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

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call hosted by Tamilnad Mercantile Bank Limited. [Operator Instructions] On the call today, we have the following management representative, Mr. Salee Nair, Managing Director; Mr. Vincent Menachery Devass, Executive Director; Mr. Sanjay Roy Goel, Chief Financial Officer. I now hand over the conference over to Mr. Salee S. Nair, Managing Director from Tamilnad Merchandise Bank. Thank you. And over to you, sir.

Yes, yes. Yes. Thank you. Thank you, Barrie, and good evening to all of you, and welcome to this con call on the results of TMB for FY '27, 1st quarter. And I'll just take you through the highlights and the performance highlights. The quarter 1 of FY '27 has been good quarter for TMB, as you have already seen the presentation that has been uploaded both in our site and the NSE and BSE sites. We have delivered as promised -- we have exceeded the guidance as I promised in the last con call in April. The growth is -- if I look at it, we have delivered first quarter 23% growth -- business growth, total business growth of 23%, which is where the higher than the 8.8%, [indiscernible] delivered in the past. So the highest growth in the last 14 years. It is 7% over the industry growth. And the growth efforts have come back, but the growth has delivered -- helped us deliver strong net interest income. And the net profit, which is the highest ever in the bank, the bank's 15-year history. Credit cost continues to be under control. And for the first time in the history of this bank, we have fully provided for the non-term-based facilities. If you look at the position that we have had for the quarter, a substantial amount is against non-fund-based facilities where we are fully provided. We have provided almost INR 26 crores there. Gross and net NPA percentage has continued to decline. So -- and the capital adequacy is at 32.3%. It's one of the highest in the industry. And what this means for the [indiscernible] ROE, I think the second quarter, when we have crossed 15%, this quarter FY '27 first quarter, it is at 15.93%. Quarterly EPS is INR 25.99 per share. Market cap since the last call is up 20%. And the 20% was up to Friday, and you would have seen the price go up today and which is not captured in this 20%. So this has been a value-driven growth. And I'll come to that in a bit. Total business increased 23%, as I just mentioned, to [indiscernible] deposits 19.71% up to [ INR 6,409 crores ]. We will get a little more color on my [indiscernible] we go a little later. CASA is up 16.94% growth year-on-year, advance was 27.01% and the rampant -- retail agri and MSME is up 28.47%. So all this has delivered good value for us, net interest income at [indiscernible], is up 32% year-on-year. The operating profit it at INR 611 crores, up 48.23%. Net profit is an all-time high, [indiscernible], up 34.97%. ROA up 32 basis year-on-year up from 1.82% to 2.14%. So the ROE, the return on assets is at 2.14% for the quarter. And ROE, like I said earlier, is 15.93% and 63 basis over quarter 1 of FY '26. And if you go a little deeper into CASA is at 26.16%, unsecured exposure in the overall portal is just 10 basis point. Net interest margin -- the net interest margin is up 45 basis year-on-year, and it is now stands at 4.29% for the quarter. Our cost-to-income ratio well contained 39% -- below 40%, 39.10%. Credit cost continues to be under control 9 basis points. And the credit, like I said, the credit quality continues to be good. GNPA is 0.69%, is down 53 basis year-on-year and NNPA 17 basis, down 16 basis year-on-year. [indiscernible] at 21 paces, again, down 84 basis and PCR is 96.05% total PCR and on book, it is at 75.36%. When we get into -- separately into the business performance, current account is up 16.28%. Though quarter-on-quarter, it is down 8.75%. I'll come to that a little later. CASA overall is [ 16.5%], I mentioned earlier, but quarter-on-quarter, because of current account degrowth of 8.75% is down 2.95%. [indiscernible] has more than compensated that, in fact, it is up 2.73%. And the overall term deposit is up 19.71%. This particular quarter, we have been trying to secure our resource base in a big way and that's getting reflected in the overall terms but overall the [indiscernible] 19.71%. And in particular, turn that as a [ 20.73% ]. We have the focus on the term apron the quarter. And that has, to some extent, cannibalize current as the [indiscernible] we just sort of not pay up to what we would have anticipated at 2.95%. But when we look at it holistically, we have put that in Slide 10. When the big growth in CASA is just about INR 500 crores. The overall focus on the resource mobilization, the overall focus on the deposits has yielded INR 697 crores in the first quarter, which is a record the profit mobilization as compared to INR 113 crores that we did in the same quarter