City Union Bank Ltd

NSE:CUB

Q4-2025 Earnings Call

[Operator]

Ladies and gentlemen, good day, and welcome to City Union Bank Q4 FY 2024-'25 Earnings Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Jignesh Shial from AMBIT Capital. Thank you, and over to you, sir.

[Jignesh Shial, analyst]

Yes. Thank you, Nirav, and good evening, everyone. On behalf of AMBIT Capital, I would like to thank the management of City Union Bank for allowing us the opportunity to host Q4 and full year FY '25 earnings call.

We have along with us Dr. N. Kamakodi, MD and CEO; Mr. R. Anand Executive Director; Mr. V. Ramesh, Executive Director; and Mr. J. Sadagopan, CFO. I will now hand over the call to Dr. N. Kodi, MD and CEO of Union Bank for his opening remarks. Over to you sir.

[N. V. Kamakodi, executive]

Good evening, everyone. Dr. Kamakodi here. Warm welcome to all of you for this conference call to discuss the audited financial results of City Union Bank. For the fourth quarter and year ended 31, 2025. The board approved the results today, and I hope you all have received the copies of the results and the presentation. The Board of directors recommended a dividend of INR 2 per share on the face value

INR 1 per equity share. At 200% for the year-end of 31st March 2025, subject to the approval by the shareholders in the ensuing Annual General Meeting. Last year it was 150%.

We are glad to inform you that based on the approval accorded by RBI on February 14, 2025, the Board of Directors of the bank has appointed Shri V. Ramesh as the Executive Director on the Board of the Bank with effect from February 21, 2025.

Process of obtaining the shareholders' approval is under progress. At present, the bank has 2 whole-time directors apart from MD and CEO. Now I hand over the mic to Shri. Vijay Anandh, Executive Director, to discuss the details of the results. Later, we can go for the Q&A. Over to Vijay Anandh.

[Vijay Anandh, executive]

Thank you, sir. Good evening, everyone. At the beginning of the year, we shared our expectations for the financial year FY 2025, which are as follows: with all the new digital initiatives supported by strengthened top and senior level management we express confidence to restore the credit growth on par with industry levels sooner and go beyond.

On asset quality front, the trend of reduced slippages coupled with improved recovery would continue for financial year '25. We said we would reach between 1% to 1.25% of net NPA for FY 2025, and we would explore the possibility of improving the provision coverage ratio. We also said our ROA would be back on our long-term average of 1.5%, and this trend will continue.

Since we were taking the cost of digital lending, retail business upfront, our cost-to-income ratio, we said would be around 48% to 50% for the current year. And once the full benefits of digital lending and other initiatives transfer into growth, the CAR will start coming down.

So for the current quarter, Q4 FY '25, we are almost on track on our expectations, which we shared with you all earlier. For FY 2025, we have registered 14% growth on our gross advances. We have increased to INR 53,066 crores from INR 46,481 crores for the financial year '24.

As we stated in our Q3 FY '25 con call, our growth restarted from calendar year 2024. And we reached a double-digit growth of 10% in June '24. For September '24, we registered 12% growth. In the last quarter, that is December '24, we registered 15% credit growth and for Q4 FY '25, we have achieved 14% credit growth.

In the current financial year, we had registered double-digit credit growth in all the 4 quarters, a feat achieved after FY 2018 to '29. That is first time post-COVID. This too we have achieved after we have decided not to renew [ ICBC ] to the tune of INR 1,100 crores. And we have also let go of low-yielding NBFC funding to the tune of INR 150 crores, which is approximately INR 1,250 crores of reduction in advance, of which INR 70 crores of reduction has come in Q4 2025.

Sorry, sorry. INR 750 crores -- INR 750 crores of reduction has come in Q4 FY 2025. As stated in our earlier calls with improved efficiency level aided by the digital lending process. We have restarted our consistent credit growth, and we hope that the current trend will continue for financial year '26 as well.

Deposits. Our deposits has also increased by 14% and stood at INR 63,526 crores for FY '25 as compared to INR 55,657 crores for FY '24. The CASA has increased from INR 17,050 crores to INR 18,119 crores in FY '25. CASA to total deposit stood at 29%.

In the calendar year 2024, our main concentration was to get the credit growth on track, which has happened now. In parallel, we have made efforts to take care of the deposit growth, to support the recorded credit growth. As a result, our deposit has grown by 11% in Q3 FY '25 and 14% in Q4, FY '25, which is in line with our credit growth of 14%. Based on the same, our LDR or CD ratio stands at 84%.

Cost of deposit stood at 6.02% for Q4 FY '25 versus 5.75% in Q4 FY '24. And for the full year FY '25, the same was 5.85% compared to 5.59% last year.

Asset quality. On asset quality front, our slippages used to be at 2% during pre-Covid and it stood at 1.91% in FY 2019. During the COVID years that is FY '20 and '21. This has increased above 3% and it was hovering around the same level till FY 2023. Post-COVID, we have taken every possible measures to arrest our slippages, and we have started seeing reduction of our slippages from FY 2024, where it stood at 2.18%.

We have said that we are aiming for approximately INR 800 crores of slippages for this financial year at the beginning of the year. And we have stick to that, and we have ended up this financial year with INR 815 crores of slippages, which is 1.54% against 2.18% of last year. Apart from that, we have stated earlier the trend of recoveries is more than slippages. The same trend is continuing.

For Q4 FY '25, the total slippages is at INR 259 crores, while the total recoveries is at INR 291 crores consisting of INR 238 crores is from live NPA accounts and INR 53 crores is from technically written-off accounts, resulting in negative slippages again. The total recovery for FY '25 is INR 1,042 crores. INR 1,042 crores is splitted into INR 834 crores of live NPA and INR 208 crores from technically written-off accounts as against INR 1,031 crores in FY '24.

Again INR 1,031 crores is INR 816 crores is from live NPA and INR 215 crores is from technically written-off accounts. We closed gross NPA last financial year at 3.99% and now we have closed at 3.09%, which is 90 bps reduction from the last financial year. Similarly, our net NPA number has reduced to INR 653 crores in FY 2025, as against INR 899 crores in FY 2024, which is 1.97% in Q4 FY '24 and 1.25% in the current quarter, which is 72 bps reduction for the year.

