Capitaline

Analyst Meet / AGM 13-Aug-19

Conference Call

City Union Bank

Maintains credit growth guidance of 18-20% and RoA of 1.5-1.6% for FY2020

City Union Bank conducted a conference call on 08 August 2019 to discuss the financial results for the quarter ended June 2019 and prospects of the bank. Dr N Kamakodi, MD&CEO of the bank addressed the call:
Highlights:

The bank has maintained the guidance for credit growth at 18-20%, slippage ratio to closing advances at 1.75%-2.0%, ROA at 1.50-1.60% and NIM of remain 4.1% +/- 20bps for FY2020. The cost-to-income ratio will be in the range 42% for FY2020.
The credit growth of the bank stood at 14% against 15% last year. The bank has seen negative credit growth generally during first quarter with slightly higher unutilized credit figures, while it still think loan growth for FY2020 should be as per expectations.
The bank has witnessed slippage of Rs 199.88 crore which is 2.48% of closing advances. The spike in ratio was on account of one educational institution with over Rs 50 crore exposure slipped to NPA as indicated earlier.
The interest income reversals on educational institutions account stood at Rs 1.75 crore in Q1FY2020.
The Net Interest Margin stands at 4.11% compared to 4.40% during Q4FY19, while the decline in margin is on expected lines and partly due to reduction in average CD ratio.
The recovery of NPA through liquidation of collaterals though slowly improving, it is below expectations. The recovery stood Rs 48 crore in live and Rs 31 crore in technical write off accounts taking the total recovery to Rs 79 crore for Q1FY2020.
Favorable yield movements in domestic treasury has helped the bank to record Rs 30 crore profit in Q1FY20 against Rs 7 crore in Q1FY19.
There was no fresh sale of any assets to ARC in Q1FY2020.
The bank had earlier indicated about completion of resolution in one major SR account for which repayment will commence from Q3FY2020. Top 4 accounts take care of around 90% of total Security Receipts. As per the bank, the resolutions of all the top 4 accounts are almost completed and cash has started coming in all the four accounts. The bank has received a sum of Rs 10.48 crore during Q1FY20 and since the repayment terms goes up to 2022, the bank expects there will be cash flows continuously.
The outstanding SRs as at the end of June 2019 stands reduced to Rs 313 crore. The bank has received a lumpy sum (Rs 20 crore) in July 2019 and the balance will be settled within the year.
Based on the receipts of cash from accounts held in SR, valuation done by rating agencies and repayment terms, the bank has reversed an amount of Rs 24 crore in Q1FY20.
The bank is in the process of making necessary tie-ups / agreements with Insurance and Mutual Funds distribution with companies like Star Health, Integrated Enterprises, BSE Star Mutual Funds, etc.
The bank do not expects any spectacular increase in third party distribution immediately but it feels these are needed in the long run.
The bank has received request only for 5 accounts for restructuring to the tune of Rs 7.71 crore in Q1FY2020 and the RBI has given time up to March 2020. The bank has been asking its eligible customers to use the restructuring facilities.
The total restructured standard advances currently stood at Rs 64 crore which is 0.20% of Gross advances.
A stressed paper unit a couple of years ago with over Rs 50 crore exposure, has exited the watch list due to some capital infusion. It is showing some signs of sickness. The promoters are working for sale of non-core assets and it may survive. Even if it becomes NPA, the bank still believe that, year as a whole slippage ratio will be between 1.75-2% of closing advances apart from quarterly aberrations, if any.
The SMA category loan book of the bank is moving in line with banks usual track record and it does not have any concerns.
The bank has planned to open around 50 branches/outlets during the year and opening will commence from Q2FY20 onwards.
The provision made for the Q1FY2020 included provision for NPA of Rs 144 crore, while bank has written back investment provisions of Rs 24 crore and standard assets provision of Rs 3.75 crore in Q1FY2020.
At its AGM, the bank is proposing to seek the shareholders approval for an enabling resolution for QIP issue of Rs 500 crore. The bank has been availing approval for QIP issue every year since 2008-09, but it has used it only once in July 2014.

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