Banks and NBFCs

City Union Bank: Growing SME loans

City Union Bank is an Indian Bank based in Kumbakonam, Tamil Nadu. CUB incorporated as a Limited Company on 31st October, 1904 carrying name 'The Kumbakonam Bank Limited'

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(A) About CUB

City Union Bank is an Indian Bank based in Kumbakonam, Tamil Nadu. CUB incorporated as a Limited Company on 31st October, 1904 carrying name 'The Kumbakonam Bank Limited'

CUB set up its first Branch at Mannargud on 24th January,1930. After this, the Bank started set up a series of Branches at Nagapattinam, Sannanallur, Ayyampet, Tirukattupalli, Tiruvarur,  Manapparai,  Mayuram and Porayar within a period of 25 years. The Bank was included in the category of Scheduled Banks on 22nd March, 1945. In the year 1965, two Local Banks namely - 'The City Forward Bank Limited' and 'The Union Bank Limited' amalgamated with CUB. Consequently, the Bank's name was changed to 'The Kumbakonam City Union Bank Limited'.

The first Branch outside the state of Tamil Nadu opened at Bangalore in Karnataka in September,1980. In tune with the National image attached to the Bank, the Bank's name was changed to "City Union Bank Limited" with  effect from December, 1987.

City Union Bank share currently trades at a P/E (Trailing) of 33.14.

(B) Journey Of CUB

City union bank share history
city union bank share history
CUB Journey Since Inception

(C) Executive Management of CUB

(i) Dr. N. Kamakodi - Managing Director & CEO

Presently, Narayanan Kamakodi holds the position of Chief Executive Office & Managing Director at the City Union Bank. He is a Bachelor of Technology in Chemical Engineering, an MBA from Chinese University of Hong Kong, Ph.D. in E-Banking and a CAIIB. Mr. Kamakodi joined joined the Bank as DGM in the year 2003 and was promoted to the post General Manger in in 2005. Later, he was elevated as an Executive Director in the year 2006.

He is serving as MD & CEO of the Bank from May 2011. 

Mr N Kamakodi succeeded his father Mr V Narayanan and Chairman Mr. S Balasubramaniam.

Mr. Kamakodi holds vast experience of many years in overall operations of the Bank. His age is 47 Years. He received INR 2,86,09,383 as Remuneration for F.Y. 2019-20 i.e. 0.06% of Total Income and 0.60% of the Net Profit.

(ii) Mr. R. Mohan - Non-Executive Chairman

Mr. R. Mohan is a Career Banker and currently Non-Executive Chairman of City Union Bank. He is a Bachelor of Science, Master of Business Administration and a CAIIB. Prior to joining the Board of the Bank, Mr. Mohan served as Chief General Manager of CUB. He has been appointed on the Board under the majority sector of Banking, Agriculture and Small Scale Industry.

Mr. Mohan has a vast experience of 4 Decades in the Banking Industry.

(D) Shareholding Pattern

city union bank promoters holding
city union bank major shareholders

(E) Product Categorization

online banking cub, mobile banking cub, city union bank debit card and all other products by cub
Products Provided By CUB

CUB provides an extensive range of Technological Services such as - Net Banking, Mobile Banking, Self-service Kiosks, Bulk Note Acceptor and Point of Sales. To cater to the needs of Customers coming from many different walks of life, the Bank also has a wide offering of Savings and Deposit Products. It also offers many Loan Products to service the Financial needs of Small Individual Customers as well as Large Industries.

(F) Revenue Segmentation

CUB operates mainly under Four Business Segments namely Treasury, Corporate/Wholesale Banking, Retail Banking, and Other Banking Operations. The Segment-wise contribution to the Total Revenue of the Bank for F.Y. 2019-20 is as under -

city union bank revenue classification

During the year 2019-20, Revenue generated from Retail Banking Segment amounted to INR 2,589 Crore as against INR 2345 Crore Previous Year and contributes maximum to the Total Revenue i.e. 53.4%. Revenue of Corporate/Wholesale Banking Segment increased by 6.07% in F.Y. 2020 i.e. INR 1328 Crore as against INR 1252 Crore Last Year.

