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CUBK reported a healthy quarter with PAT at INR 2.9bn (+1.6% YoY, 7.8% QoQ), +2% ahead of our expectations. PPOP grew at +11% YoY, +15 QoQ (led by margin expansion of +13bps QoQ) and strong other income (+24% YoY, driven by recoveries from w/o accounts) despite marginally elevated opex (+4.6% QoQ) and higher provisions (credit cost at 0.59%, +25bps QoQ). NIM (at 3.67% vs 3.54% QoQ) expansion was led by sequentially higher yields (as the bank took price hikes) and lower CoF. Headline asset quality improved with GNPLs/NNPLs at 3.54%/1.62% (-34bps/-25bps QoQ) and gross slippage ratio declined to 1.49% (vs 1.55% QoQ). Healthy loan growth (+12% YoY, +2.6% QoQ) was supported by robust incremental deposit growth (+9% YoY, +4.6% QoQ). Mgmt. plans to launch additional retail products by 4Q25 which is expected to support gradually reviving growth. Cost-to-income ratio improved to 47.1% (-228bps QoQ). CUBK currently trades at undemanding valuations of 1.1x FY26e BVPS. Given a well-capitalised balance sheet (CAR at 22.98%), tech setup in place for colending and recoveries exceeding slippages, sustained delivery on growth should make a strong case for reversal of CUBKs underperformance in our view. CUBK has relatively lower exposure towards troubled unsecured segment. Additionally, enhanced focus on higher yielding secured products should support profitability going ahead (2Q25 ROA at 1.59%). We increase our earnings estimates by +7%/+3% for FY25/FY26 and upgrade CUBK to BUY with TP of INR 185, valuing it at 1.3x FY26e BVPS

* Signs of revival in loans/deposits growth: Loans at INR477.7bn (+12% YoY, +2.6% QoQ) sustained sequential growth, led by traditional products (MSME +5% QoQ, Agri +7% QoQ, Jewel loans +7% QoQ, NBFC +22% QoQ). Mgmt. plans to launch additional retail products by 4Q25 which is expected to support gradually reviving growth from existing products. We expect loan CAGR at 12.5% over FY25-26e. Deposits growth (+8.4% YoY, 4.6% QoQ) was led by TD (+4.7% QoQ), supported by CASA (+4.3% QoQ). CASA ratio declined marginally to 29.4% (-8bps QoQ). CUBK’s CD ratio stands at a comfortable level of 83.3% (-158bps QoQ). We expect deposit growth of 11% CAGR over FY24-FY26e.

* Headline asset quality improves; gross slippages moderate further: Asset quality for 2Q25 improved with GNPLs/NNPLs at 3.54%/1.62% (-34bps/-25bps QoQ) and PCR improving to 55.1%, up 233bps. Gross slippages reduced by 1.3% QoQ to INR 1.76bn, while net slippage ratio was negative at -0.21% (upgrades/recoveries exceeded gross slippages for the 5th consecutive quarter). Credit cost however, increased to 59bps (vs 34bps in 1Q25). We expect avg. credit costs of 96bps over FY25-FY26e.

* Valuation and view: CUBK currently trades at undemanding valuations of 1.1x FY26e BVPS. Given a well-capitalised balance sheet (CAR at 22.98%), tech setup in place for colending and recoveries exceeding slippages, sustained delivery on growth should make a strong case for reversal of CUBK’s underperformance in our view. We increase our FY25/FY26 earnings estimate by +7%/+3% respectively and upgrade CUBK to BUY with TP of INR 185, valuing the bank at 1.3x FY26e BVPS

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