Why did the shares of City Union Bank crack so sharply on Friday?
Answer
Answer
City Union Bank shares fell sharply by 11% on Friday after it reported net loss of Rs.95 crore for the Mar-20 quarter due to a sharp spike in bad loan provisions. This contrasts with the net profit of Rs.175 crore that the bank had posted in the Mar-19 quarter last year.
The real culprit during the current quarter was the provisioning for bad loans and contingencies which actually grew 5 times to Rs.450.4 crore in the Mar-20 quarter. Even asset quality worsened as the Gross NPAs worsened from 2.95% in the previous year to 4.09% in the current year. Net NPAs also registered an increase to 2.29%.
Most brokers have cut their earnings estimates for FY21 and FY22 due to the lag effect of the COVID-19 syndrome and its impact in the post EMI-Moratorium scenario. They expect elevated asset quality pressure in its SME portfolio which is the most vulnerable to this sharp rise in non-performing assets. Most brokers are cutting rating on the stock.