City Union Bank Q4 FY26: Fast growth, cleaner asset quality, and a leadership handover

City Union Bank closed Q4 FY26 with its strongest business growth in years, while also marking a major leadership transition. For the year ended March 31, 2026, deposits rose 23% year on year to Rs 78,308 crore and advances rose 26% to Rs 66,699 crore. Total business expanded 24% to Rs 1,45,007 crore.

Profitability moved in step with growth. FY26 net profit increased 18% to Rs 1,326 crore, supported by a 22% rise in net interest income to Rs 2,830 crore. In Q4 alone, net profit grew 25% year on year to Rs 360 crore, while net interest income rose 31% to Rs 786 crore. The bank reported FY26 ROA of 1.56%, ROE of 13.35%, and NIM of 3.74%.

A key narrative point from the earnings call was succession. Dr. N. Kamakodi completed the maximum permissible tenure of 15 years as MD and CEO on April 30, 2026, and handed over to Mr. R. Vijay Anandh with effect from May 1, 2026. The outgoing CEO framed the performance of the last 15 years as one of consistent compounding, but also of avoiding credit-cycle pitfalls such as infrastructure lending and unsecured retail.

What drove FY26 performance

Growth was broad-based across deposits and loans. Deposits increased from Rs 63,526 crore to Rs 78,308 crore, while advances increased from Rs 53,066 crore to Rs 66,699 crore. CASA balances rose 19% year on year to Rs 21,644 crore. The bank’s cost of deposits for FY26 moderated to 5.70% from 5.85% in FY25, while yield on advances remained largely stable at 9.75%.

Operating leverage showed up in the quarter, with Q4 cost-to-income improving to 46.15% from 48.21% a year ago. For the full year, cost-to-income was 47.93%, broadly similar to FY25 levels. Operating expenses still grew 21% year on year in FY26, driven by employee costs and other operating expenses, reflecting the costs of scaling the franchise.

The clearest positive for the quarter was asset quality. As of March 31, 2026, gross NPA declined to 1.91% and net NPA declined to 0.68%, versus 3.09% and 1.25% a year ago. Provision coverage ratio was reported at 84% including technical write-offs and 65% excluding technical write-offs.

Financial snapshot (Standalone)

Note: Figures are from the investor presentation and audited standalone financial results.

Loan book mix and the gold loan question

As of March 31, 2026, the bank’s gross advances were Rs 66,699 crore. Product-wise, cash credit and demand loans were 62% of advances, term loans were 37%, and bills purchased/discounted were 1%.

On sectoral deployment, the bank reported MSME at 37% of advances, agriculture at 16%, jewel loans (non-agri) at 16%, and other categories including CRE, housing, personal loans, and NBFC exposures forming smaller shares. The presentation notes that certain borrowers were reclassified from MSME/traders to the ‘Others’ category due to RBI rules linked to UDYAM registration.

Gold loans stood out as the fastest-growing slice. Total gold loans reached Rs 19,459 crore by March 2026, up 36% year on year, and accounted for 29% of gross advances. In the earnings call, analysts probed gold price volatility and the risks of lending at peak gold prices. Management responded that the bank maintained a conservative per-gram lending rate rather than tracking peak market levels, creating a buffer against price corrections. Management also indicated that 30% plus is close to its internal comfort band for gold loan share.

FY27: branch-led scaling and return aspirations

The new CEO’s first guidance points were focused on staying close to the bank’s traditional playbook while scaling faster. For FY26-27, management guided that advances growth should be 2% to 3% above industry credit growth, while continuing to focus on MSME, gold loans, and secured retail. A mix outlook was also shared: MSME to remain around 55% to 60%, jewel loans at 30% to 35%, and the remainder through secured retail.

A visible operational pivot is branch distribution. The bank announced it reached its 1,000th branch in April 2026 and opened around 70 branches in that month itself. Management also said it expects elevated operating expenses of 15% to 18% over the prior year due to the accelerated branch rollout. Importantly, the bank indicated that third-party sourced lending will remain limited, envisaged at 1% to 2% of the overall bank book.

On profitability, management indicated an intent to exit FY27 with ROA about 10 bps higher, targeting roughly 1.65% to 1.67%, supported by retail income and a lower cost-to-income ratio.

Corporate actions: dividend and bonus issue

The board recommended a dividend of Rs 2 per equity share (200% on face value of Re 1) for FY 2025-26, subject to shareholder approval at the AGM. In the same board meeting outcome dated April 27, 2026, City Union Bank also approved issuance of bonus shares in the ratio of 1:3, subject to shareholder approval. The bank disclosed that the bonus issue would be funded from the securities premium account, and that the post-bonus paid-up capital was expected to be around Rs 99.08 crore, subject to record date and ESOP adjustments.

Takeaways

City Union Bank’s Q4 FY26 results combined fast growth with visible improvement in asset quality, which is a difficult mix to achieve in an MSME-focused franchise. The leadership transition is significant, but the incoming CEO has offered continuity on underwriting philosophy and product focus, while pushing harder on distribution through rapid branch additions.

The next year’s scorecard will likely revolve around three variables management itself highlighted: sustaining high-teen loan growth without sacrificing asset quality, keeping margins stable amid funding competition, and absorbing the cost of a faster branch rollout while still improving ROA.