Tamilnad Mercantile Bank Limited — Q4 FY26 earnings call

Call held 27 Apr 2026

Management summary

Tamilnad Mercantile Bank Limited delivered a strong Q4 and FY26 performance, surpassing its own guidance across key metrics like advances, deposits, ROA, and ROE. Asset quality saw significant improvement with GNPA and NNPA at multi-year lows. The bank declared a 125% dividend and highlighted strategic shifts towards MSME as a future growth driver, alongside continued digital transformation efforts, despite acknowledging challenges in sustaining peak NIM and missing its branch expansion target for the year.

Highlights

  • Advances growth of 20.32% (22.57% including IBPC sale) exceeded guidance of 16-17%.

  • Deposit growth of 14.94% exceeded guidance of 13-13.5%.

  • Total business growth of 17.37% surpassed guidance of 15%.

  • GNPA improved to 0.73% and NNPA to 0.18%, with PCR at 74.89%.

  • ROA for FY26 was 2.05% and ROE was 15.03%, both above targets.

  • Q4 Net Profit grew 28.01% YoY to INR 373.65 crores.

  • CASA share increased to 28.14% from 26.44% YoY.

Concerns

  • Missed branch expansion target for FY26, opening 44 branches against a promise of 50.

  • Retail gold loan portfolio degrew by INR 200 crores QoQ to INR 6,500 crores.

  • MSME ROA is expected to moderate in FY27 as the portfolio expands.

  • NIM sustainability at current high levels (4.18% in Q4) is challenging, with a target to defend 3.9-4%.

Key financials

3 periods

Q4

  • Net Profit
    ₹373.65 Cr
    YoY +28%
  • GNPA
    0.73%
  • NNPA
    0.18%
  • NIM
    4.2%

Q4 Normalized

  • Cost-to-Income Ratio
    39.5%

FY26

  • Advances Growth
    20.3%
  • ROA
    2%
  • ROE
    15%
  • CASA Ratio
    28.1%

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.

Segment breakdown

SegmentROAYieldNPA
Retail Advances2.2%10%0.13%
Agri Advances2%—0.16%
MSME2.6%10.5%—

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Capital adequacy ratio (CAR) is 33.73%. RBI's LCR requirements are expected to benefit the bank by about 4%.
    the capital adequacy is 33.73%,

Guidance & targets

Deposit Growth

  • Deposit Growth Deposit Growth · FY27 · High confidence at least 1% higher than FY26 (approx. 15.94%)
    we will grow at least 1% higher than what we did in FY26.

    — Salee Nair

  • Deposit Growth Deposit Growth · FY27 · Medium confidence 16%
    I think that we should be in the 16% kind of number for deposit growth.

    — Salee Nair

Advances Growth

  • Advances Growth Advances Growth · FY27 · High confidence 20%
    the advances that we did of 20% is something that we will defend in the current year as well.

    — Salee Nair

Profitability

  • NIM Profitability · FY27 · High confidence 3.9% to 4%
    But still, we believe we'll be able to defend a 3.9% to 4% NIM.

    — Salee Nair

  • ROA Profitability · FY27 · High confidence 1.9% to 2%
    But we are still looking at a 1.9% to 2% kind of ROA for FY27.

    — Salee Nair

  • ROE Profitability · FY27 · High confidence 14% to 15%
    but I think we should be looking at defending 14% to 15% for FY27.

    — Salee Nair

Branch Expansion

  • Number of new branches Branch Expansion · FY27 · High confidence 60

    Previously 50 → 60

    We are proposing 60 branches in FY27.

    — Salee Nair

Efficiency

  • Cost-to-Income Ratio Efficiency · FY27 · High confidence below 50% (46-47% range)
    we are committed to keep it below 50% and should be in the 46%, 47% range.

    — Salee Nair

Deposit Franchise

  • CASA Ratio Deposit Franchise · FY27 · Low confidence moving up from 28.14%
    But let me also tell you this number that we have given, 28.14%. 28.14% is something that you will see moving up.

    — Salee Nair

What to watch in Q1 FY27

MSME Portfolio Growth and ROA

Next quarter (FY27 Q1)
Current 14.88% growth, 2.58% ROA (Q4 FY26)
Target Continued growth with expected moderation in ROA

Why it matters

MSME is identified as the next key growth driver, and its profitability trajectory will be crucial for overall bank performance.

And our MSME, like I said, grew 14.88% year-on-year, right and the ROA there the yield is at 10.52%. So this is one portfolio we will be looking to cushion the impact of gold loan, slowing down on the gold loan growth.

