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Branch footprint to support growth

Quick Pointers

* Core PPoP beat due to better fees and asset quality

* Guidance of growing 2-3% above the system maintained

* No material change in core PAT; see core RoA of 1.45-1.50%

* CUB saw a good quarter with core PPoP beat of 8.6% led by better fees and TWO recovery which allowed creation of buffer provisions of INR 500mn. While loan growth was higher at 9.7% QoQ, NII grew by 4.5% suggesting back-ended growth. Bank guided to mid to high teens growth with continued focus on MSME, gold and secured retail. We maintain loan CAGR of 17% over FY26-28E. Revised LCR norms would free-up INR 35-40bn of liquidity which could provide further LDR leeway that may cushion NIM. There is no material change in core PAT; CUB may continue to deliver core RoA of 1.45-1.50%. We keep multiple at 1.7x on FY28 ABV and maintain TP of INR 310. Retain ‘BUY’.

* Good quarter; higher fees/TWO recovery allowed to create buffer provisions: NII was largely in-line at INR 7.9bn (PLe INR 7.8bn). NIM (calc.) was a miss at 3.73% (PLe 3.80%); reported NIM fell by 2bps QoQ to 3.87%. Credit growth was higher at 26.5% YoY (PLe 23%) and deposit accretion was more at 23.3% YoY (PLe 17.4%). CASA ratio inched up to 27.6% (27.3% in Q3’26). LDR fell by 100bps QoQ to 84%. Other income was higher at INR 2.9bn (PLe INR 2.5bn) due to better fees, TWO recovery and treasury. Opex at INR 4.97bn (PLe INR 5.01bn). Core PPoP at INR 5.5bn was 8.6% above PLe; PPoP was INR 5.8bn. Asset quality was in-line; as GNPA at 1.91% and gross slippages at INR 2.0bn came in as expected. Provisions were more at INR 1.2bn (PLe INR 0.7bn) of which INR 0.5bn additional buffer was created. Core PAT was 1.8% below PLe at INR 3.4bn; PAT was INR 3.6bn.

* Loan growth was higher but back-ended: While credit growth was 300bps higher at 9.7% QoQ, NII accretion was 4.5% suggesting that loan growth back-ended. Bank would continue focus on MSME, gold and secured retail with targeted loan growth of around mid to high teen with 2-3% above system. MSME share would continue to dominate at 55-60%, followed by jewel loans at 30-35%; remaining would be secured retail. Branch-led growth will be a strategic focus by leveraging footprint of 1,000 branches. We are factoring loan CAGR of 17% over FY26-28E.

* New LCR norms could benefit; branch additions would drive opex: Regulatory changes in LCR would free up liquidity of INR 35-40bn which may provide leeway to increase LDR, that could support NIM amid external macro volatility; targeted LDR range is 85-87%. Bank expects opex growth to be between 15-18% in FY27 as pace of branch expansion would sustain; we expect a 17% CAGR in opex.  

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