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

Ladies and gentlemen, good day, and welcome to the Q4 and FY '25 conference call hosted by Tamilnad Mercantile Bank. This conference call may contain certain forward-looking statements based on the beliefs, opinions and expectation as on date of this call. These statements are not the guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. [Operator Instructions] Today on the call, we have with us the following management representatives: Mr. Salee S. Nair, Managing Director; Mr. Vincent Menachery Devassy, Executive Director; Mr. Sanjay (sic) [ Sanjoy ] Kumar Goel, Chief Financial Officer. I now hand the conference over to Mr. Salee S. Nair, Managing Director from Tamilnad Mercantile Bank. Thank you. And over to you, sir.

Thank you. And thank you also for the introduction. Yes, I think we have come out with our results [indiscernible] as you will see that the results are in line with what we had stated earlier as well. And in fact, some of the highlights, I can go through before getting into the details. This -- in FY '25, we have delivered the highest-ever net profit. If you go back in history, 103 years of the bank's existence, we have been delivering profit year-on-year, except for 6 years, in our journey. So this year is another year where we have delivered a net profit of INR 1,183 crores. And it's a 10%-plus growth year-on-year. It's also -- we've also delivered an operating profit growth of (sic) [ to ] INR 1,746 crores, 18% up from the previous year, and a total income which is 12% up from the previous year at INR 6,142 crores. While these are highest-ever numbers, if you look at the GNPA, they're the lowest in the last 10 years at 1.2% GNPA, which is the lowest in the last 10 years. If I get into some of the details here, the total business has improved 9.58% to INR 98,055 crores. If I get a bit of color on to this, the -- like I mentioned last time that the deposit will double by the year-end. It has, in fact, more than doubled. If you look at -- 3.66% was the deposit growth in FY '24. We really, really underperformed the market. This year, FY '24, the growth -- the green shoots are very, very clearly not that visible. It is taking [ clear roots ]. The number is 8.43% year-on-year. We did INR 53,689 crores. So on the result front, we are getting back into the game. Even in the advances side, we have almost doubled what we did in FY 2024. 6.35% was in FY '24. Now we are just about at 11%. And going forward, we will align ourselves to the market. We are beginning to be aligned to the market. And FY '26, you will see that we are aligned to the market, perhaps even a tad better. So on the [ RAM ], on the -- on our [ focus itself on the ] asset portfolio itself, 93% today stands at RAM, 93%. This is up -- less than 91%. And that's one of the reasons why our stressed levels are that -- the levels that we are going to -- I'm going to state as we go along. The total income, as I said, 11.82% up, the net profit 10.35% up. The book value per share today is at -- as on 31st March is at INR 569. That's a growth of 13.80%. The CRAR, the capital adequacy ratio, 32.71%, that is up 334 basis, so I think one of the best perhaps in the industry. The SMA-to-gross advances. I did mention about the GNPA that we have or the 10-year low. Even the SMA is fairly good at 2.55%. So both, together, stressed level -- SMA and NPA together is just 3.80%. So that's where we stand from a credit quality perspective. The stressed asset ratio that includes the restructured asset is down to 2.01%. The gross NPA, as I said earlier, is down 19 basis to 1.25%. The net NPA is 0.36%, down 49 basis. It's less than half. And the ROA for the year is at 1.88%. And I'm sure we have growth. Of course then the Board of Director yesterday proposed a dividend of 110%, which of course will be subject to the AGM. So when I get into some more details, I did mention about 9.58% growth happening on the total business. And the shareholder [ value and net worth ] is -- has crossed INR 9,000 crores. It was INR 7,921 crores. It is at INR 9,009 crores. The book value per share, I just mentioned, INR 568.90. And earning per share, earning per share is INR 74.68. I think it's also an all-time high. So moving on to some of the parameters. Net interest income is at INR 2,301 crores; the operating profit, I mentioned earlier, INR 1,746 crores. And the PCR, when I look at the PCR, with technical write-off, that is the off-balance-sheet provisioning, it is at 93.86%. But what is important is the PCR on book. It is at 71.02%. In fact, we have more than met the RBI guidelines on this, where RBI was suggesting about 70%. 31st March '25, it is at 71.02%. [ I think that's ] nearly 30% up from the previous year. In FY '24, it was only 41.33%. The PCR on book today is at 71.02%. Return on assets, I mentioned, is at 1.88%. Return on equity is about 14%. Credit cost, 41 basis points. Cost of deposits has moved up in line with the market. It is at 5.91%, up 17 basis from 5.74%. And yield on advances is at 10.22%, so growing a little slower than the deposits. From 10.15%, that is up about 7 basis points. The cost-to-income ratio, the efficiency of the running of the bank, it is a -- is down from 47% the previous year to 42.60% in FY '25, so reduction of cost-to-income ratio. When I move on, I'll give you some color on asset quality. I think the asset quality that we are delivering, as I understand, will be one of the best in the industry. NPA is at 1.25%, net NPA 0.36%. And the slippage ratio is just 13 basis points. It's maintained that. In the last quarter also, it was 13 basis points. In the last quarter of FY '24, it was 16 basis points, so you're seeing some improvement happening there. I think the 13 basis is really a slippage that we are quite proud of. When I also look at gold loan portfolio, I think -- because a significant amount of our portfolio is gold loan. The SMA in the gold loan portfolio is just 0.06%. We have an INR 18,000 [ crores-plus ] gold loan portfolio. The SMA is just 0.06%, and the NPA is 0.01%. Let me also tell you that during -- in FY '25, we auctioned nearly INR 4 crore loan -- gold loans, jewel loans. And we have not yet recovered our principal and interest. We actually returned the INR 1.46 crores back to the borrowers, which means we are giving the adequacy of the margin, evidencing the adequacy of the margin. And there was no portfolio loss on the quality of -- on the gold loan portfolio. And I think that's a portfolio that we are watching very closely from the LTV perspective, from the commodity risk perspective, and monitor virtually on a day-to-day basis. When I look at the movement of NPA, I did mention that we had a 1.25% GNPA. The gross NPA that we have is INR 556 crores. And the -- it is -- let me also tell you it is not because of write-offs. Write-off was just INR 25.59 crores. It has been because of upgrades and cash recovery. In fact, cash recovery was INR 39.16 crores. And write-off -- sorry, and upgradation was about INR 10 crores. So about almost INR 50 crores came from hard work that we have put in. And it has more or less offset the first addition that happened. So the closing is at INR 556 crores. That is down about INR 20 crores from the previous year. And like I said, the GNPA is at 1.25%. NPA provision of INR 363.50 crores takes the net NPA to INR 160 crores. That is 36 basis points. And like I said earlier, the PCR is at 71.02%. Even in the SMA, as the SMA is a