The higher exposure to textile sector, which is passing through downturn, may make private lender City Union Bank vulnerable to spike in payment defaults and slippages, according to CRISIL.
The conservative lending policy and large share of adequately collateralised advances enables Tamil Nadu based small private lender to maintain comfortable asset quality. However, further restructuring of loans to textiles unit where its exposure is high at 8.6% could exert downward pressure on asset quality.
CRISIL said in addition, CUB, given its small asset base, runs the risk of a spike in NPAs in case of delinquencies in its large advances portfolio which, however, is relatively small in size.
The bank’s outstanding restructured standard assets (RSA) were 2.2% of its advances as on March 31, 2012. Its slippages from RSA were 2.5% of the restructured advances.
CUB’s asset quality is comfortable. Its gross non-performing assets (NPAs) stood at 1% of gross advances at end of March 2012. The average estimated NPAs of banking system were 2.9% of gross advances.
The ratio of slippages to NPAs, at 1.6% during 2011-12 (refers to financial year, April 1 to March 31), has also been lower than estimated industry average of around 2.4% for 2011-12.
CRISIL rating continues to reflects CUB’s adequate capitalisation, above-average earnings, and comfortable asset quality. Rating agency reaffirmed rating A1+ rating for bank's Certificate of Deposits. These rating strengths are partially offset by CUB’s average resource profile, and small scale of operations with geographical concentration.
CUB has adequate capitalisation, with Tier-I capital adequacy ratio (CAR) between 11% and 12%, and overall CAR of around 13% for the past five years. Its business increased at a compound annual growth rate (CAGR) of 30% during this period. CUB had an adequate absolute net worth of around Rs.12.4 billion, as on March 31, 2012. Its net worth coverage of 23 times for non-performing assets (NPAs), as on the same date, was higher than the industry average of about 8 times.