Tamilnad Mercantile Bank Limited — Q1 FY26 earnings call

Call held 28 Jul 2025

Management summary

Tamilnad Mercantile Bank Limited delivered a creditable Q1 FY26 performance, marked by robust business and deposit growth, significant asset quality improvements, and a strong RAM portfolio expansion. Despite a YoY decline in operating profit due to one-time upfronted costs and slight NIM compression, the bank's strategic initiatives in CASA mobilization, MSME focus, and digital transformation are beginning to yield results, setting a strong foundation for future quarters.

Highlights

  • Total business grew 9.86% YoY to ₹98,923 crores, crossing the ₹1 lakh crore mark.

  • Deposits increased 9.6% YoY to ₹53,803 crores, with the pace of growth more than doubling, indicating strong resource mobilization.

  • Net Profit rose 6.13% YoY to ₹412.26 crores, a creditable performance given the upfronting of ₹41.27 crores in performance-based incentives.

  • Asset quality showed significant improvement with GNPA at 1.22% (down 22 bps) and NNPA at 0.32% (down 33 bps YoY), with a strong PCR on book of 73.04%.

  • RAM portfolio, a key focus area, grew 11.93% YoY to ₹42,100 crores, demonstrating healthy credit growth.

  • CASA ratio improved 34 basis points QoQ to 26.78%, arresting the declining trend and showing positive results from new initiatives.

Concerns

  • Operating profit was lower YoY at ₹412.26 crores, primarily due to the one-time upfronting of ₹41.27 crores in performance-based incentives for the full year in Q1.

  • Net Interest Margin (NIM) experienced a slight compression to 3.84%, impacted by recent rate cuts and the repricing of term deposits.

  • Employee cost increased 24.24% YoY due to the upfronted performance-based incentives, though management noted it would be 6.70% without this one-off item.

Key financials

  1. Total Business ₹98,923 Cr +9.9%YoY
  2. Deposits ₹53,803 Cr +9.6%YoY
  3. RAM (Retail, Agri, MSME) ₹42,100 Cr +11.9%YoY
  4. Operating Profit ₹412.26 Cr
  5. Net Profit — +6.1%YoY
  6. GNPA 1.2%
  7. NNPA 0.32%
  8. RoA 1.9% +3.3%YoY
  9. RoE 13.3%
  10. PCR on Book 73% +32.3%YoY
  11. CASA Ratio 26.8% +1.3%YoY
  12. NIM 3.8%
  13. Slippage Ratio 0.05%
  14. Credit Cost 6%
  15. CD Ratio 83.9%
  16. Capital Adequacy Ratio 32%
  17. Leverage Ratio 12.4%
  18. Unsecured Portfolio % of Advances 0.28%
  19. NPA in Unsecured Portfolio 0.43%
  20. Interest Income Growth 8.2%
  21. Operating Total Income Growth 6.8%
  22. Employee Cost Growth 24.2%
  23. Book Value Per Share ₹589
  24. Net Worth ₹9,328 Cr
  25. Stress Book GNPA ₹549.12 Cr
  26. Collateral Cover on Stress Book 108%
  27. Provision for Stress Book ₹370 Cr
  28. Cost of Deposit 6%
  29. Yield on Advances 10%
  30. SMA 3%
  31. Stressed Asset 1.9%

What they filed

Q1 FY27: revenue up 19.9%, net profit up 35.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,337 1,331 1,342 1,386 1,413 +6%1,469 +10%1,550 +15%1,662 +20%
Net profit303 300 292 305 318 +5%342 +14%374 +28%412 +35%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Capital Adequacy Ratio (CAR) is in excess of 32% and Leverage Ratio is 12.44%.
    And leverage ratio is 12.44%, which is something that gives us I'm sure not just this bank, I'm sure the investor community also will take a lot of comfort on that. There has been a lot of talk in the market about unsecured portfolios, right? I think RBI and the system, the banking industry itself is worried. And then I come to Tamilnad Mercantile Bank, unsecured portfolio just answered 0.28% of the advances that is 0.28%. So we are largely secured. Our portfolio is largely secured or almost entirely secured.