story that I would really like to say because it's -- in FY '25, the SMA or the overall SMA portfolio, which was at 3.97%, has come down to 2.55%. So that's a -- and then there's -- not just the NPA. Even on the SMA side, the bank has got it at right, and we will continue maintaining it. And even looking at the sector-wise also: even in retail sector, we have about 1.3% [ of advances. It's only ] retail. Agri, about 0.07%; MSME, 1.08%; and the others at 0.10%, totaling 2.55%. SMA plus NPA. That is in a portfolio [ as well ] 1 day past due, even 1 day regular. The portion of the portfolio that is 1 day regular is 3.80%, which means 96.20% has no irregularity whatsoever in the portfolio. I think that's the kind of quality of portfolio that we are [indiscernible]. Stressed assets. Net -- no. GNPA [indiscernible] [ restructured advances ] is down from 2.70% to 2.01%. I think the presentation has already been uploaded in the -- so I'll skip some of these aspects and come to something relevant for -- from a [indiscernible] perspective, which is the PCR and the collateral coverage, I believe referring to the presentation is Slide #31. We had -- I -- as I mentioned earlier, we have a INR 556 crores of GNPA, that's 1.25%, and INR 363.50 crores of provision. But let me tell you the INR 556 crores of GNPA is [ covered ] by collateral of 104%. This means the provision, when you get the resolve -- when the GNPA gets resolved, we are looking to book this INR 300 crore-plus or INR 350 crore-plus of provision as write-back. That is a substantial future profits sort of [indiscernible] provisions. [indiscernible] on the growth itself [indiscernible], I did mention earlier that we have doubled. Current account and CASA [indiscernible] have been our [indiscernible]. And I will also tell you how we are trying to address that, because we have lost about 300 basis-plus on the CASA [indiscernible], which had a bit of an impact on the NIM, but the initiative that we have taken in the last quarter, I think towards the end at [indiscernible]. And we saw some uptick happening towards the end of last quarter [indiscernible] FY 2025. We have seen a growth [indiscernible]. Deposits overall have grown 8.43%. And I think term deposits did contribute significantly to that with 13.37% of the growth coming from the term deposits. That is more than compensating the CASA loss, but that's something that we will reverse. It is beginning to show some reversal, and I think that we accelerated in the current year. And to reverse the CASA, we have taken a number of initiatives. We have -- I think, last [indiscernible], I did mention that we are setting up a transaction business, the transacting banking group. We have, in fact, set that up in February. And it has -- so that started functioning. There's -- a significant number of our managers have been, I mean, onboarded for this. I think they are in the market. And we are beginning to see some kind of an uptick in the current accounts particularly and the government accounts, and I'm sure that will get accelerated. So that's one of the ways in which CASA is going to be tackled. We also set up the global NRA (sic) [ NRI ] center, which I had stated that in the last call. That also has been set up, again, towards the end of the quarter, last quarter. So we are going to see significant results coming out of that. We have also taken an additional initiative and set up an elite services group to ring-fence high net worth from the liability franchisee customers, deposit customers, [ and hopefully ], to ring-fence them, also to look at building upon the relationships and also ramping up the product per customer. The other piece that we are looking at -- to ramp up for the CASA is we are completely revamping the digital banking. We are bringing in an entirely new Internet banking. We have already signed the deal. And I think, in a couple of quarters, I think, the entire Internet banking space and the services that can be provided through the Internet banking is going to go -- undergo a dramatic change there. And on the advances portfolio, yes, 11% growth, retail at 8.35%. MSME sector is flat, but let me tell you the MS sector -- within the MSME that we are tackling, that -- the above 50 lakhs has shown a decent growth of 12%. So the degrowth is happening in the [ advances ] sector below 50 lakhs. And CD ratio. In Q4, as the deposit momentum picks up, CD ratio has also moderated, which is at 82.64%. There's one more question on the unsecured exposure -- bank's unsecured exposure in last December [ investor ] analyst call. Let me tell you that our total unsecured exposure is at INR 160.60 crores. That is 0.36% of our portfolio is only unsecured. And if I look at the SMA, out of INR 160 crores, INR 7.70 crores, 4.79%, is SMA. And NPA is just 19 basis points. And if I go a little deeper into the unsecured exposure, INR 160.59 crores, which I just said it, KCC contributed INR 15.54 crores. INR 28 crores came from education loans, INR 41 crores from the others. INR 75 crores came from PSU, which as you know that there's a -- it's this -- the quality is always accepted. So INR 160 crores unsecured, so it's not a [indiscernible] unsecured exposure at all. And there was also a question on what is the exposure to MFI. Let me tell you the MFI exposure or total exposure to MFI is just INR 23.90 crores. That is just about 5 basis points of our portfolio. I did mention about -- the last call, investor call, about carving out the credit from some of the branches or refocusing the branches on the deposits, strengthening the deposit franchise. And I think we have already started the pilot. Thoothukudi is -- and our experience have been quite good. We have, I think, pretty much almost completed the business [indiscernible]. The loan origination system and the loan management system have been sourced. I think it will take a couple of quarters before it comes fully on stream. And the [ retracking ] system -- the customer experience and the retracking system have also been sourced and put in place. And so there are a lot of IT initiatives that we have started in December and going to January, February has -- have [indiscernible]. And I think for this to kind of delivering results, I expect another couple of quarters. Meanwhile, I expect this bank to grow, a growth that will be aligned with the market, like I mentioned. Perhaps it does higher than the market. So that is where I -- and yes. Apart from that, we have also taken that human resource -- I did give a color of that earlier, that historically, [indiscernible] has been implemented in FY '25. That has today 89% of the staff [ on the ] CTC, cost to company, method. And we have also implemented a [ corporate ] management system, an automated [indiscernible] management system, which apart from helping an end-to-end HR management also helps us to align the CTC pay, particularly variable pay that the bank [indiscernible]. We are slowly getting the ground force aligned to the profit motives of the bank. So [indiscernible], I think -- and of course, the 26 -- we did open 26 branches. We put up a few branches on hold, looking for perhaps a change in the location, et cetera. And in the current year and, in fact, in the current half year itself, we are looking to open about 50-or-so branches. So that, hopefully, should take our -- this -- the number of branches to beyond 600. Today, it is at 578. So I will take questions [indiscernible], and I will take some questions [ here ].