last year. So -- and to give you a little more color on it, noncallable deposits quarter-on-quarter from the 31st of March '26 to 30th of June is up 18.44%. So that's, again, our focus on resource mobilization, our focus on seeing that the focus continues on -- within the gross mobilization, the non-cola deposits, it's up 18.44%. And such deposit, 80.39% are over our 1 year and above tenure. So that's the other aspect. So we are trying to secure our growth strategy going forward. [indiscernible] deposits is also seeing some movement there, 11.03%. It has moved up quarter-on-quarter and $10 million is what we have very so far under the special facility of the RBI. So there is some movement there. And like I said, overall, the focus has been on securing the resource base for the growth forward. And CASA, a small degrowth in CASA has been a consequence of it, which is more than make up hopefully in this quarter, which is -- on the advance side. I think the RAM, as I said earlier, is up 28.47%. The growth is evident across retail, agriculture and MSME. MSME in particular, has more of 20.09% year-on-year. The others are at [indiscernible] again a bit of a moment happening there, overall, like I said earlier, gross advances, we 27.01%. CD ratio has moved up by 511 basis across the year, and I have a slide for you on the CD ratio coming up later. And on the advances, of course, the growth met maintained and the profitability is -- the focus of the advances, obviously, we have put in place some of the numbers, which I'm sure you can [indiscernible] where we have given you the ROA on some of our portfolios, both retail, agri, MSME and other ones separately. The portfolio mix currently stands at agri 40%, MSME, 28%; retail, 25%; and Other 5.62%. So the gold loan portfolio continues in an acceptable range. It continues to be a our portfolio still has the ability to handle almost 20% reduction in the gold price and with LCD continuing to be in the acceptable rate. There has been a bit of a portfolio on the there's been a spike -- a bit of a spike that is now getting contained. Like I said, the portfolio Yield is very, very comfortable at 10.58%. So this is also that we will continue to market, continue to ramp up going forward. We don't anticipate any kind of issues in the cumulative risk involved in this portfolio, which is being monitored on a daily basis. And clearly under well under control. And [indiscernible], as I said earlier, it's just about 10 basis were respectively no NPA in that intend ancestor specific [indiscernible]. And the extent I think 3.53% and INR 85 crores of our POD export component and recession exposure is really about 32.15%, which is practically a small portion of it. So far, we have not been seeing any kind of stress in the our export portfolio or the larger MSME portal in account the gestation prices. There has been some uptick in the ACL portfolio CLO portfolio. But like I said, we are not pursuing any as of now, we have not seen any kind of stuff in this portfolio. On the financial performance like I said, the net interest income is up 32.01% and the profit is [indiscernible], up 30.97%. So the employee cost, the other expenses are under control, and that's what helped us to let in profit of 48.22%. The balance sheet is almost, I think, the 80% a mark at [indiscernible]. So this all has resulted in enhanced shareholder value. I said about the revenue per share at 24.99% per share stands at INR 667. ROA, 2.14%, has been continuously moving up and ROE stands at 15.93%. Total capital shareholders' funds stand at [indiscernible] The other interesting aspect is a shareholding pattern when we go deep into it on the 30th of June '25, when we had no investment from the mutual funds, We -- CMT, there was no mutual funds that invest in the [indiscernible]. When I move to [indiscernible], I noticed that, that interest is beginning to show up. The mutual fund investment in GMP's holdings is at 0.577%. And likewise, the foreign portfolio induces are also showing some interest, which [indiscernible] is now up to 6.73%. So some interest now coming from a larger [indiscernible] continued interest Credit quality continues to be stable. And like I said, the NPA, [indiscernible]which is on book PPF. Asset quality is very much under control. And even in the NPA, the collateral coverage for the NPA book is at 145.28%. So [indiscernible] of NPA, INR 241 crores of provision and INR 145 crores of collateral coverage. So I think pretty much the provision that we have already invested in is likely to -- much of it is likely to come back as the result the state going forward. One of the highlights of this quarter as I said earlier, is that rather, we have provided provision of 100% provision for stress and the nonfund-based facilities. This is not a requirement as a [indiscernible], but certainly a requirement of the expected credit loss re [indiscernible] part from the 1st of April 