Recommendation from Banking Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

City Union Bank : STEADY GROWTH & STRONGER FUTURE

HERE IS WHY
✓ Improving Asset Quality
✓ Strong Profitability
✓ Long Legacy and Strong Trust

The Indian banking sector characterised by its diversity and rapid transformation presents a wealth of opportunities for investors looking to capitalise on both stability and growth potential. While large, wellestablished banks often dominate the conversation, smaller banks, particularly those with a specialised focus, can offer investors significant upside potential. One such bank is City Union Bank (CUBK), a 121-year-old institution that has carved out a unique niche in India’s financial landscape. Despite its long legacy, CUBK is often undervalued by the market, with its niche dominance and robust future prospects overlooked. This creates an investment opportunity that savvy investors should pay attention to.

City Union Bank has built its success on a specialised business model, focusing on the underserved micro, small, and medium enterprises (MSMEs), retail, and wholesale trade sectors. By focusing on these high-yield areas, CUBK has cultivated a competitive moat that provides it with superior pricing power and a more stable asset profile compared to larger, more generalised banks. The bank’s niche market leadership is one of the key pillars of its success. By concentrating on the MSME sector, which is one of the largest untapped opportunities in India’s banking ecosystem, CUBK has positioned itself as a leader in this space. This focus allows the bank to achieve higher yields than other players in the sector, and it gives the bank access to a loyal and growing customer base. Additionally, its strategic emphasis on retail trade and wholesale businesses has helped diversify its asset base, further reducing risk.

CUBK has consistently delivered strong financial results, Net Interest Income increased to ₹666.5 crore, registering a 14 per cent YoY growth over ₹582.5 crore in Q2 FY25 and up from ₹625.3 crore in Q1 FY26. Other income also rose by 14 per cent year-on-year to ₹259.1 crore. Net profit grew 15 per cent YoY to ₹328.6 crore, compared to ₹285.2 crore in the same period last year and ₹305.9 crore in Q1 FY26. In Q2FY26, the bank’s RoA improved to 1.59 per cent, and its RoE reached an impressive 13.35 per cent. The bank’s ability to maintain stable net interest margins (NIMs) of 3.63 per cent demonstrates its financial resilience and its disciplined approach to balance sheet management.

The bank’s Gross NPA ratio fell from 3.99 per cent in FY24 to 2.42 per cent by Q2 FY26, while its Net NPA ratio decreased from 1.97 per cent to just 0.90 per cent during the same period. This consistent improvement in asset quality is a testament to the bank’s riskconscious lending practices, which focus on collateral-backed loans and direct client relationships. Currently, the bank’s price-to-book ratio stands at 2.01x.

Looking ahead, CUBK is positioning itself for future growth through a strategic pivot to secured retail lending, specifically focusing on home and gold loans, which are expected to be highgrowth areas. The bank is also pursuing an aggressive branch expansion strategy, planning to open 50–75 new branches in FY26, which will reduce its Reliance on its traditional stronghold in Tamil Nadu and help it tap into new markets. Additionally, the bank is investing heavily in digital banking, with initiatives like UPI Circle and biometric UPI payments aimed at enhancing customer convenience and expanding its digital reach.

The bank’s focus on the MSME sector, its improving asset quality, and its forwardlooking growth strategies in both retail banking and digital innovation position it for continued success. Hence we recommend BUY.

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