Summary
Tamilnad Mercantile Bank Limited - Q3 FY 2025-26 Earnings Call Summary Wednesday, February 04, 2026, 4:00 PM
Event Participants
Executives 3 Salee S Nair (MD & CEO), Sanjoy Kumar Goel (CFO), Vincent M D (Executive Director)
Analysts 8 Aravind Ravichandran, Darshan Deora, Digant Haria, Harsh Shah, Harshit Dewani, Parth Gutka, Rohan Nelson, Sonal Minhas, Sucrit Patil
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Business | ₹1,06,975 crores | +14.28% YoY; Beat guidance of 12.40% due to accelerating growth momentum. |
| Total Deposits | ₹56,707 crores | +12.53% YoY; Driven by strong retail focus and branch expansion. |
| CASA Ratio | 27.95% | +59 bps YoY; Recovered 155 bps from FY25 lows following new transaction banking initiatives. |
| Gross Advances | ₹50,268 crores | +16.30% YoY; Strong performance in RAM (Retail, Agri, MSME) which grew 18.29% YoY. |
| Net Interest Margin (NIM) | 4.04% | +19 bps YoY; Higher gold loan yields and lower cost of deposits (5.83%) supported margins. |
| Net Profit (PAT) | ₹341.50 crores | +13.74% YoY; Highest ever quarterly profit recorded by the bank. |
| GNPA | 0.91% | -41 bps YoY; Maintained superior asset quality with strict appraisal standards. |
| NNPA | 0.20% | -42 bps YoY; Reflects robust recovery and high provisioning standards. |
| Provision Coverage Ratio | 78.35% | +928 bps YoY; On-book PCR significantly exceeds RBI’s 70% nudge. |
| Cost-to-Income Ratio | 44.40% | -191 bps YoY; Controlled operating expenses despite ongoing IT investments. |
| ROA | 1.97% | +16 bps YoY; Delivered sector-leading profitability for the quarter. |
| Capital Adequacy (CRAR) | 28.59% | Robust capital position to support future organic growth without immediate dilution. |
Geographic & Segment Commentary
- MSME: Segment turned around with 6.74% QoQ growth after a sluggish Q1; management targets 12% growth for full FY26. Focus remains on secured lending with a shift toward centralized processing via Credit Management Centers (CMCs).
- Gold Loans: Represents ~45% of total advances (Agri Gold: ₹16,599 cr; Retail Gold: ₹6,711 cr). Management has capped gold loan exposure at 50% of the book to mitigate commodity risk, maintaining an average portfolio LTV of 54%.
- Geographic Expansion: Opened 36 branches in 10 months, with 13 outside Tamil Nadu. The bank aims to increase non-Tamil Nadu branch concentration from 26% to over 35% within five years, focusing on Kerala, Karnataka, Maharashtra, and Gujarat.
Company-Specific & Strategic Commentary
- Digital Transformation: Invested ₹250 crores in IT modernization, including Oracle Fusion and AI-based call centers; 96.96% of transactions are now digital. A revamped internet banking platform is scheduled for launch by mid-February 2026.
- Centralized Processing: Implementing Credit Management Centers (CMCs) to standardize appraisals for all non-gold loans by FY27. This separates sourcing (branches/RMs) from underwriting to improve asset quality and scale MSME/Retail volumes.
- Human Resources: Initiated hiring of 1,043 new staff, including 20 high-performing branch heads for non-TN regions. The bank is partnering with Manipal BFSA Academy to train local talent for regional expansion.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Advances Growth | 16% - 17% for FY26 | Upwardly revised from 14-15% based on MSME recovery and RAM momentum. |
| CASA Growth | 15%+ for FY26 | Driven by Relationship Managers and Transaction Business Group initiatives. |
| NIM | 3.90% - 3.95% for FY26 | Expected to sustain near 3.80-3.95% range depending on RBI repo rate trajectory. |
| Return on Assets (ROA) | 1.85% - 1.95% (FY27) | Management targets sustaining high profitability through productivity gains from IT. |
| Credit Cost | <15 bps for FY27 | Expected to remain low due to high gold loan mix and efficient recovery. |
Risks & Constraints
| Risk | Context |
|---|---|
| Regulatory Litigation | The ED issued a ₹1,037 crore show-cause notice regarding a legacy bonus issue; however, legal counsel estimates actual financial impact at only ₹2 lakhs. |
| Concentration Risk | Gold loans comprise 45% of the book; a sharp correction in gold prices could slow growth, though low LTV (54%) provides a cushion against credit loss. |
| Geographic Concentration | High dependence on Tamil Nadu; successful replication of the “relationship banking” model in new geographies is critical for long-term growth. |
Q&A Highlights
Asset Quality & Gold Loans
- Question: What is the LTV at sourcing and the overall portfolio? (Parth Gutka)
- Answer: Sourcing LTV is 73%, but market moves are not fully factored in program rates. Average portfolio LTV is 54% (Salee S Nair).
- Question: Is there a regulatory cap on gold loan concentration? (Parth Gutka)
- Answer: No regulatory cap, but the Board has set an internal prudential cap of 50% (Salee S Nair).
Strategic Growth
- Question: How does the bank maintain MSME quality outside its home state? (Sonal Minhas)
- Answer: We hire local branch heads and “local” probationers from academies to ensure market connectivity, while centralizing appraisals at CMCs to maintain standard quality (Salee S Nair).
- Question: What is the growth outlook for MSME after recent system changes? (Vinith Jain)
- Answer: We arrested de-growth from Q1; Q4 will be strong, and FY27 will see “high teens” growth as the Loan Management System (LMS) is fully utilized (Salee S Nair).
Regulatory & Financials
- Question: What is the impact of the ED show-cause notice of ₹1,037 crores? (Harshit Dewani)
- Answer: It relates to a FEMA technicality on a bonus issue where no money changed hands. Legal opinion confirms the maximum penalty is ₹2 lakhs, which is fully provided for (Salee S Nair).
- Question: How will the bank handle Expected Credit Loss (ECL) provisions? (Salee S Nair)
- Answer: Current impact is estimated at ₹264 crores. We have ₹250 crores in contingency provisions, allowing us to absorb the hit immediately if required (Salee S Nair).
Key Takeaway
Tamilnad Mercantile Bank delivered a record-breaking Q3 FY26, characterized by its highest-ever quarterly net profit of ₹341.50 crores and a superior ROA of 1.97%. The bank successfully arrested earlier MSME de-growth, achieving 6.74% QoQ expansion in the segment while maintaining a sector-leading NNPA of 0.20%. Strategic focus has shifted toward geographic diversification outside Tamil Nadu and the implementation of a “hub-and-spoke” credit model via Centralized Management Centers. Management upwardly revised its FY26 advances growth guidance to 16-17%, supported by a robust 28.59% CRAR. While gold loan concentration remains high at 45%, the bank’s low LTV and internal 50% cap mitigate potential commodity volatility. TMB appears well-positioned to transition from its foundational “transformation year” in FY26 to a high-growth phase in FY27, leveraging significant IT investments and a recovering CASA franchise.
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