On the other hand, Total Revenue generated from Treasury Operations increased from INR 663.93 crore in previous year to INR 908.95 Crore, contributing 18.7% to the Total Revenue in the Fiscal Year 2020. Other Banking Operations contributes 0.5% to the Total Revenue and increased to INR 22.81 Crore in 2020, as compared INR 20.95 Crore Last Year.

city union bank product segment wise financial performance
  • CUB’s Corporate/wholesale Banking Segment’s Revenue grew at a CAGR of 18.7% over last 10 Years.
  • Treasury Operations Segment’s Revenue grew at 16% CAGR over past 10 Years.
  • On the other hand, Revenue of Retail Banking and Other Banking Operations Segment grew at 13.9% and 21.3% CAGR respectively in last 10 years.

(G) Distribution Network

City Union Bank strengthened its Pan India presence over the Years by opening its Branches in all the Four Areas - Rural, Urban, Metro and Semi-Urban Areas. As of March 2020, Company's Distribution Network comprises of 700 Branches and 1,749 ATMs that helps the Bank in reaching out to the Customers across the Country. The company has Strong presence in South India with 628 Branches out of which 485 Branches are in Tamil Nadu alone.

CUB network expansion in last 10 years to gain market share

CUB's Network of Branches across India is as follows -

CUB share of branches across regions as on 31 December 2020
CUB share of branches count in each state in which the bank is present

As on date, 90% of the Bank's total branches operate in South, 5% in West, 4% in North and 1% in Eastern parts of India.

(H) Peers Group

market share of CUB along with its peers

CUB has been maintaining healthy NIM. CUB's CASA% and Advances for F.Y. 2019-20 stands at 24.97% and INR 33,927.45 respectively, which are relatively low as compared to its Peer Group Banks.

(I) Loan Book Classification

(i) Product Composition

loan book composition of city union bank

(ii) Sectoral Deployment

During the Fiscal year 2019-20, MSME Sector contributes maximum to the Loan Book of the Bank i.e. 35%. On the other hand, Wholesales Traders, Agricultural and Non-Agricultural Sector contribute 13%, 11% and 8% respectively to the Total Loans of the Company.

sector wise loans of city union bank

(iii) Year-on-Year Sectoral Contribution To Loan Book

year wise change in loan book size of city union bank

CUB provides Loans into different Sectors without concentrating on a particular Sector that reduces the Credit Risk of the Bank. CUB provides Loan to more than 13 Sectors. MSME, Wholesale Traders and Agriculture Sectors collectively contribute about 60% to the Loan Book of the Bank from the last 5 Years.

(J) Employees Per Branch

E-Banking became an integral part of the Financial Environment. Transactions through Digital Channels by Bank Clients has grown significantly in the past few years. Today, CUB's 90% Transactions are being conducted through Digital Channels or Non-branch Channels. Increasing Transactions through Digital Channels results in lower Employees per Branch. Average Employee per branch reduced to 8 by FY20 from 12 in FY10, which .

(K) Interest

(i) Interest Earned

Bank's Interest Income includes Interest on Loans, Interest on Investments and other Interest Income. During the F.Y. 2019-20 Company's Interest Income increased to INR 4168.60 Crore from INR 3767.17 Crore in F.Y. 2019, recording a growth of 10.6% on account of 10% increase in both Interest on Loans & Interest on Investments and 79% growth in Other Interest Income.

city union bank interest each year over last 10 years

Interest earned by the Bank grew at a CAGR of 15.9% over Past 10 Years.

(iv) Non-Interest Income

In the year 2020, Non-interest income of the Bank registered a growth of 32% mainly on account of increase in Treasury Income.

Non interest income of city union bank

Over last 10 Years, Non-Interest Income earned by CUB grew at a CAGR of 16.8%.

(ii) Interest Expend

Bank's Interest Expenses comprises of Interest given on Deposits and other Interest Expenses. During F.Y. 2019-20, Total Interest Expenses increased by 16% due to 16% increase in Interest given on Deposits and 18% increase in Other Interest Expenses.

city union bank fd interest increased in FY20

(iii) Net Interest Income

city union bank interest income after interest expend

Net Interest Income of the Bank increased significantly over the years. During FY20, CUB's Net Income increased by 4% to INR 1,676 crore from INR 1,676 crore from INR 1,611 crore last year. Bank's Net Interest Income has grown at a CAGR of 20% over Past 10 Years.

*Net Interest Income = Interest Income - Interest Expend

(K) Deposits

The Bank's Total Deposits for the Year 2019-20, Increased from INR 38,448 Crore to INR 40,832 Crore registering a growth of 6% over last Fiscal year.

city union bank deposits over last 10 years

CUB's Deposits has grown at CAGR of 14.8% over last 10 Years.

