T N Merc. Bank

Tamilnad Mercantile Bank reported a total business of INR 98,923 crores for Q1 FY26, marking a 9.86% year-on-year growth. Deposits grew by 9.38% YoY to INR 53,803 crores, while total advances increased by 10.44% YoY to INR 45,120 crores. Net Profit saw a 6.13% YoY increase, despite operating profit being lower at INR 412.26 crores due to the upfronting of INR 41.27 crores in performance-based incentives. The bank's Return on Assets (RoA) stood at 1.82%, showing a sequential improvement from 1.81% in the previous quarter.

The bank maintained strong asset quality, with Gross Non-Performing Assets (GNPA) at 1.22% and Net Non-Performing Assets (NNPA) at 0.33% (33 basis points). The Provision Coverage Ratio (PCR) on book significantly improved to 73.04% from 55.22%. Slippage ratio was contained at 0.05% (INR 22 crores), a reduction from INR 54 crores in the previous quarter. Management highlighted that the stress book of INR 549.12 crores is covered by 108% collateral, with INR 370 crores already provisioned.

The bank's deposit base grew 9.38% YoY, with a renewed focus on strengthening its CASA franchise. CASA share improved by 34 basis points quarter-on-quarter, reaching 26.78%. Initiatives include establishing a dedicated transaction business unit with over 100 relationship managers for current accounts, launching online account opening, and forming an 'elite services group' for high net worth customers. Retail deposits grew by 11.25%, and term deposits from HNIs increased by 11.43%.

MSME is identified as a core growth area, with the bank laying foundational initiatives in Q1 FY26. This includes setting up credit management centers, extensive staff training, and implementing new Loan Origination System (LOS) and Loan Management System (LMS) platforms, expected to be completed by September. While MSME growth was temporarily impacted in Q1 due to these efforts, management anticipates a pickup in Q2 and H2, targeting 8-10% growth by year-end. The current MSME portfolio is diversified across sectors like Textiles, Food Processing, and Engineering, with an average ticket size of INR 20-25 lakhs.

Net Interest Margin (NIM) compressed to 3.84% in Q1 FY26, primarily due to two recent rate cuts. The cost of deposits stood at 6.01%, with yield on advances at 10.02%. Management expects NIM to stabilize and improve in the second half of the year, targeting a range of 3.85-3.95% by year-end. This confidence stems from repricing MSME loans, growth in the gold loan portfolio with 18 new products, and a focus on higher-yielding consumption segments.

The bank is undergoing significant digital transformation to enhance customer experience and operational efficiency. A new customer experience package was implemented in July, and the Internet banking platform is being revamped by EdgeVerve (Infosys), with a full launch targeted for January 1, 2026. The Loan Origination System (LOS) for retail and Loan Management System (LMS) for MSME are expected to be completed by September. These initiatives aim to reduce manual workload, free up branch staff for sales, and improve overall productivity.

Tamilnad Mercantile Bank maintains a strong capital position, with a Capital Adequacy Ratio (CAR) in excess of 32% and a Leverage Ratio of 12.44%. The book value per share stands at INR 589 crores, and the net worth is INR 9,328 crores. Management emphasized that the bank's strong capital base provides comfort and supports its growth ambitions without immediate concerns for dilution.