TMB - Tamilnad Mercantile Bank Limited Share Price

Management's outlook for Tamilnad Mercantile Bank indicates strong growth potential moving into FY '27, building from a transformational year in FY '26. The management highlighted that for Q3 FY '26, total business growth exceeded guidance at 14.28%, surpassing the target of 12.40%. Deposits also grew by 12.53% and CASA by 14.94%, indicating healthy momentum in low-cost funding. The advances saw an impressive growth of 16.30%, which was above the previous guidance of 14%-15%.

Management provided specific forward-looking targets, expecting CASA growth to surpass 15%, with overall business forecasted to grow 15% plus. The bank aims for advances growth to remain around 16%-17%, reflecting confidence in ongoing initiatives and a robust operational framework. The net interest margin (NIM) was reported at 4.04%, whereas return on assets (ROA) improved to 1.97%, with a return on equity (ROE) of 14.22%.

Significant focus has been placed on asset quality, with gross NPA at 0.91% and net NPA at 0.20%. The management emphasized the proactive recovery strategies that have positively impacted credit costs, which were noted at a negative 10 basis points.

On the expansion front, 36 new branches were opened, with 13 outside Tamil Nadu, reflecting a strategic move to increase market presence. The bank expects to maintain a conservative risk profile while pushing into new regions, particularly focusing on nearby states like Kerala, Karnataka, and Maharashtra.

In summary, key metrics presented include:

• Total business growth: 14.28%
• Deposits growth: 12.53%
• CASA growth: 14.94%
• Advances growth: 16.30%
• NIM: 4.04%
• ROA: 1.97%
• ROE: 14.22%
• Gross NPA: 0.91%
• Net NPA: 0.20%

Management expressed confidence that Q4 results would be even stronger, supporting the bank's growth ambitions and operational strategies.

1. Question: Looking ahead, as the Bank looks to grow beyond its traditional stronghold while maintaining its conservative DNA, how does management decide where to push growth versus where to stay cautious?

   Answer: We monitor customer behavior and portfolio quality closely. For instance, our substantial gold loan portfolio, which has currently grown over 60%, is a key area where we manage risk meticulously by monitoring loan-to-value ratios daily. Coupled with a focus on the MSME sector, our proactive initiatives, such as establishing credit management centers, guide our growth decisions while ensuring risk is well-controlled.

2. Question: From a financial management point of view, beyond reported NIMs and cost ratios, what internal indicators do you track closely?

   Answer: We manage liquidity through a robust ALCO management system, monitoring it on a 30-day basis. I track liquidity inflows and outflows every two hours, ensuring our positions stay healthy. For NIMs, we have strong MIS in place, allowing us to monitor yields on advances and costs of deposits daily. This meticulous approach helps guide our strategy and maintain profitability levels.

3. Question: What impact do you foresee from the legal circumstances surrounding the shareholder case, and what are the best and worst-case scenarios for the Bank?

   Answer: The ongoing shareholder case has minimal operational impact on the Bank. The primary concern is a show cause notice for Rs. 1,037 crores related to a bonus issue under FEMA regulations. However, legal opinion suggests the potential financial impact from this matter is only Rs. 2 lakhs, given that no money was transferred. Thus, our worst-case scenario approximates minimal financial repercussion.

4. Question: What is the Bank's growth strategy for expanding outside Tamil Nadu?

   Answer: We've opened 36 branches recently, with 13 outside Tamil Nadu, aiming to increase this share to 35% in five years. Focus states include Kerala, Karnataka, Maharashtra, Gujarat, and Tier 2 Telugu states. The strategy overall leans towards gradually increasing our footprint outside Tamil Nadu while maintaining solid growth in those regions.

5. Question: What is the outlook for your gold loan segment?

   Answer: Currently, our gold loans constitute about 45% of our portfolio. We plan to continue growing this segment while managing it below 50% to stay aligned with regulatory caps. The strategy accounts for demand fluctuations; hence, we also emphasize expanding our MSME and retail segments for a balanced portfolio, which should help maintain overall advance growth around 16-17% in the coming fiscal years.

6. Question: What is the future growth expectation for the MSME segment?

   Answer: We anticipate a notable improvement in MSME growth next year, driven by a recently implemented Loan Management System and enhanced credit management processes. While we expect to close this year with around 12% growth in MSME, we foresee that growth rising significantly in FY '27, supported by strong structural changes we've implemented recently.

7. Question: Can you clarify the mix in your retail loans excluding gold loans?

   Answer: Currently, retail loans excluding gold are growing slowly, primarily remaining in single digits. However, we aim to enhance our retail portfolio by refocusing efforts on products such as housing and car loans while leveraging our existing customer base for cross-selling opportunities in the future.

8. Question: What is the average loan-to-value ratio for your gold loans, and how do you manage that?

   Answer: The average loan-to-value (LTV) ratio for our gold loans is 54%, with an initial sourcing LTV of around 73%. We closely monitor commodity risk and maintain rigorous internal LTV caps to ensure responsible lending practices and protect the quality of the gold loan portfolio.

9. Question: Could you provide the recovery numbers from the return of accounts in interest income for this quarter versus previous performances?

   Answer: For the last nine months, we've seen recovery from return accounts total Rs. 8.6 crores, compared to Rs. 58.18 crores for the same period last year. This year's recovery indicates improved performance, signaling effective recovery strategies.

10. Question: Based on recent changes, how do you foresee the asset quality and credit costs evolving over the next few years?

Answer: I foresee our asset quality remaining strong, with GNPA expected below 1.25% in FY '27. Credit costs are projected to remain below 40 basis points. Although an uptick in NPAs may occur with growth in the MSME space, our objectives remain focused on stringent credit appraisal processes to control stress effectively.