Overall, SMA-2 to total advance stands at 1.10% in Q4 FY '25 as compared to 2.08% in the similar period last year. We could see substantial improvement in SMA and slippage numbers. In our Q2 FY '25 con call, we have conveyed that we will try to increase our provision coverage ratio to bring it closer to the industry levels. PCR technical write-off stood at 78%, which has improved from 72% last year.

Similarly, PCR without technical write-off has improved to 60% for FY '25, which has improved from 52% last year. Our interest income has grown by 12% in Q4, 2025 and increased to INR 1,533 crores from INR 1,374 crores in Q4 '24. For the full financial year FY '25, our interest income stood at INR 5,834 crores as against INR 5,271 crores last year, registering a growth of 11%.

Our yield on advance stood at 9.93% for Q4 FY '25 as against 9.81% in Q3 FY '25, which is an increase of 12 bps sequentially. Our NIM for Q4 FY '25 stood at 3.6% as compared to 3.58% in Q3 FY '25. For the full financial year FY '25, NIM is at 3.6%. During the quarter, the bank has passed the benefit to the customer in line with the cost of 25 bps reduction in repo rate. As discussed in earlier calls, our NIM is in the range of 3.6% for the past few quarters, and we hope to maintain the same trends with plus or minus 10bps.

If you look at the last 50 to 60 quarters, 90% of the time, our NIMs had been in the range of 3.4% to 3.7%. During the middle of the quarter, we have also decreased our savings bank rate by 25 bps. And during the month of April, we have also reduced our term deposit rate in line with the reduction in repo rates. The benefits of rate reduction in deposits will start reflecting in the coming quarters.

In addition, with respect to gold loans, we have migrated to fixed rate from floating rate as we envisage decreasing interest cycle rate and these measures will act as a cushion during decreasing interest rate cycle. The total other income for the year has increased by 21% from INR 742 crores to INR 898 crores. The insurance commission has increased by 79% from INR 55 crores last year to INR 98 crores.

Also, the loan processing charges has increased by 67% from INR 93 crores to INR 156 crores. For the current quarter, our operating profit had grown by 25% and stood at INR 441 crores compared to INR 352 crores in the corresponding period last year. For the year as a whole, the same has increased by 11% from INR 1,516 crores to INR 1,679 crores. We have achieved a PAT growth of 13% and our PAT stood at INR 288 crores for Q4 FY '25 as against INR 255 crores in Q4 FY '24. The PAT for the year FY '25 is at INR 1,124 crores as against INR 1,016 crores last year, registering a growth of 11%.

Cost-to-income ratio. Our cost-to-income ratio for FY '25 is at 47.77% as against the expectation of 48% to 50%. This is mainly due to some expenses we have planned for retail vertical in FY '24, '25 were postponed for the next year, that is FY '25, '26. Hence, this year, CAR will be around 48% to 50% and start reducing once the benefit of retail vertical start showing results.

ROA. Our ROA for the year FY '25 is at 1.55% compared to 1.52% in the last financial year. Our ROA for all the 4 quarters of FY '25 is about 1.5%, which is our long-term average. ROE stood at 12.6% for Q4 FY '25 as compared to 12.39% in Q4 FY '24. In our last con call, we had briefed about our tie-up with IPL franchisees. We have signed agreement with Chennai Super Kings and Sunrisers Hyderabad for co-branded credit card and banking partners, respectively.

We have done pilot launch in March, and we went live from April 25. We have been successful in creating and issuing the cards to the customers through completely do-it-yourself journey without any physical interface or branch intervention. The journey is fully digital and paperless, and it is in line with our broader strategy to enhance customer service capabilities and operational scalability. By removing manual touch points, we are not only improving our customer convenience, but also reducing the turnaround time and operational costs associated with onboarding. This progress is in line with our expectation, and this is in a slow and a steady manner.

To sum up, we have achieved double-digit growth in all the 4 quarters of this financial year, and we have ended this year with 14% credit growth, which is broadly in line with our guidance given at the beginning of the year. Now we have aligned with the industry level credit growth, and we expect this level of credit growth to stabilize and move forward. We are making this assumption on [ as is ] basis, subject to current economic environment continues without any turbulence or geopolitical tension, we can improve growth by a few more points as well.

The current level of credit growth was achieved majorly from MSME core business, gold loan. Retail journey has started from second half of the last year, and we hope it will give a significant contribution to our credit growth in financial year FY '25, '26. With our efforts, our deposit growth is also back on track and aligning with the credit growth.

We had also achieved our long-term average numbers with respect to credit growth, PAT, ROA and NIM. We have reached our desired levels of 60% PCR without technical write-off within this year. We hope to continue this positive momentum for the current financial year as well. In case if you are moving away from the trajectory, we would update this on our quarterly results. Thanks to everyone. Open for questions.

[Operator]

[Operator Instructions] The first question is from the line of Sameer Bhise from Dymon Asia.

[Sameer Bhise, analyst]

Congrats on a steady quarter in a difficult environment. Just wanted to kind of ask on the growth outlook. I understand you have done a reasonably good job coming to around 14% plus kind of a growth -- but if one were to look at FY '26, assuming that there is a more supportive regulatory environment with respect to liquidity and even the growth stance of the regulators, also we are in a better shape with respect to the TD rates. Is there upside risk to your growth expectations? And if -- especially, if the whole retail exercise kind of plays out the way we are expecting it to?

[N. V. Kamakodi, executive]

If you see the visibility, we would be 2% to 3% more than the credit growth.

[Sameer Bhise, analyst]

2% to 3% than the year, where we ended currently.

[N. V. Kamakodi, executive]

Over and above the systemic growth. 2% to 3% over and above the systemic growth. That's what we are looking at.

[Sameer Bhise, analyst]

Okay. And secondly, outlook on margins. Can you just repeat, if I heard correctly, around plus/minus 10 basis points from the current level? Is that a fair assumption?

[N. V. Kamakodi, executive]

Yes. We will be -- we are at 3.6%, we will be plus or minus 10%. As we spoke in the call, we have reduced our SB rate and DD rate. Eventually, we will start seeing this in the next 2, 3 quarters. So we will be in the range of 3.6% plus or minus as confirmed on the call.

[Operator]

Next question is from the line of Dhaval Gala from Aditya Birla.