2027. So this is something that we have already done. The efficient number that you see, INR 26 crores of the provision number is on account of this stress. [indiscernible], which in normal so we may not have done, but we have done it as a prudent measure at to looking at the ECS business going forward. Yes. Coming to [indiscernible] under control 8 basis points. SMAs also on the control assets are on our onward trajectory and he was mentioning about the ECL. The effect is from [indiscernible] be implemented. And as far as we are continuously calculating the ECL cost for us -- and across as on 30th of June '26 is a INR 224 crores. That is additional provision requirement as we move from the IR regime to the ECL routine that the addition revision that will be required. And I've said earlier also that INR 250 crores [indiscernible] contingency provision, we have not returned back. We have kept aside just for the ECL. And in this quarter, in quarter 1 of FY '27, we have also added another INR 26 crores to the [indiscernible] LFP, taking the overall provision that is kept aside to meet the expected credit loss in picking up next year is [indiscernible] So on the industry moves out to the ECI regime PMT would largely be insulated from the impact of that. And we are hopeful and we are -- we certainly will be in a position to contain the ACL fallout in the first year of implementation itself. On the key ratios, the cost of deposit has moderated 5.71% quarter last quarter had come down to 5.68% of 3 basis, while on the advances side, it has moved up [indiscernible] up to [indiscernible] so 17 basis. So both combined, the comp of it has helped us deliver a net interest margin 4.29%. Capital adequacy, even [indiscernible] is at, cost interest as adjusted, we have now stands below 40%. And I've also had some kind of information on the CD ratio on the. And the solvency ratios, leverage ratio 12.5%. If you recall, the regulatory minimum requirement is just 3.5%. So we are at 12.5% more than 3x that. [indiscernible] stands at 140.74% and NSFR as 150.74%. And the CD ratio is 88.9%. But given our network -- we have put some numbers where our network in the balance sheet side is 13.24%. That gives us the ability to lend much more than we have also calculated the maximum CD ratio permissible on account of the high net worth of 99%. This stands today at 89%, which means we have some essential growth in terms of CD ratio. And obviously, you'll see on the deposit number, the resource mobilization number that our focus -- and particularly, term of about 20% flat. So on the business branch continuously up INR 193.81 crores average business per branch, per employee, we have restated 325 new employees during quarter 1. Otherwise, I think that has impacted their productive input is not part of the business for our employee, it is at INR [indiscernible] -- sorry. INR 23.75 crores and the profit per employee is INR 12.13 laks. So that's also continuously [indiscernible] We have added 6 branches in the first quarter. The branch now stands at 828, [indiscernible] of those branches outside the state of Tamilnadu. So in the fixed branches that we opened in FY '27, 3 branches are taking the state of Tamilnadu and 3 brands are outside the state of Tamilnadu. Digital transaction trends, I think the number of transaction that is now conducted across the counters in the branches has shown moderation in a comedown from 59 lakhs. -- like the usage of TMB MP has also seen some [indiscernible] rising and we've seen some growth. And of course, we are investing heavily in the technology and in the process of modernizing the band in the defer continued in the first quarter and will continue in FY '27 as well. And there is 14 additional disclosure we would like to make that the industry and community is aware that there has been a showcase notice issued against the bank, by the Enforcement Director of certain shares being part of the NRI community and the [indiscernible], where tenancies as imposed on the bank as [indiscernible] issuing bonus shares where no penalty imports, but the soccer amount is [indiscernible]. On the 9th of July, the [indiscernible] has launched its order. Our appeal has been partly allowed. The finance has been reduced to INR 3.4 crores, and banks would receive [indiscernible], hopefully, in quarter 2. [indiscernible] Display for conciliation of the shares held by the foreign investors has been dismissed. So that's a major outcome of the order. And we are evaluating the order as received. We are evaluating and further course of action is under precaution. CNI is the [indiscernible] is still pending. So that's from my side. I have with me, as Perry just mentioned, Vincent Devassy, the CFO, Sanjay Goel, the Head of [indiscernible] and Head of Resources Ashok, and Head of IT [indiscernible] me to answer any of your questions as you have. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible] Wealth.

