Capitaline

Analyst Meet / AGM 20-May-19

Conference Call

City Union Bank

Expects fresh slippages ratio at 1.75-2.0% for FY2020

City Union Bank conducted a conference call on 17 May 2019 to discuss the financial results for the quarter ended March 2019 and prospects of the bank. Dr N Kamakodi, MD&CEO of the bank addressed the call:
Highlights:

The bank had guided for flat operating profit in FY2019 with 18% - 20% of credit growth, slippage ratio between 1.75% and 2%, ROA of 1.50% - 1.60%, ROE around 15%+, elevated cost to income ratio of 42% - 44% due to absence of significant treasury income.
Against these expectations, the bank has closed FY19 with 17% growth in business, with same level of growth in advances & deposits.
The bank had expected better pick up of general economic environment by second half. But in realty things are not yet rosy and not too bad either, while the bank is waiting for ‘good times'.
The bank has sold excess micro enterprises portfolio of Rs 700 crore through participation certificate and brought equal amount of retail-vehicle book making ‘nil' effect in balance sheet figure for a short term period of 91 days. This resulted in decline in MSME sector exposure and increase in others category to an amount of Rs 700 crore, excluding this effect, composition also remains by and large same.
The bank has does not have any exposure to ILFS in any form or companies now in news for wrong reasons.
The slippage ratio to closing advances for FY 2019 was 1.91% and RoA stands at 1.64%, ROE 15%+ and Cost to Income at 41.67%, which are closer to the expectations shared by the bank.
The bank has witnessed some momentum in recovery in FY2019 and the actual recovery of NPA (Live + TW a/c) for FY 18-19 was totaling to Rs 338 crore comprising Rs 248 crore from live accounts and Rs 90 crore of technically written off accounts while the actual recovery for FY 17-18 was totaling to Rs 276 crore comprising Rs 205 crore from live accounts and Rs 71 crore technically written off accounts.
The bank had the highest proportion of restructured assets up to 10% in 2008-09 when it offered benefit to all eligible borrowers. Nevertheless, the bank had lowest migration to NPA in the following two years.
The bank had informed all eligible borrowers about new RBI circular and have to give restructuring if they ask for. There are around 18 MSME borrowers account has been restructured during Q4FY19 amounting to Rs 34.98 crore and the scheme is open up to March 2020. Also an amount of Rs 21.13 has been restructured under GAJA Cyclone Relief which hit Tamil Nadu during Q3FY19.
With regard to cyber attack on SWIFT system in February 2018, the bank has provided in full for the loss. The bank is also planning to going for arbitration on rejection of insurance claim.
The bank has opened 50 branches/outlets raising the total branches network/outlets to 650, of which 10 were banking outlets operated by Business Correspondents.
The bank is not required of reporting divergence for FY2019 as per the report given by RBI which was well within the threshold limits.
The bank has SRs to the tune of Rs 374 crore of which top 4 assets contributed 90%. Two of the top 4 were resolved and repayments started coming. The bank had redemption of Rs 49 crore worth SRs in the last year. The largest one got resolution last week and repayments will start from 3rd quarter and will end by year end.
The bank normally has flat growth in Q1 and net NPA may inch up by 4-5 bps, but % of net NPA is expected to start falling towards the second half.
The bank has exposure to one educational institution of over Rs 50 crore which come to stressed category last year. They repaid partly by sale of assets and got out of the list. Many private educational institutions have receivables from government for reimbursement of tuition fees for reserved category students. TN government is clearing reimbursement only for half the fees corresponding to educational year 2017-18 which is creating stress in operations. If government releases as promised the tuition fee reimbursement for year 2017-18 (half) & 2018-19 that a/c will survive else it could slip into NPA. All inclusive, the bank expects for current financial year also the slippage ratio to closing advances will be between 1.75% to 2% for FY 19-20.
The bank aims to achieve 18% - 20% of credit growth for FY2020
The ROA will be same at 1.50 – 1.60% and ROE around 15%+ in FY2020.
The cost to income ratio will be in the range of 42% for FY2020.
The bank would strive to protect profitability growth by proper focus on NPA management by reducing slippage and improve recovery of NPAs by liquidation of collaterals.

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