Tamilnad Mercantile Bank Limited (TMB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tamilnad Mercantile Bank Limited Q4 and FY '24 Earnings Conference Call. [Operator Instructions] This conference call may contain forward-looking statements, which are based on the beliefs, opinions and expectations of the bank as on the date of this call. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. S. Krishnan, MD and CEO from Tamilnad Mercantile Bank. Thank you, and over to you, sir.

Thank you. Good evening to one and all. It's a great pleasure for me to be again interacting with you with the results of the bank for the Q4 and also for the financial year ended March 2024. The results have been approved by the Board just about a couple of hours back. And the detailed presentation has been uploaded on the site of both the stock exchanges and also on the website of the bank. I'm sure that my friends might have definitely gone through, but still at the cost of repetition, I will give you a brief of the performance in 2024 for the ready information of the participants. The bank has registered highest ever profit of INR 1,072 crores in '23/'24. I would like to recollect that it was '22/'23 when the bank registered a 4-digit number. And this time, we have exceeded that, we have gone to INR 1,072 crores. '23/'24 also marks a lot of important milestone for the bank. It is the highest ever interest income and also the highest ever net interest income. The bank has crossed savings bank portfolio of INR 10,000 crore in '23/'24. So these are some of the very prime highlights, which I have to say. And I will also touch upon other points like when I talk on the bottom line, I should also talk of the asset quality of the bank. The gross NPA is at 1.44% as on 31st of March '2024, against 1.69% just 3 months before that is as on 31st of December '2023. The net NPA was 0.85% in March '24, which was 0.98% in December '23. The other aspect of this, when I talk of the NPA, I should also touch upon the SMA, which is a plausible case for future. The SMA was 3.97% as on March 2024 against 6.51% a year back that is March 2023. The stressed assets ratio has also come down from 3.18% a year back to 2.7%. In the advances, I always say that the bank is always focusing on the RAM segment. The RAM segment of the advances has increased from 87% to 91% as on March 2024, 400 bps increase. When I touch upon the shareholders' value, the net worth has increased from INR 6,928 crores to INR 7,921 crores. The book value is INR 500.23 from INR 437.53 a year back. If I look into the EPS, the EPS, I can say, almost flat or marginally declined is INR 67.7 from INR 68.06, but at this juncture, I want to tell that last year, the bank came out with IPO in the month of September. So the past 6 months -- 5 to 6 months, the number of shares are lower and for the remaining 5 to 6 months number of shares were more, while here, it is continuously increase in number for the full year. When I talk of the net interest margin, the net interest margin for the Q4 is 4.24% against 4.08% a quarter back. The quarter-wise, the NIM, if you look into Q1 of '23/'24, the NIM was 4%; Q2 was 4.1%; Q3 was 4.08, that is almost flat and Q4, it has gone to 4.24%. If I look the year as a whole, the NIM was 4.46% last year, which has come down to 4.11%. I'd like to again point that we said NIM of 4% and above will be maintained basically because of the tightness in the money. The cost of deposit has gone up in the industry -- entire industry during '23/'24 and which had the impact for the bank also. However, if you look into quarter wise, the quarter-wise each quarter, the NIM is in the increasing front. And Q4, we could reach 4.24%. That is what I have to say. As far as the capital adequacy ratio is concerned, the CRAR is very, very comfortable with 29.37% as of March '24 with CET-1 alone of 27.97% against 26.26% CRAR and CET-1 of 24.61% a year back. The slippage ratio is 1.36% for the year. And for the quarter, if I look into the slippage ratio is 0.16%, which is the lowest in the 4 quarters of the previous year. The bank could show a good recovery. It could arrest the slippage in Q4. And thus, we could be able to maintain the asset quality. And as I was telling that more particularly the SMAs, which are -- which can be called as [ stressed one ], though it does not account for stressed assets ratio. But basically, they are the one, which will indicate the stress, that has come down substantially from 6 point percentage to 3 point. So I will stop here for the -- because of the paucity of time because my friends and I have already gone through the entire this one. I also have to share with you that the Board of the Bank has recommended a dividend of 100%, that is INR 10 for your INR 10 share has been recommended and that will be. The other point, which I have to touch upon is the provision for the salary arrears. Basically, we are not part of the IBA settlement. We'll have our own settlement with our own employees and the officer's association. The association has given the charter of demand only in the month of April, but as a good prudence, we have made a provision. During Q4 alone, we have made a provision of INR 28 crores. And totally, today, I have a provision towards the salary plausible increase to the extent of around INR 84 crore. Out of INR 85 crores (sic) [ INR 84 crores ] INR 69 crores is made during this year and INR 15 crores ever since I took charge, I have been making a small provision, INR 15 crore was made in the last year. And this year, we had made INR 69 crore. So that is another reason, which needs to be factored when we look into the profitability. And one more I can say that there was an account, which slipped to NPA. And -- but basically, they could have classified it with the NPA in the normal IRAC norms, but we decided to classify it as a loss asset though we have the security. We are also -- the recovery is also visible. Maybe within this month itself, it may come, but still we decided to make it as a loss asset. And we have provided fully that, again, INR 14 crore hit was there during this quarter. So these are some of the points which I thought I can tell my friends. And I leave the forum open for question and answers because of the paucity of time. I know the value of time of my friends who are linked -- joined here . Thank you very much.

