Tamilnad Mercantile Bank Targets 13–14% Deposit Growth In FY26

Yields on advances moderated slightly in FY25 due to efforts to improve portfolio quality and increase MSME ticket sizes. Nair acknowledged that this involves some yield sacrifice. Despite repo rate hikes in prior years and anticipated cuts, deposit costs have not increased significantly, he added.

"In FY26, we will still be defending net interest margin in the 3.8% to 3.9% range. Cost of deposits is expected to be around 5.9% to 6%," he said.

On the sectoral growth prospects in FY26, he said that the bank's loan portfolio maintains a strong focus on the retail, agriculture, and MSME segments, which now constitute 93% of total advances, an increase from 91% in FY24.

Nair emphasised a continued focus on retail and MSME, with agriculture playing a smaller role. It could cautiously re-enter the corporate segment with limited exposure once risk management systems are fully implemented. A new credit management center is centralising credit delivery to streamline operations and prioritise thhe RAM growth.

A key focus is on significantly ramping up the current account, savings account growth, targeting it at 1.5 times the term deposit growth. Additionally, he highlighted the bank's substantial gold loan portfolio, which comprises about 40% of assets. As gold loan yields tend to be less sensitive to broader interest rate movements, this portfolio is expected to provide insulation to the overall asset yield, supporting NIM stability.

The bank aims to open around 50 branches in FY26. The bank is planning a substantial increase in IT capital expenditure for modernisation, including revamping internet banking. Nair expressed confidence in maintaining a return on assets of around 1.88% in FY26.

Investments in internet banking, loan origination systems and loan management systems aim to modernise operations but may temper profits.

Nair anticipates a 10% to 12% profit growth, with the cost-to-income ratio kept below 50%, supported by internal efficiencies and higher profits offsetting capex costs. "I am confident that we can still control the cost-to-income ratio to well under 50," he added.

He said the company's performance in FY25 marked a turning point, with deposit growth rising to 8.43% from 3.66% in FY24 and advances growth almost doubling to 11% from 6.35%.

He noted that these results indicate the bank is "almost getting aligned to the market" and reflect the initial impact of the initiatives undertaken. The initiatives the bank has taken are expected to bear fruit in "another couple of quarters".