City Union Bank Q2 FY27 Earnings Call: Business Crosses Rs. 1.5 Lakh Crore, NIM Guidance Reiterated at 3.85-3.95% (CUB)

City Union Bank Ltd held its Q2 FY27 earnings call on October 28, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Strong Quarter: Growth, Margin Expansion and Negative Credit Cost

• Total business crossed Rs.1.5 lakh crore in Q2 FY27 (vs Rs.1.2 lakh crore in Q2 FY26); advances grew 26% YoY to Rs.72,442 crore, including a >Rs.4,800 crore (~7%) sequential addition in Q2 FY27.
• NIM improved to 3.87% in Q2 FY27 (Q1 FY27: 3.78%); H1 FY27 NIM of 3.83% vs 3.59% in H1 FY26, aided by yield on advances of 9.85% and cost of funds down 4 bps QoQ to 4.74%.
• PAT of Rs.416 crore (+27% YoY) in Q2 FY27 and Rs.798 crore in H1 FY27 (+26% YoY); ROA at 1.62% for Q2 FY27 and 1.59% for H1 FY27.
• Other income of Rs.350 crore (+35% YoY) in Q2 FY27, driven by the ARC sale of TW accounts and Rs.137 crore TW collections; PSLC income was Rs.9.6 crore.
• Cost-to-income improved to 45.96% in Q2 FY27 (Q2 FY26: 49.16%); H1 FY27 at 45.71% vs 48.66% in H1 FY26.
• Provisions of Rs.245 crore in Q2 FY27 (vs Rs.160 crore), including a Rs.50 crore contingent provision against economic uncertainties that management plans to build further in coming quarters.

MSME, Gold and Secured Retail Drive a Third Straight Quarter of 25% Credit Growth

• 25% YoY credit growth sustained for three consecutive quarters through Q2 FY27; Q2 FY27 segment adds QoQ: MSME +Rs.2,600 crore to Rs.42,862 crore, secured retail +Rs.1,134 crore to Rs.7,802 crore, gold loans +Rs.1,062 crore to Rs.21,777 crore.
• Deposits grew 21% YoY to Rs.83,893 crore in Q2 FY27 (+6% / Rs.4,500+ crore QoQ); CASA steady at 27% and average CD ratio at 86%.
• $69 million mobilized under the RBI swap window ($15 million from new-to-bank customers), fully swapped to INR and deployed into domestic loans.
• ~75% of the deposit book is granular — term deposits below Rs.3 crore contribute 48%, Rs.3-50 crore 17%, and above Rs.50 crore only 8%; no chase of bulk deposits/CDs over the last couple of quarters.
• Branch network grew from 800 to 1,000+ branches (as of Q2 FY27); newly opened branches are delivering consistently and branch productivity is rising.
• Rate mix: EBLR-linked loans stand at Rs.20,000 crore (55% of the book), fixed-rate ~33%, MCLR-linked 12%; the entire gold loan book is fixed-rate.

GNPA at Multi-Quarter Lows; Aged Pool Monetized via ARC

• GNPA fell 29 bps QoQ to 1.44% in Q2 FY27 (Q1 FY27: 1.73%); NNPA at 0.48% (Rs.344 crore) vs 0.9% (Rs.513 crore) in Q2 FY26; GNPA/NNPA declining for 10 consecutive quarters.
• Slippages of Rs.175 crore vs recoveries of Rs.317 crore in Q2 FY27 (Rs.180 crore live NPAs + Rs.137 crore technical write-offs), producing a negative credit cost; SMA2 at 0.67% vs 0.94% in Q1 FY27.
• Sold Rs.803 crore of live + TW accounts to an ARC for Rs.131 crore against Rs.792 crore of provisions; management framed the decision as internal math on time value of money for an aged pool, with the bank running a fully secured book at 20% LGD.
• Vintage of the sold pool: 757 loans worth Rs.645 crore are over 5 years old (fully written off), 91 loans worth Rs.40 crore are 4-5 years old, and 84 loans worth Rs.54 crore are 3-4 years old — roughly Rs.750-760 crore is more than 3 years old per management.
• Pool composition per the CEO (responding to Rohan M, Equirus): Rs.303 crore with underlying collateral and Rs.500 crore without; the unsecured portion is residual balances sold without closure/NOC.
• Outstanding technically written-off pool after the sale stands at Rs.900 crore, fully provided for; no provision reversals were booked in Q2 FY27 from these sales.
• ARC collections of ~Rs.131 crore in Q2 FY27 — Rs.107 crore recognized in other income and Rs.26 crore formed part of live recoveries (MD & CEO R. Vijay Anand).