[Operator Instructions] The first question is from the line of [ Manish Jain ] from Wealthcare Security (sic) [ Wealthcare Securities ].

Sir, what is the advances growth forecast for this year as well as deposit growth forecast for this year -- for the coming year?

In FY '26, we are looking at a combined growth of 13% to 14% because we believe that the initiatives that we have put in place would start taking roots. The first couple of quarters would have a bit of challenge as we get into the change mode, as a lot of initiatives are getting implemented, because of disruption. But in the second half, we expect significant benefits accruing out of it. So overall, for the year, we expect 13% to 14% of growth -- I mean business growth. And within that, deposit would be in the 11% to 12%, 12.5% range. And advances would be anywhere between 15% to 18%.

Okay. And what kind of a guidance is there for NIM, sir?

NIM would moderate a bit, but of course, rate cuts are happening. The NIMs would moderate a bit. When I look at the kind of CASA growth we are looking for with -- particularly in the TBG or the transaction business group in place, we expect the CASA growth to be higher than the overall deposit growth, moderating a bit to some extent the deposit, cost of deposit. But the NIM would be in that 3 -- I would say, in the 3.80% kind of number, 3.80% to 3.90%.

3.8% to 3.9%?

Yes.

Yes. Sir...

And above -- we are trying to defend, yes.

Yes, sir, 3 -- okay, sir, okay. That's nice to hear, sir. And sir, about this cost of deposit and other initiatives, whatever you are talking about. So sir, at present, where are we? In -- like, in the last con call, you told that by the next year, you will be able to give a guidance about all the new initiatives. So at present -- yes.

Yes. I think I did mention some of it already. The CMC that -- well, the carving out of the credits from the branches, we have implemented in one of the regions. That is something that I promised last time. It has already been done in the Thoothukudi region, which is the biggest region for the bank. We have already implemented that. The experience -- along with the implementation or carving out or [indiscernible] the credit processes there, we have put in place a significant resource for the relationship side and onboarding of new customers. That's happening. We have also put in place the LOS and the LMS because CMC would tackle both retail and the MSME and the agri, the entire credit, as I mentioned earlier. So that also has been inked. That is one. And...