You continue to under guide deliver. It's like almost a seventh quarter that I'm giving -- saying this comment to you, but congratulations. So you would because of such good performance and it's the start of the year. So would you want to give us some guidance on loan growth and margins, ROA, ROE, any such parameters for the year?

I think you did mention that the 7 quarters, we are underguiding and overperforming, That the word you used?

Yes.

Yes. I think we have been looking at a structural change within the bank investing in technology relating to productive into precisely to generate the kind of growth. And that the bank has been reporting and growth for the total business growth for the quarter. Yes, we have been in quarter after quarter the growth is moving up, but at comes when your [indiscernible] cannot get bigger, right? It has to be sustained. And the rest of the [indiscernible] will see these kind of numbers, we are trying to see this kind of numbers can be substrate. Now from a larger perspective, the sort of guidance that you're looking, I think I would take you back to the guidance that I gave in April. What is your name is it?

[indiscernible] from Teenage.

The guidance, if you recall, we have said that CASA growth will be 17% to 18%. Certainly, we will stand by that in the rest of the -- let's say, the next quarter, the quarter 2 and the rest of the year. I think that's something that yes, we will try and see we will. The deposit growth, we said that we will be 16% by in even larger increasing that by under [ 2% ], right? I think we how that moves up and 16% is what we said for the year, we are raising it that 2% because clearly, the system is responding to our overseas and deposits. see how that proceeds before we revise it in the next quarter. Advances growth, we said 30%, I think we would be updating that again there the 2%, [indiscernible] is what we are hoping to total business, like I said, 18% is what we mentioned for the year, I think a 2% is something that we are confident of delivering. Net interest margin, [ 3.9% ], I think we should be well past a 4% mark for the year. ROA, 1.9% what we guided, I think it is going to be again well over 3%. ROE, 15% is now or revised guidance. And the GP continues to be [indiscernible]

Right, sir. Sir, in last quarter, I asked you this 1 question that in the last year, gold loans was our [indiscernible], like -- and you said that probably this year, the other part of the RAM business might be the [indiscernible]. But then, again, it's gold heavy. So when do you think this retail MSME picked up really well?

And like you can look at -- let me let me take you to my -- this slide -- we keep going back and forth. I got lost in the slide. Slide #12. APR, MSME, -- look at the way MSME is moving.

The INR 500 crores every quarter you're adding, I can see that.

So hopefully, I'm not gold loan -- one of the reasons why we are looking at [indiscernible] as opposed to the growth we had in the first quarter rate that the second half of the current year, we will -- unless the gold moves, I think the prices are getting stabilized around $4,000 an ounce. So the kind of [indiscernible] growth in gold loans you mentioned in Glen may not be there in the second half of this year. And that is where other arms of the advances will step in, particularly, we are looking at [indiscernible] whole lot of investment in the MSME space, and that is beginning to deliver results. The 14.89% quarter as the year-on-year MSME growth has now moved up about 30%. And this is one area we will -- you will see growth continuing. And this is what we are banking on to step into the bacon effect all any created by the growing growth of color. And like I said, [indiscernible], we are upping the the guidance to 21% to 22% % for overall advance growth.

