In Outlook Business’ third edition of The Outperformers, these are the companies that have managed to beat the market over a five-year period, creating significant value for their shareholders.
City Union Bank
Being a niche player – geographically and in terms of customer base and product offerings – City Union Bank (CUB) has consistently registered strong growth. It has never reported a loss and regularly announced dividend in its 115 years. The growth story continues with its loan advances growing to Rs.282 billion from Rs.181 billion between FY15-19. Its current account to savings account (CASA) ratio has grown to 25.22% from 19.23% , and net interest margin (NIM) to 4.32% from 3.44%, in the same period.
The Tamil Nadu-headquartered bank largely lends to MSMEs and traders (51% of loan book) and has diversified by lending to agriculture, large industries and retail. Besides hedging its bet, the bank has also done right by ensuring higher collateralisation to lower credit risk. The small-ticket secured lending backed by adequate collateral has helped in restricting bad loans and improving NPA recoveries. Negligible or no exposure to stressed corporates such as IL&FS and low proportion of loans to NBFC sector (at 0.8% of credit) has led to good asset quality. Also recoveries from written off accounts almost doubled to Rs.380 million in Q4FY19 This is expected to improve NPA to 1.4% by FY21 from 1.6% in FY19.
Even while cleaning up its revenue stream, the bank is working to cut costs by increasing the share of non-branch channels in transaction to about 90%, up from 60% a few years ago.
Analysts expect the loan growth to accelerate to 18% over FY19-21E as CUB looks to capitalise on the space vacated by capital strapped PSBs and cash strapped NBFCs. NIM, meanwhile, is expected to slightly dip to 4.1% over FY19-21 owing to competitive pressure and changing industry dynamics. So far, their approach, though conservative, has paid off and the trend is likely to continue. As the bank is expected to clock high growth numbers in core parameters, the P/B of 2.3x looks sustainable.