City Union Bank Ltd Management Discussions

ECONOMIC SCENARIO

Global

During the first half of FY 2025-26, global economy although already plagued by prolonged conflicts in West Asia and the Russia-Ukraine region, exhibited notable resilience amid heightened trade tensions and policy uncertainty. There was a surge in stockpiling of traded goods and increased spending on Artificial Intelligence (AI), signifying a strong risk appetite amidst rising trade barriers. In February 2026, the world was plunged into the US - Iran conflict, causing severe trade and supply disruptions with the prolonged shutdown of the prominent Strait of Hormuz, which is one of the worlds most vital arteries of energy related trade. As a result, the global growth went through strong headwinds with a sharp rise in energy prices and shortages of vital inputs such as crude oil, thereby escalating the geopolitical risk premium in the oil markets severely affecting maritime trade & commerce. Although global commodity prices of metal and gold have moderated, the financial markets have been experiencing extreme volatility.

The Global Banking Industry recorded the strongest financial performance in over a decade in Calendar Year [‘CY] 2025. The Net Interest Margins of major banks expanded across the advanced economies. The Return on Equity, one of the major barometers of financial heath, for large banks exceeded 12% in America and 10% in Western Europe for the first time ever since the Global Financial Crisis. With the Central banks across Western Economies cutting rates, banks with stronger balance sheet and provisioning buffers built during years of higher rates, were better placed to manage losses without adversely affecting the capital base. The International Monetary Fund in its April 2026 World Economic Outlook, projected global growth at 3.1% for CY 2026 (revised downwards from the earlier forecasts), due to drag in Trade policy, geo political conflicts and lingering effects of the global monetary tightening cycle.

Indian

At the commencement of FY 2025-26, the Indian economy was supported by momentum in private consumption and capital formation. The above-normal south-west monsoon resulted in a boost to rural consumption, expansion in services sector and a revival in urban consumption ably supported by an increase in private sector investment activity. At the close of 2025, Indias Gross Domestic Product (GDP) registered a six-quarter high of 8.2% due to strong domestic demand (Festive season period) even amidst global trade & policy uncertainties. The Agriculture sector was supported by healthy Kharif crop production, higher reservoir levels & rabi crop production.

During the first half of 2026, the domestic economic activity remained largely steady, even amidst the uncertainties experienced due to the prolonged West Asia conflict. Merchandise exports recorded strong growth in April 2026, even though freight & insurance costs remain high. This year the south-west monsoon is expected to be deficient, particularly in parts of North & North-western India, potentially impacting agricultural activity & rural demand. However, the programmes and initiatives for crop diversification, water harvesting & conservation, climate-resilient practices, and focus on short duration crops are expected to mitigate the impact. Services sector remained robust and sustained the momentum of the previous year, with GST rationalization & stable employment conditions supporting urban consumption. Sustained credit flows from banking & non-banking channels, Government CapEx programs, opening of the insurance sector to 100 % FDI, ethanol blending program for energy transition etc., are expected to give a boost to investment activity in the near term. The headline CPI inflation stood at 3.5 % in April 2026, driven primarily by elevated food & fuel prices. Since May 2026, the retail crude prices have been raised cumulatively by 7.4 % for petrol and 8.4 % for diesel. The impact of higher global energy prices is also being felt in other inputs such as Commercial LPG, Industrial raw materials, chemicals, rubber & plastic products. Considering all the factors, the overall CPI inflation for FY 2026-27 is projected to be 5.1%, with Q1, at 4.2 %, Q2, at 5.1 %, Q3 at 5.9 % & Q4 at 5.4%. However with the recent normalization in oil prices, these estimates may undergo a downward revision.

Several measures undertaken by the Government, including ECLGS 5.0 (Emergency Credit Line Guarantee Scheme) are aimed at supporting the MSME & export sector, considering the fact that Udyam registrations crossed 7.3 crores as of December 2025. The Credit Guarantee Scheme coverage ceiling has been increased to 10 crores for eligible MSMEs, since the sector contributes to approximately 31% of Indias GDP & 45% of merchandise exports. Sustained efforts to increase domestic gas and crude oil supplies, and the promotion of domestically produced goods over imports, have strengthened the domestic economys resilience to external shocks. On the external financing front, buoyant Foreign Direct Investment (FDI) and higher net FDI in 2025-26 reflect the sustained interest of global investors in India. However, during FY 2026-27 so far, net FPI into India witnessed an outflow of USD 13.7 billion primarily from the equity segment. As on June 19, 2026 Indias foreign exchange reserves stood at a healthy USD 672.58 billion.

Looking ahead, volatile energy & other commodity prices along with supply disruptions are likely to impact economic activity. Considering these factors, real GDP growth for FY 2026-27 is projected at 6.6 %, with 6.6 % in Q1, 6.3 % in Q2, 6.5 % in Q3 and 6.8 % in Q4. Even the IMF projects Indias real GDP growth at 6.5% for FY 2026-27, moderating from 7.6% in FY 2025-26 amid higher energy costs and tighter global financial conditions rather than any structural internal weakness in the Indian Economy.

