City Union Bank gold-loan-led growth supports resilient FY27-28 earnings
City Union Bank Ltd.
BUY
₹238
₹228.95
₹298
25.21%
Investment View and Outlook
In its July 29, 2026 update, Anand Rathi Research retained its BUY rating on City Union Bank, citing sustained balance-sheet momentum, stable operating performance and improving asset quality.
The broker expects City Union Bank to deliver loan growth 200-250 basis points above the system over the medium term, supported by its core MSME franchise and gold-loan portfolio. Anand Rathi expects return on assets to remain above 1.5 per cent over FY27E-FY28E.
Q1 FY27 Business and Financial Performance
City Union Bank reported another strong quarter in Q1 FY27. Advances grew 26.1 per cent year on year, unchanged from Q4 FY26 growth, while deposits grew 20.7 per cent year on year. Credit growth was led by gold loans, which increased about 37.6 per cent year on year.
Gold loans, including agricultural gold loans, represented about 31 per cent of the loan book. Management expects this mix to remain in the 31-32 per cent range. Core loan growth excluding gold loans was about 20.5 per cent year on year, ahead of the system. CASA deposits grew 17.5 per cent year on year, with both deposit growth and CASA growth outperforming the system and peers, according to Anand Rathi.
| Q1 FY27 metric | Reported figure | Year-on-year change |
|---|---|---|
| Net interest income | Rs 8,201 million | Up 31.2 per cent |
| Pre-provision operating profit | Rs 5,806 million | Up 28.8 per cent |
| Profit after tax | Rs 3,826 million | Up 25.1 per cent |
| Net interest margin | 3.78 per cent | Down 9 basis points quarter on quarter |
The net interest margin declined 9 basis points quarter on quarter to 3.78 per cent because cost of funds rose 14 basis points, largely owing to higher borrowings. Management retained its medium-term NIM guidance of 3.65-3.70 per cent, reflecting expectations that deposit costs will remain elevated for the next few quarters.
Fee income rose 14.4 per cent year on year, below balance-sheet growth, although management expects improvement in the second half of FY27. Operating expenses grew more slowly than the balance sheet, with operating expenses to assets improving 24 basis points quarter on quarter to 1.98 per cent.
Improving Asset Quality
Asset quality improved in Q1 FY27, with gross and net slippages moderating from the preceding quarter and the year-earlier period.
| Asset-quality metric | Q1 FY27 | Q4 FY26 | Q1 FY26 |
|---|---|---|---|
| Gross slippages | 118 basis points | 131 basis points | 151 basis points |
| Net slippages | 8 basis points | 30 basis points | 41 basis points |
| Overall SMA book | 2.85 per cent | Not stated | 7.1 per cent |
Management expects gross slippages in the 1.2-1.3 per cent range and medium-term credit cost of about 40 basis points.
Earnings Estimates and Valuation
Anand Rathi forecasts FY27E/FY28E net interest income of Rs 34,280 million/Rs 39,875 million and profit after tax of Rs 15,558 million/Rs 17,836 million. Its FY27E and FY28E PAT estimates were raised by 1.6 per cent and 1.2 per cent, respectively.
| Metric | FY27E | FY28E |
|---|---|---|
| Net interest income | Rs 34,280 million | Rs 39,875 million |
| Profit after tax | Rs 15,558 million | Rs 17,836 million |
| PAT estimate revision | Raised by 1.6 per cent | Raised by 1.2 per cent |
At the report CMP of Rs 238, the stock traded at 1.7 times FY28E price to adjusted book value. The Rs 298 target price is based on 2.2 times FY28E price to adjusted book value.
Key Risks
- Higher-than-expected slippages.
- Lower-than-anticipated loan growth.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
