What are the future prospects of City Union Bank (CUB)?
-Shalini Singh
City Union Bank (CUB), incorporated in 1904 as Kumbakonam Bank, is one of the oldest banks in India. The bank has a strong presence in south India, mainly Tamil Nadu.
CUB has registered a healthy CAGR of around 30 per cent in deposits during the past five years. This trend continued in FY11 with deposit growth of 25 per cent (year-on-year). The bank's low-cost current account savings account (CASA) deposit, despite being comparatively lower than the industry, has remained stable at around 22 per cent over FY08-11.
CUB's gross NPA and net NPA is one of the lowest among small cap banks. Its asset quality too has improved significantly from FY07 to FY11.
The bank's high regional exposure, though, poses a concentration risk. Further, the bank could face margins pressure due to the de-regulation of interest rates on non-resident (external) rupee (NRE) deposits, ordinary non-resident (NRO) accounts and savings rate.
Its price-to-book value (P/B) ratio is trading at a premium of 6.5 per cent to its five-year median P/B of 1.5. Based on earnings per share growth of 21.8 per cent over five-years, its price-to-earnings to growth (PEG) ratio comes at an attractive level of 0.3 times. Compared to some of its peers, the bank looks attractively priced in terms of its P/B. Given the management's focus on loan book growth and reduction in NPA, the bank's good show is expected to continue.
This article was originally published on April 13, 2012.
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