INDIAN BANKING SCENARIO

Indias banking sector entered FY 2025-26 from a position of structural strength. The Gross NPA ratio for the banking system as a whole fell to a multi decadal low of approximately 2.1 % for half year ended September 2025, much below the peak level of 11.2 % in FY 2017-18, achieved through the implementation of RBI Asset Quality review and Insolvency & Bankruptcy Code resolution framework, years of sustained provisioning and recoveries from stressed assets.

During FY 2025-26 the Monetary Policy Committee of the Reserve Bank of India ("RBI") altered the monetary policy stance and progressively reduced the repo rate, the last such reduction being on December 05, 2025.The rate reduction lowered borrowing costs, which in turn supported credit demand in sectors such as retail loans, consumer durables and services.

The MPC has met twice since the commencement of FY 2026-27, in April & June 2026, when the world has been confronted with the West Asia conflict and war clouds looming large in other parts of the world with no immediate resolution in sight. The MPC noted that the global environment has deteriorated considerably since its last meet in April 2026 and the adverse implications of the extended disruptions in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections since April. The MPC noted that there are considerable risks to its baseline assessment of inflation and growth due to the uncertainty on the duration of the war, the magnitude of spillover effects, and the pace of restoration of supply chains. The food outlook also remains uncertain on account of the sub-normal monsoon forecast and EL Nino.

Against this backdrop, the RBI, at the MPC meeting held on June 03 to June 05, 2026, voted unanimously and took the following important measures based on its detailed assessment of the current and evolving macroeconomic situation reinforcing a cautious policy stance.

l Policy Repo rate under the Liquidity Adjustment Facility (LAF) kept unchanged at 5.25 %.

l Standing Deposit Facility under the Liquidity Adjustment Facility (LAF) kept unchanged at 5.00 %.

l Bank Rate and Marginal Standing Facility Rate remained unchanged at 5.50 %.

l MPC decided to continue with a neutral stance.

The RBI, in order to attract foreign capital announced the following measures in the MPC meet:

l For Government Securities under Fully Accessible Route, the term of "specified securities" has been expanded to include new issuances of 15, 30 and 40 year tenor G-Secs.

l Tax benefits provided on FPI investment in G-Secs.

l Increase in Investment limits for NRIs & OCIs in equity instruments traded on Stock market without SEBI Registration.

l Concessional Forex Swap facility made available till September 30, 2026 for incentivizing External Commercial Borrowings (ECBs) by PSUs.

l The time line for realization of export proceeds restored to nine months.

l Swap facility made available for AD Banks with zero hedging cost for raising fresh 3 5 year FCNR (B) deposits till 30th Sep 2026.

YOUR BANKs PERFORMANCE

During the year FY 2026, the world economy at large was gripped by the ongoing war and economic turmoil in the various parts of West Asia & Russia-Ukraine region. To further add to the existing catastrophe, there was an outbreak of US-Iran conflict in February 2026 deepening the global crisis. Amidst this our Bank adopted a cautious approach and recorded a reasonable growth rate during the year. Despite the various challenges, your Bank was able to post 24% growth in its total business with Deposits growing by 23% to 78,307.95 crore and Advances growing by 26% to 66,698.83 crore. Your bank also witnessed another significant milestone with the Net worth of the bank crossing the 10,000 crore mark and standing at 10,458.24 crore as on March 31,2026.

Financial Performance

The performance of the Bank during the financial year ended March 31, 2026 largely remained stable with the total Income of the Bank at 7,908.59 crore as compared to 6,732.11 crore last year recording a growth of 17%. The Net Interest Income stood at 2,829.83 crore as compared to 2,315.71 crore during the previous year recording a growth of 22%.

The total CASA deposits stood at 21,644.10 crore as against 18,118.88 crore last year recording a growth of 19%. The proportion of CASA to total deposits was at 28% as on March 31, 2026. The cost of deposits decreased to 5.70% in FY 2026 as against 5.85% in FY 2025.

The Net Interest Margin (NIM) of the Bank expanded at 3.74% for the year ended March 31, 2026 as against 3.60% in the previous year. The yield on advances marginally decreased to 9.75% from 9.79% during the financial year. The Total Non Interest Income earned for the financial year ended March 31, 2026 stood at 1,038.83 crore as against 898.06 crore for March 31, 2025 posting a significant growth of 16%.

The Investment Portfolio of the Bank rose to 19,018.91 crore in FY 2026 as against 17,346.13 crore in FY 2025 recording a growth of 10%. During FY 2026, Operating expenses increased by 21% to 1,854.43 crore from 1,535.15 crore in FY 2025. The Other Operating expenses other than staff exchanges increased from 802.15 crore to 964.64 crore during FY 2026. The Cost to Income ratio increased marginally to 47.93% for the year ended March 31, 2026 as against 47.77% in the previous year ended March 31, 2025. The staff expenses increased from 733.00 crore last year to 889.79. crore for this FY 2026.