Guidance & targets

Deposits

  • Deposit Growth Deposits · FY26 · High confidence 10-12%
    So that will that growth would continue there, and we are hoping that we ended the year in excess of 10%. Maybe between 10% and 12% is what personally I anticipate it all the in response to the kind of initiative that we have taken on the liability side, revamping the branches, all branches are coming on stream, we have just done 7 branches in the first quarter. And we have just appointed 29 branch managers for new branches.

    — Salee S Nair

Advances

  • Advances Growth Advances · FY26 · High confidence closer to 15%
    And we are hoping to close the year with a 15% kind of growth. So it's happening and on both sides, the advance growth may be continue to be a little higher than the deposit growth. For deposit, we anticipate, like I said, in the 10% to 12%, and advance as closer to 15%.

    — Salee S Nair

MSME

  • MSME Advances Growth MSME · FY26 · Medium confidence 8-10% or closer to 10%
    I anticipate the MSME growth to be about it should be in the 8% to 10% or maybe closer to 10%. That's what we anticipate.

    — Salee S Nair

Profitability

  • Net Interest Margin (NIM) Profitability · FY26 · High confidence 3.85-3.95%

    Previously 3.80-3.90% → 3.85-3.95%

    My personal anticipation is that as we close the year, we should be looking at a NIM in the 3.85% to 3.95% kind of range because that is the kind of numbers when I extrapolate I get.

    — Salee S Nair

Asset Quality

  • GNPA Asset Quality · Ongoing · High confidence below ₹550 crores
    I don't anticipate some of them flipping into the NPA status going forward. We will continue to keep the NPA, my own reading of it is that it will not go beyond Rs. 550 Crores at any case.

    — Salee S Nair

Digital Initiatives

  • NRI Center Readiness Digital Initiatives · Q2 FY26 · High confidence ready for action
    I expect that in the second quarter that process to be completed. And we would have a global NRI center ready for action.

    — Salee S Nair

  • LMS Platform Phase 1 Completion Digital Initiatives · September · High confidence completed
    Once the LMS platform is completed in September, the Phase 1, I mentioned, and the CMC pilot in Thoothukudi is on the platform, so that we can test out the platform, and once that is completed, I think sometime in October, we will sort of move the CMCs into the other regions as well.

    — Salee S Nair

  • Internet Banking Revamp Digital Initiatives · Q3 FY26 / Q4 FY26 · High confidence ready by December, fully launched by Jan 1
    EdgeVerve, which is an Infosys company, we have contracted them for a complete revamp, which should be ready by December. And from January 1, we hope to have it fully launched for the benefit of our customers.

    — Salee S Nair

Operations

  • Cash Flow Monitoring Mechanism Operations · Q3/Q4 FY26 · Medium confidence coming on-stream
    And let me also give you that we are putting in place a standard monitoring mechanism to study the cash flow from that perspective. That's the other one of the other projects that we did talk about, that is coming on-stream maybe in the third or the fourth quarter.

    — Salee S Nair

What to watch in Q2 FY26

NRI Center Operationalization

Q2 FY26
Current Location identified, infrastructure ready, lead search ongoing
Target Ready for action

Why it matters

Indicates progress on new growth avenues and expanding customer base, particularly for global NRI segment.

I expect that in the second quarter that process to be completed. And we would have a global NRI center ready for action.

Risks & concerns

  • NIM Compression due to Rate Cycle

    medium

    NIM compressed to 3.84% due to rate cuts and repricing of term deposits, but management expects stabilization and slight improvement to 3.85-3.95% by year-end through strategic initiatives.

    Management acknowledged

  • MSME Growth Disruption from Foundational Initiatives

    medium

    MSME growth was disrupted in Q1 due to efforts in laying a strong foundation, including automation and training, but management anticipates growth to pick up from Q2 onwards.

    Management acknowledged

  • Litigation on Share Issuance

    low

    Ongoing litigation before the High Court, postponed to October, but management asserts it is not impacting the bank's operations or financials, and ED show cause notices are also not a concern.

