City Union Bank Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from City Union Bank Ltd (CUB) Q3 FY23 Earnings Concall

Q&A Highlights:

• [00:29:40] Prakhar Agarwal from Elara Capital asked that considering the 15-18% growth target falling short in FY23, what’s the target for FY24. N. V. Kamakodi MD said CUB is expecting the growth rate to remain in double digits, but until 4Q results are out, it is difficult to give an exact prediction.

• [00:33:10] Prakhar Agarwal of Elara Capital enquired about the lending yields and interest rate movement, what sort of lending rate hike is seen in CUB customer base. N. V. Kamakodi MD replied that CUB were able to pass on 1-1.5% of the RBI rate hike to its customers and are planning to increase it by another 25 bp, which would result in a total transmission of around 50-60%.

• [00:36:29] Prakhar Agarwal with Elara Capital queried if there was a lapse in process that led to the INR32 crores impact and lack of paperwork. N. V. Kamakodi MD said that steps have been taken to improve the issue of not properly entering the scale of finance into the system when accepting agricultural loans with proper end use, and back-of-the-envelope calculations show that the funding was within the stipulated scale of finance.

• [00:40:00] Renish Bhuva at ICICI Securities asked if the ECL framework would impact the steady-state ROA assumption or if it can be compensated with any other line item in the P&L. N. V. Kamakodi MD said that the INR10 crore difference calculation shows it should not affect the ROA metrics because of the ECL.

• [00:40:38] Renish Bhuva from ICICI Securities queried why the staff cost is lower in 3Q and the reason for the leave encashment not being provided. N. V. Kamakodi MD said the actuarial calculations showed that the same amount provided during 1Q and 2Q was enough to cover Q3, due to an increase in the overall rate.

• [00:41:16] V.P. Rajesh of Banyan Capital asked what growth can CUB expect in the gold loan book in FY24. N. V. Kamakodi MD replied that gold loan growth between Dec. 2021 and Dec. 2022 was 25%, with a total loan portfolio of INR1,800 crore. Expectations for FY24 growth rate will be determined by systemic deposit growth and 4Q23 results.

• [00:44:23] V.P. Rajesh with Banyan Capital enquired if CUB is gaining market share and the typical gold loan size issued to customers. N. V. Kamakodi MD answered that the agri loan range is from INR1.6 lakhs to INR2 lakhs and the non-agri personal gold loan range is between INR 1 to INR1.5 lakhs. The focus is not on market share, but instead on the bank’s balance sheet growth and earning metrics.

• [00:45:58] Rohan Mandora at Equirus Securities asked if there are renegotiations happening on the spreads for the decline in yield on advances overall. N. V. Kamakodi MD replied that the gold loan segment was pulling down the average yield, but the negotiations between lenders and borrowers allowed for an increase in yield of 35 bp. This allowed for a pass through of 50% of the hike to regular borrowers.

• [00:48:11] Rohan Mandora from Equirus Securities asked about the yield on the non-gold loan portfolio. N. V. Kamakodi MD replied that the yield is about 75 bp to 1% is what the company has seen.

• [00:52:20] Gaurav Jani of Prabhudas Lilladher asked that related to loan and deposit growth, what sort of LDR can CUB stretch itself to. N. V. Kamakodi MD answered that CUB can stretch up to 90% LDR, but only if the loan repayment is 100% guaranteed to be repaid within two quarters. If it’s kept at this level for a longer period of time, it is not advisable as it is not in the long-term interest of the bank.

• [00:54:42] Gaurav Jani of Prabhudas Lilladher enquired if CUB expects the entire INR32 crore amount to be recognized in 4Q23. N. V. Kamakodi MD answered that CUB is working towards getting the necessary paperwork and inspections completed before the end of the year in order to become a regulated financial institution.

• [01:04:20] Prakhar Agarwal with Elara Capital asked that on the deposits, what’s the strategy going forward and if any rate hike is expected. N. V. Kamakodi MD replied that the company don’t expect any deposit rate hikes at this time. 4Q23 and 1Q24 will be crucial in determining the amount of rate hikes that may occur.

• [01:06:22] Akshay Doshi from InCred asked what impact will the FM’s Credit Guarantee Scheme through 9,000 corporates have on CUB’s MSME business and customers. N. V. Kamakodi MD said the existing CGTMSE system covers non-collateralized loan amounts of less than INR1 crore and will help MSMEs without extensive collateral access banking credit with a proper business plan. CUB is still waiting to see the fine print of the new policy to determine to what extent it will cover existing CGTMSE policies.

• [01:12:40] Akshay Doshi from InCred enquired what percentage of CUB’s IT expense is to the total expense. N. V. Kamakodi MD answered that the total annual expense from both capital and revenue put together will be about INR200 crore.

• [01:15:13] Akshay Doshi from InCred asked about the split of floating and fixed rate as on 3Q23. N. V. Kamakodi MD replied that except the gold loan, the other loans are floating only.