[Operator Instructions] The first question is from the line of Laxminarayanan from Tunga Investments.

A couple of questions. First, in terms of an account that got into NPA in Q2, I think, just wanted to understand what is the status of that, how we are progressing. That will be very helpful.

Okay. As far as that is concerned, the recovery measures are in full swing. We could -- as I said, that we are in full swing of the recovery. We could recover around INR 10.7 crores in that by -- in that account. The other recovery measures including the SARFAESI and also the legal measures are in this one. So we expect that the recovery will come in the coming year.

Got it, got it, got it. Okay, because there is a fresh addition of around INR 309 crores that happened in Q2, correct? So from that point of view, I mean, how much of that INR 309 crore you think is -- will be recovered in the next 1 year?

If you look into my recovery against the Q2 of -- there was a slippage of INR 309 crores as you observed. But if you look into my recovery and upgradation in Q3 and Q4, it is around INR 150 crores, totally, both the quarters put together it would be around INR 150 crores. That is what it is. And it doesn't mean that only that INR 300 crores recovery is a total recovery I'm talking about. So each and every account we are targeting. We are having the, so that we will be able to recover.

Got it. Sir, the INR 10 crores which you pointed out, is it pertaining to that INR 309 crore addition?

One of the big accounts of INR 309 crores.

Okay. Okay. Okay. The INR 309 crores comprise how many accounts, sir?

I have to -- number of accounts of INR 309 crores is June quarter -- September quarter, we will give you.

Okay. And I just wanted -- because I remember that there is 1 account of more than INR 100 crores. I think you mentioned in the Q2 call. So I just wanted to understand from that point of view, how much things have...

That would be I said around INR 10.7 crores. It is around [ INR 165 crores ] that account.

Got it, got it, got it. Another question is that, how do you rate the performance in terms of the asset growth for the bank? I mean it is -- it seems to be a little underwhelming to what the bank has always been doing and also underwhelming when compared to the industry growth of the banks that have actually reported the other provisional numbers. What is holding the bank from growing at least at the credit growth of the economy?

Sir, I should say that '23/'24, you are aware that the bank took a lot of transformational process. The transformational process are almost getting completed, particularly on the credit side. So when any institution is in a transformation mode, there will be a lead time to stabilize and to take off. So as far as the credit is concerned that we established MSME hubs today against 12 regions what we have. I have established MSME hubs almost in 9 centers or so. We have done -- the remaining 2, 3 centers will be completed in the first month or -- and in the second month of this Q1 that will be completed. These MSME hubs have started yielding the result because we have posted relationship managers, who will be able to contact the -- identify the potential customers, go and have a talk with them, source the application, and there will be a centralized processing center who are posted with specialized people, which will ensure my underwriting standard. So these are some of the steps, which was put in place in '23/'24, which is getting matured. I could see that the performance is improving. So we expect that -- in this current year, we expect that it will improve. And if you look into the RAM segment, the growth has gone up year-on-year, the RAM has grown by about 11.37%. The total growth may be less, but RAM alone has gone 11.37%. That indicates that we have consciously released in the others or corporate. Otherwise, the growth is 11.37% in RAM alone.