No, the great, great success for this year also. Just 1 question -- last question is this CASA, like we are around 26%. We used to be somewhere around 30% for this high-growth pace started [indiscernible] and we have opened a good number of branches also last year. So just what strategy, anything like that we want to do to improve the CASA? So yes, that's the last question.

You look at it -- in this year, in this quarter because there has been a bit of a crunch and a deposit crunch that we anticipated. So they are focused on affecting the resort base. That is where we had a focus on the term deposit in the current quarter and that [indiscernible] has cannibalized a bigger half of the process. But we are focusing back on back on the CASA, we are strengthening our CBC, the contraction business growth. And we are also expanding. As we just mentioned last year, we opened 44 branches and have intentions to open 60 branches in this year. And 6 of the branches have already been opened. That's some activity, you will see the CASA pickup going forward.

The next question is from the line of Laksh from ShareIndia Securities.

Since we are so bullish in the SME space, so the guidance can you give regarding the growth in this sector of the year going forward?

In the M&A space?

Yes, sir.

Guidance will respond to, I think, probably, we can come back to you on as this quarter comes to a close because some of the investments are still in the offering. And the investments already made in the MOAS, in the structural HR and the secure reforms, getting the CMCs increase, et cetera, are yielding results. And to what extent the response, these structural changes, the investments in IT response work is something that we are studying. But for the year as a whole, we are confident that this will be well ahead will be much beyond the numbers that we have put on the table of 20%.

Okay. Okay. And sir, did we see any hit from the impact of the MVNO and a war?

See, we don't see any kind of store emerging as of now at least certainly in our book when we study the book and then you start the cash flows in the book, and also our reaching out to our own customers, we do not see any kind of impact at all as of now.

The next question is from the line of Parth from 361 Capital.

My first question is our SMA 01 and 2, all the 3 have gone up on a quarter-on-quarter basis. Is this any particular portfolio contract to the same? And can you just throw some light on the thing?

If I take you to Slide #14. You will notice that there has been some bit of an uptick in the portfolio at risk one day. When we are talking about -- we are talking specifically about SMA 0, SMA 1, right, including the SMA. There has been a bit of an uptick in the gold loan portfolio that has contributed almost INR 100 -- INR 150 crores there. So that's a piece. But you also noticed that our corrective mechanisms that we have put in place is already impacting it and the numbers are coming down. So that numbers going forward. will have an impact on the overall SMA portfolio. I can't -- of course, I can't tell you the numbers today, which is I can tell you well below what we have quoted in the [indiscernible]. Let me accelerate on the contract.

Okay, sir. Fair enough. And on the segmental means that you give -- if I look across your lease within the agri segment has gone up from 9.75% to 10.5%, whereas as in the MSME segment gone down from 10.5% to 10%. So what exactly has happened in these 2 portfolios during the quarter?

The Agri portfolio -- sorry, in the MSME portfolio, be there at into certain segment. Now we are widening and divesting our customer base. And that will obviously will require some pickup offering subretinal price, and that is impacting the overall yield. Even after the overall yield, the the ROA continues to do at an acceptable level. On the agri side, yes, yield has gone up because that was a conscious approach to the pricing of the gold loan segment per se as we anticipate heartening of the rep term deposit base going forward. Partly for us, that has not impacted that much. And that's one of the reasons why our net gross margin stands at 4.29%. We are cautious, of course, in ramping up the golden yield and little ticking it up in anticipation of a hardening of tender base has worked us in favor of us is that's the reason why we see the yield moving up to 10.5% which is also impacting, like I said, the net interest margin.

Sure, sir. And my last question is on Slide 41. For the showcase noting 1, right, it's mention that you explain for the quantification of shares held by the foreign news business. So is it now fair enough to say that now these shares would be noted from the encumbrance or would be available ....