Portfolio [indiscernible] portfolio...

And the other aspect is that we have also just about completed the construction of the business rule engine. That is undergoing testing at the moment. I think that will be -- towards the end of the current quarter itself, I believe that would be made available. So that will be [indiscernible] center for it. And with the automation -- significant automation in the appraisal process, we expect the turnaround time to come down sharply and making us a very competitive player in the marketplace. So that's something that -- we expect to get benefit off of that. That's the reason I mentioned earlier that in the advances, we are projecting something higher than what we saw. We got a growth of 11% in the current year -- sorry, in FY '25. We are projecting upwards of 15%. So that's [ actually ] on the advances side. To drive -- to align ourselves to the market, we have also [ actually ] verticalized the bank in the sense that we have created 8 verticals within the bank, each driving a specific business area; and not only driving the business area, also trying to get ourselves aligned within that business area to what is happening in the market, to check into what is happening in the market or create new products, revise existing products, to refine the processors, simplify and improve the productivity. Within the basic -- within that business area, we have also created 8 verticals for each in the asset side and the liability side. So that's the other piece that I didn't mention earlier. That's the -- something that we have put in place with very, very, very clear budgets [indiscernible]. And as I said earlier, 81% of the bank ground force today is on CTC with their variable pay increasingly aligned to the bank's profits.

Yes, sir. Another one question was regarding the advances growth, which you are projecting of 15% to 18%. Sir, I think the norms of reserve bank of -- regarding the gold loans and everything in the recent days and our exposure to the gold-based loans are -- is quite okay, quite good. So that makes you more confident of 15% to 18% growth? And same -- extension to that question: sir, if there is a loan growth of 15% to 18% and a NIM which you are projecting from 3.8% to 3.9% and there is a lot of hidden provisions, sir, we can expect a profit growth of 20%, 22%, 25% possible?

No, no. I don't think on the profit front we are projecting that kind of -- a couple of things that we will be looking at this year. One, of course, is a significant amount of CapEx happening, right? We did spend about INR 155 crores on the IT side last year, but this year, I'm seeing a significant ramp-up of that. In fact, whatever we have contracted already by way of IT assets and automation processes that we are sourcing, I think some of the payments are going to happen this year. And apart from that, some of the branches that we have, the physical branches that we have, we are also looking at how we can orient it towards a modern -- with a modern outlook and a modern ambiance. So some amount of expenditure is going to happen, that. I think we are trying to look -- clean up at least 50 of the branches and reorient these branches that has ESG branches, elite services branches, looking at high-net-worth individuals. So that's going to have -- some kind of a capital expense is going to go there. So I'm -- while I did mention about 14% -- 13% to 14% growth happening, I am not -- I think the profit will possibly be aligned to that. It will not be greater than that. In fact, I have been looking at -- only at a 10% to 12% growth for the -- perhaps closer to 12% for the current year because this is the year when a significant amount of CapEx is happening. But we will ensure that the CIR is at 50% then lower than 50%.

So sir, this will be the last year of this [indiscernible] CapEx, sir?

[indiscernible] we ramp up the quality of the portfolio. Like I said, 3.80% to 3.90%. Some moderation of the NIM also will happen, which will contribute. But the profits certainly will be higher than the gross profit that we have delivered this year. We did deliver 10.35%. FY '26 profit will be higher than that.

Sir -- but this will be our last year of this maximum CapEx we'll get over in this year?

It will be over, yes. Well...

[indiscernible]

We will continue to be investing, but the -- I think they will be fully loaded into the current year. And FY '27 is the year that you have to watch [indiscernible] for.

The next question is from the line of Hitaindra Pradhan from Maximal Capital.

So sorry if I missed this. So you mentioned the cost-to-income would stay a little elevated. Or will it normalize further?

On cost-to-income, in fact, in the current year, we have brought it down. I think it is at 44%, right?

Right, right.

It might move up a little, but as I said, the cost-to-income ratio will be maintained below 50%.

Right, sir. And your, sir, guidance on ROA was around 1.75% earlier. So is it still at that level? Or...

Yes. It will still be at 1.75%, yes. Of course, this year, we -- FY '25, we delivered 1.88%. But there will be some moderation, 1.75% to 1.80%, yes.

And you say your credit cost and slippages have been pretty impressive. So you see it sustaining at that level? Or you see some surprises...

No, no, no. I think we have already factored in the surprises. Let me tell you, in FY '25, the largest NPA that we have, which is almost 30% of the overall NPA book, the GNPA, we have fully provided, okay? And we -- if we can't recoup that in the current year, where there is a possibility, then that will be -- well, that will add to the guidance that I'm saying of 10% to 12% of net profit growth. So I think I don't find much of a surprise happening on the GNPA side. And we did -- we have delivered 1.25% with a 71% PCR. Going forward as well, I think the 1.25% would be defended.