Got it. Sir, do you maintain the -- I mean, does the bank maintain, what do you call, an aspiration of 12% to 15% growth in terms of assets for the current year, or you want to bring it down to somewhere between 6% to 10%?

No, no, no. We had the aspiration of around 15%. In fact, my Board will be meeting shortly, where we will be having a strategy meeting. Then I can come and give the guidance -- detailed guidance to The Street. But as of now, I can share that we have aspiration of around 15%.

And from a top 20 account point of view, what percentage of your total advances is it the top 20 accounts?

1 minute, sir. Sir, I will give during this itself while we take the other questions.

Okay. Just one last question, sir, because from a branch opening point of view, last year, we started with a number and then we ended at a particular number in terms of new branch openings. How do you intend to grow for the next 1 year, what kind of branch growth you expect? And when it will come, whether it will be front-loaded in the first 2 quarters or it is going to be coming in the last 2 quarters?

See, last year, we opened around 22 branches totally. And this year, we expect that it will be in the first half itself. In fact, I should say that 4 branches we opened today. We opened 4 branches today itself. So we already the -- while there was not -- we were not able to [indiscernible]. There were issues on completion of the premises, the furnishing and other things. So there was a little delay. That has only made that we could not complete that. But those things will now come where I'll be able to have in the first half itself. As I said that we will be going to the Board with the strategy, but I can say that by and large, we will be opening around 50 branches.

[Operator Instructions] The next question is from the line of Jefferson S, who's an individual investor.

Pardon, what is your name?

My name is Jefferson.

Yes.

So actually my question was on the part of the growth, but I think it was answered. But just I want to make sure what do you mean by transformation process? You mentioned that the bank was going through a transformation process, right? So can you give a brief -- I just want to understand what does it mean.

No, your bank has took up a business process reengineering project to begin with on the MSME credit. So that was taken up last year. Then that was taken up the entire process now we have overhauled, I should say. It is as good as having a separate vertical, though I cannot call it as a vertical because we have a mixed one. We have created an independent hub almost in all the areas. I have 12 regional offices spread across the country. Against the 12, at 9 centers we have created the MSME hubs. And these MSME hubs are equipped with well-trained credit professionals. We will be able to process quickly and have a good underwriting standard. Secondly, we have also posted and we are also in the process of recruiting a lot of people as relationship managers. The whole idea is going forward each officer will be having a bucket of customers who will be relationship officers for those customers who will be looking into the need of those customers. These relationship officers, the main job is they identify, they go and scout, bring the customers and as well as giving the lead, I can say, but it is not only [ ending ] with the lead, they also ensure that their requirements at the regular periodical intervals are being looked into. So I have a relationship officer, which has been put in place as a part of the transformation. We also have plans of putting in place the feet-on-street. That is exclusively for the lead generation. So the feet-on-street will be put in place during the current year. And then we also have got the approval for the co-lending. We have not entered into the co-lending. That is also a part of the transformation. The co-lending will be introduced during the current year. As a part of the transformation, we have also introduced new products -- few products in the MSME sector maybe for the [ GST ]. We have the easy -- MSME Easy Credit. We have put in place a Mini LAP. All these are part of the transformation process. So these are now stabilizing. I expect that now the '24/'25 will be a good year with this transformation, which we have put in place. Last but not the least, the digitalization. The digitalization is in full swing. To begin with what we have done is, we have now put in place, Do It Yourself. The Do It Yourself is nothing but the customer will be able to understand, will be able to grow by giving minimum information in my website as to how much he will be eligible. It's a kind of in-principle, I can say. And then the whole idea is that -- this is the beginning of the journey. The whole idea is to have end-to-end digitalization that is still the account -- the loan is sanctioned and amount is credited including the documentation, we want to have the digital journey for which we have entered into MOU with 2 people, 1 Jocata and another is SysArc. Different products are being done by them. And I hope that will also be taking a shape during this current year.

And one more thing. You mentioned that we can expect it to stabilize around FY '25, right? So when it stabilizes, what can be the ideal growth rate for our bank going forward?