    Management downplayed

Q&A highlights

8 direct
NIM Moderation and Funding Mix Strategy Direct
We have started a transaction business unit aimed at getting the CASA or retaining and strengthening the CASA base. And I think over 100 relationship managers have been posted exclusively for particularly the current accounts.

Analyst questioned the NIM compression and strategies to improve funding mix; management detailed specific initiatives to boost CASA and defend margins.

Asked by Jai Chauhan

MSME Growth Challenges and Strategy Direct
I did mention in the last call as well that we are setting up credit management centers and the quarter we have spent, in fact, in tweaking days and training a large population of who are going to be in the CMT, the credit managers relationship managers.

Analyst probed why MSME growth was struggling despite strong fundamentals; management explained it's a foundational phase with automation and training, expecting growth to pick up from Q2.

Asked by Lakshminarayanan

Provisioning for Fraud Accounts Direct
No, because there is one which was which happened in I think 2 years back, one cotton thing in Andhra, which was almost like INR 165 to INR 170. ... See it was declared, but they went to court and RBI has advised us to actually take the tag off. So it is not called a fraud account at the moment. But despite that, we have provided as a prudent measure, 100% provision.

Analyst sought clarity on fraud account provisioning; management confirmed 100% provisioning for a significant Andhra-based account, even if its 'fraud' tag was removed by RBI.

Asked by Lakshminarayanan

Impact of Upfronted Performance-Based Incentives on Cost-to-Income Ratio Direct
This year, we have decided to absorb the whole PBI, the performance-based incentive in one shot in the first quarter itself. ... If you negate that impact, your cost-to-income ratio would be closer to 46%.

Analyst questioned the rising cost-to-income ratio; management clarified it was due to a one-time upfronting of ₹41.27 crores in Q1, which significantly distorted the reported ratio.

Asked by Anant Mundhra

SMA 2 Increase and Asset Quality Outlook Direct
SMA 2, again, it unfortunately was a function of the exercise time in when this quarter closes. You had 2 holidays that it was there. So ordinarily, I think, because there was a bit of a spike essentially on that count. Going forward, I think I don't see that happening on SMA 2 or SME, which I think we are at 3.05%.

Analyst raised concern about the spike in SMA 2; management attributed it to temporary factors (quarter-end holidays) and expressed confidence in maintaining overall SMA levels.

Asked by Rohan Mehta

Litigation Status on Shares Direct
We did have there was a, either 7th or 9th of July, I forgot which date it is, we the litigants were before the High Court and they have postponed it to October for a final closure. So sometime in October, that's likely I mean, you can never know on the legal side, how much time it will takes. But what is happening is, see, that is not impacting the bank in any way.

Analyst inquired about ongoing litigation impacting capitalization/valuation; management provided an update on the court hearing and reiterated that it's not impacting the bank's operations.

Asked by Rohan Mehta

NIM Confidence in a Declining Rate Cycle Direct
See, what we are also trying to do is on the MSME side, we have actually dropped our rates to align assets to the market, so that to update any takeover that may happen. And on the see, we have a sizable gold loan portfolio that is growing, right? And there, we are introducing in fact, if I tell you, we are introducing 18 products cut into separate segments in the gold loan portfolio.

Analyst questioned management's confidence in NIM guidance amidst rate cuts; management outlined strategies like MSME rate adjustments, gold loan product diversification, and higher-yielding consumption loans to support NIM.

Asked by Santosh

Separate Disclosure for Gold Loan Portfolio Direct
Yes. I think that's something we can do it next quarter onwards, so that you get a better insight anyway. There is no reason. There's no particular reason. This is done and it is done. So if there is a demand, we will certainly cater to it. We'll have that done for next quarters onwards.

Analyst requested more granular disclosure for the gold loan portfolio; management agreed to provide this from the next quarter, indicating responsiveness to investor feedback.

Asked by Santosh

3 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Highlights and Foundation Laying

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.

Strengthening Deposit Franchise and CASA Growth

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.

Strategic Focus and Automation in MSME Segment

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.

Robust Asset Quality and Provisioning

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.

NIM Trajectory and Cost Management

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%.

Digital Transformation and Infrastructure Expansion

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.

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