The Banks Operating Profit increased to 2,014.23 crore in FY 2026 from 1,678.63 crore in FY 2025 mainly due to increase in Net Interest Income and Non Interest Income. The Operating Profit to Net Interest Income constitutes 71.18%. The total provision increased by 133 crore to 688 crore from 555 crore in the previous year. The Bank recorded a Net Profit of 1,326.23 crore as on March 31, 2026 as against 1,123.63 crore in March 31, 2025 registering a growth of 18%.

Return on Assets of the Bank for the FY 2026 stood at 1.56% as against 1.55% last year and Return on Equity was at 13.35% for FY 2026 as against 12.63% for FY 2025. The basic earnings per share stood at 17.88 per share as compared to 15.17 per share last year.

Operational Performance

The incremental growth in the operational performance of the Bank and certain key percentages are as follows:

	Incremental Growth over Previous year
Particulars	FY 2026	FY 2025
Deposits (in crore)	14,782.00	7,869.31
Gross advances ( in crore)	13,632.47	6,584.89
Profit after tax ( in crore)	202.60	107.90
Number of Branches ( in Nos.)	74	75
Particulars	FY 2026	FY 2025
Cost of Deposits (%)	5.70%	5.85%
Yield on Advances (%)	9.75%	9.79%
Total Yield on Investments (%)	6.53%	6.50%

Segment-wise Performance

A. Deposits of the Bank comprise of the following :

	FY 2025-26		FY 2024-25
Sl. No. Particulars	Amount ( Rs. in cr ore)	Percentage to total (%)	Amount ( Rs. in cr ore)	Percentage to total (%)
1. Demand Deposit	7,027.03	8.97	6,073.74	9.56
2. Savings Deposit	14,617.07	18.67	12,045.14	18.96
3. Term Deposit	56,663.85	72.36	45,407.07	71.48
Total	78,307.95	100.00	63,525.95	100.00

B. Investments of the Bank consist of the following :

Sl. No.	Particulars	Amount ( in cr ore)	Percentage to total (%)
A.	Investments in India	19,018.30	99.99
1.	Government Securities	18,872.63	99.23
2.	Other Approved Securities	NIL	NIL
3.	Shares, Debentures / Bonds and Mutual funds	116.42	0.61
4.	Security Receipts	29.25	0.15
B.	Investments outside India	0.61	0.01
5.	Investments in Equity Shares of SWIFT (Investment outside India)	0.61	0.01
C.	Total Investments (C= A +B)	19,018.91	100.00

The total Investments stood at 19,018.91 crore as at March 31, 2026 against 17,346.13 crore as at March 31, 2025.

C. Performance of various Business Segments

The Bank operates under four Business Segments namely Treasury, Corporate / Wholesale Banking, Retail Banking, and Other Banking Operations.

The segment wise contributions are as under :

Segments	Total Revenue	( Rs. in cr ore)	Gross Profit ( Rs. in cr ore)	Percentage to total G.P. (%)
	FY 2026	FY 2025
Treasury	1,424.25	1,239.50	790.99	39.27
Corporate Banking	1,671.29	1,402.61	263.18	13.07
Retail Banking	4,647.11	3,971.61	805.77	40.00
Other Banking Operations	165.94	118.38	154.29	7.66
Total	7,908.59	6,732.10	2,014.23	100.00

ASSET QUALITY AND LOAN COMPOSITION

A. Asset Quality

The Gross NPA as at March 31, 2026 decreased to

1,273.08 crore as against 1,638.17 crore in the previous year. The percentage of Gross NPA has decreased to 1.91% in FY 2026 from 3.09% in FY 2025. The Net NPA decreased to Rs. 449.42 crore (0.68%) in FY 2026 as against 653.07 crore (1.25%) in FY 2025. The Provision Coverage Ratio ("PCR") was 84% (with TW) as at March 31, 2026 (Previous Year - 78%) and PCR (without TW) was 65% as at March 31, 2026 (Previous Year - 60%).

The Bank has achieved 65.88% of Priority Sector Advances against the target of 40% of ANBC. Priority Sector Advances amounted to Rs. 36,906.97 crore as on March 31, 2026 as compared to previous year amount of Rs. 31,285.80 crore. The total agricultural advances stood at 10,843.40 crore as on March 31, 2026 against

8,787.16 crore as on March 31, 2025.During the year, the Bank had achieved all its targets / sub-targets as specified by RBI on Priority Sector Lending.

B. Loan Composition

The Bank closely monitors the performance of various Industrial sectors periodically to assess the sector-wise potential risks for facilitating informed decision making on advances. As indicated earlier, the Bank improved its Gross Advances to 66,698.83 crore as at March 31, 2026 of which Rs. 15,672.09 crore were directed to major industries and Rs. 51,026.74 crore to other sectors. There has been a greater emphasis on Advances to MSME Sector by RBI & Government of India especially with the implementation of ECLGS 5.0 along with CGTMSE Coverage as a relief package for the Units affected by the West Asia conflict. As of March 31, 2026 our total credit to MSMEs amounts to

25,004.26 crore which constitute around 37.48% of Total Advances.

