A steady focus on secured credit is shaping City Union Bank’s growth strategy as it seeks to expand faster than the broader banking industry. The bank remains focused on MSMEs, gold loans and secured retail lending, which it expects to drive loan growth while supporting asset quality and profitability.
Management plans to keep gold loans at around 31-32% of its loan book and MSMEs at 55-60%, with the balance coming from secured retail loans. It also aims to grow advances 2-3% faster than the banking system. Deposit growth is expected to broadly track credit growth, keeping the loan-to-deposit ratio near 85%, according to a brokerage report.
MSME growth expected to regain pace
The bank said MSME demand remains healthy despite slower growth in the June quarter. Working capital utilisation stood at around 70%, below the industry average of 73-74%. Management attributed the moderation to lower utilisation and disciplined pricing, rather than weaker underlying demand.
It expects improving business activity and stable consumption to support a recovery in MSME growth during FY27.
Gold loans remain a key growth driver
Gold loans grew 38% year-on-year during the quarter. The bank maintained a conservative average loan-to-value ratio of around 62%, providing a strong collateral buffer. Agri gold loans carry only a modestly higher LTV than non-agri loans, helping limit portfolio risks.
Asset quality also improved. Gross NPA and net NPA ratios declined to 1.73% and 0.61%, respectively. Recoveries continued to exceed fresh slippages. The bank expects slippages to stay within Rs 700-750 crore in FY27 and credit costs to normalise at around 40 basis points, supported by stable collections and healthy borrower cash flows.
Margins and productivity remain in focus
Net interest margins are expected to settle at 3.65-3.70% over the next few quarters as funding costs rise gradually. Higher-yielding gold loans, secured retail lending and stable MSME pricing are expected to provide support.
The bank front-loaded most of its branch expansion in Q1. It expects operating leverage, branch maturity, artificial intelligence and automation investments to improve productivity. The cost-to-income ratio is expected to remain at 47-48% in FY27, with a medium-term target of below 45%.
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