RBI Framework Navigated with Conservative LTV; Near-Zero Losses

• RBI's harmonized gold-loan directions (effective April 1, 2026) set LTV caps for consumption loans at 85% (≤Rs.2.5 lakh), 80% (Rs.2.5-5 lakh) and 75% (>Rs.5 lakh) — regulatory maxima, not lending targets; the bank onboards at 60-65% LTV with a 5% margin-call cushion and marks daily LTV on the 30-day average Indian Bullion and Jewellers Association rate.
• Gold asset quality is benign: as of 30 Sep 2026, gold SMA accounts at Rs.173 crore (0.24% of gold advances); gold GNPA only Rs.9.5 crore, of which just Rs.20 lakh was auctioned — borrowers repaid the remaining Rs.9.3 crore in full.
• 99% of gold loans are bullet-repayment (aligned to harvesting season) as of Q2 FY27; no behavioral difference observed between bullet and EMI borrowers.
• Underwriting: bureau score and past repayment behavior checked; end-use assessed via a 5-7 minute personal discussion at ~250-260 rural/semi-urban branch distribution centers; loans above a threshold escalated to central credit at Kumbakonam; strict no to financing customers who are NPA elsewhere and no top-up loans.
• On analyst-cited system data that ~25% of gold NPAs involve customers financed by gold loan lenders, the CEO said correlating loan end use to the customer keeps the book in a "much safer spot"; if the money's destination is unknown, "this needs to be questionable."
• Yields improving: new gold loans are being disbursed at a blended 10.8% vs the 10.7% portfolio yield in the Q2 FY27 presentation; management sees 5-10 bps of headroom for the portfolio yield to catch up toward 10.8% in Q3 FY27 and does not expect to raise gold loan rates further in Q3 FY27.
• Non-agri gold loans saw no growth in Q2 FY27 — attributed to end-use diligence; management gave no directional growth guidance, saying it "will not hesitate to grow" if loans match its risk-appetite criteria; gold is ~30% of the book and management does not want to exceed 31-32% (period unspecified).

Wage-Hike Quarter Inflates OpEx; ECL Transition Absorbed Against Capital

• Q2 FY27 opex +24% YoY to Rs.562 crore — establishment +25% to Rs.280 crore on the annual wage hike paid in Q2 FY27; other opex +22% to Rs.282 crore; H1 FY27 operating profit Rs.1,241 crore (+35% YoY).
• Establishment opex of ~Rs.280 crore rose ~19-20% QoQ from Rs.235 crore in Q1 FY27, reflecting the July wage hike plus a Rs.32 crore leave encashment provision vs the usual Rs.3-5 crore per quarter; management indicated a run-rate of ~Rs.275 crore going forward in FY 2026-2027 and does not expect a material further increase for the rest of FY 2026-2027.
• ECL transition: incremental ECL provision requirement at Rs.299.42 crore as of 30 September 2026 (variation of -Rs.5.36 crore), down from Rs.445 crore at the 31 March 2025 baseline, attributed by management to continued improvement in portfolio quality.
• Of the ~Rs.300 crore ECL impact, only Rs.30 crore is already provided — the balance (net incremental unprovided ECL of Rs.270 crore, period unspecified) will be adjusted against capital rather than through the P&L, expected to consume 0.4-0.45% of capital (period unspecified); management clarified there is no P&L impact from ECL.
• Effective tax rate ran at 23-24% in Q1 and Q2 FY27 (vs ~20-21% in FY 2025-2026 and prior years), driven by quarterly write-offs; the CFO guided the FY 2026-2027 tax rate at 21-23% going forward, with the blended FY 2026-2027 rate at ~22-23%.
• Treasury income of Rs.36 crore in Q2 FY27 vs Rs.52 crore in Q1 FY27, as ~Rs.12 crore of mutual fund income was diverted to interest income; bond portfolio MTM loss is accounted in the AFS reserve (not P&L).
• Treasury repositioning: exited the entire Rs.850 crore mutual fund exposure (invested in Q1 FY27; earned Rs.12.5 crore under other income) in Q2 FY27 into interest-earning investments; yield on investments rose from 6.42% (Q1 FY27) to 6.56% (Q2 FY27), supporting NIM.

Guidance Reiterated; Deposit Growth Sustainability Flagged as a Challenge

• Management is on track for credit growth 2-3% above the industry level (period unspecified), with necessary infrastructure in place across people, process, and technology; MSME, retail, and gold loan additions are expected to add new avenues to sustain growth momentum.
• NIM guidance of 3.85-3.95% for Q3 and Q4 FY27 was reiterated; queried on the 10 bps QoQ expansion, management said the range will be reached "eventually" following the rate hike (period unspecified).
• ROA to move above 1.6% in FY27 and cost-to-income of 45-47% for FY27; deposit growth to stay aligned with credit growth.
• Deposit growth sustainability is a concern: management is doubtful of sustaining ~20% deposit growth over the next 2 years (FY 2027-2028 horizon), calling it "a challenge for sure"; sustaining the recent 21-22% pace over the next 2 years is also uncertain ("we may have to see").
• Deposit costs are expected to increase in Q3 FY27 (stated as "10 weeks" in the transcript, likely 10 bps) rather than remaining flattish; management sees 5-10 bps of margin headroom for Q3-Q4 FY27 despite a 30% fixed-rate book, supported by a 25 bps increase on EBLR-linked loans (25% of the book), liability repricing, and pricing on retail secured and MSME lending.
• Rate transmission: ~55% of the loan book is EBLR-linked; the bank has started passing recent policy-rate cuts to borrowers, while deposit rates are unchanged given ample system liquidity supported by FCNR inflows.
• Contingent provision of Rs.50 crore against economic uncertainties was taken in Q2 FY27, with management planning to build it further in coming quarters.