The next question is from the line of M.B. Mahesh from Kotak Securities.

Just a couple of questions. I'm sorry. It's kind of bit late. On the -- just to kind of add onto the previous questions -- question that was asked. In your sense, what is the kind of feedback you seem to be getting from your customers of the situation on the ground, especially with respect to exporters and importers?

Sorry. You had mentioned [indiscernible]...

No, just asking on that -- hello?

[indiscernible] -- yes, yes, go ahead. Go ahead. I can hear you.

Yes. Sorry. I'll just repeat the question here. The question is that, when you look at the situation on the ground and when you ask your business heads of -- about what the feedback is with respect to the implications of your customers on what's happening on the global side, how are you looking at FY '26? And how are you responding to it, sir?

First, at the bank-wise level, I think the trade finance is one area we are really focusing on, [ let's say ]. And then I'll come to the macro a little later. Well, that's something that we are focusing on. And we are also having very -- sorry, trade finance specialists onboarded into the CMC setup. I did mention that to you. You have come a little late, so let me recap for you. We are putting in place credit management centers. We have already done that in Thoothukudi as a pilot. The experience is good. And we are ramping it up to the other regions as well. We have 12 of them. And we are putting in trade finance specialists, ForEx specialists to ramp up this one area we believe, given the kind of clientele that we have, we can really ramp up in terms of fee income, the ForEx side of it and the trade finance side of it. So that's the first part of it. So that's [ only ] part of it. But when I look at what is the changes that are happening across the world, particularly the U.S., the tariffs, et cetera, it has not really impacted our segment as of now. I don't see any kind of significant changes that is happening into the kind of movement in the exports or imports that is passing through our books currently, but we are keeping a watch on that. And we are -- like I said, we have put in -- we are putting in place specialists to specifically look at the movement and the changes that are happening and how we can protect our fee income from it, along with giving guidance to the customers on how they can tackle it.

Okay. Perfect. And second question, sir, in general, have you seen an improvement in pricing for loans, a deterioration in pricing of loans from -- in terms of the competitive intensity from where we are today?

Pricing of loans. Of course, we have already seen 2 rate cuts now already with the -- so that's sort of having an overhang on our pricing per se in the sense from an absolute, I mean, perspective. Consciously also, we are trying to moderate particularly the MSME pricing a little. I did mention that the NIM that we will be looking for is 3.8% to 3.90%, in that range, for the coming year. That also -- and looks at a bit of a pricing moderation for our MSME portfolio. And so the intention is to move into the market and look for new business where pricing would be a challenge. So that is being factored in. Yes, even in the existing books, we have come across obviously challenges. But that is being -- that is already being tackled in the current year, in FY '25. And of course, that will continue to be tackled going forward as well. And I'm confident of protecting the NIM at 3.80% to 3.90% [indiscernible].

[Operator Instructions] The next question is from the line of [ Jegadish Sharma ], an individual investor.

Congratulations for the good set of numbers. I just have one question -- [ sir, if I can ask 2 ] questions. First question is like we have 25 branches in Tamil Nadu. And the rest of the states, we have 1 or 2 or in some states, it's in double digits, [ yes ]. What are the plans we have? Because we have opened these 26 branches during FY '25. What are the plans for FY '26? And are we only concentrating on Tamil Nadu or are we on to some other states? These are my first questions.

We are looking to open 50 branches in the first 2 or 3 quarters itself so that we do get the -- 50 branches in the first 2 or 3 quarters, hopefully, in the first 2 quarters itself. Maybe there could be a spillover but certainly before the end of December. And we are hoping to open half of these branches in potential growth areas outside the state of Tamil Nadu.

Okay, sir. Okay. So what is the full year number?

Full year number would be 50...

[indiscernible]

And half of these, outside the state of Tamil Nadu.

So my second part of the question, what is your goal of, [ first ], Tamil Nadu? Where do you want to have at least 300, 200 branches in next 3 years, 4 years? What are the states you are targeting? That's my question -- second question, kind of...

[ So ] I think, when I look at the profile, with 75% of the branches within the state of Tamil Nadu, going forward, we are trying to drop this down to 60%. That will be a 3-year venture. I think I did mention this in the last call as well.

Yes, yes, yes. So my second question, sir, what about our CEO appointment in the [indiscernible], where are we on that?

Not clear. What is it?

Can you repeat?

CEO appointment.

[indiscernible]?

[ CEO appointment ] -- sorry. What did you say?

His voice is not clear.

The CEO appointment, bank of -- CEO -- MD and CEO appointment, [indiscernible] and CEO appointment.

CEO appointment.

CEO...

We'll take a call at the appropriate time. The bandwidth -- management bandwidth is now strong. And I think that is getting also reflected in the results that we are seeing. It's strong. I think we are -- pretty much all the positions at the executive vice president level is now full. And we will look at [indiscernible] as appropriate.

My final and -- last and final question is whether we are on track to achieve 15% to 18% ROE by FY '26 or '27, sir. And when do you think we will achieve that number, 18% ROE -- 15% to 18%?

