T N Merc. Bank

Tamilnad Mercantile Bank Limited reported robust Q4 and FY26 results, surpassing its own guidance across several key metrics. Advances grew by 20.32% (22.57% including IBPC sale) against a target of 16-17%, while deposits increased by 14.94% against a 13-13.5% target. Total business growth reached 17.37% for FY26, exceeding the 15% guidance. The bank's ROA stood at 2.05% and ROE at 15.03% for FY26, both comfortably above the 1.85%+ and 14%+ targets respectively.

Asset quality showed remarkable improvement, with Gross Non-Performing Assets (GNPA) falling to 0.73% and Net Non-Performing Assets (NNPA) to 0.18% in Q4 FY26, well below the guidance of less than 1% GNPA. The Provision Coverage Ratio (PCR) on-book improved to 74.89%, up 3.87% from the previous year. Slippages were under control, and the total SMA (0, 1, and 2) stood at 1.29%, down 1.26% from the prior year, indicating effective risk management.

Net Interest Income (NII) grew by 24.04% in Q4 FY26, reaching INR 704.45 crores. The Net Interest Margin (NIM) for Q4 was 4.18%, with the full-year NIM at 3.98%. Operating profit for the quarter increased by 29.29% YoY, and net profit grew by 28.01% YoY to INR 373.65 crores. The cost-to-income ratio for Q4 was 44.80%, which normalizes to 39.54% after accounting for the performance-based incentive (PBI) of INR 49.80 crores paid in Q4 for FY26, which would ordinarily be absorbed in FY27.

The bank is shifting its growth focus, identifying MSME as the next 'Dhurandhar' (growth driver), which grew by 14.88% in FY26 after degrowth in Q1, achieving an ROA of 2.58%. Retail gold loans, while still significant at INR 6,507 crores, saw a slight degrowth. The bank is heavily investing in digital transformation, with technology spend up 15.80% in FY26, and plans to continue this in FY27. Initiatives include setting up asset resolution branches, centralized call centers, and deploying branch managers to drive local market penetration.

The bank's capital adequacy ratio (CAR) stands strong at 33.73%. Shareholder funds crossed INR 10,000 crores for the first time, with a book value per share of INR 638 and EPS of INR 23.60. The Board recommended a dividend of 125% for FY26, reflecting confidence in the bank's financial health and future prospects.

For FY27, the bank aims for deposit growth of at least 1% higher than FY26 (approx. 15.94%) and plans to defend its 20% advances growth. NIM is targeted to be defended within the 3.9-4% range, ROA at 1.9-2%, and ROE at 14-15%. The bank plans to open 60 new branches in FY27, an increase from the 44 opened in FY26 (against a target of 50). Management expressed confidence in a better FY27, driven by ongoing initiatives and improved operational efficiency.

The bank anticipates an impact of INR 279 crores from the new Expected Credit Loss (ECL) norms, which will kick in on April 1, 2027. However, it holds INR 250 crores in existing COVID-related provisions, which are expected to largely cushion this additional ECL requirement. These provisions are planned to taper down further by March 31, 2027, to manage the transition effectively.