Tamilnad Mercantile Bank Ltd | Sep-2025 Qtr Earnings Call Summary
Performance Overview
- Reported 11.40% YoY total business growth, driven by strong deposit surge (12.32%) and CASA revival (9.30%), raising CASA share by 92 bps in two quarters.
- Asset quality remained robust with Gross NPA at 1.01%, Net NPA at 0.26%, and Provision Coverage Ratio at 74.36%.
- Profitability improved, with ROA at 1.85% and ROE at 13.77%, despite no major one-time recoveries as in the prior year.
- Significant investments underway in digital transformation (~INR 250 crores for FY26) focusing on loan management, internet banking, and workflow automation.
- Expansion includes 22 new branches in H1 FY26, targeting 35% branches outside Tamil Nadu within three years.
Financial Metrics
- Net Interest Income (NII) up 6.32% YoY after adjusting for last year’s exceptional recovery.
- Net Interest Margin (NIM) stable at 3.83%.
- Pre-Provision Operating Profit up 19.83% YoY after adjusting for one-offs.
- Net Profit of INR 318 crores for the quarter.
- Capital Adequacy Ratio (CAR) strong at 30.96%.
- Advances grew 15.97% YoY to INR 1,05,566 crores; RAM (Retail, Agri, MSME) growth at 20.23%.
Operating Performance / Segments
- RAM portfolio dominates (94.59% of advances), growing due to modernized systems and stronger RM base; yield at 10.05%.
- MSME advances are reviving, growing 3.84% QoQ.
- Corporate loan book shrinking due to legacy issues; expected to revive with improved appraisal processes.
- Gold loans are significant (~INR 21,000 crores), with low LTV and yield around 10.15%.
- Consumer loans (~INR 4,300 crores) are growing with focus on non-jewel segments.
Key Discussions & Insights
- Credit costs impacted by accelerated write-offs (INR 554.7 crores) causing higher provisions; conservative stance maintained.
- Collections strong with 94.5% efficiency; PAR 90 at 2.5%.
- Borrowers with multiple lenders and high unsecured debt have decreased significantly, improving portfolio quality.
- Operating expenses increased due to write-offs and expansion but expected to normalize in H2.
- Customer graduation ongoing with reclassification of loans to retail finance for better performance metrics.
Outlook and Guidance
- Credit growth expected between 14–15% in FY26; above 20% anticipated for FY27.
- Credit cost guidance revised up to 4.0–4.5% reflecting conservative provisioning and slower PAR improvement.
- ROA target maintained at 4.0–4.5%.
- Continued branch expansion planned with digital initiatives to sustain efficiency and growth.
Challenges / Concerns
- Elevated credit costs and provisioning remain near-term challenges.
- Geographic concentration and exposure to gold price volatility.
- Execution risk in branch expansion and loan acquisition amid rising rejections.
Industry / Competitive Landscape
- Competitive pressure from peers; sector-wide focus on digital banking innovation.
- Regulatory oversight and guardrails helping mitigate overleveraging issues.
Overall Summary
Tamilnad Mercantile Bank displayed steady business momentum with improving asset quality and profitability in Q2 FY26. Emphasis on RAM growth, digital transformation, and branch expansion supports an optimistic medium-term outlook. Credit cost trajectory and competitive pressures underscore prudent risk management. The bank expects FY27 to mark breakout profit growth.
Performance Overview
- Reported 11.40% YoY total business growth, driven by strong deposit surge (12.32%) and CASA revival (9.30%), raising CASA share by 92 bps in two quarters.
- Asset quality remained robust with Gross NPA at 1.01%, Net NPA at 0.26%, and Provision Coverage Ratio at 74.36%.
- Profitability improved, with ROA at 1.85% and ROE at 13.77%, despite no major one-time recoveries as in the prior year.
- Significant investments underway in digital transformation (~INR 250 crores for FY26) focusing on loan management, internet banking, and workflow automation.
- Expansion includes 22 new branches in H1 FY26, targeting 35% branches outside Tamil Nadu within three years.
Financial Metrics
- Net Interest Income (NII) up 6.32% YoY after adjusting for last year’s exceptional recovery.
- Net Interest Margin (NIM) stable at 3.83%.
- Pre-Provision Operating Profit up 19.83% YoY after adjusting for one-offs.
- Net Profit of INR 318 crores for the quarter.
- Capital Adequacy Ratio (CAR) strong at 30.96%.
- Advances grew 15.97% YoY to INR 1,05,566 crores; RAM (Retail, Agri, MSME) growth at 20.23%.
Operating Performance / Segments
- RAM portfolio dominates (94.59% of advances), growing due to modernized systems and stronger RM base; yield at 10.05%.
- MSME advances are reviving, growing 3.84% QoQ.
- Corporate loan book shrinking due to legacy issues; expected to revive with improved appraisal processes.
- Gold loans are significant (~INR 21,000 crores), with low LTV and yield around 10.15%.
- Consumer loans (~INR 4,300 crores) are growing with focus on non-jewel segments.
Key Discussions & Insights
- Credit costs impacted by accelerated write-offs (INR 554.7 crores) causing higher provisions; conservative stance maintained.
- Collections strong with 94.5% efficiency; PAR 90 at 2.5%.
- Borrowers with multiple lenders and high unsecured debt have decreased significantly, improving portfolio quality.
- Operating expenses increased due to write-offs and expansion but expected to normalize in H2.
- Customer graduation ongoing with reclassification of loans to retail finance for better performance metrics.
Outlook and Guidance
- Credit growth expected between 14–15% in FY26; above 20% anticipated for FY27.
- Credit cost guidance revised up to 4.0–4.5% reflecting conservative provisioning and slower PAR improvement.
- ROA target maintained at 4.0–4.5%.
- Continued branch expansion planned with digital initiatives to sustain efficiency and growth.
Challenges / Concerns
- Elevated credit costs and provisioning remain near-term challenges.
- Geographic concentration and exposure to gold price volatility.
- Execution risk in branch expansion and loan acquisition amid rising rejections.
Industry / Competitive Landscape
- Competitive pressure from peers; sector-wide focus on digital banking innovation.
- Regulatory oversight and guardrails helping mitigate overleveraging issues.
Overall Summary
Tamilnad Mercantile Bank displayed steady business momentum with improving asset quality and profitability in Q2 FY26. Emphasis on RAM growth, digital transformation, and branch expansion supports an optimistic medium-term outlook. Credit cost trajectory and competitive pressures underscore prudent risk management. The bank expects FY27 to mark breakout profit growth.
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