OPPORTUNITIES IN EVOLVING BANKING ENVIRONMENT

Banks are central to the core of any financial system worldwide, and India is no exception. Indias Banking Sector, reflects the countrys diverse economy with the Scheduled Commercial Banks (SCBs) with SCBs occupying the prime position in the banking industry. The major banks, with their extensive network of brick and mortar branches, have been meeting the banking needs of different segments of the population. Central to the core customer segment is Indias large young population of tech-savvy users, which has driven the Banking industry towards adoption of new and latest technologies. The UPI facility has been a major success in India, and several countries including the advanced economies, are looking at India to replicate successful implementation. Non-bank financial intermediaries, spanning private credit funds, fintech lenders, and insurance-linked credit vehicles, continued to gain share in wholesale and consumer lending.

Technology expenses are escalating; AI infrastructure, core banking modernization, and cybersecurity investments are no longer optional. Banks that deferred these investments during the high-margin years now face a more difficult and challenging tasks in implementing the same in a new competitive environment. Customer behavior is shifting in ways that carry lasting revenue implications. Fintechs now account for a sizeable component of banking business and its revenues are growing at a rate faster than traditional banks. AI is reshaping competitive dynamics across banking industry. Institutions that deploy it effectively can improve efficiency, risk management, and customer engagement, while those who delay in implementation risk losing ground to digitally sound banks. For MSME-focused lenders, the opportunity lies in using technology to strengthen, not replace the relationship-led model that remains their core differentiator and strength. For such banks whose competitive advantage rests on relationship depth in the MSME and self-employed segment, requiring constant customer engagement, implementation of the latest technology in banking services becomes all the more vital in servicing its diverse clientele.

FINANCIAL INCLUSION

Financial Inclusion is a concept whereby banking and financial solution and services are offered to every individual without any forms of discrimination, ensuring that even the under privileged have easy access to banking channels. The objectives of financial inclusion are to provide the following:

1. Basic Savings Bank Deposit Accounts

2. Servicing products (including investment and pension)

3. Simple credit products and overdrafts linked with no frills account

4. Remittance and money transfer facilities

Your bank has witnessed tremendous progress in the successful implementation of financial inclusion, particularly to the citizens in the rural areas. The Bank has already implemented Pradhan Mantri Jan Dhan Yojana (PMJDY) Scheme and there are 2,01,756 accounts as on March 2026. The Bank has 89,252 Basic Savings Bank Deposit accounts. To cater the needs of customers of unbanked areas, the bank has established BC Outlets in those places and to provide Basic banking services through Business Correspondents (BCs). Your bank has 131 BCs and 2 BC outlets for rendering services to the village level beneficiaries. The Business Correspondents of the bank make regular visits to the villages and provide doorstep banking services.

Your Bank has been always keen in creating awareness on Financial Inclusion and also on the promotion of Government schemes for Social Welfare, Pension, Insurance viz., Atal Pension Yojana (APY), MUDRA, PMJJBY, PMSBY etc., The Bank has 96,622 APY Accounts, 55,005 PMJJBY Accounts 1,69,114 PMSBY Accounts.

Your Bank has got e-KYC facility and Aadhaar enabled Payment System (AePS), for rendering quick services to the rural public. Besides, the bank has deployed POS machines at various locations, which are very helpful for doing merchant transactions. The bank has continuously rendered uninterrupted Banking services in the unbanked areas with the help of digital banking services. Your bank is proud of extending contribution to the social welfare schemes of the Government, for Nation building.

As done in the past, Financial Literacy Week is being conducted by the Bank with an aim to further financial literacy, developing credit discipline and encourage availing credit from formal financial institutions by the customers. As per the objectives of the National Strategy for Financial Education, focus of the Bank will be on the following three topics with a view to promote digital transactions in a more secured manner:

1. Convenience of digital transactions

2. Security of digital transactions 3. Protection of customers

Your Bank has conducted campaigns at various places for observing the Financial Literacy week in an effective manner and to educate its customers properly. Financial literacy week was observed on the theme ‘KYC with the tagline ‘KYC-Your First Step to Safe Banking and sub themes namely Basics of KYC, Central KYC registry and account hygiene and discipline.

AUTOMATION & DIGITALIZATION

Banking services have now moved from traditional branch banking to the customers palm enabling them to do banking at their convenience and comfort. The advent of digital payments, driven by advancements of information technology and the easy availability of mobile networks has facilitated cashless transactions.

As part of the Digital Initiatives, our bank has been spreading its Self Service Bank Branches (e-Lounge) and enabling our ATMs / BRMs for cardless deposit and withdrawals, self-service kiosk for passbook and cheque deposit machine. Our Bank has established a Digital Banking Unit as per digital initiatives of Government of India. Our Bank also set-up neo-bank as digital front line so as to enable our customer to open banking relationship and has made its presence in Social Media Banking through WhatsApp, Facebook, Twitter, YouTube and Instagram especially to connect with the younger generation. Bank has implemented the V-Chip (VKYC) for customer on-boarding and account opening across India. A customer friendly Contact Centre (Call Centre) with Interactive Voice Response System (IVRS), is put in place to promote customer support in Multilanguage on 24 X 7 basis. Your Bank has implemented the Robotic Process Automation (RPA) for generating periodic reports, removing manual intervention and facilitating error free reporting. Bank has expanded its Credit card initiatives by entering into Franchise Tie up with CSK Team as Exclusive Credit Card Partner & SRH Team as Banking partner, wherein co-branded Credit cards are issued to eligible customers as per eligibility criteria. As part of Digital lending, bank has implemented AI based system - from credit assessment to approval of credit facilities. The Bank has also launched pre-approved personal loans in this segment.

