City Union Bank (CUB) stands out in comparison to other small private banks owing to its higher and well-managed MSME exposure of 55% v/s 21% for small private banks. Its strong regional presence (more than two-third branches in Tamil Nadu) and existence for more than 110 years has helped it gain immense knowledge and understanding on the way businesses are run locally. Being witness to a number of business cycles during the course of its existence has helped the bank manage asset quality risks effectively while taking advantage of higher yields.
CUB’s low exposure to corporates (6% of advances) is a huge relative positive in the light of stress plaguing these segments where other private banks’ average exposure stands at 36%. Working capital loans having higher yields constitute 65% of advances and 90% of the overall loan book is on floating rate basis which reduces interest rate risk. Underpinned by the above strengths and efficient cost management, CUB has been able to maintain RoA at an impressive 1.5% even in the current challenging environment.
The advances growth has declined from 27% CAGR over FY08-13 to 9% CAGR over FY13-15 led by an overall slowdown in economic growth leading to a conservative approach followed by the bank towards corporate loans, decline in gold prices led to CUB being vary of gold loans. Corporate and gold loans declined by 47% and 27% respectively between FY13-15. The share of corporate loan book has come down from 14% in FY13 to 6% in 3QFY16 and that of gold loan book has come down from 22% in FY13 to 10% in 3QFY16.