Skip to content

    Tamilnad Mercantile Bank Limited

    TMB
    Financial Services·28 Oct 2025
    Management Summary

    T N Merc. Bank reported a strong Q2 FY26 with profit up 4.73% YoY to INR318 crores, driven by robust business growth of 11.40% and improved asset quality (GNPA 1.01%, NNPA 0.26%). The bank saw an uptick in ROA to 1.85% and a reduction in Cost-to-Income ratio to 43.81%. Significant investments in digital transformation and branch expansion are underway, with management guiding for 14-15% credit growth and 12-13% deposit growth for FY26, and 17% profit growth for FY27.

    Highlights

    5

    • Profit for Q2 FY26 stood at INR318 crores, marking a 4.73% year-on-year growth.

    • Total business grew by 11.40%, driven by deposit growth of 12.32% and CASA growth of 9.30% year-on-year.

    • Asset quality remained strong with Gross NPA at 1.01% and Net NPA at 0.26%, supported by a Provision Coverage Ratio (PCR) of 70.36%.

    • Return on Assets (ROA) increased to 1.85% from 1.82% in the previous quarter, and Return on Equity (ROE) was 13.77%.

    • Cost-to-Income ratio improved to 43.81%, down almost 5.5% from the previous quarter, with a commitment to maintain it under 45%.

    Concerns

    3

    • Operating profit was 2.74% negative year-on-year due to a high base from a INR98 crores recovery in Q2 FY25, though adjusted for this, it was 19.83% positive.

    • Management anticipates potential credit stress and a higher credit cost range of 0.25% to 0.5% in FY27 and FY28, despite current low levels.

    • The bank's name 'Tamilnad Mercantile Bank' is acknowledged as a potential limiting factor for pan-India expansion, though management is addressing attractiveness to non-Tamil Nadu regions.

    What Changed2

    vs Q3 FY26

    Guidance items17 → 13 (-4)Risks discussed2 → 5 (+3)

    Key financials

    Single quarter

    06 metrics
    1. 01Profit₹318 Cr+4.7%YoY
    2. 02Total Business Growth11.4%
    3. 03GNPA1.0%
    4. 04ROA1.9%
    5. 05CASA Growth9.3%

    Guidance & targets

    13
    CategoryTargetPriority
    Credit Growth
    Credit Growth
    14-15%
    		High
    Deposit Growth
    Deposit Growth
    12-13%
    		High
    CASA Growth
    CASA Growth
    12%
    		High
    Profitability
    ROA
    1.85% plus
    		High
    Profitability
    NIM
    3.85% plus
    		Medium
    Cost Management
    Cost-to-Income Ratio
    under 45%
    		High
    Branch Expansion
    New Branches
    30-36
    		High
    Branch Expansion
    Non-Tamil Nadu Branches Share
    beyond 35%
    		Medium
    Profit Growth
    Profit Growth
    17%
    		High
    IT Investment
    IT Budget
    INR250 crores
    		High
    Asset Quality
    GNPA
    1%
    		Medium
    Asset Quality
    Slippage Rate
    5 to 10 basis
    		High
    Credit Cost
    Credit Cost
    0.25% to 0.5%
    		Medium

    Credit Growth

    next quarter (Q3 FY26)
    Current10.34% (as mentioned in closing remarks)
    Target14-15%

    Why it matters

    To verify if the accelerating growth momentum translates into achieving the full-year credit growth target.

    And on the advances, like I said earlier, 14% to 15% despite the fact that it is at 10.34%, we hope to end up with 14% to 15%.