[ Benchmark on ] ROE is -- I -- FY '26, I don't anticipate that. I think, FY '26, we will try -- and those -- the number that we looked at in FY '25, which is about 14%, is something that we'll continue, perhaps a little better, for FY '26. But FY '27 will be better. But 18%, I think, would be [ a year later ].

[indiscernible]

Okay, okay. [indiscernible] all of this for FY '26?

Yes. Thank you.

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

Sir, I joined a bit late, so sorry for any repetitive question. But sir, you mentioned in answer to a question that FY '27 will be the year to watch if -- in terms of the profitability growth and for the investing community as a whole. So if you could just allude to us what factors will culminate by -- from 2 years from now. Or what levers will be in play that will result in that year to be a year to reckon for the company, for the bank?

FY '27 is only a year from now, right? We're talking about next year. Why [ is that ] the case? One, of course -- I've also said that we would be largely aligned to the market growth in FY '26 itself. I did mention that we will have a 13% to 14% growth. That is the first part of it. And this is going to happen despite the fact that we anticipate some disruption to the changes that we are bringing in. We have brought in a lot of initiatives both on the HR side and as well as on the technology side. The processes are being automated. There's a whole lot of changes that are being made. As the ground force gets attuned to these changes, we anticipate a bit of disruption that's -- happen. That is why I said that the kind of growth that we would long to see in the current year may happen only in the next year because while the ground force gets acclimatized to the changes and start delivering the productivity that we are envisaging from these changes -- I think, this year, we will see the bank aligning to the market and perhaps going a little better. But next year, I think the full benefits of the initiatives will be made available and we see a significantly higher growth.

Sir -- and for the benefit of your investors, sir, could you outline, what are the disruptive changes that had been put into place? And how are they going to play out in terms of the profitability? And sir, Q-on-Q, we have seen that even though our net interest earned has gone up, but our operating profit was flat. So if you could just comment 2 points. And then I have 2 more questions, please.

Yes, yes. The first [ aspect ] is that we have created very clear 8 verticals in the bank with clear business targets. That's on the asset side and on the liability side. That is the first thing that we have done. And each of them have been given, "Look at the market. Look at the products in the market. Refine the products that we have. Refine the processes that we have in terms of delivery of these products. Automate the process of delivery." I think they have been given very, very specific targets of how to meet the competitions head on. That is one aspect of this. So the verticalization of the bank, it has been brought about from that perspective. Second, as I think I mentioned earlier also in the last few -- 0.5 hour or so about the changes that we are bringing in, the automation that we are bringing in, the kind of credit -- the credit management centers that we brought in to centralize [ a bit ] and benefit from the scales of economics -- economies of scales, rather -- and that's one major change that we have brought in, in the way that we are conducting our operations. We have also brought in transaction business group, the global NRI centers aimed at attracting -- we have significant presence where the NRIs are concentrated and we want to take advantage of that. So that -- we have brought in the global NRI center. We have set up in this month, in the month of April, just about a week back, elite services group, which, of course, will take a bit of time to take roots, to ring-fence our high-net-worth individuals, ramp up their value for the bank in terms of both product offerings and their outstandings in CASA and the term deposits. So that's -- the ESG is something that we have taken root. And as I mentioned, that -- the HR initiatives, we are going in for a major skilling program. We have, in fact, conducted a test across all our HR, human resources, a test conducted to understand the talent. I think that test has been conducted across all the ground force that we have of -- or test was conducted by the minister of banking and finance to understand where that talent lies so that we can appropriately deploy them. That has just been completed. That has been completed. And our redeployment is based on -- significantly takes inputs [ from that as well ]. So HR is -- the HR skilling is a major activity that we are engaged in. As I have said earlier, the wage revision that we have signed, which is historic in nature, is -- now has 81% of the force, the HR force that we have, on the CTC model, where it is aligned to the profit generation. The variable pay, that component is aligned to this profit -- sorry, the profit ambition of the bank. So a lot of initiatives have been taken. And on the IT side and -- significant CapEx is happening. Internet banking has been completely revamped, a significant amount of services to be provided through the Internet banking. That is on. I think we'll see that -- how we can avoid customers coming to the branch and have all the services delivered through other channels or the digital channels. I think that's a major one. I think it will take a couple of quarters. And maybe it will move into the third quarter before we see the benefits of that -- benefits or the changes in that. The automation of the credit appraisal system, as I said earlier, is on. The business rule engine to tackle the low-value accounts, up to INR 50 lakhs, in an automated fashion, decisioning based on the data, that's pretty much completed. It's in the testing phase. LOS, LMS to manage end-to-end credit customers, that is on, that is getting done, take another couple of quarters before it sort of fructify and start delivering profits -- sorry, [ and the business ]. So I think significant -- many, many initiatives have been taken. And I anticipate all this to deliver results going forward, certainly -- partly in the current year and certainly in a substantial manner in FY '27.

Okay. You did alluded to 15% growth. That is what we should envisage in the -- our net profit for this financial year, sir. That is what you are looking forward?

