Summary of earnings call for Tamilnad Mercantile Bank Ltd published on 31 Jul, 2025

Tamilnad Mercantile Bank Limited
Q1 FY26
Call date · July 28, 2025

1 · Management Commentary

Key Positives

• Total business as of June 30, 2025, stands at INR 98,923 crores, up 9.86% YoY.
• Deposits grew 9.38% YoY to INR 53,803 crores; pace of deposit growth has more than doubled.
• CASA growth reversed the declining trend, up 4.51% YoY; CASA share improved by 34 bps QoQ to 26.78%.
• RAM (Retail, Agriculture, MSME) advances up 11.93% YoY to INR 42,100 crores.
• Net profit up 6.13% YoY despite upfronting full performance-based incentive expense.
• GNPA reduced to 1.22%; NNPA down to 0.33%; PCR on book improved sharply to 73.04% (from 55.22%).
• Capital adequacy ratio above 32%; leverage ratio at 12.44%.
• Unsecured portfolio remains low at 0.28% of advances; NPA in unsecured at 0.43%.

Key Negatives

• Operating profit at INR 412.26 crores, lower YoY due to upfronting of performance-based incentive and absence of last year’s one-offs.
• NIM compressed to 3.84% (from 4.25% YoY), impacted by deposit repricing lag and rate cuts.
• Cost-to-income ratio elevated in Q1 due to full provisioning of performance-based incentive.
• MSME growth muted in Q1 due to foundational work and system upgrades; growth expected to pick up from H2.

Forward Guidance

• Capex: Continued investments in IT (LMS, LOS, CX, VMS, Internet banking revamp); most software capex capitalized over 3 years.
• New products/segments: 18 new gold loan products targeting consumption segment; launch of elite services group for high-value depositors; NRI center to be operational in Q2.
• Expected client wins/losses: MSME pipeline of ~INR 1,000 crores under process; new branch expansion (7 branches in Q1, 29 branch managers appointed).
• Revenue/margin outlook: Deposit growth expected at 10–12% for FY26; advances growth targeted at ~15%; NIM guided at 3.85–3.95% for FY26.
• Other strategic initiatives: Transaction business group and elite services group to drive CASA; CMCs (Credit Management Centers) being rolled out; business process management to improve branch productivity; enhanced digital onboarding and customer experience.

2 · Q&A Highlights

Q 1 (Composite): What are the strategies to improve funding mix and defend NIMs amid competitive deposit environment and declining rates?
A (Management):
• Transaction business group and over 100 RMs focused on CASA, especially current accounts;
• Online onboarding for current accounts launched;
• Elite services group for high-value depositors;
• Branch-level initiatives and process automation to support CASA growth;
• NIM expected to stabilize/improve as deposit repricing catches up and gold loan yields support margins.

Q 2 (Composite): Why is MSME growth lagging despite strong capital and asset quality, and what is the outlook?
A (Management):
• MSME is a core focus; foundational work underway (LMS/LOS implementation, staff training, CMCs);
• Growth disruption in Q1 was expected;
• MSME growth to pick up from Q3/Q4 as systems go live;
• FY26 overall advances growth target ~15%, with MSME contributing meaningfully in H2.

Q 3 (Composite): What is the status of fraud accounts and provisioning, especially large legacy cases?
A (Management):
• All fraud accounts fully provided as per regulations;
• Largest Andhra-based account (INR 165–170 crores) fully provided, though not currently tagged as fraud per RBI advice.

Q 4 (Composite): What is driving retail advances growth and what is the composition of MSME portfolio?
A (Management):
• Retail growth mainly from personal loans and gold loans;
• MSME portfolio diversified: textiles (~INR 1,100 crores), food processing (~INR 772 crores), engineering/iron & steel (~INR 200–230 crores), micro enterprises (~INR 9,000 crores), small enterprises (~INR 3,800 crores), medium (~INR 600 crores);
• Average MSME ticket size ~INR 25 lakhs.

Q 5 (Composite): What are deposit and advance growth expectations, and how will cost of funds and NIMs trend?
A (Management):
• Deposit growth guided at 10–12% for FY26; advances at ~15%;
• Cost of funds expected to stabilize in H2 as deposit repricing completes;
• NIM guided at 3.85–3.95% for FY26.

Q 6 (Composite): What is the impact of IT/capex initiatives and how are these being accounted for?
A (Management):
• Major IT investments (CX, VMS, LMS/LOS, Internet banking revamp) underway;
• Software capex capitalized over 3 years (1/3rd annual depreciation);
• Productivity improvements expected from H2.

Q 7 (Composite): What is the loan book mix (fixed vs. floating), and how does repricing work?
A (Management):
• Loan book is almost entirely floating: ~50% EBLR, ~50% MCLR;
• Fixed-rate book negligible;
• Deposit repricing lag impacts NIM, but expected to normalize over 1–1.5 years.

Q 8 (Composite): Any stress in MSME/asset quality, and how is SMA/NPA being managed?
A (Management):
• GNPA at INR 549 crores, covered by 108% collateral and INR 370 crores provision;
• SMA 2 spike in Q1 was timing-related (holidays);
• No significant stress seen; robust recourse and monitoring mechanisms in place;
• New LMS/LOS and business rule engine to further strengthen incremental portfolio quality.

3 · Other Key Numbers

• Total business (June 30, 2025): INR 98,923 crores (up 9.86% YoY)
• Deposits: INR 53,803 crores (up 9.38% YoY)
• CASA: INR 14,411 crores; CASA share 26.78% (up 34 bps QoQ)
• RAM advances: INR 42,100 crores (up 11.93% YoY)
• Operating profit: INR 412.26 crores (lower YoY)
• Net profit: up 6.13% YoY
• GNPA: 1.22% (INR 549.12 crores)
• NNPA: 0.33%
• PCR on book: 73.04% (up from 55.22%); with technical write-offs: 94.32%
• Return on assets: 1.82% (down 6 bps YoY)
• Return on equity: 13.30%
• Credit cost: 6%
• Slippage ratio: 5 bps (INR 22 crores, down from INR 54 crores QoQ)
• SMA: 3.05%; stressed assets: 1.88%
• Collateral cover on GNPA: 108%
• Provision on GNPA: INR 370 crores
• NIM: 3.84% (guided 3.85–3.95% for FY26)
• Cost-to-income ratio (excluding one-off): ~46%
• Capital adequacy ratio: >32%
• Leverage ratio: 12.44%
• Unsecured advances: 0.28% of total; NPA in unsecured: 0.43%
• Book value per share: INR 589
• Net worth: INR 9,328 crores
• Retail advances growth: 27.91% YoY
• MSME average ticket size: ~INR 25 lakhs
• Gold loan share in RAM: a little over 40%
• Number of new branches opened in Q1: 7
• Number of branch managers appointed for new branches: 29
• Number of RMs in elite services group: 50
• IT/capex: Customer experience package (Oracle) and VMS implemented in July; Internet banking revamp (EdgeVerve/Infosys) to go live by January 2026
• MSME pipeline under process: ~INR 1,000 crores

If management references a number without disclosing it, it is marked as Not disclosed.

Note: This is an AI generated summary of the earnings call. There may be inaccuracies in the summary. Please refer to the original transcript before making investment decisions.