Too early for me to react to that. I think we are studying the other assets. And incidentally, the bank is not involved. This is a case with in [indiscernible] and those sets of investors. I think the claim to that should be compensated, but [indiscernible] side. Now we'll have to see what is the implication of that side, really, this we can also going up here. So we'll have to -- we are selling it, and we'll see when I met you in the... [Technical Difficulty]

Ladies and gentlemen, the line for the management seems to be disconnected. Please hold for a while. The line for the management is please reconnected.

Yes, so you were saying, sir, you will study the order ...

Yes, that's what I'm saying. In fact, we have [indiscernible] of the top legal firms in the country to have a look at the order and advice is under course of action. So we in some titles during the quarter.

Okay, sir. And my last question is, sir, the rein portfolio a bit on a Q-o-Q basis. If I look at that sorry -- retail, retail portfolio. So like all the other 3 portfolios have actually grown. So what has actually happened there? Yes. That was my last question.

I guess on the retail portfolio, we are certainly seeing the green shoots. For instance, the alone have grown up by [indiscernible] and we have been observing a degrowth in our home loan portfolio that has been largely or set. And if I compare with our [indiscernible] level versus the current level is almost the same level, so the downtrend has been largely adverse in home loan, but -- and there is a very good uptick in the auto loan segment, we [indiscernible] segment. That has gone up on by [indiscernible] and coupled with this, the dual loan for the consumption that is still having very good demand and the growth is happening there. So overall, we are expecting that here also similar to MSME growth where our retail segment will also [indiscernible] a big way during the current year.

See, one of the other aspects that we've noticed is that retail gold loans takes between agri gold on the retail gold loan, depending on some migration has happened from the retail gold loan to the agri gold loan. That is one of the reasons why on a quarter-on-quarter basis, you are seeing a 2.5 you should come and see.

The next question is from the line of Arvind from Sundaram Altenex.

So a few things. I was going the pages in a bar slightly higher I know they're still under 1% annualized number, it is still a good number, but I still can understand if there is an issue here in the red. Another the question is there is much more medium-term view, like at really great, but it retail and agree that most of the growth is still coming through on [indiscernible] and I understand that in my [indiscernible] also have big tenet in the last few quarters. So I'm trying to understand, nongold retail portfolio is or looking to grow [indiscernible] segments we want to take it across the next set of [indiscernible] in the coming quarters [indiscernible]

And I would. [indiscernible] I mean your first question on repage and MSME, I think you must be looking at the INR 37 crores here and sure your observation is based on that. Let me tell you that this is actually into accounts. And from a resolution perspective, you will see that getting resolved in quarter 2, right? So this is a one-off that we -- so there's a little bit of, so you will not see this. I think the MSME space, I think we continues to be robust. And from a credit quality perspective, I think it is still [indiscernible]. So -- but if you look at the growth NPA position, as on June '26 versus June '25, currently, it is at INR [indiscernible] crores, whereas it was at INR 202.34 crores as on June 2025. So while there are slippages, there are a large number of recoveries and observations as well. So overall, the opportunity is better than what it was during June 2025. And like I said, the quarter -- the slippage you see in the quarter is something that will be tracked in this quarter. Quarter 1, the INR 37 crores largely will be taxable port. Of course, it doesn't mean that the quarter will not have its own with it. This particular one will be [indiscernible]

What about the second one, like non-gold retail products, which one are we thinking about scaling up in an base, which would be have been -- there are 3 products [indiscernible]

Which we will be posting upon firm loan in a big way. vehicle loan also again in a big way. Lap loan, loan against property. So these 3 products will deliver the record numbers during the current financial year.

Okay. And any target mix? -- or anything else in mind? -- any target mix or anything like it in mind either in medium term or [indiscernible]

The vehicle loan portfolio by roughly 35%. That is going to continue. And we are sure that the housing loan portfolio will also start growing because the sanctions are happening in a big way currently. And especially during this current financial year, current the quarter. That will help us in terms of reaching around 8% to 10% growth in home loans. So we feel that the house is the retail segment, non-deal retail segment will also grow alongside the MSB growth.