No. [ Today, it's ] 15% growth. I said 10% to 12% [ was guided ] towards the -- in the current year.

In the current year -- no. I think -- well, you also spoke something about our profitability rising by May, implying to increase by 15% for this financial year. That is -- I think I heard you mentioning that also.

I didn't say on that, so...

Okay, okay. So we are looking - yes, yes.

I said the growth -- we anticipate growth, 13% to 14%. And the -- I -- what I did mention is that -- I did mention 10% to 12% in the -- on the net profit because of the CapEx that we will be undertaking as a onetime effort both in the branches and the physical appearance of the branches as well as the digital appearance of the branch, our digital appearance of the bank. So some -- so that is -- do take away. What I did mention was that, on the GNPA front, that we have a particular account with a 30% -- we have 30% of the -- of our current GNPA is on account of a particular account, if it gets resolved in the current year. And it has been fully provided, so that will be [ an add-on for us ]. So that's what I mentioned. I did not mention about 15%.

Okay. And sir, this sector, is it -- I'll just conclude my talk. Which sector the GNPA which you are mentioning, 30% of the delinquency...

[indiscernible]

[indiscernible]

Sir?

I think the [indiscernible] better.

Which segment, sir? Which industry, sir?

[indiscernible]

[indiscernible]

[indiscernible]

[indiscernible]

SME, tech. And then lastly, sir, are we fully funded to kind of fund the growth? Or we would be needing any type of equity infusion or bond issuance to fund the growth for FY '27 and onwards? And secondly, sir, the reserve bank's stance on -- the stand on monetary policy now becoming accommodative and going ahead also going to be -- remain accommodative for the near future and also the abundant liquidity in the system, how do we see that playing out in terms of the profitability, in terms of the NIMs and other factors? Because you have already lowered the NIMs trajectory to 3.8%, I think, for this financial year. Now with liquidity and things improving, how is banks of our size aligned to the current monetary environment in the country?

Yes. First question -- part of your question about additional funds, I think with a CAR, capital adequacy ratio, of 32.71% that is up 334% (sic) [ 334 basis points ] in the year itself. I don't think, in the foreseeable future, we'll be requiring funding from the capital markets. That is one. I think our challenge is to spread these extra funds that we have in terms of growth. I think that's where we'll be focusing on. The growth is where I think our single-minded focus is on currently. And I did mention -- when I mentioned NIM of 3.80% and 3.90%, we have already factored in a possible 50 basis cut.

Yes. That is correct, sir. So I was just trying to understand. And earlier, the NIM improved when we were in an environment where there was a tightening of liquidity. And now we are in an environment where liquidity will be in -- abundant. And the growth from the -- it will be the corporates whose CapEx and all will be driving the growth, which is not in the anvil as of now. So how is the banking system aligned, especially in terms of the small-sized bank of our nature which are specific to a specific geography? So that was my question, sir.

Yes. So that's an advantage that we have. In fact, a large-sized bank like State Bank of India will mirror what is happening in the market much more in a transparent way. But for now, [indiscernible] bank size, I think our focus of influence are greater when we are strong for us to withstand some of these pressures [indiscernible]. On the -- your -- what you mentioned about the liquidity easing, yes, it is easing and -- but see, [indiscernible] it's not felt on the deposit rates. We are looking at deposit -- the rates continuing with the existing -- we are anticipating that the deposit market will continue to be a challenge. We will have to look at how -- the CapEx that is happening; the income tax relief that has happened, how it is going to play out; how the mutual fund of -- the move towards mutual fund in terms of SIP is going to play out; and how the larger industry, in terms of the pricing of the deposits, the regular term deposit, is going to play out when we look at the NIM. To put further color to it, [ from it ], I did mention that we have started the transaction business group from [indiscernible], focused on -- going to focus on the current account space. And the elite services group that I did mention subsequently is going to focus on the SA piece. So CASA is going to be a major focus for us, which we are trying to -- even if the deposit of -- the market becomes a little tight, we would use the CASA as a means of keeping the cost of deposit [indiscernible]. And if the things ease out and if the anticipated liquidity happens, the flow of funds into the banking sector happens, it will be a bonus for us.

Yes. And sir, we as investors hope that, that market will also start valuing the enterprise value also. We are trading much below even 1x book. And taking into account, I think, the -- INR 550, I think, is the book value. Correct me there. It is very -- it is, for investors, waiting time for a period -- for a very, very long period so -- to get adequately rewarded. So we are in the -- still in the wait mode only to reap gains from being -- remaining investors in TMB, sir. That was only my concluding remark, that the wait has been very long for us, yes.

[indiscernible]. And like I said, we are fully aligned to it. I myself, I invested in TMB. We are fully aligned to it. And our -- whatever we are trying to do is to generate the kind of growth -- like I said, from FY '24 to FY '25, the growth has doubled. In deposits, it's more than doubled. And of course, the initiatives that we have taken is yet to bear fruit from that manner. This has just been in terms of our own monitoring of business growth internally that has generated. And once the business initiatives that we have taken starts bearing it, the growth, we anticipate to move up further. And like you said, the wait for a better valuation, I think we will try -- I think it will get -- is going to be over sooner than you think. That's -- the profits will come. And as we go forward that the graph, we anticipate to trend upwards, but it's certainly from both a growth perspective and some profits.

