0ver the past one-and-a-half years, City Union Bank (CUB) issued seven press releases at quarterly intervals. None had any colour and were very matter-of-factly about financials. Except, the September 2014 dispatch on its 110th Foundation Day.
The document mentioned that the bank’s community interface would help set up 110 toilets in and around the ‘temple town’ of Kumbakonam and 10 municipal schools for Rs 2.50 crore; clean up water tanks for Rs 1.20 crore ahead of the local Mahamaham festival; renovate and fabricate three “cars” (chariots) for the famous Sri Adi Kumbeswarar temple for Rs 30 lakh. This tells you a lot about how an old-world private bank “stays connected” with its roots. And its ways have certainly paid off.
CUB is the Best Small Bank in the BW Businessworld Best Banks Survey 2014-15, significantly ahead of one of the south’s bigger names — The Federal Bank; and the shortlisted DCB (erstwhile Development Credit Bank), The Karur Vysya Bank and RBL Bank. At a time when a few heavies have hit an air-pocket, CUB has woven the title of E. F. Schumacher’s 1979 best-seller Small Is Beautiful: Economics as if People Mattered into its business plan. With a small change, we would like to add: ‘Banking as if People Mattered’.
What The Numbers SayCUB posted an operating profit of Rs 693 crore in fiscal 2115, up by 19.28 per cent; its net profit stood at Rs 395 crore, up by 13.83 per cent. Advances grew at 11.50 per cent to Rs 18,089 crore (below the secular growth rate of about 14 per cent seen in the fiscal); the yield on advances came in a tad lower at 13.18 per cent (13.43 per cent). Gross and net non-performing assets (NPA) were on a leash at 1.86 per cent (1.81 per cent) and 1.30 per cent (1.23 per cent), respectively.
A closer look at its deployment of credit shows loans to small- and medium-enterprises (SMEs) at 34 per cent of advances; 17 per cent to agriculture and 12 per cent to wholesale traders. Says N. Kamakodi, managing director and chief executive: “Loans to SMEs result in lower NPAs. So are loans collateralised by residential property and personal guarantees. We have predominantly single banker relationships with minimal exposure to consortium and multiple banking arrangements or to infrastructure.”
The bank has cut its coat according to its cloth. “Getting into consortia and bigger relationships would have helped us grow faster, but it would have come at a price. It would have meant ALM (asset-liability mismatch) issues as well,” explains Kamakodi. This statement is unwittingly also a comment on big-ticket banking arrangements — where many sought Peter’s help to pay Paul; some banks woke up only when dud loans pressed their doorbells!
As for the nature of CUB’s advances, 65 per cent is towards cash-credit and demand loans; term-loans came in at 33 per cent with bills (purchased and discounted) at 2 per cent. “It helps to re-price at short intervals and 80 per cent of our loan book is on a floating rate basis which reduces interest rate risks,” says Kamakodi.
On the liabilities side, total deposits were up 9.35 per cent at Rs 24,075 crore; current and savings account by 18 per cent to Rs 4,631 crore. The cost of deposits stood lower at 8.15 per cent (from 8.37 per cent in the preceding fiscal). “We don’t rely on corporate bulk deposits,” says Kamakodi.
It’s sensible because while you may build up a large base of deposits quicker via “bulk”, you also have to stay “locked” into it. And it makes no sense to lend these funds at a higher rate in search of returns and then run up dud loans. A look at the bank’s spread between cost of deposits and yield on advances over the last three fiscal years shows that it is held under 5.10 per cent; over a decade, the maximum it stood was at 5.59 per cent (fiscal 2008).
The bank had 475 branches as of 31 March 2015; 421 branches were located in the South, of which 324 were in Tamil Nadu — accounting for 78 per cent of business. The bank has a footprint in Maharashtra and Gujarat, but what’s common in all this is the bank’s focus on the “small” — 60 per cent of its clientele is in semi-urban or rural areas.
“We have moved out of the Cauvery Delta, but 50 per cent of our branches will be in Tamil Nadu with the rest split equally between the rest of south and outside of it. Right from our inception, we have stayed close to our roots,” points out Kamakodi. The bank knows its customers well — it restructured only a single account of Rs 3.5 lakh in the fourth quarter and just two for Rs 1.03 crore in fiscal 2015.
Will small always stay beautiful? Kamakodi refuses to buy into the consolidation chatter.
“The majority of these mergers and acquisitions (in banking) has been about somebody bailing out a troubled bank. We want to retain our identity,” he says categorically. One of the main reasons why the bank decided to stay small was to avoid nationalisation. “Now the debate is over too big to fail,” quips Kamakodi.
Yes, small can be beautiful; but CUB is no cub!
raghu@businessworld.in; @tabonyou
(This story was published in BW | Businessworld Issue Dated 08-02-2016)
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Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.
