The Hindu Business Line : Small businesses lift City Union Bank’s profit

Chennai, July 30 City Union Bank has reported a 23 per cent growth in its net profit for the April-June quarter of the current year, despite a provision of Rs 4 crore for ESOP. The bank made a net profit of Rs 26.24 crore for the quarter (Rs 21.36 crore).

Interest income grew 45 per cent to Rs 186 crore.

Speaking to Business Line about the results, the bank’s Executive Director, Mr N. Kamakodi, noted that the good growth of the bank came from the very nature of its clientele — small businesses, with small-sized loans.

Relationship vs. rate

To these borrowers, it is the comfort of the relationship rather than the interest rate that matters. As such, 65 per cent of the bank’s advances are on floating rates and the bank is able to pass on any increase in cost of funds to customers, Mr Kamakodi said.

“We don’t go to triple-A rated corporates for business,” he said. Besides, this group is also borrowing steadily. The bank’s advances portfolio as at June 30, 2008, was Rs 4,513 crore, 33 per cent up from a year ago.

Managing treasury

The other side of the story is conservative management of treasury. The bank follows a policy of putting its investments under ‘held to maturity’ category. Its investments under ‘available for sale’ is about Rs 100 crore, compared with Rs 1,600 crore in ‘held to maturity’. As such, it needs to provide very little on depreciation.

During the first quarter, the depreciation charge on account of dimunition in the value of investments was only Rs 6 crore. “We transferred about Rs 80 crore into ‘held to maturity’ in the last week of April, when the benchmark 10-year Yield To Maturity was almost at the lower end, at 7.9 per cent,” Mr Kamakodi said.

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