RISK MANAGEMENT

Systems and Processes:

The Bank is exposed to a variety of risks in the normal course of its business operations, such as Credit Risk, Market Risk, Operational Risk, Liquidity Risk and Reputation Risk. The core objective of risk management function is to maintain an appropriate balance between risk and return, while ensuring adherence to the risk policies approved by the Board of Directors. The identification, assessment, monitoring and management of risks remain integral to the Banks overall governance framework. Business growth and revenue generation are evaluated in the context of the associated risks to ensure sustainable and prudent expansion.

The Bank has established a robust Risk Management Architecture under the active oversight and guidance of the Board of Directors. To strengthen risk governance, the Board has constituted a Risk Management Committee of Directors (RMCD), which periodically reviews the Banks risk profile and oversees key risk areas.

Under the supervision of the RMCD, the Risk Management Committee of Executives (RMCE) ensures the effective implementation of Board-approved risk policies and strategies. The Committee provides directions on the policies, procedures, and systems required for the identification, measurement, monitoring, and control of various risks across the Bank.

The Banks Risk Management function is headed by the Chief Risk Officer (‘CRO), who reports directly to the Managing Director & Chief Executive Officer and submits quarterly updates to the RMCD.

The Bank has a separate and independent Risk Management Department in place which oversees the management of all types of risks in an integrated fashion. The Risk Management team is responsible for assessing the Banks overall risk exposure, defining risk appetite parameters, and formulating risk management policies and procedures. The Banks risk management practices are aligned with industry standards and are designed to remain responsive to evolving business dynamics, regulatory requirements, and market conditions.

The Banks risk management framework is designed to facilitate the prudent identification, assessment, monitoring, and mitigation of risks and comprises the following key elements:

l An independent risk management structure supported by a robust governance framework, with clearly defined roles, responsibilities, and accountability for risk ownership across the organization.

l Comprehensive governance standards, processes, and controls for the effective identification, measurement, monitoring, and management of risks.

l Well-defined policies and guidelines that support and govern risk-taking activities across the Bank.

l A Board-approved Risk Appetite Framework that articulates the level and types of risk the Bank is willing to assume in pursuit of its strategic objectives.

l Periodic stress testing and scenario analysis to evaluate the potential impact of adverse business, economic, and market conditions on the Banks earnings, capital adequacy, and liquidity position.

The Risk Management Committee of Executives (RMCE) provides oversight of the Banks enterprise-wide risk management framework and is supported by specialized management committees, including:

1. Credit Risk Management Committee (CRMC),

2. Asset Liability Committee (ALCO),

3. Operational Risk Management Committee (ORMC),

4. Model Risk Management Committee (MRMC), and

5. Management Committee on Monitoring Frauds (MCMF).

These committees are supported by cross-functional teams and business units to facilitate effective risk identification, assessment, monitoring, and mitigation across the organization.

The Bank follows a robust policy and governance architecture encompassing credit risk, market risk, liquidity risk, operational risk, information technology and cyber risk, model risk, fraud risk, climate and environmental risk, business continuity, operational resilience, and other emerging risk areas. These policies, frameworks, and standards are aligned with the Banks strategic objectives, risk appetite, and regulatory expectations, and collectively support an integrated approach to Enterprise Risk Management (ERM).

The Bank has also embedded forward-looking risk management practices through stress testing, risk and control self-assessments, new product risk assessments, collateral and credit risk mitigation frameworks, vendor risk management, and climate risk management practices. These mechanisms enable the Bank to proactively evaluate potential vulnerabilities, strengthen risk controls, and enhance resilience under both normal and stressed operating conditions.

All risk management policies, frameworks, and standards are reviewed periodically to ensure continued relevance in light of evolving business requirements, regulatory developments, and emerging risk trends. Through its integrated risk management framework, the Bank remains well-positioned to identify and respond to changing risk dynamics while maintaining sound governance, operational resilience, and financial stability.

Operational Risk and Operational Resilience

The Bank continues to strengthen its operational risk management and operational resilience framework in line with evolving regulatory expectations and industry best practices. In accordance with the Reserve Bank of Indias guidance on Operational Risk Management and Operational Resilience issued on April 30, 2024, the Bank has established robust frameworks for managing operational risks and ensuring the continuity of critical business services during periods of disruption.

The Banks Operational Risk Management Framework provides a structured approach for the identification, assessment, monitoring, reporting, and mitigation of operational risks across its business and support functions. Complementing this, the Operational Resilience Framework focuses on enhancing the Banks ability to deliver critical operations and services within acceptable levels during disruptions arising from internal or external events.