[Dhaval Gada, analyst]

Sir, if you could talk about outlook on margins for the next fiscal and also possible target of loan growth?

[N. V. Kamakodi, executive]

Yes, I confirm we will be around 3.5% to 3.7%. This is what we are looking at and 2% to 3% more than the industry growth is what we are looking at. The visibility is good for the current year.

[Dhaval Gada, analyst]

Okay. And you would also talk about incremental cost of funds and any change of SA deposit rate for your bank?

[N. V. Kamakodi, executive]

No. Whatever we have done, we have reduced the SB rate, we have reduced the TD rate, and we are fine with this. And this results, we will start getting it in the next 2 to 3 quarters.

[Operator]

Next question is from the line of Mona Khetan from Dolat Capital.

[Mona Khetan, analyst]

Congratulations on a good quarter. So firstly, on the EPLR loan, what is the reset date that we have? What is the frequency of reset?

[N. V. Kamakodi, executive]

It's mostly a 1-year loan.

[Mona Khetan, analyst]

So from the time the repo rate cut happens, in how -- in what period is the -- does the reset of yields happen? Is it 3 months? Is it 1 month?

[N. V. Kamakodi, executive]

Yes. We have pass it out the rate cut of 25 bps in the month of February itself. For the second rate cut, it has cost probably in the first week of May, we are going to do it.

[Mona Khetan, analyst]

Okay. So it's more like an immediate reset in your case? Or how does it play out?

[N. V. Kamakodi, executive]

Yes. Overall, we have around 48% of total exposure to EBLR. So, first rate cut of 25 bps we have pass it out. And the second rate cut of 25 bps, we are going to do it in this week.

[Mona Khetan, analyst]

Got it. And we have seen some yield improvement during the quarter. What has contributed to that?

[N. V. Kamakodi, executive]

So as mentioned in the call, we have moved out of IBBC, which was low yielding, and we have moved out of low-yielding NBFC. So if you see from previous quarter to this quarter, we had 1% dip. In spite of moving of INR 750 crores in Q4, we still had 14% growth. Since we have moved out of the low-yield loans, our NIM became better.

[Mona Khetan, analyst]

Okay. And from a full year, these amount to about INR 2,000 crores?

[N. V. Kamakodi, executive]

Around INR 1,250 crores

[Mona Khetan, analyst]

INR 1,250 crores. Got it. And just finally, on the fee growth, which has been quite strong this year, do we expect it to grow better than the overall balance sheet even going forward? Or what's the outlook here?

[N. V. Kamakodi, executive]

It depends on the business. If the business grows, obviously, this will also have a good growth.

[Mona Khetan, analyst]

Got it. And just one last thing on the -- so in the loan mix on Slide 27, there is a PL personal loan of INR 1,200 crores. What's the nature of these loans? I understand these should not be unsecured in your case. So what exactly are these?

[Unknown Executive]

No, no. This is -- it's not unsecured, partly secured.

[N. V. Kamakodi, executive]

This is not an unsecured loan. This is a loan given to my existing borrowers on MSME under the personal loan headline, which are the collateral with us.

[Operator]

Next question is from the line of M.B. Mahesh from Kotak Securities.

[M. B. Mahesh, analyst]

So there is a question again on margins, where you said it is between 3.5% and 3.7%. Just trying to understand what would drive a 3.7% for next year?

[N. V. Kamakodi, executive]

So Mahesh, we have 3 types of things. 1 is MSME, we have JL or we have retail. So when I speak now, as we speak today, our fixed rate is almost close to 31%, which is a gold loan. So 1, our MSME growth, our jewel loan growth of fixed rate of 8% and our focus on retail secured, which we have already started clicking on double digits is giving us a good growth.

Over and above that, our deposit pricing, we have reduced our deposit pricing, as I said a couple of minutes before in both SB and CD. This is giving us an advantage. Hence, we are slightly able to predict this number.

[M. B. Mahesh, analyst]

Sir, the question is mostly given the fact that there has been a rate cut also that you're doing on the other side. Just trying to understand what will -- what can possibly faster margin expansion based on the current mix of loan book that you have? It's only the fixed rate loan that is available, is it?

[N. V. Kamakodi, executive]

So the fixed rate is 31%. The deposit benefit I will get it only post 2, 3 quarters, #1. #2, our retail secured has already started achieving double-digit interest yield. And our MSME loans has always been doing well. When the deposit rate comes down after 2 to 3 quarters and my 3 engines started doing as per the expectations, then 3.5% to 3.7% should be a decent number, I think.

[M. B. Mahesh, analyst]

Okay. Perfect. Second question is gold loans is now doing reasonably well. All the -- this book will continue to grow at this rate? Or you see that it can kind of slow down from these?

[N. V. Kamakodi, executive]

I don't think so. I think we should be comfortable in growing this book at this rate.

[Operator]

Next question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

Congratulations, sir, on the results. Sir, I have a few questions. So first is this quarter, we had cut SAR rate during the quarter, but still the cost of deposits have gone up. Was there any deposits repricing, which led to higher cost of deposit? And is it safe to say that the cost of deposits now have peaked because you have cut the SAR rate and TD rate also? I mean there is no more repricing disadvantage there?

[Unknown Executive]

The cost of deposit is because of TD. And we have cut the TD rate only in the month of April, #1. #2, our SB rate also we cut only in the month of March. February. So that's the reason why the cost of deposits is slightly higher.

[Jai Prakash Mundhra, analyst]

Right. And there is no more -- even if the TD were to reprice, I mean, there will not be any, let's say -- I mean, you will -- you are going to benefit only, right? Even if the any maturity TD were to reprice, it will be repricing downwards only?

[N. V. Kamakodi, executive]

Yes. Mundhra, there are 2 things, Kamakodi here. Basically, like the deposits which are -- current fixed deposits, which are maturing today, when they get contracted into the new rate, there itself, I am getting a benefit now. So incrementally, like -- but as Vijay Anandh said, it will be cumulatively giving us benefit. But already, the benefit has started.

Basically, let's say, 2 things we timed well. 1 is shifting the gold loan into fixed rate. So when the rate reduction cycle started, we actually we need not reduce the rate. And also when the 25 basis point reduction happened in the repo rate, the final average yield reduction it worked out about close to 10 basis points depending upon the risk rating and how much of adjustment that happened in the risk premium and things like that.

