Tamilnad Mercantile Bank Limited

Tamilnad Mercantile Bank Limited reported a creditable Q1 FY26 performance, with total business growing 9.86% YoY to ₹98,923 crores. Deposits saw a 9.6% YoY increase to ₹53,803 crores, with the pace of growth more than doubling. The bank emphasized that Q1 was focused on laying a strong foundation for future growth, including stabilizing operations and initiating key strategic projects. Net Profit increased 6.13% YoY despite the one-time^📎 upfronting of ₹41.27 crores in performance-based incentives, which impacted operating profit.

The bank successfully arrested the declining trend in CASA, achieving a 4.51% YoY growth and a 34 basis points QoQ improvement in CASA share to 26.78%. Initiatives such as the establishment of a transaction business unit with over 100 dedicated relationship managers, online account opening, and an elite services group for high-net-worth customers are driving this improvement. Retail deposits grew 11.25%, and bulk term deposits grew 11.43%, contributing to the overall deposit growth.

MSME remains a core focus area for the bank. While Q1 saw some disruption due to foundational work, significant investments are being made in centralizing processes, automating appraisal systems (expected online by September), and implementing LOS and loan management system packages. The bank is also training relationship managers and credit analysts to enhance capabilities in this segment, with a pipeline of close to ₹1,000 crores expected to materialize from Q2 onwards. The MSME portfolio is well-diversified across micro (₹9,000 crores), small enterprises (₹3,800 crores), and median (₹600 crores) segments, with an average ticket size of ₹20-25 lakhs.

Asset quality showed strong improvement, with GNPA decreasing by 22 basis points to 1.22% and NNPA falling by 33 basis points YoY to 0.32%. The Provision Coverage Ratio (PCR) on book significantly increased by 17.82% to 73.04%. The stress book GNPA stands below ₹550 crores (specifically ₹549.12 crores) with a high collateral cover of 108% and a provision of ₹370 crores. Slippage ratio was contained at 0.05% (₹22 crores), down from ₹54 crores QoQ and ₹55 crores YoY.

Net Interest Margin (NIM) compressed slightly to 3.84%, influenced by recent rate cuts and the repricing of term deposits. However, management anticipates NIM to stabilize and potentially improve to a range of 3.85-3.95% by year-end, driven by strategic pricing in MSME, growth in the gold loan portfolio with new products, and higher-yielding consumption segment loans. Operating profit was impacted by the upfronting of ₹41.27 crores in performance-based incentives, which, if amortized as in previous years, would have resulted in a higher net profit growth exceeding 10%.

The bank is actively pursuing digital transformation, with a customer experience package implemented in July and a complete revamp of its Internet banking package expected to be ready by December and fully launched by January 1. Infrastructure expansion includes opening 7 new branches in Q1 and appointing 29 new branch managers. The bank is also setting up an NRI Center, expected to be ready for action in Q2, and implementing a standard cash flow monitoring mechanism by Q3/Q4 to enhance operational efficiency and risk management.