As part of its operational risk governance framework, the Bank maintains a comprehensive loss data by following a system for identification, recording, classification, reporting, and quantification of operational risk events. Operational loss events are systematically captured, categorized, and analyzed to facilitate risk assessment, trend analysis, and continuous improvement of internal controls. Near-miss incidents are also monitored as part of the Banks proactive risk management approach, enabling early identification of emerging vulnerabilities and control weaknesses.

The Bank has established and maintained the requisite historical loss data repository in line with regulatory expectations.

Through these initiatives, the Bank continues to enhance its operational resilience, strengthen risk governance, and support the effective management of operational risks in an increasingly dynamic and technology-driven operating environment.

Stress Testing, Risk Assessment and Operational Risk Monitoring

The Bank employs stress testing and scenario analysis as integral components of its risk management framework to assess the potential impact of adverse yet plausible events on its capital, earnings, liquidity, and overall risk profile. These exercises are conducted periodically across key risk categories to evaluate the Banks resilience under stressed conditions and to identify appropriate mitigation and contingency measures. The outcomes of stress testing are incorporated into the Banks risk management and capital planning processes and are duly considered while assessing Pillar 2 risks under the Internal Capital Adequacy Assessment Process (ICAAP).

To further strengthen risk awareness and embed a strong risk culture across the organization, the Bank has implemented a Risk and Control Self-Assessment (RCSA) framework. The framework facilitates the identification, assessment, and monitoring of operational risks and controls at the business and process levels. Periodic assessments are undertaken across critical functions and operational areas, enabling proactive identification of control gaps and implementation of corrective actions where necessary. During the year, RCSA exercises were conducted in selected operational areas, including SARFAESI-related processes and branch operations.

The Bank also utilizes a Key Risk Indicator (KRI) framework as an important risk monitoring and early-warning mechanism. KRIs provide quantitative and qualitative insights into the Banks operational risk profile and enable timely identification of emerging risks, control weaknesses, and adverse trends. Thresholds and trigger levels have been established for key indicators, and periodic reviews are undertaken by management to ensure that risks remain within the Banks defined risk appetite and tolerance levels.

Contingency Funding Plan and Liquidity Risk Management

In line with the Reserve Bank of Indias guidelines on Liquidity Risk Management, the Bank has established a comprehensive Contingency Funding Plan (CFP) as an integral component of its liquidity risk management framework. The CFP is designed to ensure the Banks ability to effectively manage liquidity stress events and maintain adequate funding under adverse conditions, while continuing to meet its financial obligations in a timely manner and at a reasonable cost.

The framework encompasses a range of potential liquidity stress scenarios, including both institution-specific and market-wide disruptions. It identifies diversified contingency funding sources, assesses the availability and accessibility of such funding, and establishes clear governance, escalation, communication, and decision-making protocols to facilitate timely response during periods of liquidity stress.

The Bank periodically evaluates the effectiveness of its Contingency Funding Plan through scenario analysis and testing exercises. The CFP is reviewed and tested on a half-yearly basis, with a comprehensive annual review undertaken to ensure continued relevance and effectiveness. In addition, contingency funding sources and funding capacities are monitored and reviewed periodically to strengthen the Banks preparedness and resilience against potential liquidity disruptions.

Through its robust liquidity risk management framework and contingency planning processes, the Bank remains well-positioned to manage unexpected funding pressures and maintain financial stability under stressed market conditions.

Capital Adequacy and Basel III Compliance:

The Bank is well placed in complying with Basel III Capital

Regulation and as of 31 March 2026, the Bank maintained a strong capital position of 16.27% significantly exceeding the RBI-prescribed Basel III minimum requirement of 11.50%, including the Capital Conservation Buffer (CCB) of 2.50%. The substantial capital buffer underscores the Banks financial strength, resilience, and capacity to support future business growth while absorbing potential stress scenarios.

The Bank currently computes capital requirements for Credit Risk, Market Risk, and Operational Risk under the Standardized Approach, Standardized Duration Approach, and Basic Indicator Approach, respectively, in accordance with the extant regulatory framework prescribed by the Reserve Bank of India (RBI). The Risk Management Department plays a central role in the identification, measurement, monitoring, and mitigation of risks across the Bank, thereby strengthening the Enterprise Risk Management (ERM) framework and promoting a proactive risk culture.

In line with RBIs ongoing efforts to enhance the risk sensitivity and resilience of the banking system, the Bank is actively preparing for the transition to the revised capital adequacy framework under the regulatory directions issued by RBI. The Bank has undertaken the necessary gap assessments, data validation exercises, and system enhancements to ensure readiness for migration to the New Standardised Approach for Operational Risk, as envisaged under the RBI Master Direction on Minimum Capital Requirements for Operational Risk dated June 26, 2023, and subsequent regulatory communications.

Pursuant to RBIs requirements, the Bank has successfully completed and submitted the prescribed data returns relating to operational risk as of March 31, 2025. The Bank continues to engage in impact assessment, process strengthening, and capacity-building initiatives to facilitate a seamless transition to the revised regulatory framework upon its implementation.