Yes. Hope for further instructions ahead.

See [indiscernible] it is the market that actually give us the valuation. I'm sure the market will understand because market is -- after all, will understand numbers better than us and digest it and give us the value that we deserve.

Ladies and gentlemen, this will be our last question. It's from the line of [ Manish Jain ] from Wealthcare Securities.

Sir, what percentage of our business comes through the digital channels? And where are we compared to other private banks? And what are our future initiatives in this segment, sir?

Through the digital channel, it is, I will say, very close to 0, right?

2% to 3%.

2% to 3%.

For deposits.

For deposits, of course. And the advance side [ is valid ]. See, that -- those are the initiatives that we have taken. On the advances side, I just mentioned we have put in place a business rule engine, where -- which is -- which has just been -- the construction of which has just been completed and is under testing phase, where we intend to use data for decisioning, credit decisioning. I think that you will see starting from, I mean, maybe later part of the quarter or in the second quarter of the calendar year, it will go on stream. So significant -- and particularly low value, the below INR 50 lakhs, I -- we would be significantly using digital means to onboard and also for decisioning purposes, sanctioning purposes of such loans. So I think that, hopefully, could significantly reduce the -- reduce our own operational costs of managing these accounts. So that process is on. I think that's one -- that is where the initiatives that I mentioned is aimed at. I mean it is very, very low. I don't want to really -- nothing worth speaking about. But as we go by, I think the onboarding of customers would be significantly through the digital channel, both on the liability side and on the asset side. In fact, we are -- as I speak, we are completely revamping our onboarding journey on the current account space.

[indiscernible]

We are talking about the business, right, or the transaction?

Yes, both, sir, both.

Transaction...

[indiscernible]

Transaction, as of now, it is more than 90%. We have not rolled out any product like preapproved loans which is available through digital channel. And thereby, the business growth, as MD and CEO has mentioned, is [ around 3% ]. But our customers do use digital channels like Internet banking and other digital forms. And the transactions are -- more than 90% of transactions are happening through digital channels.

Sir -- and business you told, how much, 44%?

[ We are seeing ] roughly 2% to 3%.

That's onboarding of advance customers. Credit customers are largely through legacy means. Our entire initiative is doing that through other means. We have put in place a large relationship manager [ force ]. That's a part -- we are also looking at how we can have it onboarded through various other [indiscernible].

Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to Mr. Nair for closing comments.

It was good to talk to the group, yes. Of course, not been able to see, but the voices, they are very clear. And like I said earlier, the FY '25 has been a year where we have seen -- we have tried to break from the past in terms of the growth in business numbers. We have partly -- or rather, more than that, what I mentioned in the last December result call, that we will look at double the deposit growth. And that has actually happened. We have more than doubled it. I mentioned 8%. We have crossed -- we are at 8.43%. The overall business number is also, I think -- it's a tad below. I accept that it's a tad below the market. It's 9.58%, but FY '26, you will see that it is aligned to the market or perhaps even better than the market. And our stressed quality, the management of our stressed is perhaps as good as the best in the market, 1.25% GNPA, SMA at 2.55%; both combined, 3.80% of -- it's perhaps one of the best in the market. And capital adequacy ratio is very good at 32.71%; PCR, at 71%; and last, finally, delivering a net profit of 10.35%. And we are -- a lot of initiatives have been taken to push up both the business results and the net profit. And I am sure that -- the FY '26 numbers that we will deliver, we are confident that will be significantly -- it will be better than what we have done for FY '25. And that's our endeavor. I think there was -- a significant amount of initiatives have been taken. I did mention about verticalization. I did mention about IT initiatives, and of course, also about how we intend to turn our branches, at least some of them, into -- both in terms of appearance and in terms of orientation, for business growth. So I think we are fairly confident, I think confident in the sense that the initiative that we have taken is beginning to show some growth. The green shoots are very, very clearly evident. And that gives us the confidence that FY '26 is going to be significantly better than FY '25. And if I'm like -- as I said initially, FY '27 is the year that you have to watch out TMB for. So thank you once again for coming and joining us on this call. And I'm sure, any other questions that we have, we can also take it separately as well. Thank you.

Yes. You've covered everything. A couple of points I just wanted to sort of [indiscernible] here. That is in terms of NPA management. We have [ filed and ] [indiscernible] [ primary ] position of INR 1,084 crore in 2021, which was 3.44% of our [ earning ] portfolio. Today, we start at INR 556 crores, which is half of what we were in 2021. And similarly, net NPA, if we will look at it, this year's position is INR 160 crores, which was -- against INR 335 crores [ last ]. This is more than 50% reduction in net NPA. So these 2 points I think the investors should take note of. And thank you very much.

Thank you. On behalf of Tamilnad Mercantile Bank Limited, that conclude this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

Thank you.