Risks & concerns

  • Geopolitical Risks (Middle East War)

    medium

    The bank is assessing the direct and indirect impact of the Middle East crisis on its export credit portfolio, which is currently limited to 0.10% of overall portfolio.

    Management acknowledged

  • NIM Sustainability

    medium

    Maintaining the Q4 FY26 NIM of 4.18% will be challenging, but the bank aims to defend a range of 3.9% to 4% for FY27.

    Management acknowledged

  • Deposit Pricing and Cost of Funds

    medium

    Deposit mobilization remains a challenge across the industry, and the bank anticipates that pricing benefits from repricing higher-cost deposits may not fully accrue in the next quarter, requiring continued focus on resource mobilization.

    Management acknowledged

  • Inflationary Trends and Higher G-Sec Rates

    medium

    Hardening interest rates and rising G-Sec yields (10-year yield at 7.14%) could impact the banking industry, with management watching inflation's effect on nominal GDP growth.

    Analyst acknowledged

  • Gold Loan Price Reduction

    low

    The bank's current gold loan portfolio can absorb a 25% price reduction due to its LTV of 53.25% and gross-to-net rate difference of 9.33%.

    Management acknowledged

  • MSME ROA Moderation

    low

    As the MSME portfolio expands, its ROA of 2.58% (Q4 FY26) is expected to moderate, which is a trade-off for growth.

    Management acknowledged

Q&A highlights

7 direct
Loan Book Growth Guidance for FY27 Direct
we will grow at least 1% higher than what we did in FY26 [for deposits]... the advances that we did of 20% is something that we will defend in the current year as well.

Provides key forward-looking growth targets for both deposits and advances, indicating continued strong growth.

Asked by Digant Haria

Future Growth Driver (Dhurandhar for FY27) Direct
Now we are having our Dhurandhar 2 also coming up. I think that is where if you look at, I've also showcased that our MSME has also been giving us good ROA.

Highlights MSME as the next key growth driver, replacing gold loans, signaling a strategic shift in portfolio focus.

Asked by Digant Haria

Retail Gold Loan Portfolio Value Direct
And to answer you on the retail, it is INR6,507 crores.

Confirms a QoQ degrowth of INR 200 crores in the retail gold loan portfolio, a previously strong segment.

Asked by Digant Haria

Housing Loan Portfolio Degrowth Partial
Like I said home loan is something that we are focusing back. I think we started the focus back in quarter 4. And like I said, sanctions have actually moved up 22%, so 22%. But for that to get translated into actual disbursement, I think you will see this going forward and gold loan, the other aspects of gold loan is from an ROA perspective, it just delivers 1.01 ROA. So from a priority angle, this has taken a little bit of a lower priority, but we are in the game to push this up.

Reveals that housing loans are currently a lower priority despite increased sanctions, explaining the degrowth and indicating a strategic focus shift.

Asked by Varun

Agri Slippage in Q4 Direct
Yes, in fact the slippage in agri. This is in the sense agri processing unit. And there was a single account, totalling INR16 crores and that has resulted in INR19 crores. And let me also tell you, let's say, clear visibility on the recovery of that account.

Clarifies that the reported agri slippage is due to a single, recoverable account, mitigating concerns about broad asset quality deterioration in the segment.

Asked by Varun

LTV at Origination for Gold Loans Direct
The LTV that you see in the slide is not the principal LTV. It is the principal the dues on that particular date, which is principal plus interest. Okay. That is the first clarification I want to give you. And the normal LTV is 75% that you give. And we have a certain different kind of calculation does not it is actually not on the market price.

Provides crucial detail on how LTV is calculated for gold loans (on maturity value including interest), explaining the bank's resilience to price fluctuations.

Asked by Lakshmi Narayanan

Technology Spend and Digital Transformation Direct
My technology spend this year is 15.80% higher. We have that exact number. Let me also tell you that technology spend in the year will not give a proper reflection because many of these are milestone payments and these are happening.

Indicates significant ongoing investment in technology and digital initiatives, which are expected to drive future efficiency and growth.

Asked by Lakshmi Narayanan

NIM Sustainability for FY27 Direct
This kind of level is going to be very difficult to sustain. But still, we believe we'll be able to defend a 3.9% to 4% NIM.

Sets realistic expectations for future NIM, acknowledging the challenge of maintaining peak margins but committing to a strong range.

Asked by Digant Haria

3 min read 7 chapters

Detailed narrative

Strong Financial Performance Exceeding Guidance

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.

Significant Asset Quality Improvement

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.

Profitability and Efficiency Gains

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.

Strategic Focus on MSME and Digital Transformation

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.

Capital Position and Shareholder Returns

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.

Outlook and FY27 Targets

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.

Impact of New ECL Norms

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.

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