Internal Capital Adequacy Assessment Process:

The Bank has implemented a comprehensive Internal Capital Adequacy Assessment Process (ICAAP) in accordance with the Basel III framework and the regulatory guidelines issued by the Reserve Bank of India (RBI). The ICAAP framework is commensurate with the Banks size, complexity, risk profile, and scope of operations, and forms an integral part of its overall risk management and capital planning processes. The ICAAP document provides a forward-looking assessment of the Banks capital adequacy, including projected capital requirements for the next three financial years commencing from FY 2027. It outlines the strategies and action plans for maintaining adequate capital buffers to support business growth, absorb potential losses, and meet regulatory requirements under both normal and stressed conditions. The primary objective of ICAAP is to ensure that the Bank maintains sufficient capital in relation to its risk profile while fostering a robust risk management culture. The framework facilitates identification, assessment, monitoring, management, and mitigation of all material risks. It also enables the Bank to evaluate the adequacy of its capital position against current and emerging risks on an ongoing basis. As a key component of the Supervisory Review and Evaluation Process (SREP) under Pillar 2 of Basel III, the ICAAP provides the Board of Directors and the Reserve Bank of India with a comprehensive view of the Banks risk profile, capital adequacy, and risk management practices, thereby supporting informed decision-making and long-term financial resilience.

Pillar 3 disclosures:

In compliance with the Basel III framework and the regulatory requirements prescribed by the Reserve Bank of India (RBI), the Bank publishes Pillar 3 disclosures on a quarterly basis through its website and annually as part of the Annual Report. These disclosures are made in accordance with the Banks Board-approved Disclosure Policy and the applicable RBI guidelines. The Pillar 3 disclosures are aimed at enhancing transparency and market discipline by providing stakeholders with comprehensive information on the Banks capital structure, capital adequacy, risk exposures, risk assessment processes, and risk management practices.

Leverage Ratio:

The Basel III Leverage Ratio serves as a non-risk based supplementary measure to the risk-weighted capital adequacy framework and is designed to constrain the excessive build-up of leverage in the banking system. In accordance with the Reserve Bank of Indias Basel III guidelines, banks are required to maintain a minimum Leverage Ratio of 3.50%.

The Bank continues to maintain a strong leverage position of 10.04%, significantly higher than the regulatory minimum requirement of 3.50%, reflecting its prudent capital management practices and robust balance sheet strength.

The Banks strong leverage position provides an additional layer of resilience against potential stress events and complements its risk-based capital adequacy framework.

Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR):

The Liquidity Coverage Ratio (LCR) framework is designed to enhance the Banks short-term resilience to potential liquidity stress events by ensuring the maintenance of an adequate stock of unencumbered High-Quality Liquid Assets (HQLAs). These assets can be readily converted into cash to meet liquidity requirements over a 30-calendar-day stress period under a severe but plausible liquidity stress scenario. The framework supports the Banks ability to withstand short-term liquidity disruptions and strengthens its overall liquidity risk management practices.

Net Stable Funding Ratio (NSFR) under the Basel III Framework on Liquidity Standards is aimed at promoting the long-term resilience of banks by encouraging the use of stable and sustainable sources of funding. The NSFR measures the amount of Available Stable Funding (ASF) relative to the Required Stable Funding (RSF) and seeks to reduce funding risk over a longer-term horizon.

The Bank has automated the computation and monitoring of the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and Structural liquidity during the third quarter of current financial year, thereby enhancing the accuracy, efficiency, and timeliness of liquidity risk reporting and oversight.

The Bank closely monitors its Liquidity coverage & structural liquidity position, while maintaining adequate levels of stable funding to support its business activities and balance sheet growth. Throughout the year, the Bank consistently maintained its LCR and NSFR well above the minimum regulatory requirement of 100% prescribed by the Reserve Bank of India. This reflects the banks strong and stable funding profile, prudent asset-liability management practices, and a comfortable buffer over the regulatory threshold. The sustained maintenance of robust liquidity metrics demonstrates the Banks sound liquidity risk management framework and enhances its resilience to potential liquidity stress scenarios.

Risk Culture and Future Readiness

The Bank has continuously strengthened and refined its risk management framework to address the evolving risk landscape, emerging regulatory expectations, and changing business dynamics. Over the years, the Bank has developed a robust risk governance structure that integrates risk management into strategic planning, business decision-making, and day-to-day operations.

The Bank follows a proactive approach to risk management, wherein risks are identified, assessed, monitored, and mitigated at the point of origination through clearly defined ownership and accountability across business and functional units. Periodic reviews of Management Information Systems (MIS), risk indicators, stress-testing outcomes, and portfolio performance enable timely identification of emerging risks and facilitate informed decision-making at all levels of the organization.

The Bank remains committed to fostering a strong risk culture that promotes prudent risk-taking, accountability, transparency, and continuous improvement. Supported by an integrated Enterprise Risk Management framework, robust internal controls, and active oversight by the Board and Senior Management, the Bank is well-positioned to navigate uncertainties, enhance resilience, safeguard stakeholder interests, and pursue sustainable growth while maintaining a sound risk profile.