Because of that and also the cumulative effect of, let's say, savings bank, let's say, reduction and also the withdrawal of -- I mean, to the previous question, why the cost of deposit increased. When we -- just before entering into the fourth quarter, anticipating a tighter market, we had gone for a special FD schemes of 333 days. In tune with the market rate and let's say, the bulk of the growth happened through the term deposit accretion and which has, let's say, that 12 basis point increase in the weighted average yield.

So when the older deposits getting matured now, we get that benefit on the reduced rate of interest in the term deposit today. And so it has potential to cushion the -- I mean, particularly you might have always seen the -- whenever we get into the reducing interest rate cycle, the margins contract and whenever we get into the increasing interest rate scenario, margins expand.

Despite into the rate cycle where you have seen, let's say, 2 rate cuts, -- instead of the margins decreasing, it slightly expanded by 4, 5 basis points, mainly because we timed it well. So the -- some amount -- I mean, you cannot make it with a surgical precision, but we are able to manage it with a reasonable, let's say, level. So we are able to say with the confidence that the existing rate margins should be at the current level, plus or minus 10 basis points is what V Anand is to make.

[Jai Prakash Mundhra, analyst]

Right. No, no, sure, sir. That is very helpful. Does that -- so you mentioned this out of first 25 basis point rate cut, the blended yield, let us say, impact on the portfolio was around 10 basis points, right? So this relationship should ideally held -- should held up, right, in the sense that if RBI cumulatively cut 75 or 100.

[N. V. Kamakodi, executive]

It's -- let's say, you have -- it is basically on the EBLR plus wherever you have given a strategic discount, wherever you have a risk premium, there are multiple factors getting involved. Finally, market forces takes up.

[Jai Prakash Mundhra, analyst]

Right. No, no. So I'm asking, sir, is there is a 100 basis points rate cut by regulator then you should ideally have around...

[N. V. Kamakodi, executive]

You can't say it's going to be only 40 basis points.

[Jai Prakash Mundhra, analyst]

Okay. So what could be the range sir, 40 to 60 basis points.

[N. V. Kamakodi, executive]

It could be 50 to 75 basis points.

[Jai Prakash Mundhra, analyst]

Right. And despite that, right, because the consensus is that...

[N. V. Kamakodi, executive]

Yes. One more thing what you have to understand is like the sum of the -- let's say, every quarter, 25 percentage of your -- what you call credit like CC limit will get renewed. Whenever you renew it you will be having a revised contract where let's say you will be resetting rate.

That reset rate will depend upon the let's say the individual accounts rating there individual risk assessment and all such things. Which let's say see that like you have let's say a some amount of lead and lag factor in transmission. In the past, let's say almost a decade back we had seen a cycle when because of the surplus liquidity available in the system, the rate transmission was even faster than the ROE rate. So all these things are determined by the market forces and the both at an overall level and also individual account basis. So it's very difficult to have one to one, let's say prediction or/and another thing -- if the rate based cycle is relatively slow, say for example if 1% rate reduction whether it happens in one half or 1 year or 1 quarter. It also plays a role.

So multiple factors determine how fast the transmission happens. And like say, for example, like -- as you always know, only the which are directly involved with the 50% of your portfolio is linked, for example, is linked to EBLR only that 50% has to have a direct relation of let's say the 25 basis points, means the overall portfolio only have 12%. So within that you will be having a quarterly, what you call renewals for which the, let's say, there will be reset of rate depending upon the individual risk weight and all. And there will be some amount of what you call lead factor or lag factor, you will find it, I mean, very difficult to predict precisely what will happen.

[Jai Prakash Mundhra, analyst]

Right. That is fair point, I can understand there are a lot of moving parts. What I was trying to understand is this NIM guidance of plus minus 10 basis point. Where you, of course, assume that there will be, let's say, which is widely anticipated to more rate cuts, right? So this guidance is not only rate cut which have announced so far, but also assumes that RBI may further announce 1 or 2 more rate cuts, right? 2 rate cuts. Assuming that is the guidance?

[N. V. Kamakodi, executive]

The point is if 2 rate cuts happen in one quarter, if 2 rate cuts happen in one half, or the 2 rate cuts happen in 3 quarters or 4 quarter in fact we'll say how quick the rate cuts happen that's what I'm trying to say. Let's say, whatever prediction we give is that we take an assumption that this rate cuts will happen over the period of say, next 1 year in a greater fashion, when whatever yield cuts, we have to take because of the let's say reduction in the before rate and the benefits we get in the repricing of the term deposits, they will be by and large match and compensate to a greater extend and overall let's say, yield will not go average from wherever we are it is our expectation with which you are going.

[Jai Prakash Mundhra, analyst]

Secondly, sir, on the growth, right? So I mean, I wanted to understand how -- what is the MSME growth? In the sense that sir, there's some change in the MSME reporting over the last 1, 2 quarters or last 1 year, because of this MSME norms, et cetera. What was the MSME growth and maybe if you have numbers disbursement growth in MSME. Just to understand how effectively is the new LOS versus what we were doing earlier. So if you have any number for, let's say, fourth quarter disbursement versus fourth quarter of last year and just to -- just to get a sense how this new LOS is helping in terms of the fresh disbursement. Of course, the outstanding number is visible, but I wanted to check if any number on disbursement also?

[N. V. Kamakodi, executive]

See, we had let's say, total credit growth of about INR 6,500 crores for the current financial year. Perhaps the highest whatever we have recorded over the period of -- I mean, in our history. Out of this INR 6,500 crore growth about INR 4,000 crores growth has come from the MSME.

For example, this should give you some idea. Definitely, the -- digital lending for MSME through our let's say, new gen software which was let's say, guided by BCC last year and all, almost for the current year, it has helped us to accelerate our credit growth per se. So less than INR 7.5 crores, the decision is, by and large, now taken by the system with minimum manual intervention. So that is now helping us to proceed further.

Actually, the outstanding MSME growth was 23% for the current, what you call, financial year.

[Jai Prakash Mundhra, analyst]

Okay. So MSME growth was 23%. And of course the overall growth was 14% because we also put some IBPs et cetera. And disbursement growth must have been may be 40%, 50%, right. in the MSME it self. Just to get that 23% number?

