| City Union Bank Limited | ||
| Rating reaffirmed at 'CRISIL A1+ ' | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the certificate of deposit programme of City Union Bank Ltd (CUB).
The rating continues to reflect CUB’s comfortable capitalisation with heathy liquidity. The rating also factors in stable resource profile, as indicated by high retail deposits and modest earning profile. These rating strengths are partially offset by the bank’s weakened, albeit improving, asset quality and small scale of operations, as indicated by geographical concentration. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profile of City Union Bank |
Key Rating Drivers & Detailed Description Strengths: * Comfortable capital position Capitalisation metrics have been comfortable over the past 6 years with networth at Rs 6,759 crores and networth ot net NPA of 5.8 times as on June 2022 (5.5 times as of March 2022). The capital cusion is adequate for the current scale of operations. As on June 30, 2022, CET I and overall CAR stood at 19.4% and 20.5%, respectively. The bank's capital position remains supported by strong internal accruals. CUB has also demonstrated its track record of raising equity capital through rights or preferential issue, as and when required. CRISIL Ratings thus believes CUB has adequate cushion to absorb any potential stress in the earnings profile arising due to higher credit cost.
* Stable resource profile, as indicated by high retail deposits The bank’s resource profile is reflected in high share of retail deposits (term deposits of below Rs 2 crore and savings deposits) at 79.4% as on June 30, 2022. Bank deposits grew 9.3% year-on-year to Rs 48,772 crore in June 2022 (from Rs 44,606 crore in June 2021). CUB’s cost of deposits has declined to 4.43% in June 2022 (compared to 4.68% in March 2022).
Share of current account and savings account (CASA) deposits has also increased to 31.5% as on June 30, 2022, compared to 27.6% as on June 30, 2021. While CASA deposits have picked up, the share still lags the industry average. However, the bank deposit base includes pure retail liability franchise with no reliance on corporate bulk deposits and certificate of deposits. Retail deposits have accounted for 75-85% of the bank’s total deposits during the past few years, thus lending stability to the overall resource profile. Increase in share of CASA deposits remains a key factor in improving the overall deposit profile.
* Average earnings profile The bank’s earnings profile has improved with RoA of 1.5% (annualized) for the first quarter of fiscal 2023 as against 1.3% for fiscal 2022. The earnings profile was impacted in the past owing to rise in credit costs due to elevated slippages amidst the Covid-19 pandemic.
During fiscal 2021 and fiscal 2022, the credit costs for the bank increased to 1.5% and 1.1% respectively amidst the deterioration in the asset quality metrics. However, with the improvement in the asset quality metrics the credit costs have improved to 1.0% for the first quarter of fiscal 2023 which has resulted in an improvement in the overall earnings profile of the bank. CRISIL Rating’ notes that the bank earnings profile used to be with RoAs ranging between 1.5%-1.6% for the five fiscals through fiscals 2019.
Moreover, the bank’s pre-provisioning operating profit (PPOP) has also improved to 2.9% in the first quarter as compared to 2.8% for fiscal 2022. The bank’s provisioning coverage ratio stood at 38% as on June 30, 2022 (37% in March 2022). Going forward, CRISIL Ratings expects the bank’s operating profitability to sustain, supported by its steady net interest and fee income. Any significant impact on the earnings profile due to any unanticipated slippages and therefore credit costs remain a key monitorable.
Weakness: * Weakened asset quality metrics Bank asset quality was impacted amidst the impact of the Covid waves with GNPA rising to 5.1% as on March 31, 2021 peaking at 5.6% as on September 30, 2021. However, with the improvement in the macroeconomic environment, the asset quality metrics have shown improvement with GNPA at 4.7% as on March 31, 2022 which has remained stable as on June 30, 2022.
The improvement primarily stemmed from control over slippages with slippages improving to 2.6% (annualized) for the first quarter for fiscal 2023 as against 3.5% for fiscal 2022 (3.3% for fiscal 2021). The reductions too improved to 2.9%(annualized). Nevertheless, the bank has an outstanding restructured portfolio of Rs 2,334 crore which accounts for 5.7% of the overall advances as on June 30, 2022, the performance of which remains a key monitorable.
Going forward, the bank’s slippages will largely depend on the cash flow positions of restructured borrowers as the economy gains momentum gradually. Any change in the payment discipline of borrowers will affect asset quality levels, and hence, the bank’s ability to manage asset quality.
* Modest scale of operations with geographical concentration CUB’s scale of operations remains modest, as indicated by a small market share of ~0.3% (in terms of total advances) as on June 30, 2022, along with high geographical concentration in and around Tamil Nadu. Tamil Nadu alone accounted for 495 branches (of 727 branches) and 67% of advances as on June 30, 2022.
CRISIL Ratings believes CUB will continue to operate as a mid-sized bank with high regional concentration over the medium term. Business growth in new geographies in terms of resources, clientele, size and type of exposure will be key sensitivity factors. |
Liquidity: Strong Liquidity is supported by access to systemic liquidity. The bank has positive cumulative mismatches across buckets over the next 12 months. Liquidity position has been adequate with Liquidity Coverage Ratio of 227% as on March 31, 2022. The bank held 4% excess securities under the statutory liquidity ratio bracket on June 30, 2022. |
Rating Sensitivity factors Downward factors:
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About the bank CUB is one of the oldest private sector banks in India, incorporated as The Kumbakonam Bank Ltd by 20 citizens of Kumbakonam, Tamil Nadu, in 1904. In 1957, the bank acquired Common Wealth Bank Ltd. In 1965, two local banks, The City Forward Bank Ltd and The Union Bank Ltd, were amalgamated with it. Consequently, it was renamed The Kumbakonam City Union Bank Ltd. In November 1980, CUB started expanding its operations outside Tamil Nadu and in 1987, came to be known by its present name. CUB is listed on the National Stock Exchange and Bombay Stock Exchange. In 1990, the bank computerized its operations and, in 2006, implemented the core-banking-solution process across all its branches. |
Key Financial Indicators
Note: RoA annualized |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available. For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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