Tamilnad Mercantile Bank Limited: Q2 FY26 Sees Record Profit and Accelerating Growth

Tamilnad Mercantile Bank Limited (TMB), a venerable private sector bank with a 104-year legacy, has delivered a stellar performance in the second quarter of fiscal year 2026 (Q2 FY26). Headquartered in Thoothukudi, Tamil Nadu, the bank announced its unaudited financial results, showcasing its highest ever quarterly net profit and robust growth across key parameters. This quarter's results underscore the effectiveness of TMB's strategic initiatives aimed at expanding its footprint, enhancing digital capabilities, and maintaining stringent asset quality.

The bank's total business witnessed an impressive year-on-year growth of 11.40%, marking the highest growth rate since its listing. Total deposits surged by 12.32% year-on-year to INR 55,421 crore, up from INR 49,342 crore in Q2 FY25. A significant highlight was the revival of its CASA (Current Account Savings Account) deposits, which increased to INR 15,163 crore, reflecting a 9.30% year-on-year growth. This CASA growth is particularly noteworthy as the bank had experienced a decline in this segment previously, now showing a strong recovery with a 92 basis point increase in CASA share over the last two quarters. Gross advances also grew by 10.34% year-on-year, reaching INR 46,930 crore.

Strategic Thrusts and Digital Transformation

Shri. Salee S Nair, MD & CEO, emphasized that the bank's highest ever quarterly net profit in Q2 FY26 was driven by sustained growth in core lending and deposit businesses. He highlighted the strategic priorities of expanding reach and enhancing customer experience. The bank's commitment to innovation is evident in its substantial IT budget of INR 250 crore for FY26, a significant increase from INR 151 crore in the previous year. This investment is channeled into several key initiatives, including the implementation of new Loan Management Systems (LOS/LMS), which is currently in Phase 1 with Phases 2 and 3 expected to go live in the next two quarters. The bank is also revamping its entire Internet and mobile banking platforms, with the new Internet banking system expected to be fully operational by January FY26.

Furthermore, TMB has gone live on Oracle HCM Cloud Payroll integrated with AI Agents, making it the first in India's BFSI industry to adopt AI-powered automation for payroll and HR operations. This initiative, in collaboration with Kovaion Consulting, aims to streamline absence management, reimbursements, and policy advisory. The bank has also established a new state-of-the-art Call Centre facility with AI calling capabilities, enhancing customer support and responsiveness. These digital initiatives are crucial for improving operational efficiency and delivering a superior customer experience, aligning with the bank's vision of modernization.

Expanding Footprint and Robust Asset Quality

In terms of physical expansion, TMB opened 9 new branches during Q2 FY26, contributing to a total of 22 new branches in the first half of the fiscal year. A significant milestone was the inauguration of its 600th branch in Vizhinjam, Kerala, demonstrating its expanding national presence. The bank plans to open an additional 30-36 branches in the current year, with a strategic focus on increasing its non-Tamil Nadu branch presence to over 35% in the next three years. This geographic diversification is a key part of its growth strategy.

Asset quality remains a strong suit for TMB, with Gross NPA (Non-Performing Assets) at a decade-low of 1.01% and Net NPA at 0.26%. The Provision Coverage Ratio (PCR) without technical write-offs improved to 74.36% from 66.40%. The bank also boasts a high collateral coverage of 111.09% for its NPAs, indicating a low expected loss from its portfolio. Total SMA (Special Mention Accounts) to Gross Advances reduced significantly to 2.67% from 4.16%, a decline of 149 basis points. The Capital to Risk-weighted Assets Ratio (CRAR) also strengthened to 30.96%, an improvement of 137 basis points year-on-year, providing ample capital for future growth and absorbing potential impacts from new regulatory guidelines on Expected Credit Loss (ECL).

Outlook and Investor Confidence

Management expressed confidence in maintaining the growth momentum, projecting credit growth of 14-15% and deposit growth of 12-13% for the full year. The Net Interest Margin (NIM) is expected to be sustained at 3.85% plus, and Return on Assets (ROA) is anticipated to be around 1.85%. The cost-to-income ratio is targeted to remain below 45%. For FY27, the bank foresees a