Tamilnad Mercantile Bank (TMB) is focusing on high-yielding consumption gold loans and low-cost CASA deposits to improve its margins. MD & CEO Salee S Nair talks to Narayanan V about the bank’s credit growth outlook, deposit mobilisation strategy, and the key focus areas for lending.
Your operating profit was down 12% to Rs 412.26 crore in the first quarter of this fiscal. What led to this drop?
This was primarily due to the front-ending of our performance-based incentive which we offer every year. It’s typically amortised over four quarters. Last year, we amortised around Rs 36-37 crore and accounted for about Rs 8.75 crore in the first quarter. TMB is a highly collateralised bank—our unsecured portfolio is just Rs 125 crore out of a Rs 45,000-crore loan book. Given our very low credit cost, we had the confidence to book the entire Rs 41.74-crore incentive in one go in Q1. This impacted our operating profit, and as a result, net profit rose by 6%. That said, we still posted our highest-ever quarterly net profit of Rs 304.89 crore, thanks to lower slippages (of only Rs 22 crore) and provisioning requirement.
You had guided for a 15% credit growth in FY26, but Q1 growth came in at only 10%…
Our agri and retail loans grew by 15% and 28%, respectively. MSME advances, however, were flat at Rs 13,452 crore. That said, we are regaining confidence in the MSME segment. We have sent our staff through two layers of training—including credit assessment—for relationship managers, who are the real feet on the street. We are also rolling out an automated loan management system (LMS). Trade finance is another focus area, and we are hiring product specialists there. We have also developed a business rule engine in collaboration with a top consultant—essentially a data analytics tool that pulls information from across our systems to better assess creditworthiness and appetite. Our gold loan portfolio has grown by over 40% to Rs 19,000 crore. We have taken a conscious call not to push agri gold loans for now. Instead, we are launching 18 products across consumption and income-generating loans. On the consumption side, we are pricing slightly higher—above 11%—which should help us maintain yields. With growth across retail, agri and MSME, achieving 15% overall credit growth should not be a challenge.
Total deposits grew only 9.38% and the CASA ratio also declined.
Deposit growth in Q1 has more than doubled compared to the 4.64% growth in the same quarter last year. This improvement is driven by initiatives like the creation of a transaction business group, which focuses on sourcing deposits. In June, we also set up an elite services group targeting high-value depositors who maintain savings accounts with us. Relationship managers under this group provide specialised services to ring-fence existing deposits and bring in more high-value savings accounts through referrals. These two initiatives have taken root and are beginning to show results. Our CASA deposits grew by 4.51% to `14,411 crore in Q1. We are also revamping our internet banking platform and rolling out a customer experience package with 79 services. Together—through dedicated relationship managers, technology upgrades, branch revamps, and CX improvements—we are strengthening our deposit base. We are targeting 10-12% deposit growth this year.
How do you plan to ease the pressure on net interest margin (NIM)?
Our NIM slipped to 3.84% from 3.91% in the previous quarter. While protecting our MSME base, we found that some of our pricing was on the higher end of the market. We didn’t want to risk losing customers who might be seeking better yields elsewhere. Another factor is the restructuring of our gold loan portfolio based on the RBI circular—we have now split it into consumption loans and income-generating loans. Consumption gold loans are growing at a healthy pace despite being priced above 11%. This gives us the flexibility to reprice MSME loans better and helps improve yields on advances, ultimately supporting margins. We expect NIMs to rise and close in the 3.85-3.95% range, with yields also coming in slightly higher than the current levels.