How City Union Bank is treading a conservative path in India’s banking boom | Interview

City Union Bank, one of India’s oldest private lenders, is charting a measured path to growth even as foreign capital floods India’s banking sector. The Kumbakonam-based bank, celebrating 120 years and the opening of its 900th branch in Agra, has never posted a loss since its inception, a record its MD and CEO, N Kamakodi, attributes to disciplined risk management and a long-term growth strategy.

This year, marquee global investors including Blackstone, Emirates NBD, and SMBC have pumped nearly $15 billion into the country’s banking and financial services sector, largely benefitting mid-sized lenders seeking to scale more rapidly. Many are using this fresh capital to chase growth opportunities and strengthen their market positions.

Focus on steady, quality growth

City Union Bank, by contrast, has remained deliberate in its approach, relying on internal resources and focussing on steady, quality growth rather than aggressive expansion.

Kamakodi said the bank aims to expand at roughly two to three percentage points above the industry average, a pace it has maintained for two decades. Its lending remains concentrated in micro, small, and medium enterprises (MSMEs), agriculture, and wholesale and retail trade, which account for about 65 to 70 per cent of its loan book.

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Consumption lending, including retail housing and vehicle loans, is being introduced gradually and is expected to contribute around 5 to 7 per cent of the loan book over the next five to seven years.

Long-standing relationships, underwriting expertise

City Union Bank leverages long-standing relationships and underwriting expertise to maintain an edge in the MSME sector. Kamakodi emphasised that understanding customer needs, adapting products over generations, and integrating technology have been critical.

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Partnerships with firms such as Boston Consulting Group have accelerated AI-driven underwriting, reducing loan approval times from four hours to a fraction of that.

Physical branches play critical role

Despite the push towards digital banking, physical branches remain central.

“Depositors need to see the physical presence for their confidence,” Kamakodi said.

Branches, though smaller and more efficient than in the past, still play a critical role in managing business loans and fostering customer relationships.

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The bank also faces a shifting landscape in funding costs. Falling deposit rates and a move towards equities and mutual funds create challenges for low-cost funding. Kamakodi, however, describes these shifts as cyclical, emphasising that banking continues to play a central role in financial intermediation.

Prudent risk management

Underlying City Union Bank’s resilience is a culture of prudent risk management. Lessons from past crises, including the dotcom bubble, the 2008 global financial crisis, and interest rate reversals, have reinforced a cautious approach.

The bank avoids overexposure in any sector, focussing instead on sustainable growth.

'Importance of adaptable leadership'

As Kamakodi approaches the final year of his current term, which runs until April 2026, he has emphasised the importance of adaptable leadership.

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He stressed that the next generation of bank leaders must be prepared to navigate rapid changes, particularly in digital and AI-led processes, while upholding the institution’s long-standing principles of disciplined growth and prudent risk management.