAT for FY24 expected to cross 1000 crores for first time ever.
Growth triggers for Q4: Unwinding of KCC book (gold loan degrowth of 4000 crore) is over – some growth will possibly come from there (once the product is restarted), automated lending will support some growth (first phase over, sanctions for <3 crore loans can be done within 48 hours. 2nd phase for <5 crore loans expected in Q4, 3rd phase for <7.5 crores loans after that. Also supporting better measurement of probability of default, increases capacity to process more loan applications). 8-9% growth in Q4 maybe optimistic. Deposit growth target – to match credit growth, no challenge with raising deposits if required. Want to increase RoEs back to 15% as before.
Asset quality levers have helped PAT growth and keeping credit costs lower. Benefit of this visible for a few more quarters. SMA2 numbers are almost lowest ever (2.38%).
Insignificant impact of TN floods – a few operational issues in branches. Does not expect any material impact due to the floods. Bond yields have softened but not enough. If yields soften further (he didn’t seem positive it would), some profit booking opportunity will be there.
Credit demand areas – MSME borrowers for solar energy, capacity expansion needs (better, but not great). Textile export sector – some sluggishness. Credit proposal requests are getting back to pre-covid levels. He didn’t sound gung-ho though about overall credit demand, cautious optimism as the TV analysts would say.
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