(ii) Deposits Classification

year on year deposits of city union bank classified in 3 categories
city union bank deposits as a percentage of liabilities

CUB's Term Deposits/Fixed Deposits and Savings Deposit grew considerably over the Years. In the Year 2019-20, Term Deposits/Fixed Deposits increased by INR 1,886 Crores and Savings Deposit increased by INR 789 Crores and forms 71% and 17% respectively of the Total Liabilities.

On the other hand, Demand Deposits form 7% and Borrowings form 5% of the Total Liabilities for the F.Y. 2019-20.

(L) Operational Parameters

(iii) Borrowings

In the F.Y. 2020, The Borrowings of the Banks has gone up by INR 1551.49 Crores, as Bank has gotten LTRO, (a tool under which the central bank provides Money to Banks for a period of 1 to 3 years at the prevailing Repo Rate, accepting Government Securities with matching or higher tenure as the collateral), from RBI during F.Y.2019-20.

loan taken by city union bank

(iv) CASA

CASA stands for Current Account and Savings Account .CASA Deposit is the amount of Money that gets deposited in the Current and Savings Accounts of Bank Customers. It is the cheapest and major Source of Funds for the Bank.

CASA of city union bank over last 10 years

CASA grew at a CAGR of 16.8% over last 9 Years.

(v) Advances

Bank's Advances includes Bills Purchased and Discounted, Cash Credits, Overdrafts and Loans repayable on Demand and Term Loans. During F.Y. 2019-20, Bank's Advances increased from INR 32673.34 Crores to 33927.45 Crores.

NPA% as on 30 December 2020 is 3.37% up from 2.63% at 30 March 2020.

city union bank loans growth over last 10 years

Advances of Bank grew at CAGR of 17.38% over the last 10 Years.

(M) Significant Financial Ratios

(i) Yield on Advances

city union bank yield on advance in last 10 years

(ii) Yield on Investments

city union bank return on investments

Yield on Investments of CUB grew at CAGR of 1.5% over last 10 Years.

(iii) NIM (%)

Net Interest Margin is a measure of the difference between the Interest Income generated by banks and the amount of Interest Paid out to their Lenders, relative to the amount of their Assets i.e. Net Interest Margin = ( Interest Income – Interest Expenses ) / Average Earning Assets.It is similar to the Gross Margin of Non-Financial Companies.

net interest margin of city union bank

CUB has been maintaining & growing NIM% over last 10 years.

(iv) ROA(%)

city union bank

(v) ROE(%)

city union bank return of equity ratio over last 10 years

CUB has shown a poor ROA and ROE growth over Past 10 Years.

(vi) CASA (%)

CASA Ratio of the Bank is the Ratio of Deposits in Current and Saving Accounts to Total Deposits. A high CASA Ratio means that the Bank has a good Net Interest Margin, which indicates the good Operation Efficiency of the Bank. This is because Bank pays negligible or no interest on the Current Accounts and an above-average Return on the Savings Accounts.

During the year F.Y. 2019-20, CUB's CASA% stands at 24.97%, which is relatively low as compared to its Peer Group Banks.

CASA ratio of city union bank over last 10 years

(vii) Slippage Ratio (%)

Slippage ratio is defined as the Ratio of increase in NPAs during the year with respect to Standard Advances at the beginning of the year i.e. Slippage Ratio = Fresh NPAs/Standard Advances at the beginning of the Period. In other words, The Slippage Ratio is the rate at which Good Loans are turning Bad.

Slippage ratio of city union bank

In the F.Y. 2020, Bank's Slippage Ratio increased from 1.91% to 3.21% on account of high provisioning during Covid pandemic.

(N) Concall Highlights December 2020

Financial Highlights

  • In the 3rd Quarter of F.Y. 2020-21, Bank's Deposits increased by 9% from Rs.398 Bn to Rs.433 Bn Y-o-Y.
  • On the other hand, Advances registered a growth of 8% from Rs.338 Bn to Rs.365 Bn Y-o-Y, supported by strong growth in ECLGS (Emergency Credit Line Guarantee Scheme) and Gold Loan.
  • Total business grown by 8% from Rs.736 Bn to Rs.798 Bn Y-o-Y in Q-3, F.Y. 2020-21.
  • Gross Profit of the Bank increased by 49% to Rs.4,584 Mn from Rs.3,084 Mn Y-o-Y.
  • On the other side, Net Profit decreased from Rs.1,924 Mn to Rs.1,699 Mn Y-o-Y.
  • Net Interest Income grew by 14% YoY.
  • In the 3rd Quarter, CUB's Gross NPA stands at 2.94%. On the other hand, Net NPA stands at 1.47% because of zero addition during the Quarter.
  • Collection efficiency stands at 89% of Loan Book in Q-3.
  • Net Interest Margin is staying more than 4%.
  • The Operating Profit for Nine Months in the current year is Rs.1199 Crore as compared to Rs.1006 Crore last year for the corresponding period mainly on account of improvement in other income.