[N. V. Kamakodi, executive]

Yes. The disbursement for the whole year clock opening was INR 9,000 crores -- it is close to INR 10,000 crores for the, let's say, year. So in that you have -- in that you will also have CC portion, which will be having a lower utilization. You can't have one-to-one. So that's why we don't discuss too much about that disbursement per se. We explain on outstanding basis.

[Jai Prakash Mundhra, analyst]

Sure. And sir, in this vision software, if you have the rough number of green, amber, red, how is that progressing? Just to get a sense.

[N. V. Kamakodi, executive]

Still the amber portion is more. So how we have made is that like the red conditions are clearly given when that red conditions are clearly given, they are washed up. On Amber side, let's say the -- including will take at least, I think that before the end of the financial year '25, '26, that tuning will happen.

[Operator]

Jai. I'm sorry, to interrupt you. I would request to come back for a follow-up question. Next question is from the line of [ Rakesh Kumar ] from Valentis Advisors.

[Unknown Analyst]

So like I think this quarter, the quite critical part was deposit growth that you managed to report quite a strong number. So just wanted to know what is the strategy around the deposit mobilization that we did because we had to manage earlier as well.

And so what are the products on the asset side or on the liability side we had this quarter or what is kind of man power that we had to manage to sow this kind of deposit growth? And what would be the strategy going ahead also because we are looking at similar kind of credit and deposit growth number with the LDRs. So if you can help us understand that part.

[N. V. Kamakodi, executive]

So we started this year with the advances target. We wanted to have a good growth on advances. I think we were pretty decent. And Q3, Q4, we had dedicated structure for liabilities, and we had a lot of trust and we had the structure in place in sourcing the liabilities numbers, I think there are a couple of new arrivals, the new recruits as well. So this has given a strong focus, we could have dedicated structure, and this has yield the results #1.

Number 2 what's going to be the future, as I said in the call we wanted to keep the LDR at 85%. So that's the number which we are looking at, and our growth will also be based on the same.

[Unknown Analyst]

Got it. Got it. So next year, next fiscal year, we are looking similar kind of growth number in deposit or because if I look at the real TD rate for the system, it is like kind of high in the last 4, 5 years. So the real TD rate has to come down. So it will have some repercussion on the TD growth number. So TD -- overall deposit growth number, we have similar number in mind as compared to credit growth number?

[N. V. Kamakodi, executive]

Yes, that's the point I said. We have already reduced the TD rate in April. We have kept a target of 85% in LDR. That's the number which we are targeting for the credit growth, what we are envisaging for this financial year.

[Operator]

[Operator Instructions] Next question is from the line of Dhaval Gada from Adity Birla.

Due to no response, we move on to the next participant. Next question is from the line of Akshay from HDFC Securities.

[Unknown Analyst]

So firstly, the slippages are slightly higher for this year -- for this quarter around 2%, would like to know the reason for that from which sector that is coming from?

[N. V. Kamakodi, executive]

So when we started this year, we confirmed that we would be around INR 800 crores. So we started with Q1 of INR 178 crores. Q2 we moved from INR 178 crores to INR 176 crores crores. And Q3, from INR 176 , we moved to INR 201 crores. So we are around INR 555 crores as of Q3. We had INR 800 crores, that's the number which we were envisaging for the quarter. We're envisaging for the year basis of the prediction what we have done -- we had -- ever SMA to customer. So we do not want to take any chance. So we thought that when we have a room, we will just fill this. And that's why we have moved it to INR 815. And we were well within the expectations, and hence, we made this move.

[Unknown Analyst]

And second question was around there's uncertainty regarding the global tariffs, global scenario because of the increase in tariffs. So has any of our -- within our MSME sector, since we have exposure to -- to export oriented companies, especially textile sector. Have we seen any sort of some disruptions in some of these sectors or any early signs of any stress building up here?

[N. V. Kamakodi, executive]

See the currently so far the, let's say, first of all, we did not have significant exposure to the, let' say, export oriented units or whatever it is, it was in, let's say, low to middle single digit only. But within that, whatever that is happening so far is, let's say, it is giving some positive thing in the sense that like, particularly Coimbatore built the textile exposures for the last 3, 4 years, they had impact because of the strong competition from the Bangladesh.

After the regime changed and things like that there was some advantage for them. And currently also like what you can say is that the -- so far it is better than what it was there last year. But since the things are extremely fluid and how fast, they are going to get affected and all like only time has to say. But what I can definitely say is that whether any significant improvement, they will have a positive effect. But if any deterioration they will not have much deterioration.

But other -- to what extent supply chain impact will be there, whether India, Pakistan war will come, whether it will affect the thing. There are macro questions and all, which we expect there should be, let's say, the existing situation will continue that you have tension always, but nothing on field any change. This is what we expect.

[Operator]

Next question is from the line of Punit from Macquarie Capital.

[Punit Bahlani, analyst]

Just one bit on the credit cost this thing. We are expecting to increase our PCR in line with other private peers, right, around 70%, and we plan to maintain our credit cost around FY '25 levels, right, all else being equal, of course. And so am I right? Sorry, I missed some of the opening comments that's why?

[N. V. Kamakodi, executive]

No. Actually, like in the beginning of the last year we told we will be improving our, let's say, the -- do you call provision coverage ratio number. And the number that we were anticipating was somewhere around the current level 60% only, which we have already done. You always -- as of on -- condition, like we don't have any specific number in our mind. So we don't make a call depending upon what is happening in the market or what because the 70 percentage coverage ratio, including technical write-off is something which was done on the regulation, which we had covered a long back.

Post that it is a call which you take depending upon how the market progress and what are all the things you need. So we made, so far, we have -- without drastically changing anything in a phased manner, we are able to see about 90 basis point reduction in the -- what you call your gross NPA number and about 70-plus basis point reduction in the net NPA number.

We can proceed in the say, either slow and steady fashion without compromising on the ROA. If you need to compromise on the ROA increase your provision coverage ratio to a much higher level and all -- that option we always have -- we can take at any point of time. But as of now, we think we'll be proceeding on this level.

And the other decision whether to go for let's say, extra provision to reduce the, let's say, net NPA number to what extent you need to compromise the ROA and have extra provisions and all those choices we will be taking a call as the quarters proceed progresses.

