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Shares of City Union Bank Ltd. plunged as much as 9 percent in early trade on Wednesday after the bank disclosed divergence in asset classification and provisioning for financial year 2021-22 after an assessment by the Reserve Bank of India (RBI).
City Union Bank on Tuesday reported additional gross non-performing assets (NPAs) amounting to Rs 259 crore for the previous financial year.
The bank had reported gross NPAs of Rs 1,933 crore as on March 31, 2022, but the RBI had assessed gross NPAs for the year to be Rs 2,192 crore.
The divergence consisted of 13 borrower accounts (with balance of over Rs 1 crore) for an amount of Rs 230 crore and 218 borrowers (with balance of less than Rs 1 crore) for an amount of Rs 29 crore.
This divergence amount of Rs 259 crore was significant as it amounted to nearly 20.3 percent of the bank’s slippages in financial year 2022 and 0.64 percent of total loans during the year.
However, the divergence in the provisioning of the bank, as assessed by RBI, was just Rs 40 crore.
An analyst CNBC TV-18 spoke to said that City Union Bank would be expecting slippages of Rs 400 crore for the December quarter. The bank could also miss its loan growth guidance of 15-18 percent, he added. The analyst also sees a 15 percent decline in the stock price from the current levels.
Financial services firm Investec, however, was more optimistic about City Union Bank. After the divergence was reported, Investec retained its ‘buy’ rating with a price target of Rs 240 per share.
Investec said that the divergence of Rs 259 crore would have no material impact on its estimates. “The bank has enough headroom to provide and yet meet our estimates for FY23,” it added.
Investec admitted that there was pressure on further valuations, but the event was ‘backward-looking’. The bigger risk was the pending RBI nod for reappointment of City Union Bank CEO N. Kamakodi, it pointed.
While talking about loan growth, in an interview to CNBC-TV18, Kamakodi, said, “We do not see any reason to downgrade for this particular (divergence in additional gross NPA) information. We still feel we should be able to close the yearend around 15-18 percentage.”