See. I expect that the growth should be around 15% during '24/'25, that is what I expect. But as I was telling that the guidance will be given to The Street once my strategy reports are cleared by the Board, which I will be taking to the Board may be very shortly. And then I will give a clear guidance. But I expect that the growth will be around 15%.

The next question is from the line of Prabal from Ambit Capital.

Am I audible?

Little disturbance is there. Can you be a little loud?

Prabal, if you're on handsfree, request you to use the handset, your voice is muffled actually.

Is it better?

Yes, much better, please go ahead.

Go ahead.

Sir, my first question was, recently we had applied to RBI for the approval of the position of MD and CEO and RBI sort of rejected all the C names. So what happened there and what's the update there?

No. What happened is they have said that they have not found suitable. So the bank has already again started the process. The social committee is [indiscernible]. The Nomination and Remuneration Committee of the Board met and the process has been started. Even the public advertisement has been given inviting the applications. So the process will be carried out and again the bank will be submitting it.

And any particular reasons why they were not found suitable?

No information with them. I have no idea.

These were the internal candidates or the external candidates?

They were external candidates.

Sir, my second question is on cost of funds. So they have seen a decline of 10 basis points sequentially, so what explains this?

The cost of funds have gone up because the cost of deposits have increased. See, in the last year the entire industry was facing a very tight money position, the cost was zooming for every bank. So that is why for us also the cost of deposit went up from 4.68 to 5.74. That is the main reason why the cost of funds have also gone up.

No, on sequential basis, it declined 10 basis points versus for the sector...

Yes, we are -- that is what I was telling when I was giving the brief. In the opening remarks, I was telling that if I talk on the quarter, the quarter-wise, it is good because Q4, I'm able to contain consciously, what we did was that consciously, we have not gone against high cost deposits because my position is comfortable. I have excess SLR. And if need be I can resort to the borrowings, which are low cost for me. My CD ratio was around 80% last year, that is March '24. With that, I was able to -- the cost of that -- the cost of deposit could be contained. The cost of deposits has come down by about 12 bps from 5.88 to 5.76. So going forward, I expect that it will further come down. If I look into the cost of funds for the quarter Q4, it has come down from 5.9 to 5.79.

And sir, just last question. So since we are in the transformation journey right now on the asset side, do you see a risk of our franchise weakening on the deposit side because obviously, you are not trying to mobilize retail deposits, so some customers might leave the bank and go to some other banks, which are offering better rates and that might potentially be the risk for us in the medium term?

I will answer that. In fact, my retail deposits have gone up. My retail deposits have gone up. If I look into the quarter-wise, my retail term deposits, it is in the process -- has increased in the last year by about 3.33%, in the 5 years CAGR is around 5%, 4.18%. So the retail deposits is increasing. As far as the rate of interest and migration of the customers to other bank is concerned, the ALCO of the bank meets regularly, factors of market requirement, and I have to share with you that keeping that in mind, the bank has recently come out with a new scheme of 444 days -- TMB 400 days with interest of 8%. So we are seized of the market conditions and the ALCO of the bank is very vibrant and the factors all these things. And as I said, the retail term deposits has gone up. If I have to see the percentage of retail term deposits as on March '24 is 83%, which has gone up from 82% in the last year. So 100 bps increase in retail term deposits alone. That means consequently the percentage of the bulk deposit has come down.

The next question is from the line of Arvind R from Sundaram Alternates.

Quarter-on-quarter, the bulk deposits have grown faster. Any particular reason for it like from INR 4,300 crores to close to INR 6,000 crores? That's my first question. And I know like -- and similarly, on the deposits, retail TD growth has been very tepid whereas our CASA growth has been healthy any -- what's our view in retail term deposits in the next 2 years or 3 years, these 2 on deposits. And retail TD growth how much more we have to provide on this employee increments? You were talking about INR 84 crore till now, how much more we might have to provide? And as you mentioned on advances, RAM is growing at -- RAM segment is growing at 11 percentage that I understand, but primary part of the growth is driven by Agri loans. Why the MSME growth has been very tepid? And like we are expecting this segment to come back by now continuously, this segment is not doing as well as what Agri segment is able to do. So I want to understand these things, sir.