[Punit Bahlani, analyst]

Okay. So right now, we are targeting stable ROAs with -- like there is no target to improve...

[N. V. Kamakodi, executive]

Right now, we don't anticipate any -- we speak with the current level. And with that slow and steady fashion itself, you have already seen a desired reduction in the gross NPA and net NPA. You also need to factor in this is going to be financial year '25, '26 is going to be my 15th year, which is regulatorily permissible as the CEO. What is the net NPA number, I want to hand over to the successor. We have to take a call as the way how we proceed during the quarters.

[Punit Bahlani, analyst]

Got it. And sir, your margins, the guidance, 3.5 sir, if I'm not right, I heard that only 31% of the book is fixed. So in such a scenario, sir, deposit repricing happens with a lag, right? So for us guiding 3.5% to 3.7% next year looks like an aggressive guidance given we have around 70% floating rate book, right? So any comments on that?

[N. V. Kamakodi, executive]

So that's what I explained in detail. So you have multiple levers working. In fact, the expectations was even for us, we would have had a reduction in the net interest margin in the fourth quarter itself compared to the third quarter because there were multiple rate hikes, I mean rate cuts. But still, we were able scrap through because like on -- yes, on the yield side, you are going to have a reduction in the yield. As you rightly said, you have, let's say, only 30 percentage in fixed rate.

On let's say, floating rate also let's say, the 25% of your CC accounts get repriced every quarter when they come for the renewal. So in that 25%, it may not be that the same reduction in the repo rate is getting passed on because you renegotiate the rate depending upon the risk appetite, the -- how you want to have a strategic discount, whether there is surplus liquidity in the system. So many factors come into play.

So as I explained earlier, the 25 basis point repo finally, the net impact on the yield was only in the high single digit north of that 25 basis points as you guys think, which was to a greater extent taken care by whatever reduction in savings bank rate or in future, the benefit you are going to get the -- because every quarter, you are going to have 25 percentage of your term deposits getting repriced. So we had what you call special rates for term deposits for the last quarter, which we have withdrawn.

And the rate at which the current term deposits are maturing and at what rate we are now currently offering market rate in tune with the market rate we are offering for the renewals -- so there is going to be a reduction in the deposit rate. Similarly, to a greater extent, they will be getting offset by the reduction in the yield. So they will be going in tandem.

So that's why we feel it may not be a surgical precision. We -- that's what I also explained. In future, it depends upon how fast the rate of interest comes down. Say for example, if everybody is factoring another 50 basis point reduction in the financial year. If the reduction of 50 basis points happens in one go, the market dynamics, surplus liquidity in the system, so many things come into play. So if we expect this 25 basis point reduction in stages over the period of next 4 quarters, we hope the -- this is what we expect based on that the existing margins with the plus or minus 10 basis points will hold. It is our expectation.

[Operator]

Punit, sorry to interrupt you. May I request you to come back for a follow-up question, please? Next question is from the line of Anand Dama from Emkay Global.

[Anand Dama, analyst]

I wanted to check, sir, how do you see the retail portfolio shaping up in FY '26 and FY '27? Because you've been very strong on the gold loan front. Housing is also your strong forte. Which other new products that you are going to introduce or scale up, #1? On people front, have you made any new changes? Have you hired some new team as such in the retail team as such?

And whether that will have an impact on the overall cost in FY '26? I think you -- in the initial comments, you talked about some increase in the cost. Is it more related to the retail business as such? Or there is something more to it?

[N. V. Kamakodi, executive]

Yes. The cost was more on retail front. We said that we will be around 48 to 50 this year, #1. 2, in terms of retail, yes, our home loan has been pretty decent, and our LAP has also started picking up loan against property. As I was speaking some time before, on an average, we started hitting double-digit rate in terms of overall blended rate for retail. So our focus on LAP and HL will continue. Also through our branch network, we are focusing on affordable home loans.

So this business is also giving us -- we have just started this. So this business is also -- once it starts picking up, I think we should have the decent book in terms of retail. And broadly, the hiring is done. We have hired a sales head. We have hired the zonal heads. We have hired the credit risk heads for the zones. We also hired the feet on street. As mentioned multiple times, we don't have plans to go with third-party sourcing for home loans for sure.

So broadly, home loans will be a branch sourcing only for LAP, North and West and some part of South, barring Tamil Nadu, we plan to do a DSA sourcing for loan against property. Otherwise, AHL it is broadly a branch-based strategy where the branch will sell the affordable home loans to their customers or new-to-bank customers with the existing retail setup. This is what is broadly on the retail plan.

So we will continue with our overall strategy of 95% to 98% secured. We don't have any change there. And remaining would be a credit card and a small bit of PL, if you want to give for our existing customers or salary customers per se.

[Anand Dama, analyst]

Great. Sir, on your SME book, I wanted to check like now that the rates have been cut -- so are you passing on all the rate cut to the customers or you are trying to delay that by a few months by increasing the risk premium because the macro disruptions are certainly up there, and so you can always increase the risk premium.

Are you doing anything of that sort and that is basically the reason why you seem to be more confident on the margins front or maybe the guidance seems to be more optimistic as compared to what one would have expected it to be?

[N. V. Kamakodi, executive]

See, as we explained, you may clearly see there are multiple levers. Say, you have fixed rate for which you are not going to have any impact. So you have what is EBLR for which the impact reduction will be immediate. For the other floating, by and large, what is in MCLR, you will be getting only when it is coming for the renewal. And the 25% of your CC limits will be coming for renewal every year. So as we explained, the 25 basis point reduction in the repo, the ultimate impact in the blended yield of the portfolio was at high single digit.

It was not into the double digit because of the composition of the loan book. And also wherever we had given strategic discount even earlier where some amount of, let's say, the interest rate concessions, let's say, benefit were given in the earlier contract itself -- so whenever there is a reduction in the, let's say, EBLR comes, a part of that will be absorbed in that, let's say, the extra reduction that was given in the past. So taking everything into account further 25 basis points repo rated because of the composition of loan book with the fixed rate, EBLR, MCLR or all different type of things, the net impact in the overall yield was in high single digit is what we faced.

[Anand Dama, analyst]

And sir, any reason for a sharp jump in the CEB and the other charges, the fee income in this quarter?

