CITY UNION BANK

A new phase of growth beckons

32.8 MF holding (% of eq) 16.0 Fll holding (% of eq) 2.6 18 change in MF/Fil holding (% of eq)

Incorporated in 1904, City Union Bank is the oldest -private-sector bank in India. Although the bank doesn't hog the limelight like its much larger peers, its consistent performance in terms of profitability and dividend payout over the years has made it stand out. Known for prioritising the quality of its loan book over growth, City Union Bank targets mainly the SME/ MSME (micro, small and medium enterprises) segment.

The bank specialises in providing small-ticket loans to farmers, traders and small entrepreneurs. As on December 31, 2021, loans to MSME, agriculture and wholesale traders accounted for about 66 per cent of its loan book of ₹38,387 crore. Moreover, around 99 per cent of its loans are secured by collateral in the form of personal guarantees and immovable properties. Also, by restricting its exposure to consortium/multiple banking arrangements and infrastructure lending, the bank has been able to keep its nonperforming assets under control. However, about 74 per cent of its business is conducted in Tamil Nadu and such a geographical concentration for a bank can lead to stress if there is any disruption in the region. Since the onset of the pandemic, the bank's gross non-performing assets have inched upwards from 3.5 per cent in December 2019 to 5.21 per cent in December 2021.

In anticipation of poor economic conditions, the bank slowed down the growth of its loan book and focused more on gold loans and the emergency credit line-guarantee scheme during December 2019-December 2021. However, it is now ready to accelerate its growth by leveraging technology. Available at nearly half the five-year median price-to-book value, the valuation also seems to be quite attractive.