As far as the first question about the bulk deposit is concerned, bulk deposits we take for a short period where the cost is beneficial to me. And if I look into the bulk deposit a year back, it March '23, it was INR 6,021 crores and it has marginally come down INR 5,896 crores (sic) [ INR 5,897 ] in March '23 (sic) [ March '24 ]. Okay. So it has come down. That is one. As far as the employee cost, the salary arrears is concerned, I can say I was telling in opening remarks that we are not part of the IBA settlement. We have our own settlement and just how they have given the sort of our demand. Now what we have provided is even if IBA increases to be factored -- [indiscernible] factor that is 17%, which we can came out. The bank has fully provided by 17%, INR 84 crores. We actually provided the entire one, that is why this quarter, we decided that let us make further. So we made INR 28 crores this quarter alone, making their total provision to INR 84 crores. So there is nothing left out. And your third question is on RAM segment. The RAM segment has grown by about 11% as you observe, but you are talking -- your are asking about the MSME. The MSME growth per se looks at 2%. But let me also say that there are some customers who are MSME, but they have not availed as the MSME the way we want for whatever reason. So I factor that notionally, the growth from 2%, it goes to 5%. And this time, there was -- I should say that as far as the performance is concerned in MSME, we had reclassified a small amount based on the data purification exercise we are doing. And you know that the GECL when we gave for the COVID, the repayments have started, and my performance is good. The delinquencies are less compared to this one. So the repayments in the closure of the loans alone was around INR 2,000 crores during this '23, '24. So you can understand that. That means I have grown means I have [ overtreated ] that repayment. These repayments, the GECL and the deferment of the repayment during the COVID period, all those we have started and this also has resulted in the reduced growth, these are the reasons. Otherwise the focus is on, as I was telling, that we are now we've almost -- we have completed that transformation. The hubs have started stabilizing, and I expect that the performance is expected to be better one in this year.

Any growth guidance overall? And just one more thing on Agri loans alone. Agri loans, is it predominantly like secured gold loans and kind of loans? Or is it something else also in Agri loans?

Secured gold loan. Secured gold loan.

Okay, okay. Any data you can give on yields and average ticket size in those loans?

I can give you, one minute.

If you can give for other segments too, that would be helpful?

I will give you my average yield in the retail is 9.55 percentage. agriculture is 9.17 percentage, MSME is 11.41 and other category is 10.38 and overall for the yields is 10.15 percentage for the year. That is the where yield is.

Okay. Ticket size, sir?

Average ticket size, Gold alone is around 1 lakh.

[Operator Instructions] The next question is from the line of Saket Kapoor from Kapoor & Company.

When you mentioned about the employee cost impact of INR 84 crores, when we look at your annual increase that translates into a INR 68 crores impact. If you could explain once again how this INR 84 crores got factored, sir?

Sure. See, I said so far for my employee's salary revision, I have built a provision of INR 84 crores. Out of INR 84 crores, I also said that last year, we did about INR 15 crores. And this year, we have done around INR 68 crores to INR 69 crores. That's making that INR 84 crores. I hope that it clarifies your doubt.

Okay. So there is no further provision required even if...

Even if I -- that's why we said, if I take even the IBA settlement, which we have a separate one, even if I factor that this amount of INR 84 crores satisfies that increase up to March '24.

Okay. So there are no areas due also, no provision required, we are up to the mark as for the industry standards. That is what you are...?

No provision is required as per the industry settlement.

Sir, when we look at your other operating expenses, that has also gone up from INR 158 crores to INR 175 crores on a Q-on-Q basis. So what explains this increase, sir?

Just 2 minutes.

And sir, next question, just in continuation, you spoke about the transformation journey for the bank for which I think the building blocks are in place. So if you could give us some more color with this transition phase getting implemented. What are the -- how are the financials going to look or the improvement in financials going to look going ahead in terms of our NIMs and ROA. And also going ahead, what is your -- what is the trajectory for ROA and NIMs for the current financial year?

I told that the detailed guidance on all the parameters will be given to the street, maybe very shortly when I go for the Board meeting and expecting for the strategy meeting. The Board will be deliberating and we'll be able to give, but I can give you rough this one that growth is expected to be around there 15%. And ROA is expected to be around 1.8 to 2, we can say 2. And NIM should be 4 plus. That is what the guidance initially I can give.

