ICICI Securities has issued a BUY Call for City Union Bank, setting a compelling 12-month target price of Rs 250 per share. The investment thesis is underscored by accelerating secured retail disbursements, robust asset quality, and judicious risk management in business segments prone to systemic stress. City Union Bank is confidently navigating industry headwinds, including manageable exposure to US textile exports and prudent oversight of high-risk lending. Strategic hiring and expansion in retail further bolster growth expectations, while sustained margins and profitability elevate CUB’s stature for discerning investors.

Investment Thesis & Recommendation

City Union Bank stands at an inflection point, with ICICI Securities maintaining a decisive BUY stance thanks to reinforced asset quality, prudent loan growth, and resilient net interest margins. The brokerage has pegged the 12-month target price at Rs 250, with the stock trading at a current market price of Rs 212. The bank’s aspiration to achieve superior 15–16% year-on-year loan growth, powered by gold loans, MSME revival, and secured retail inclusion, signals a well-structured momentum for FY26.

Financial Performance Snapshot

City Union Bank’s financial summary reveals a steady climb in profitability and asset quality amidst challenging sectoral dynamics. For FY24–FY27, net profits are projected to climb from Rs 10.2 billion to Rs 14 billion, with earnings per share ascending from Rs 13.7 to Rs 19.0. Return on Equity remains resilient, stabilizing between 12.2% and 12.8%, whereas asset quality improvements are visible with Gross NPA expected to decline to 2.2% and Net NPA to a mere 0.7% by FY27. Net interest margins are set to hold firm at 3.5% in FY27, with operating profits following suit at Rs 22 billion.

Growth Drivers

The bank’s robust retail expansion and segment diversification are catalyzing growth. Disbursement rates in secured retail products are running at an impressive Rs 24 billion annualized, reflecting strategic hiring and footprint broadening. The sourcing mix is largely branch-driven, accounting for over 95% of total, complemented by direct and NTB channels. The retail portfolio has become geographically balanced, with Tamil Nadu and other regions now contributing equally.

Risk Management and Asset Quality

City Union Bank continues to display exemplary stewardship in risk containment. Direct exposure to US export textiles is carefully capped at Rs 2.2 billion (0.4% of total loans), mitigating overseas pressure. The bank remains virtually absent in unsecured stress-heavy business banking and LAP segments, ensuring net slippages are likely to be negative for FY26. The coverage ratio is expected to increase to 70% by FY27, and restructuring volumes have trended downward, reinforcing asset quality.

Shareholding and Market Positioning

Institutional investors maintain substantial confidence in City Union Bank, owning over 62% as of June 2025. Mutual funds account for 28.8%, and foreign institutional investors retain a significant 27.4% stake. Notably, promoter holding continues to be nil, reflecting a widely held structure conducive to liquidity and price discovery. Market capitalization stands robust at Rs 157 billion, positioning CUB as a mid-cap frontline bank.

Key Financial Ratios and Levels

Operational Excellence

City Union Bank’s operational rigor is underscored by sustained CASA ratios, stable cost of deposits (~5.2–5.5%), and declining restructuring levels. Staff and non-staff costs are tightly managed, with overall cost-to-income projected at sub-49% levels. Provisioning costs are subdued, and pre-tax profit is forecast to reach Rs 17.6 billion by FY27, fortifying capital adequacy and lending firepower.

Strategic Outlook and Investor Guidance

The investment landscape ahead appears favorable, bolstered by CUB’s quest for balanced growth and fortified margins. Investors are advised to closely monitor developments on MD/CEO succession, as leadership transitions remain a potential risk inflection point. Nevertheless, the bank’s ECL transition impact is benign, and its Gold/MSME/Retail lending mix positions it for continued outperformance in a competitive market.

Price Levels and Target

Current Market Price: Rs 212

Target Price (12-month horizon): Rs 250

Key Support: Rs 190

Resistance: Rs 225, Rs 250

Recommended Action: Accumulate on dips, maintain BUY

Takeaways for Investors

City Union Bank’s thoughtful orchestration of growth, disciplined risk management, and operational prowess underpin ICICI Securities’ unwavering BUY call. With a 12-month target of Rs 250 and forward-looking visibility on earnings, quality, and margins, the stock is well-positioned for strategic investors seeking robust returns in the Indian banking sector.