CUBNSEQ2 FY2024October 27, 2023 City Union Bank Limited
5,507words
77turns
8analyst exchanges
3executives
Management on call
Prabal Gandhi
AMBIT CAPITAL
N. Kamakodi
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER – CITY UNION BANK
J. Sadagopan
CHIEF FINANCIAL OFFICER – CITY UNION BANK
Key numbers — 40 extracted
12%
with you all some of the expectations as follows :- a) For the FY2023-FY2024 we are aiming for 12% to 15% growth which should be skewed towards the yearend. b) We hope to close the FY2024 with R
15%
ou all some of the expectations as follows :- a) For the FY2023-FY2024 we are aiming for 12% to 15% growth which should be skewed towards the yearend. b) We hope to close the FY2024 with ROA of 1
1.5%
% growth which should be skewed towards the yearend. b) We hope to close the FY2024 with ROA of 1.5% for which NPA recovery will be a major contributing factor. c) In the absence of treasury profi
42%
ties in the increasing interest rate scenario, the cost to income ratio will be in the range of 42% to 45%. d) We expect the NIM pressure and expect NIM at current level plus or minus
45%
the increasing interest rate scenario, the cost to income ratio will be in the range of 42% to 45%. d) We expect the NIM pressure and expect NIM at current level plus or minus 10 bas
10 basis point
to 45%. d) We expect the NIM pressure and expect NIM at current level plus or minus 10 basis points. Things are happening almost on the expected lines and even getting better in some of the aspe
Rs.1,280 Crore
g almost on the expected lines and even getting better in some of the aspects. We have seen about Rs.1,280 Crores or 3% credit growth during the Q2 2024. The soft launch of the digital process for the MSME le
3%
ected lines and even getting better in some of the aspects. We have seen about Rs.1,280 Crores or 3% credit growth during the Q2 2024. The soft launch of the digital process for the MSME lending b
Rs.3 Crore
it growth during the Q2 2024. The soft launch of the digital process for the MSME lending below Rs.3 Crores have started. The project executed by the Newgen Software team and coordinated by BCG is on trac
Rs.281
disbursement and growth as we move forward. We closed the Q2 FY2024 with the profit after tax of Rs.281 compared to Rs.276 Crores in the Q2 FY2023. In fact if you remember we had the highest profit af
Rs.276 Crore
wth as we move forward. We closed the Q2 FY2024 with the profit after tax of Rs.281 compared to Rs.276 Crores in the Q2 FY2023. In fact if you remember we had the highest profit after tax of Rs.276 Crores i
1.69%
fter that we had some moderation in the subsequent three quarters. The ROA for the Q2 FY2024 is 1.69% compared to 1.40% in the Q1 FY2024 and the same was 1.46% for the whole year FY2023. As you all
Guidance — 20 items
“During March 2023 and June 2023 concalls we had shared with you all some of the expectations as follows :- a) For the FY2023-FY2024 we are aiming for 12% to 15% growth which should be skewed towards the yearend.”
“b) We hope to close the FY2024 with ROA of 1.5% for which NPA recovery will be a major contributing factor.”
“c) In the absence of treasury profit opportunities in the increasing interest rate scenario, the cost to income ratio will be in the range of 42% to 45%.”
“d) We expect the NIM pressure and expect NIM at current level plus or minus 10 basis points.”
“The project executed by the Newgen Software team and coordinated by BCG is on track.”
“We hope to achieve the number we shared with you during the year and particularly for the credit disbursement and growth as we move forward.”
“We closed the first half FY2024 with a profit after tax of Rs.508 Crores and hope to cross four digit profit after tax figure for the whole year FY2024 for the first time.”
“We hope to achieve this figure despite having headwinds in the operating profit.”
“For the first time in the recent past, live recovery has surpassed the live slippage and we expect this trend to continue as we move forward.”
“Hence going forward we will see substantial reduction in the credit cost and reduction in the NPA getting back to the pre COVID level which will reduce the provisions required substantially and take care of the profit after tax.”
Risks & concerns — 3 flagged
d) We expect the NIM pressure and expect NIM at current level plus or minus 10 basis points.
— N. Kamakodi
But because of certain regulatory observations we had to stop the agri gold loan KCC product which became a sort of headwind to our growth and also the growth in the other core sector has also started like showing some amount of progress which should be improving from now particularly with the arrival of the digital lending platform.
— N. Kamakodi
The first part is all of them have come out of the issues and particularly the stress during the COVID and almost all the MSME who are surviving are doing extremely well with good cash flows and having their head above the water.
— N. Kamakodi
Q&A — 8 exchanges
Q
Thanks for the opportunity and congrats on the improved set of numbers. Sir firstly in terms of the upgrades that we have seen this quarter if you can share some color on which segments are they coming and when did this account slip?
N. Kamakodi
Yes in fact we had discussed during the last concall itself. Basically, whenever account upgrades before the release of the quarterly numbers we used to effectively take that on our collections. But after that there are certain observations during the inspection and hence we had stopped that. Regarding upgrades, it is basically across the sectors. The largest one being upgradation from about Rs.19 Crores from a resort which started seeing improvement in the collection. The second one came from a contractor for the Government of Tamil Nadu who received the payment subsequent to the quarter end
Q
Good evening and thanks for the opportunity. My first question was on the macro level. Lot of the peers are talking about the reducing in the MSME side? What is our outlook on the same.