Okay. But we have existed ROA at 1.93 for this quarter and -- 1.7 for this quarter, I think so. It should be slightly higher...

No, yes, that's what I'm telling you, this one conservative one. I will be reaching ROA for the year 1.84 against 1.9. So we would be around 2 in the next year.

Okay. And sir, last point...

1.9 to 2. Yes.

Come again sir, I missed your last point.

1.9 to 2 ROA.

1.9 to 2. Okay. And sir, if you could give us some color on how the business pipeline is looking currently? How many -- what is the loan bid pipeline which is expected to crystallize going ahead. And what was our disbursal number or the growth in disbursal for the fourth quarter, sir?

As far as the pipeline is concerned, I was telling you that we basically focus on the small ticket loans, unlike big corporates where I can see and giving a project loan, where I can see that I have in the pipeline of around INR 5,000 crores, INR 6,000 crores like that, these are small loans. But going by the trend, by which I am doing, I expect that the '24, '25, we will have a growth of around 15%. And the focus will continue to be in RAM segment.

[Operator Instructions] The next question is from the line of Sonal Minhas from Prescient Capital Investment Advisors.

This is Sonal. I think there is a huge echo in the background. Am I audible?

Yes, you are audible now.

Okay, sir. So I had two questions, sir. One was regarding the disclosure and I think a few of us here who have been analyzing the company for a while have been struggling with...

Can you repeat? Your voice is breaking.

Sir? am I audible better now? Sir, is my voice better now?

Yes.

Okay. Sir. I was talking about disclosure, sir. There is this head of others in both the loan book as well as the NPA, which brings us the surprises both in terms of provisions and in terms of entry into the GNPA schedule. So I wanted to understand, like if you could be a little bit more granular about like disclosure of this particular head which like if we speak right now, our NPA in this category is around INR 284 crores on a book of INR 3,500 crores. So what are these accounts, whom -- what are the top 5 accounts, nature of the sectors in this particular sector. If you could explain that, maybe not now, maybe later. That's something because this is a lumpy number, and I think more disclosure around this is something which maybe will give some more comfort to the Street because this number has been growing pretty dramatically, if I may just say that way. So over to you for your comments on this one actually.

Yes. These others which you are referring as INR 284 crores, which has gone up from INR 244 crores a year back. Are you referring to that?

Yes sir.

You are referring to that. Okay. See, these are basically the corporates, we can call it as corporates, not MSME. In fact, in Q2, we had a huge slippage. Before you, in the beginning one of our friends were referring to that. I also said that one big account of around INR 160 crores was there. So that is the major addition there. So that is what it is one account is contributing out of that INR 284 crores. INR 165 crores is one account where the recovery measures are on. These are basically some of the manufacturing units, one of the manufacturing units, but not classified under MSME. That is why we have put it as others.

And sir, because this is a growing number. And are there like -- I think the next question which is linked to this one is that, if you could also maybe split the INR 3,500 crore loan book which is attributable to the other corporate category, who are these? Are these stores? Are these manufacturing? some nature of the granularity there so that we understand because a large part of what is the overhang here essentially is in these 2 categories. So if you consider comparing this to other banks who also disclose, if they are turning around and if they are moving from, let's say, category-X to category-Y which is also in your case, you're moving more and more towards RAM. More disclosure around the outstanding book on the others is something which will give us some comfort as to where are we sitting on these because INR 60 crore addition and then I think thereafter additional INR 160 crores between 2 quarters is something which is kind of lumpy to understand.

Yes. We will give such a detailed disclosure in the future.

Sure. So that is one. And if I may -- sorry? Are you saying something, sir?

We have noted your point. We will give much more granular disclosure.

Sure, sir. And sir, the second question is a little subjective. I'm just trying to understand, as you are putting your systems in place, putting your IT infrastructure, putting the manpower, putting everything in place. Like what are the 2, 3 areas where you still think a lot of work is pending in terms of how you are overseeing the bank? And how would you want to fix them in the next year or two basically? So I'm talking like more key risks you see in the business, key risks you see more from an operational perspective in the business. So if you could just effectively cover 2, 3 points, which are key to do's for you and the senior leadership for the next year essentially and thereafter?

