This private sector bank crashed down 16 per cent, here's why!

But, when one goes into deeper and assesses asset quality, it would give you a 440-volt current, hence, the stock has crashed over 16 per cent on bourses

Monday blues on D-Street for the bulls as Nifty slips nearly half a per cent while Sensex has plummeted 250 points. Midcaps and Small-caps take a severe beating as both are down by over 1 per cent. 

The advance-decline ratio is firmly in the favour of bears and none of the sectors is trading in green terrain in the afternoon trading session. However, one stock from the banking space has in particular caught the attention of investor is City Union Bank. 

Tamil Nadu based private sector lender City Union Bank (CUB) reported net profit of Rs 217.84 crore up by 11 per cent YoY in Q3FY23. Net interest income (NII) grew by 13 per cent YoY to Rs 555.72 crore in Q3FY23. Operating Profit swelled 35 per cent YoY to Rs 497.34 crore. 

Now, looking at the above performance one would think that the stock would probably having a good time at the bourses, however, looking at these numbers would just be the half glass fill kind of outlook. But, when one goes into deeper and assesses asset quality, it would give you a 440-volt current, hence, the stock has crashed over 16 per cent on bourses. 

CUB margins and profits were took a hit amid non-recognition of subvention income against Kisan credit card (KKC) loans, higher provisions from Reserve Bank of India divergence report, rise in provision coverage ratio (up 400 basis points QoQ to 43 per cent) and increase in provisions against restructured book (from 11 per cent to 19 per cent). High recoveries from written off accounts partly compensated for the above. Slippages, even excluding the impairment recognition of account of divergence, were elevated. 

Management revised its loan growth guidance a tad lower than earlier expectations of 15-18 per cent on account of a delayed rebound in the MSME investment cycle. The lag in the pace of deposit mobilisation is likely to be an overhang on loan growth, translating into a higher equity mix on the balance sheet, keeping RoEs in check. 

From a technical standpoint, the stock is trading below its crucial moving average i.e. 20, 50 and 200-DMA.