Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- City Union Bank Ltd (BOM:532210, Financial) reported a 16% year-on-year growth in PAT, reaching INR 264 crores in Q1 FY 2025.
- The bank's gross NPA percentage has sequentially decreased from 4.91% in Q1 FY 2024 to 3.88% in Q1 FY 2025.
- Interest income grew by 10% year-on-year, increasing from INR 1,266 crores in Q1 FY 2024 to INR 1,389 crores in Q1 FY 2025.
- The bank registered a 10% year-on-year growth in advances, with advances increasing from INR 42,405 crores in Q1 FY 2024 to INR 46,538 crores in Q1 FY 2025.
- City Union Bank Ltd (BOM:532210) has successfully implemented digital lending initiatives, which are expected to drive future growth.
Negative Points
- The cost-to-income ratio remains high, expected to be in the range of 48% to 51% for the next four to six quarters.
- Operating expenses have increased, partly due to upfront costs related to digital initiatives and technology investments.
- The bank's credit growth in Q1 FY 2025 was marginal, despite a positive trend after 10 years.
- There is a potential for increased competitive intensity in the MSME lending space due to digital pushes by larger players.
- The bank's unsecured lending portfolio is still in its nascent stages, with a small beginning and limited immediate priority.
Q & A Highlights
Highlights of City Union Bank Ltd (BOM:532210) Q1 FY 2025 Earnings Call
Q: Can you provide more details on the incremental fee income and its impact on earnings growth?
A: Narayanan Kamakodi, CEO: The incremental fee income has come from both asset and interest income, which had to be booked as other income for SME accounts, and positive momentum in the insurance front. These factors have contributed to the growth in other income.
Q: Could you elaborate on your digital expenditure and its benefits?
A: Narayanan Kamakodi, CEO: We appointed BCG to help build digital lending processes, API integrations, and other digital initiatives. The total expenditure on this project is around INR25-30 crores for BCG's fees and an additional INR10-15 crores for software costs. These investments are expected to enhance our digital lending capabilities significantly.
Q: What are your growth targets for FY 2025, and how do you plan to achieve them?
A: Narayanan Kamakodi, CEO: We are targeting double-digit growth for FY 2025. Despite cyclical challenges, we have seen positive momentum in Q1 and are working hard to maintain and accelerate this growth. Our focus is on leveraging digital initiatives and expanding our secured retail portfolio.
Q: How do you plan to manage the cost-to-income ratio given the upfront expenditures?
A: Narayanan Kamakodi, CEO: We are taking some expenditures upfront, both in technology and team building, which will initially drag profitability. However, we expect to break even next financial year and see profitability improvements beyond that. Our cost-to-income ratio is expected to remain in the range of 48-51% for the next four to six quarters.
Q: What is your long-term balance sheet growth aspiration and steady-state ROA?
A: Narayanan Kamakodi, CEO: We aim for a balance sheet growth of 10-12% annually, with a steady-state ROA of around 1.3%. Our long-term strategy is to grow a few percentage points above the industry rate while maintaining stability and efficiency.
Q: How do you see the competitive intensity in the MSME lending space, especially with the digital push by bigger players?
A: Narayanan Kamakodi, CEO: The competitive intensity has been stable for over a decade. While there was some irrational pricing last year, sanity has been restored. We continue to focus on our core strengths and digital initiatives to stay competitive.
Q: What is the impact of the new RBI regulation on charging interest from the date of disbursement?
A: Narayanan Kamakodi, CEO: We have been in compliance with this regulation even before its introduction. It primarily affects retail lending where there is a gap between sanction and disbursement. For us, there is no significant impact.
Q: Can you provide an update on the new products and their expected impact on the loan book?
A: R. Vijay Anandh, Executive President: We are preparing for a pilot launch of new products like loan against property and home loans by September. We expect to see some growth in Q3 and Q4. The focus is on secured lending, and we aim to build a significant portfolio in these segments.
Q: What is your outlook on credit costs and their impact on profitability for FY 2025?
A: Narayanan Kamakodi, CEO: We expect credit costs to moderate compared to last year. Our slippages have decreased, and recoveries are strong, which should help maintain profitability. We anticipate credit costs to be around INR800 crore or slightly below for the year.
Q: How do you plan to manage capital adequacy and potential strategic opportunities?
A: Narayanan Kamakodi, CEO: We have not raised major capital in the past 10 years and do not foresee a need for it in the near future. We maintain an enabling resolution for capital raising as a precautionary measure. Any strategic opportunities will be considered judiciously, focusing on long-term stability and growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