See, if you ask me, I will say that where I have to do further on the completion is on the digitalization front. As I said, the work has started. We just started now as a do-it-yourself, which gives an in-principle approval, but we have a long way to go. The whole idea is to have end-to-end digitization. So that is the one which we are taking up. And the second is, as far as the structure is concerned, we have created hubs, and we have also put in place like relationship managers. But we are also in the process of having feet on street for sourcing it. So that will take place this year. So these are a few points which will be on the top of my agenda for the year '24, '25. So that if I do this, probably, I will be able to complete that transformation process and we will be able to have -- reap the fruits of that.

And just to, sir, nudge you little like you're fairly confident about how the lending book in the RAM segment is coming out in terms of how the quality of that book is, in terms of your team's assessment of that book more on a day-to-day basis, do you think those systems are in place and those also need to be a little bit more mature for you to be comfortable around those?

As far as that is concerned, my SMA book, in fact, has behaved very well, as I said, from 6.51 percentage or so, we have come down to 3.97 percentage in the last year. So that clearly indicates that the behavior is very good and regarding the sector-wise, if I look into the MSMEs, I'm able to contain the slippages and my SME book, if I say, sector-wise -- one minute I'll give you the numbers. MSME is 1.67 percentage as of March '24, which was 2.46 percentage a year back. So this clearly indicates that the book is behaving well. We are able to improve the quality of the book. So we will be able to have a better asset quality is what we expect in the coming years.

Next question is from Arvind R. From Sundaram Alternates.

Sir, I would like to know the mix of repo, MCLR and fixed rate loans. That is one question. Will the corporate book continue to degrow? That is another one. And you were mentioning about centralized processing center for MSMEs. Do we have centralized processing center for all the segments? Or like the underwriting is done at the branch level?

Yes, as far as the mix of repo and MCLR is concerned, it is about 50% to 48% like that. I can say 50, 50 percentage.

No fixed rate loans?

It's miniscule, as good as I can say, Nil. Very, very miniscule portion only has of 50, 50 repo and MCLR. Regarding the underwriting, as I said that we are centralizing, centralizing in the sense, [ legalize ]. We have the hub. To begin with, we have started for the MSME. So the MSMEs to begin with, again, any transformation has to be graduated manner so that the process gets implemented successfully. So what we did was to begin with, we said all the new underwriting, new proposals or the enhancement will be done only by the centralized unit. The renewals will be carried out at the branch. Going forward, once this stabilizes, the renewals also will be shifted to the centralized hub. So this will be the first step when we are focusing on the MSME. Subsequently, we have plans to bring such process for other sectors also like retail. So that the underwriting quality can be ensured. This is the idea what we have.

Sure, sir. Will the corporate book continue to degrow?

Corporate book, yes, it is not that it will continue to degrow. We will be very selective, as I have been telling always that the bank is focusing only on that MSME. So it is not that we will be focusing for degrowth. We will be very, very selective. If I have a good one, we will be taking up.

Okay. And on Mini LAP, what would be the ticket size? I mean, like how would it be different from MSME, Mini LAP like in terms of ticket size?

It is basically a LAP, so it's basically a LAP loan. But Mini LAP -- in the LAP, we had a minimum ticket size. So in the Mini LAP, we have reduced that. One minute, I will request my [ GM Credit ] to give Mini LAP [indiscernible].

Mini LAP is generally given to small traders and businessmen. The ticket size is up to INR 25 lakhs. There is a collateral coverage requirement of around 125%. Rate of interest ranges between 9.5% to 11%. It is repayable in 5 years.

Got it sir?

Sorry, sir. It was not very audible for me, sorry. Can you please repeat? Sorry.

Was not very audible?

Yes, yes.

Sir am I audible now?

Yes, yes. Yes, sir. Yes, sir.

Now the Mini LAP is a scheme intended for small traders and businessmen. The ticket size is up to INR 25 lakhs. The security will be in the form of properties, landed properties, having a coverage of 125%. The loans are generally repayable up to 5 years and it is given to all sorts of businessmen, sole proprietorship, partnership or companies, all businessmen we are giving them.

[ Mr. Lakshminarayanan from Tunga ], you had asked about the top 20. It is around INR 3,300 crores, sir.

