City Union Bank: A Strong Buy with 46% Upside Potential

City Union Bank, a well-established private sector bank in India, has been recommended as a strong buy by Emkay Global Financial Services. The brokerage has assigned a ‘Buy’ rating with a target price of ₹350, implying a potential upside of around 46% from the current level of ₹239.90. This recommendation is based on the bank’s strong growth outlook, improving fundamentals, and steady performance.

India’s private sector banks, numbering 21, are driving innovation and efficiency in the banking sector. In FY2025, these banks mobilized Rs 85 lakh crore in deposits and extended Rs 75.7 lakh crore in gross loans, with a CASA ratio of 37.71%. The H1 FY2026 credit expansion of around 9-11% YoY further underscores the robust growth in the sector. These banks hold a significant 35-40% share of household deposits, fueling retail and digital lending.

City Union Bank, with a market capitalization of Rs 17,825.70 crore, closed at Rs 239.90 per share, a decrease of about 6% from its previous closing price of Rs 253.30. Despite the recent dip, the bank's fundamentals remain strong, and Emkay Global Financial Services maintains a bullish stance on the stock.

The brokerage’s recommendation is supported by the bank's guidance for strong credit growth of 18-20%, driven by the MSME and retail segments. However, rising geopolitical tensions in the Middle East and early signs of cost pressures in the textile and packaging sectors are key monitorables. The bank has significant exposure of around Rs 50-60 billion to the Tirupur textile cluster, but management has maintained lending rates and margin guidance of 3.8-3.9%.

Asset quality trends are particularly encouraging, with Gross Non-Performing Assets (GNPA) improving sharply to 2.17% from 5.6% earlier. Net slippages have turned negative, and provision coverage has strengthened to 64%. SMA levels remain stable at around 4%, indicating limited immediate stress and resilience among SME borrowers despite external challenges.

The company delivered a healthy performance in Q3FY26, with revenue rising 19% from Rs 1,479 crore to Rs 1,756 crore. Net profit also grew 16% to Rs 332 crore, reflecting improved operational efficiency. While growth remains solid, slightly lower profit growth compared to revenue suggests some pressure on margins during the quarter.

Over the past year, operating performance has shown steady improvement. Operating profit rose from Rs 361 crore in Dec 2024 to Rs 417 crore in Dec 2025, with an operating profit margin (OPM) remaining stable around 24-25%. This indicates consistent cost control and efficiency, supporting overall profitability momentum.

City Union Bank is known for its strong presence in MSME and retail lending. With a focus on conservative lending and asset quality, the bank has built a stable franchise, catering mainly to small businesses while maintaining steady growth and disciplined risk management over the years.

While the bank faces some external challenges, its strong fundamentals and strategic focus on key segments make it a compelling investment opportunity. Investors should consider the potential upside and the bank’s robust performance metrics before making an investment decision.