Inspection and Audit Framework

The Bank has a comprehensive Inspection and Audit framework to ensure adherence to laid-down systems, procedures and regulatory guidelines across all operations. A structured system of Risk-Based Supervision (RBS) is in place for branches through RBIA,

Concurrent Audit, Risk Focused Credit Audit, Jewel Loan Audit, Remote Audit and Management Audit enabling continuous monitoring and timely identification of risks.

Risk-Based Internal Audit (RBIA) is conducted at branches with a focus on prioritizing audit assignments and optimizing resource allocation based on the level of inherent and control risks. Concurrent Audit acts as an early warning mechanism for detecting irregularities and preventing fraud. The Bank has implemented a robust KYC and AML inspection mechanism to ensure compliance with regulatory requirements. Periodic cash inspections are conducted at the Currency Chest to verify the accuracy of chest transactions and surprise cash verification at the branch level to ensure correctness of cash balances.

Management Audit evaluates the adequacy and effectiveness of decision-making processes across key functional areas, including Head Office departments, Computer Systems Department, Business Development Centre, International Banking Division, and Central Processing Hubs (CPHs). Information Systems Audit (ISA) focuses on assessing IT-related risks and evaluating the adequacy of controls implemented to mitigate such risks.

The Audit Committee of the Board (ACB) oversees the effectiveness of the internal audit function, including its structure, coverage, and frequency. It provides strategic guidance and ensures continuous strengthening of the control environment. The Bank also undertakes self-assessment of internal financial controls through periodic testing and validation. Inspection and Audit functions independently evaluate the adequacy, operational effectiveness, and efficiency of the Banks internal controls, risk management systems, governance processes, and overall compliance framework. A strong internal control framework ensures strict adherence to regulatory guidelines by all branches and departments, thereby supporting sustainable growth while mitigating operational risks.

HUMAN RESOURCE DEVELOPMENT / INDUSTRIAL RELATIONS

Human Resource Development and Industrial atmosphere play a prominent role in an organizations growth and our Bank is maintaining cordial relationship with its employees at all times. It is pertinent to note here that there has not even been a single occasion of employees unrest in the Banking history of CUB. As a part of HR strategy, the Bank offers its employees various monetary and non-monetary benefits, based on their performance in the form of ESOP, Performance Linked Pay (PLP) and Ex-gratia thereby ensuring that each employee feels himself/herself as part and parcel of the Bank and strives hard to deliver to the best of his/her abilities.

In line with the Banks expansion plans, 74 new branches were opened in various States during the year 2025-26 for which the Human Resources Department provided adequate manpower. In order to identify the Right Person for the Right Job, Psychometric tests are also included in the recruitment process of the Bank. Employees are identified and imparted trainings at various areas of banking. Job rotation is also being followed to ensure that each and every employee gains experience in all the areas of banking.

In tune with the future expansion, the bank is constantly upgrading and revisiting its manpower by developing a talent pool. The members of the talent pool are being groomed by imparting those trainings in our staff college at Chennai and Kumbakonam and also training at various center of excellence like SIBSTC, NIBM, CAFRAL, IDRBT, ASCI, FEDAI, FIMMDA, CAB RBI, NIBM, IIM, Great Lakes Chennai, IFMR, GSP, Lonavala, IIBF, IMAGE, NIBSCOM etc.

As on 31 March, 2026, the Bank has 8,894 employees. The cadre wise details of them are given below of:

Cadre	Number of Employee(s)
Managing Director and CEO	1
Executive Director	2
Executives cadre	141
Management cadre	4,425
Workmen cadre	4,325
TOTAL	8,894

POSH Act implementation mechanism in the Bank

The bank has a policy on Prevention of Sexual Harassment at workplace, which provides protection for Women employees working in the organization.

An internal compliance committee has been set up to redress the complaints received under Sexual Harassment.

OUTLOOK

Considering the higher commodity & energy prices and shortage of inputs due to disruptions in the Strait of Hormuz, the Central Government has been proactive in ensuring an adequate supply of inputs across critical sectors to minimize supply chain disruptions. On the services side, there has been a sustained momentum in the economic activity, due to GST rationalization, healthy Balance Sheets of Financial Institutions & Corporates. Agricultural sectors prospects are supported by healthy reservoir levels, while Business expectations remain optimistic owing to the Governments focus on scaling up domestic manufacturing, across several strategic and frontline sectors supported by strong credit growth. Revival in private sector investment, is also expected to augur well for Indias growth prospects. On the external front, merchandise exports in FY 2026-27 are likely to be adversely affected by disruptions to key shipping routes, escalation in freight & insurance costs and lower demand due to the prolonged West Asia conflict. Considering all these factors, real GDP growth for FY 2026-27 is projected at 6.6%.

India today stands on the cusp of a relatively better macro-economic performance, despite geopolitical uncertainties, and volatile commodity market conditions. Domestic economic activity has exhibited resilience, supported by strong performance in industrial and services activity, broad-based demand and robust corporate performance. Inflation and external vulnerabilities are within manageable limits. The Indian Financial system is entering this phase of global uncertainty with much stronger and healthier Balance Sheets, comfortable capital buffers, improved profitability and Non- Performing Assets (NPAs) at multi-decade lows.