[N. V. Kamakodi, executive]

We had basically like one of the -- I mean, in fact, it's a good question. There are 2 things which had, let's say, which has resulted in this. 1, in the -- from the year beginning, we had concentrated -- I mean, I have been talking about this for quite some time. And we spoke about how we, let's say, came out of time scale-based increment and how we are going to change the incentive structure and things like that and how concept of sales getting introduced, which was not the part of DNA of our bank.

One impact because of change in the remuneration structure is this increase in the insurance income. So we could see, let's say, a substantial jump in the insurance income, which was hovering about INR 54 crores, the commission income we earned from the insurance third-party distribution in the financial year '24. We could get closer to INR 100 crore -- just under 100%, about INR 97 crores or something for the financial year '24, '25, which is a substantial jump.

Similarly, we had, say, 2, 3 years of lower growth in the core advances growth and MSME and things like that. As the advances growth rate started picking up, particularly after the arrival of new gen-based lending and other things, there is a substantial jump in the processing fees also. These 2 have resulted in a substantial increase in the commission exchange brokerage fee side of the bank.

[Operator]

Next question is from the line of Bunty Chawla from IDBI Capital.

[Bunty Chawla, analyst]

Congrats on a good set of number. As you earlier in FY '25, you have guided for the slippages of INR 800 crores and net slippages will be negative. So if you can share similar outlook for the FY '26, this net slippages negative will continue for FY '26? And how will the slippages number or slippage ratio will be in FY '26?

[N. V. Kamakodi, executive]

So we were -- we gave the number of INR 800 crores for the current financial year, which we closed at INR 850 crores. So we gave a guidance of INR 800 crores for the current year, and we closed at INR 815 crores. And for the next year, we will be around INR 650 crores to INR 700 crores. That's the number we are looking at. But in terms of provisions, we will also have D1, doubtful 1 to doubtful 2 extra provisions we will have for the year, which will -- which we may have to take. Otherwise, we are quite confident of recovery will be more than slippages for the current year as well.

So to answer your question, INR 650 crores to INR 700 crores is the number we are looking at. Recovery will continue to surpass the slippages. And #2, the extra provisions depending upon the provisioning requirement and also in tune with the expected net NPA numbers. The provision numbers as we have always -- decisions will be taken as we enter into the quarters.

[Bunty Chawla, analyst]

Secondly, sir, as you said the margins will be in the range of plus 5 to 10 bps, 3.5% to 3.7% and cost-to-income ratio will be around 40% to 50% kind of a thing. So any chances of improvement in ROAs or we are still going with the stability in the ROA at 1.5% for FY '26? That's it from my side.

[N. V. Kamakodi, executive]

See, the -- let's say, we don't want to be too optimistic, overpromise and underdeliver. So our earnest effort to improve that are always there, and we will be working for that.

[Operator]

Next question is from the line of Gaurav Jani from Prabhudas Lilladher.

[Gaurav Jani, analyst]

Congrats on a good quarter. Firstly, sir, I missed Vijay sir's comments on shedding of low rated -- lower interest rate loans. Can you repeat that, please? I mean, which 2 segments did we actually share?

[N. V. Kamakodi, executive]

Yes. See, I mean, what we explained was that for the entire year, that 14% growth rate was achieved after exiting about INR 1,200 crores of interbank participation certificate low yielding and also the [ INR 150 crores ] of low-yielding NBFC advances.

Out of the INR 1,250 crores, INR 750 crores happened in the last quarter itself. Interbank participation certificates and all, we had to enter the previous year because we had to exit gold loan agri portfolio and because of that achievement of target and all some amount we had to enter, but that we had to compromise on the yield that we had now exited. So there are 2 things because of the 2 outcomes. 1, we could achieve 14 percentage growth despite, let's say, selling about INR 1,250 crores of loan book.

And it has also helped us to have a better yield because whatever we exited were of low yielding. In fact, about INR 150 crores were around to 8.5% and remaining INR 1,250 crores were about, say, 6% to 6.5% are that very low rates because we had to regulator go for that to achieve our agri target in the previous year because of the -- to achieve the targets.

[Gaurav Jani, analyst]

Just an extension to this. So is there any more scope for reduction in this low yielding? I mean, given the fact that you are looking at further...

[N. V. Kamakodi, executive]

We have opened up almost everything possible to what extent renewals are coming, to what extent the fixed rates are there, whatever these things are there. We don't anticipate any more. Finally, it all depends upon the market dynamics and how we are going to have, how the rates pan out. As of now, at least on cards, we don't see anything to come down so fast. Say for example, we have about 2 percentage of our portfolio from NBFC lending, which is about INR 1,417 crores as given in the Slide #27.

So how that yield adjusted as we get into the -- these are all basically corporate lending, and they will always have lower yield compared to your core advances. And if the yield in that portfolio, how it gets adjusted because of the market yield and what are all the alternate options available for them, whether we will be better off by continuing those rate of interest because these corporate lending will be around 9% or even 8.5% to 9% and things like that.

But we will be able to have an average yield of the portfolio close to 9.5% to even double digit, whatever it has come in closer to that. So those calls are taken on a dynamic basis on a continuous thing. We don't have a target and all in our mind and all. We also never expected that we will be totally exiting from all these things. One of the reasons is because like the -- we could do the gold loan better with better yield and also on agriculture lending and things like that.

[Gaurav Jani, analyst]

Just last one from my end, if I may. You mentioned about the commission exchange and brokerage, right? So can we understand that was it also bulk-up because it was Q4? And could there be a further normalization in the coming quarters? Or this is the new base that you're looking at?

[N. V. Kamakodi, executive]

See, the -- let's say, the -- on commission exchange brokerage basis, the insurance income hike, it perhaps, as I told you, like the change of remuneration structure and some amount of change of marketing campaigns, which we took, we will be fine-tuning and there is some more juice available over there. And on the processing charges front, it will be the function of the credit growth.

[Operator]

Next Question is from the line of Arun, Independent Shareholder.

[Unknown Attendee]

Actually, my questions are largely answered. But 1 question I had on the retail portfolio growth. Are you looking at it primarily to grow in Tamil Nadu? Or is it other states as well? Because I also saw you've done a fair amount of branch expansion recently. So is the focus going to be more on your MSMEs in the other states only or will retail growth be there as well? To that, do you have like a goal or target in mind on the retail growth?

