Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A+/Stable/Crisil A1+’ ratings on the fixed deposits (FD) programmes, Short-term fixed deposits and certificates of deposits of Tamilnad Mercantile Bank Limited (TMB).

 

The ratings on FD programmes of banks continue to factor in better access to systemic liquidity, in the form of access to call money markets and the liquidity adjustment facility (LAF) of the Reserve Bank of India (RBI). Such external liquidity support, the RBI’s oversight over banks and the deposit guarantees up to a certain quantum provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC) instill confidence among depositors. They mitigate the probability of a run-on deposit in case of any downward rating action on the long-term rating. Moreover, banks enjoy systemic support as indicated by the demonstrated track record of the regulator stepping in to safeguard interests of depositors.

 

TMB’s FD base is granular in nature, with 73.73% of the FDs under Rs 1 crore ticket size as on March 31, 2025. The top 30 depositors formed only 12% of total deposits (as of fiscal 2025). The bank has maintained depositor profile with well spread maturity of deposits and high granularity. Moreover, the FD renewal rate was around 75% in fiscal 2025.

 

The rating continues to reflect adequate capitalisation of the bank and its improving asset quality and comfortable profitability. These strengths are partially offset by the small scale of operations, high geographic concentration, average resource profile and exposure to risks arising from an ownership dispute.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of TMB

Key Rating Drivers & Detailed Description

Strengths:

Adequate capitalisation: The bank has a comfortable capital profile with Tier I and overall capital adequacy ratio (CAR) at 31.2% and 32.7%, respectively, as on March 31, 2025. Networth rose to Rs 9,009 crore as on March 31, 2025, from Rs 7,921 crore as on March 31, 2024, supported by steady internal accrual. Networth coverage for net non-performing assets (NPAs) was healthy at 56.3 times as on March 31, 2025, as against 23.6 times as on March 31, 2024.

 

Improving asset quality: Reported gross non-performing assets (GNPAs) have improved consistently over the past few years and stood at 1.25% (lowest in the last decade) as on March 31, 2025, as against 1.44% as on March 31, 2024. This showcases the bank’s ability to leverage its relationship with customers and recover the dues. GNPAs may remain at similar levels in the near term. However, the bank is steadily increasing its exposure towards agriculture loans, and the performance will be monitorable.

 

Overall restructured advances formed 0.85% of total advances as on March 31, 2025, as against 1.4% as on March 31, 2024. The bank continues to focus on MSME, retail and agriculture loan advances. The overall loan book comprised agriculture loans (42%), followed by MSME loans (30%) and retail loans (21%) as on March 31, 2025. These loans are backed by good quality collateral. While GNPA for corporate advances (7% of overall advances as on March 31, 2025) stood elevated, that for other asset classes has improved significantly over the past few years.

 

Nevertheless, asset quality will remain exposed to inherent political, social, economic and environmental risk, amidst exposure to small borrowers. Hence, sustained improvement in asset quality remains a key monitorable.

 

Comfortable profitability: Overall profitability remains comfortable with profit after tax (PAT) of Rs 1,182 crore and return on asset (RoA) of 1.85% in fiscal 2025, as against Rs 1,072 crore and 1.79% respectively, in fiscal 2024. Profitability is supported by increase in other income along with a stable net interest margin (NIM) and operating cost. Other income as a percentage of average total assets rose by nearly 30 basis points to 1.3% in fiscal 2025.

 

NIM as well as operating cost, as a percentage of average total assets, have been stable at around 3.6% and 2.2%, respectively, over the last two fiscals. Credit cost, however, inched up to 0.3% in fiscal 2025, as against 0.1% in fiscal 2024.

 

The bank’s provision coverage ratio has increased to 71.2% in fiscal 2025. as against 41.6% in fiscal 2024. This should be adequate for the agriculture, MSME and retail asset classes, wherein a significant amount of exposure is backed by collateral and can be recovered by selling the underlying secured assets if the loans become substandard/doubtful assets.

 

The bank’s ability sustain profitability at comfortable levels will remain a monitorable.