N. Kamakodi
See basically two dichotomous observations we are seeing on the ground. The first part is all of them have come out of the issues and particularly the stress during the COVID and almost all the MSME who are surviving are doing extremely well with good cash flows and having their head above the water. The asset quality issues have by and large subsided and things are on track. On the other side if you look into the growth coming from this particular segment, we are not seeing like in the previous cycle are yet to see the capacity expansion or investment cycle to pick up. Bulk of the investment
Q
Sir thank you for the opportunity. Sir my question is on the margins. Earlier on basically you had said that RBI had observation on the MCLR and add to that there was some interest recognition because of the subvention on the farm loans as such so any update over there?
N. Kamakodi
We have written to RBI and waiting for their numbers, we have made representation for which we are awaiting the results. As we told around the same time I mean couple of quarters back we are not recognizing that whatever income that normally will be done. Because of that observation, we are not recognizing that and basically some amount of transfer of yield has happened and that is why like somebody asked there is marginal improvement in the yield. Another thing, our current credit deposit ratio is about 4% to 5% below whatever we used to operate during the pre COVID level because of which a f
Q
Good evening Sir. Thanks for the opportunity. My first question was on employee cost? What is the reason for the 20% Q-o-Q increase in our employee cost for this quarter?
N. Kamakodi
Actually we have the annual increment kicks off from July 1, so sequentially you have that thing and first half to first half it is 6% increase. Okay fair enough and Sir secondly more of an accounting question in terms of recoveries do we net it off from provisions when we recognize credit cost or do we recognize it as other income in our P&L? Basically if the account is written off it is considered as an income but if an account gets upgraded or collected from live account it gets shifted from one account to the another. And in that case if it is a live account that has not been completely wr
Q
Thanks a lot sir and a very strong set of performance. Sir just one question I had with respect to the BCG thing so how are we placed there? How the progress is taking place on that front and when we are planning to get done with that exercise?
N. Kamakodi
Basically as I told during my opening remarks the actual software is made by a company called Newgen and the support and other coordination and other consulting part is taken care by the BCG. For the MSME loans less than Rs.3 Crores the soft launch of the product is already on and maybe for next 10 to 15 days it will be used for select branches. After any bugs if at all anything is there, after correction maybe the second half of November it should be made available to all the branches. Next other product whatever we have they had already prepared source models. The next set of things in the n
Q
Sir good evening and congratulations on good quarter. Sir continuing from the previous question just to understand it properly the LOS implementation across all product at the bank level should be over by let us say early January next year right?
N. Kamakodi
Yes hopefully that is the timeline with which we are moving forward. When we meet for the Q3 results somewhere in the end of January at least 50% to 60% of the products should be into full production throttle and the remaining one third maybe in the soft launch or they should have also started giving results. Okay and Sir does this LOS implementation in any way changes the usual growth trajectory? I mean usual growth pattern of the bank that usually we have that Q1 there is a Q-o-Q date? Q2 is where the September number is similar to March and then Q3 there is an uptick and Q4 is where the gro
Q
Thank you for the opportunity. Can we expect any like any further increase in rates?
N. Kamakodi
Actually we do not expect any more hikes going forward. Even with 25% probability if something is left out maybe at the best 25 basis point. 75% probability we do not expect any rate hikes going forward. Okay and like I am just asking this if I have understood correctly so the credit cost would be like lower at lower levels like for the second half just as how we have seen in for Q2 am I right? Yes okay. Yes Sir thank you.
Q
Yes once again thank you all for participating in this concall. As you might have observed finally we have entered into a phase where the slippages have come down, recoveries have increased and the overall credit cost has come down significantly. The trend which we expect is to go for a few more quarters. Our ROA and other efficiency numbers have also come closer to our long-term averages and even better than whatever we had anticipated to start with. Basically the only thing which is left is the growth which we have to show for which the initial signs are visible. We expect this digitization
Opening remarks
Prabal Gandhi
Thank you Savesh. On behalf of Amit Capital, I once again welcome you all for City Union Bank 2Q earnings call. From the management side we have Dr. N Kamakodi, MD and CEO and Mr. J. Sadagopan, CFO. Without further ado, I will hand over the call to Dr. Kamakodi for his opening remarks post which we can open the floor for Q&A. Thank you and over to you.
N. Kamakodi
Good evening everyone, Dr. Kamakodi here. A hearty welcome to all of you for this concall to discuss the unaudited financial results of City Union Bank for the 2Q and the first half year ended September 30, 2023. The board approved the results today and I assume you all have received the copies of the results and the presentation. During March 2023 and June 2023 concalls we had shared with you all some of the expectations as follows :- a) For the FY2023-FY2024 we are aiming for 12% to 15% growth which should be skewed towards the yearend. b) We hope to close the FY2024 with ROA of 1.5% for which NPA recovery will be a major contributing factor. c) In the absence of treasury profit opportunities in the increasing interest rate scenario, the cost to income ratio will be in the range of 42% to 45%. d) We expect the NIM pressure and expect NIM at current level plus or minus 10 basis points. Things are happening almost on the expected lines and even getting better in some of the aspects. We