City Union Bank: Rising returns, better assets to keep it steady

MUMBAI: Stable asset quality and consistent returns on assets make Tamil Nadubased City Union Bank one of the better performing small-sized banks in the country. In addition, being adequately capitalised, the bank may continue to deliver healthy returns over the next few quarters. In the past five years, City Union has delivered a return on assets (RoAs) of over 1.5%, one of the best among small-sized banks.

This was made possible because of the lender’s focus on the small and medium enterprise segment. The bank has a higher number of loan assets maturing in less than one year than its deposits, which means its borrowings may not see a significant rise. As a result, it may remain less impacted by the Reserve Bank of India’s recent liquidity tightening measures that increased the cost of funds for banks.

In addition, nearly 88% of its investment book is in the held-to-maturity segment. An investment such as in government securities, which is classified as HTM, need not be booked to mark-tomarket losses. Hence, the recent rise in bond yields may have limited impact on treasury losses for the bank. City Union’s asset quality in the past few quarters has remained healthy. In the quarter-ended June, its gross NPAs stood at 1.25% as against 1.13% at the end of March.

Due to its small size, City Union’s exposure to stressed sectors like infrastructure is just 1% of its total loan book. The bank’s loan book has grown by over 25% in the past three years. Despite a weak macro-economic environment, a healthy asset quality may lead to the bank growing its loan book by 18-20 % this fiscal.