Tamilnad Mercantile Bank (TMB) announces an ambitious target of 15-18% growth in its gross advances for the financial year 2026. This growth will be primarily driven by strong performance in the retail, agriculture, and MSME (RAM) sectors, with a heightened focus on expanding its gold loan portfolio. The bank’s MD & CEO, Salee S Nair, highlighted the verticalization of the asset side into four key segments – MSME, gold loans, retail (housing and car loans), and trade finance – each with specific targets and dedicated resources.
In the recently concluded FY25, TMB achieved its highest ever net profit of ₹1,183 crore, alongside a reduction in gross non-performing assets (GNPA) to a ten-year low of 1.25%. The total business of the bank grew by 9.58% year-on-year to ₹98,055 crore, with the RAM portfolio constituting 93% of the total advances. Gold loans emerged as a significant growth driver, reaching ₹18,000 crore in FY25 from approximately ₹14,000 crore in the previous year. The bank maintains a comfortable loan-to-value ratio of 66% on its gold loans, well below the regulatory limit.
While the net interest margin (NIM) moderated slightly to 4.07% in FY25 due to increased deposit costs, TMB anticipates a stable NIM in the range of 3.80-3.90% for FY26. Deposits grew by 8.43% year-on-year to ₹53,689 crore, with the CASA ratio at 26.44%. The bank aims to improve its CASA ratio to 29-30% in the long run through its dedicated Transaction Business Group. Furthermore, TMB expects its cost of funds to decrease to 5.8-5.9% in FY26, factoring in potential interest rate cuts.
Key Insights:
- Strong Focus on RAM and Gold Loans: TMB is strategically targeting high-growth potential sectors like retail, agriculture, MSME, and gold loans to achieve its ambitious loan growth target.
- Improved Asset Quality: The significant reduction in GNPA to a decade low indicates improved lending practices and recovery efforts, which bodes well for future profitability.
- Emphasis on Low-Cost Deposits: The establishment of a dedicated Transaction Business Group signals the bank’s intent to improve its CASA ratio, which will help lower the cost of funds and support profitability.
- Stable NIM Expectation: Despite a slight dip in FY25, the bank projects a stable NIM for FY26, suggesting confidence in its ability to manage interest income and expenses effectively.
- Digital Expansion and Branch Network Growth: TMB is actively expanding its reach through new branch openings across India and focusing on digital transformation to enhance customer experience and operational efficiency.
Investment Implications:
The growth guidance of 15-18% for FY26 suggests a positive outlook for Tamilnad Mercantile Bank. The focus on RAM and gold loans, coupled with improving asset quality, can lead to higher profitability. Investors should note the bank’s efforts to improve its CASA ratio, which can positively impact its bottom line. The stable NIM guidance provides further comfort. The bank’s ongoing expansion through new branches and digital initiatives also indicates a long-term growth strategy.