The next question is from Saket Kapoor from Kapoor & Company.

Yes, sir. I got disconnected, unfortunately, and you were explaining me about -- firstly about the other expenses going up sequentially. So beg your pardon if you have already answered it. For the sake of repetition, if you could just give an understanding on what led to the increase in other operating expenses on a Q-on-Q basis ?

My CFO is here. He will give the clarification.

This is I think on the quarter-on-quarter, the recent December and March, there is an increase of INR 39 crores in the total operating expenses, of which INR 22 crores is towards employee cost. The balance will be around INR 17 crores. That is we had some professional charges and then software license renewal fee, UPI operation charges et cetera. That is it.

Okay, sir. Is it on a recurring basis or a onetime cost? What should we look at going ahead?

Professional charges will be one-time.

License also, it will be a yearly condition that came on the Q4 that is why when you compare the sequential quarter, there is an increase.

Right, sir. Sir, you were explaining about the business pipeline and the growth in the net interest margin that we can expect for the coming years, if you could give us some more color on the same on the disbursable pipeline, the type of the indications you have currently in your hand?

I told that we are having -- we are going to have a strategy meeting of the Board, wherein the budgets will be deliberated by the Board, and it will be approved by them, then I will be able to give you a detailed guidance on each of the parameters for the current year, very shortly we'll be guiding. And definitely, I will be interacting with all of you. It will be my pleasure to interact with you and give the guidance on all the parameters. Pending the same, I said that my growth is expected to be around 15% as far as [indiscernible] is concerned. That is what I said. The other details, I'll be able to share with you once my strategy meeting is over.

Correct, sir. So sir, when is that Board meeting scheduled, so we can keep the questions pending for that time being, and we will be interacting in which way, sir?

I expect in the next month itself.

Okay, and you will be interacting to us?

I will interact with you. Yes, yes, yes.

Okay, sir. And sir, going ahead, sir, how are cost of funds likely to shape up? I think so again, the bond yields have again hardened over the last fortnight. So what would be the impact currently on our treasury book? And also, how are the cost of funds likely to shape going ahead?

Going ahead, I expect that it will be flat. I don't expect that it will have any impact. I expect that cost of funds will be flat. So we have to wait and watch how the bond market behaves. But as of now, my expectation is that we will be having a flat impact.

Right, sir. And last point is on the how are we using technology to -- or the use of AI for early detection of stress in our loan book? And sir, to put things into order, when we look at the market capitalization of our bank or the -- in comparison to the growth seen in other banks, what are the factors that are acting as an impediment or deterrent to the increase in the market cap going ahead? We have been pretty liberal in our different distributions, and you have been interacting to investors on a regular basis. So where are the loopholes? And why are we not able to convince your investors to -- so that we could have a consistent growth also creating shareholder value? What are the impediments to that, sir?

Okay. As far as the technology is concerned, the bank has been taking every steps to take advantage of the technology and also use all the latest tools which are available. Of course, having said, I should also say that we are yet to go into that AI. So that I have to say. But we have been deliberating on various technology advancement. Definitely, this will also be the update for deliberations and discussions in the coming period. As far as the market capitalization is concerned, I should say that we are a very new entrant for the market, about 1-year-old boy for the market. I hope that over the period of time, we will be able to have a good market capitalization share. As our financials are strong, I expect that we will be able to have a good dividend. As you also acknowledge that we always keep in mind of rewarding the investors where dividends are continuously given. So we expect that the market capitalization will grow.

Right, sir. We'll wait for your next Board meeting announcement wherein we would be getting more broader picture on what's the way ahead for the bank, sir. That is more important to give the valuation and to derive to a valuation, we know what path you are going to glide going ahead.

As I said, my growth is expected to be around 15%. That is the first [indiscernible].

That was the last question. I would now like to hand the conference back to Mr. S. Krishnan for closing comments.

My sincere thanks to all my friends who participated in this conference call. And it has always been a pleasure for me to interact with you. And we will be interacting with you all very frequently. Thanks for sparing your variable time and having the interactions and the details whatever we have given. And if anything is required, any one of you can get in touch with my CFO, and we will be glad to give you further details. Once again, thank you very much.

Thank you very much. On behalf of Tamilnad Mercantile Bank, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.