 

Weaknesses:

Average resource profile: The bank’s deposit base has grown by 8.4% to Rs 53,689 crore as on March 31, 2025, as against Rs 49,515 crore as on March 31, 2024. However, current account and savings account (CASA) ratio has declined to 26.4% as on March 31, 2025, against 29.6% as on March 31, 2024. This ratio has declined for many banks in general due to stronger demand for credit and increased preference for term deposits. The bank has taken various initiatives to improve the CASA ratio, such as formation of the Transaction Banking Group (TBG), Global NRI Centre (GNC) and the Elite Service Group (ESG) and has taken steps to enhance the digital banking offering, amongst other factors.

 

Term deposits stood at Rs 39,496 crore as on March 31, 2025, as against Rs 34,839 crore as on March 31, 2024. The bank has maintained a depositor profile with well spread maturities and high granularity. The FD base is granular in nature with 73.73% of FDs under Rs 1 crore ticket size as on March 31, 2025, and the renewal rate being ~75% in fiscal 2025. Crisil Ratings understands that TMB will continue to focus on improving the renewal rate and increasing retail term deposits.

 

The bank also plans to open branches outside of South India and increase its presence in other states. Ability to garner pace in deposit growth commensurate with growth in advances remains a key imperative. Sustainability of overall CASA percentage in a growing business will be an overall indicator of an improved resource profile and will be a key monitorable.

 

Small scale of operations, driven by regional and product concentration: TMB’s overall deposits and advances stood at Rs 53,689 crore and Rs 44,366 crore respectively, as on March 31, 2025. Operations are concentrated in Tamil Nadu with 73.5% of the branches, 79.4% of advances and 73.8% of deposits based in the state as on the same date. However, the bank plans to gradually diversify its operations by opening new branches outside Tamil Nadu gradually. While the bank benefits from its established track record in its core geography, ability to diversify its presence is a key monitorable. Moreover, within the overall advances mix, the bank has a high concentration of agriculture loans (42%), MSME loans (30%) followed by retail loans (21%) and corporate loans (7%) as of March 31, 2025.

 

Exposure to risks arising from the dispute over ownership: The ownership dispute has been carrying on for the past several years. While the bank has been holding its annual general meeting, prolonged adjudication of cases related to this dispute becomes a constraint. Hence, issues relating to shareholding and ownership of the bank will continue to be monitored

Liquidity: Strong

The bank has a strong liquidity position with liquidity coverage ratio (LCR) of 163.29% and excess statutory liquidity ratio (SLR) of 6.23%, as on March 31, 2025. The bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market, and refinance limits from development finance institutions.

Outlook: Stable

TMB should maintain adequate capitalisation to meet its business growth and manage its asset-quality related risk.

Rating sensitivity factors

Upward factors

• Sustained scale-up of operations with overall GNPA maintained below 3% on a steady-state basis
• Sustenance of profitability at comfortable levels

 

Downward factors

• Significant weakening in asset quality, with GNPAs exceeding 5% and translating into pressure on earnings and capitalisation metrics
• Any pressure on deposit profile via outflows
• Weakening of capital position with significant deterioration in the common equity tier 1 ratio

About the bank

TMB is a small private sector bank, with an asset base of Rs 66,450 crore as on March 31, 2025. The bank was set up in 1921 by 10 visionaries of the Nadar Community. Headquartered in Thoothukudi, TMB is present mainly in south India, with 578 branches as on March 31, 2025. Gross advances and deposits stood at Rs 44,366 crore and Rs 53,689 crore, respectively, as on the same date.

Key Financial Indicators: (As on / for the period ended March 31)

Particulars	Unit	2025	2024	2023	2022
Total assets	Rs crore	66450	61,553	57,895	52,858
Total income (net of interest expense)	Rs crore	3151	2,796	2,723	2638
Profit after tax	Rs crore	1183	1072	1029	822
Gross NPA	%	1.25	1.44	1.39	1.69
Overall capital adequacy ratio	%	32.71	29.37	26.26	22.06
Return on assets*	%	1.85	1.79	1.86	1.66

*calculated on average total assets

Any other information: Not Applicable