[N. V. Kamakodi, executive]

Sir, the retail growth is going to be across. It's not restricted only to South. Having said that, we have a decent presence in South. So whatever the business we are getting is at a 0 cost. So basically, I don't have an acquiring cost, which is very -- normally very high in retail. Our branches can fulfill this business. Having said that, our retail business is going to be in complete pan-India apart from South. We wanted to be 3% of our overall business on MSME business year-on-year. That's a number which we have in mind. So to be precise, we are looking to exit this year with INR 3,000 crores. INR 3,000 crores should be the exit number for retail for this year, as we speak.

[Unknown Attendee]

And currently, what it is, sir? Sorry, I don't have it offhand, but...

[N. V. Kamakodi, executive]

We should be around INR 1,000-odd crores as of now.

[Unknown Attendee]

Okay. So we are looking to grow it for FY '26 to INR 3,000 crores.

[N. V. Kamakodi, executive]

Yes, INR 3,000 crores should be the exit number.

[Operator]

Next follow-up question is from the line of Jai Mundhra from ICICI Securities.

[Jai Prakash Mundhra, analyst]

I wanted to check, sir when did you move the gold loan from floating to fixed? And what is the outstanding risk weighted asset from that...

[N. V. Kamakodi, executive]

We moved on July from floating to fixed gold loan rate. Sorry, what was the next question, Jai?

[Jai Prakash Mundhra, analyst]

Sir, the outstanding risk-weighted numbers, risk-weighted assets number...

[N. V. Kamakodi, executive]

INR 39,900 crores. So overall risk weighted asset. INR 39,900 crores, Jai. Is it audible?

[Operator]

Next question is from the line of Ajit Kumar from JM Financial.

[Ajit Kumar, analyst]

Just 1 question from my side. I wanted to know your take on recent bill introduced by the Tamil Nadu government to prevent loan recovery practice. I understand it is not applicable to RBI regulated entities, but any impact on your on-ground operations in this past and especially given Tamil Nadu forms more than 70% of your total business. So yes, any impact for you?

[N. V. Kamakodi, executive]

Yes. This law doesn't apply to RBI regulated entities, you are right, particularly for the banks. So we don't anticipate any, let's say, issue because of this law -- any new impact because of this.

[Operator]

Next question is from the line of Pritesh from DAM Capital.

[Pritesh Bumb, analyst]

Just 2 questions. 1 is on the branch expansion strategy. We have done a good branch expansion this quarter and this year. Next year, what do you -- how do you target -- I mean, where do you target? And how much are you targeting to increase the branches?

[N. V. Kamakodi, executive]

See, we've opened about 75 branches in the current financial year '25. We had been consistently opening about 50 to 75 every year, except during the COVID years. So this year from 875, probably we'll be taking it to about another 50 to 75 basis points, 25 branches. If let's say, things are favorable, we may also open a few more branches.

[Pritesh Bumb, analyst]

925 is what we're looking at? I mean I missed that number.

[N. V. Kamakodi, executive]

Yes, 925 to 950.

[Pritesh Bumb, analyst]

Okay. And second, the new -- the branches will be incrementally outside Tamil Nadu or it will be spread across depending.

[N. V. Kamakodi, executive]

Yes, exactly. You might have seen incrementally, the non-Tamil Nadu branch numbers are increasing. Proportionately, the Tamil Nadu-based branches in terms of percentage is holding are coming down. So we are almost reaching a stage of exhausting the TN expansion. So incrementally, except for the unbanked rural and the regulatory to be opened branches, we will have proportionately higher number of branches in the non-Tamil Nadu states.

[Pritesh Bumb, analyst]

Got it. And a question related to the same. Basically, as we open more branches, the SAR per branch number is coming down. We were doing quite decent a few quarters back, but we've seen that from last 2 quarters, the SAR per branch is coming down. What is the strategy there? How do we improve our SAR per branch number?

[N. V. Kamakodi, executive]

See, there are certain, whenever we open a new branch, maybe for the first 3, 4 years, till it comes to a stable number of stable business. The number of people employed per branch will be after 1 manager, 1 officer and about 3 to 4 relationship managers. So it will be lower than the current level of average number of persons per branch. So that number may look a little bit coming down. But on the other side, we are in the process of, let's say, creating the sales structure. Partly we have done and a small portion is left and that the sales structure itself, we are in the process of making.

That's why in the beginning, we told some amount of expenses we expected in the last year slowly getting shifted for the current year also. So the -- as we explained, maybe for another 1, 1.5 years, the cost-to-income ratio because of this additional sales force and things like that, some amount of the 48% close to 50% cost-to-income ratio will be there. Once that starts delivering results, when the income starts coming, you will start seeing the cost-to-income ratio coming down.

[Operator]

As there are no further questions, I'll now hand the conference to Mr. Jignesh Shial. Please go ahead.

[Jignesh Shial, analyst]

Yes. Thank you, Nirav. On behalf of AMBIT Capital, we are thankful to the management of City Union Bank for the detailed discussion. I'll now hand over the call to Dr. N. Kamakodi, MD and CEO of City Union Bank for his closing remarks. Over to you, sir.

[N. V. Kamakodi, executive]

Thank you, AMBIT, for arranging this call, and thank you all for joining. So just to sum up for some years, the credit growth was evading us, and we have now recorded firmly about 2% to 3% growth over and above that of the credit growth of the industry. We should be in a position to firm that up further in the current financial year.

The -- we also -- we are getting better visibility for the asset quality. We are seeing the slippage ratio getting better. We are seeing SMA numbers getting better. We are seeing NPA ratios getting better. We hope these things will further get better in the financial year. And the -- so the -- with this, we are also seeing other income showing substantial growth, particularly from the third-party sales and the insurance and your credit processing charges.

So overall, as I told, we are, let's say, entering into the year, when the remuneration structures are seeing going forward, the productivity has to get aligned with that and the things have to get improved from here. So we hope the geopolitical situations don't deteriorate from wherever we are. But on whatever situation we are currently seeing and on as is were is condition, the visibility for a better year is there.

And with this positive note, I hope we should be having a financial year '25-'26 even better than whatever we saw in the financial year '24-'25. So with these words, I once again thank you all, and let us complete this call. Thank you.

[Operator]

Thank you very much. On behalf of AMBIT Capital Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.