    How to verify

    key_financials.metrics[label='Credit Growth']

    Risks & concerns

    5
    RiskSeverity

    Impact of gold price reversal on gold loan growth

    Management acknowledged that gold price reversal would impact gold loan growth but stated focus on expanding customer base to cushion the impact. — Analyst acknowledged

    medium

    Impact of interest rate cuts on NIM

    Management noted that rate cuts impact NIM but expects deposit repricing (66% of deposits in 1-2 year bucket) to stabilize and improve NIM to 3.85% plus. — Analyst acknowledged

    medium

    Potential credit stress and higher credit cost in future years

    Management anticipates potential credit stress and a credit cost range of 0.25% to 0.5% in FY27 and FY28, despite current low levels. — Management acknowledged

    medium

    Shareholder case leading to monetary impact

    Management stated the maximum penalty is INR2 lakhs, already provisioned, and expects no further monetary impact. — Analyst downplayed

    low

    US tariff impact on export credit portfolio

    Management clarified that only 1.05% of advances are export credit, and only 17.53% of that is impacted by US tariffs, which is well covered. — Analyst downplayed

    low

    Q&A highlights

    8

    “No, no, no, nothing at all. In fact, we have put it out in the last balance sheet, in the fine print if you look at it, it's very clearly there. See, there we the bank came into picture. It is actually an issue between shareholders and shareholders and issue between shareholders and the ED. ... The maximum penalty there is INR2 lakhs. INR2 lakhs, and we have already provided for that.”

    Analyst inquired about potential financial liabilities from an ongoing shareholder case, which management clarified as minimal and already provisioned for.

    asked by Sidharth Chandrasekar

    3 min read6 chapters

    Detailed Narrative

    01

    Q2 FY26 Performance Overview and Growth Acceleration

    T N Merc. Bank reported a profit of INR318 crores for Q2 FY26, representing a 4.73% year-on-year increase and 4.14% quarter-on-quarter. The bank's total business grew by 11.40%, with deposits increasing by 12.32%. CASA growth was 9.30% year-on-year, with CASA share improving by 92 basis points over the last two quarters, including 58 basis points in Q2 alone. Management emphasized that growth is accelerating, moving past previous underperformance.

    02

    Asset Quality and Provisions

    Asset quality remained robust with Gross NPA at 1.01% and Net NPA at 0.26%. The Provision Coverage Ratio (PCR) stood at 70.36%, an increase of 132 basis points. Including technical write-offs, PCR reached 95.30%. The bank holds INR250 crores in provisions for COVID and other contingencies, which can be utilized for Expected Credit Loss (ECL). Restructured advances have reduced significantly to INR271 crores from INR443 crores a year ago, and collateral cover for NPAs is strong at 111%.

    03

    Digital Transformation and IT Investments

    The bank is undertaking a significant digital transformation, with a planned IT investment of INR250 crores for FY26, up from INR151 crores in FY25. This budget is split into INR125 crores for opex and INR125 crores for capex. Key initiatives include replacing the entire Internet banking system, revamping mobile banking, and implementing a new loan management system (LMS). Phase 1 of LMS is complete and undergoing UAT, with Phases 2 and 3 expected in the next two quarters. The digital engagement hub is set to go live in January 2026.

    04

    Human Resources and Cost Management

    Employee expenses saw a 20% quarter-on-quarter decline, primarily due to a strategic shift in compensation models. Approximately 82% of the bank's 5,000 employees are now on a CTC (Cost to Company) model, moving away from the IBA-based pay model. This change links a variable component of compensation to operating profit and business growth, aiming for moderation in HR costs as a percentage of total income. The bank is also incentivizing remaining IBA employees to transition to the CTC model.

    05

    Branch Expansion and Geographic Diversification

    The bank opened 22 new branches in the first half of FY26, including its 600th branch. It plans to open another 30-36 branches in the current year. While 24 of the newly opened branches are in Tamil Nadu, 12 are outside. The long-term goal is to increase the share of non-Tamil Nadu branches to beyond 35% over the next three years. The bank is strategically selecting new branch locations based on data analysis and market surveys to ensure quick breakeven and accelerated growth.

    06

    Outlook and Guidance

    Management provided optimistic guidance, targeting 14-15% credit growth and 12-13% deposit growth for FY26, with CASA growth at 12%. They expect ROA to end the year closer to 1.85% and NIM to touch 3.85% plus. The Cost-to-Income ratio is committed to be maintained under 45%. For FY27, the bank anticipates a profit growth of 17%. While acknowledging potential credit stress in FY27-28, management expects GNPA to remain around 1% and credit cost in the 0.25-0.5% range.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.