Other Key Highlights

  • Management expects 1.1 - 1.3% ROA for FY21 and NIM to be maintained at 4.1 - 4.2%.
  • Management also added that it expects Credit Costs to normalize from Q-3, FY22.
  • Company received an Insurance Claim of Rs.15 crs against the loss of around around Rs.31 crs due to Cyber Attack on Bank's ATM network during December 2018 and the same reversed during the current Quarter.
  • Bank made an Interest Reversal of Rs.25 crs and Rs.30 crs in Q-2 F.Y. 21 and Q-3 FY 21 on an adhoc basis. The ROA reported is after taking into these Interest Reversals.
  • Management also stated that Company's Focus remains on Balance Sheet strengthening.

(O) Opportunities /Strengths

(i) Focus On Increasing Consumer Base

City Union Bank focuses on catering to the various Retail Customer segments including the aspiring Consumers and growing MSMEs in India. Considering the low financial penetration in India even with very high technology adaption, India with its large Population base with mostly from the Young Generation, offers a great opportunity for Banking and Financial services in India.

(ii) Rapid Digitalization Of the Banking Sector

The banking sector, like all other sectors, is progressing towards Technological advancements. Digitalization has transformed the Manual process into Digital Services. The main steps of the Digitalization of the Banking Sector are mainly focused on adding to the existing offer the use of New Services enabled with Technology to increase accessibility and value for Customers.

CUB has implemented various Digital Solutions/Products to fulfil customer satisfaction availability of Services at all times, reduction of work pressure at branches and for providing efficient MIS information to Bank's Management. The Bank is deploying all possible Technology enabled opportunities to enhance its Services as well as its Revenue.

(iii) Expect Impressive Credit growth just like in past

Loan book growth of City Union Bank is more than 17% p.a. over last 10 years. Bank's Management is focused on growing gold loans (11% of the total loan book of CUB) at a rapid pace and corporate loans at a slower pace. Its approach toward SME lending is quite strategic. The management wants to explore the benefits arising of various Government initiatives for growth of SME sector.

For improving the SME sector, Center took several measures such as restructuring, Emergency Credit Line Guarantee Scheme (ECLGS) of INR 3,00,000cr and INR 20,000cr credit stressed SME. These boosted the spirit of MSME / non MSE sector and businesses have started generating surplus.

(iv) High Net Interest Margin on account of high yielding loans

CUB's major focus is on high yielding SME loans and working capital loans.

There is also improvement of deposits category. The bank holds more opportunities to expand saving accounts above fixed term deposits because of its efforts to expand distribution network. Saving/Current Deposits provide low cost funds to the bank, thus improved NIM.

(v) Healthy capital adequacy ratio to support credit growth

The regulatory requirement of CRAR is 11.5%. The Capital Adequacy position improved from 16.76% in Mar-20 and 17.39% in Dec-20 mainly because of sanction of ECLGS (emergency credit line guarantee scheme) & increase in Gold loans which attracts zero percent risk weight. If the profit is taken into account, the CRAR would be 18.89%.

(P) Risk/Concerns

(a) Increasing Competition

Commercial Banks like City Union Bank, have been facing Competition from Non-banking Financial Interme­diaries such as Mutual Funds, Housing Finance Cor­porations, Leasing and Investment Companies. All these Institutions compete closely with Commer­cial Banks in attracting Public Deposits and offer higher Rates of Interest than are paid by Commer­cial Banks.

(C) Slowdown In The Economy

The slowdown in the economy in the last few years led to a rise in Bad Loans or Non-performing Assets (NPAs). These are loans which are not repaid back by the borrower. They are, thus, a loss for the bank. On the Profitability front, Private Banks' Profitability Ratios has also declined. As per RBI reports, it is difficult to assess the depth of the damage caused by the Pandemic and estimate how long will it take to return to normal levels.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.


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