| Q2 FY 2025-26 Earnings Conference Call
Summary : Tamilnad Mercantile Bank reports accelerating growth, strong asset quality, and significant digital investments, anticipating continued momentum and profit expansion.
Management Perspective positive : "The growth finally is coming back is the story I have to say today and it's reflected in the numbers.""We anticipate the growth momentum to continue. And let me also tell you this is not a one-off.""We hope to touch 3.85% plus. And that also will have a lead effect on the ROA.""I'm fairly confident that going forward, this bank will be not be in line, the divergence with the market will be seen that we will certainly grow slightly above the market.""So we face the future with much, much confidence."
Concall Report Analysis & Insights
Business Overview
- Total business grew 11.40%, with deposits up 12.32% year-on-year.
- CASA share increased by 92 basis points in the last two quarters, 58 basis points in Q2.
- Gross NPA reduced to 1.01% and net NPA to 0.26%, with a PCR of 70.36%.
- Operating profit, sanitized for prior year recovery, grew 19.83% year-on-year.
- Opened 22 new branches in H1 FY26, with plans for 30-36 more this year.
Future Growth Prospects
- Anticipates 14-15% credit growth and 12-13% deposit growth for FY26.
- Plans to open 36 new branches, with a changing ratio towards non-Tamil Nadu regions.
- Significant investment of INR250 crores in technology for modernization and digital initiatives.
- Aims to reduce non-Tamil Nadu branches to beyond 35% over the next three years.
- Expects 20% plus/minus 3% profit growth for FY27, a breakout year.
Management Insights
- "The growth finally is coming back is the story I have to say today and it's reflected in the numbers."
- "We anticipate the growth momentum to continue. And let me also tell you this is not a one-off."
- "We hope to touch 3.85% plus [NIM]. And that also will have a lead effect on the ROA."
- "Technology is something that this bank is heavily investing in. This bank is modernizing itself."
- "We are facing the future with much with confidence, and we are happy that the growth is coming back."
Risk Factors
- Potential impact on gold loan growth if gold prices decline in the future.
- Anticipates some credit stress in FY27, with GNPA in 1% range.
- Unseasonal rains not expected to impact asset quality due to gold-backed agri loans.
- U.S. tariff impact on export credit is minimal at 1.05% of total advances.
Good To Know
- Shareholder case has no monetary impact on the company, maximum penalty INR2 lakhs already provisioned.
- 82% of employees shifted from IBA-based pay to CTC model, linking variable pay to operating profit.
- Contingent provision buffer of INR250 crores for COVID will be used for additional ECL requirements.
- Loan Management System (LMS) Phase 1 completed, Phase 2 and 3 to go live in next two quarters.
- Bank is considering how to enhance attractiveness to non-Tamil Nadu regions, possibly rebranding.
Key Drivers
- Accelerating business growth momentum.
- Digital transformation initiatives.
- Expanding branch network.
- Improved asset quality metrics.
Key Analyst Discussions
Competitive Environment
- Bank is expanding footprint by opening 30-36 new branches this year.
- Focus on expanding non-Tamil Nadu branches to 35% over three years.
- Branch selection criteria include existing branch growth and market surveys.
- Recruiting non-Tamil Nadu resources through Manipal tie-up and IBPS route.
Market Trends & Consumer Behavior
- Gold loan growth is also driven by customer base expansion, cushioning price impact.
- Unseasonal rains not impacting agri asset quality due to gold-backed loans.
- U.S. tariff impact on export credit is minimal due to portfolio structure.
Financial Highlights
- Management expects ROA to be maintained around 1.85% going forward.
- NIM is expected to stabilize at 3.85% plus as deposits reprice.
- Credit cost is expected to remain at current low levels for next two quarters.
- Contingency provision of INR250 crores is not part of PCR calculation.
- Employee expenses declined due to shift to CTC model for 82% of staff.
Product Composition
- RAM portfolio is 94.59%, with focus shifting from corporate book.
- Jewel loan portfolio is INR21,000 crores, consumer loans INR4,300 crores.
- Focus on non-jewel loan portfolio for overall credit growth, especially MSME.
- Gold loan LTV is conservative, lowest in the industry at INR7,300 per gram rate.
Strategic Considerations
- INR250 crores IT budget for FY26, split between OpEx and CapEx.
- IT investments include new loan management system, digital engagement hub, revamped website and mobile banking.
- Workflow automation and CX platform implemented to improve productivity.
- Artificial intelligence being explored for human capital management and productivity increases.