TMB Q4 FY2026: Faster growth, cleaner credit, tighter costs

Tamilnad Mercantile Bank Ltd closed Q4 FY2026 with a clear message: growth is back, and it is being funded and protected with discipline. The quarter delivered Total Income of 1792.16 crore, up 16.22 percent year on year, while Net Interest Income rose 24.04 percent to 704.45 crore. Operating Profit increased 29.29 percent to 522.31 crore and Net Profit climbed 28.01 percent to 373.65 crore. Profitability ratios also moved higher, with ROA improving to 2.05 percent from 1.81 percent a year ago, and ROE rising to 15.03 percent from 13.79 percent.

The quarterly numbers sit inside a broader FY2026 story that management framed as a transition from turnaround to takeoff. Over the last year, the bank arrested the decline in CASA share and pushed it higher. It also posted its strongest deposits growth in 39 quarters and its strongest advances growth in 40 quarters. Importantly, this expansion came alongside a visible improvement in credit quality, supported by higher provision coverage and sharply lower credit costs.

A balance sheet that is growing faster and in a better mix

The growth engine in Q4 FY2026 was broad based, but the mix matters. Total Business reached 115091 crore, up 17.37 percent year on year. Deposits grew 14.94 percent to 61712 crore and advances grew 20.32 percent to 53379 crore, excluding an IBPC sale of 1000 crore. Within advances, RAM continued to dominate the book at 94.66 percent of gross advances, and RAM advances rose 22.35 percent to 50528 crore.

Deposits tell a more important story than just scale. CASA grew 22.35 percent year on year to 17365 crore. Both current accounts and savings balances contributed, with current accounts rising to 5084 crore and savings to 12281 crore. CASA share improved to 28.14 percent, up 170 basis points year on year, showing the reversal management highlighted.

Advances growth was sharpest in retail. Retail advances increased 62.33 percent year on year to 14912 crore, reflecting faster scaling in a segment that also reports low NPA and decent yields. Agriculture grew 8.03 percent to 20084 crore, while MSME grew 14.88 percent to 15532 crore. Portfolio mix shifted accordingly. Retail’s share rose to 27.94 percent in FY2026 from 20.71 percent in FY2025, while agriculture’s share reduced to 37.63 percent from 41.90 percent.

Gold loans remained a defining pillar. The gold loan portfolio expanded steadily through the year to 24790 crore by Q4 FY2026. The bank reported portfolio LTV of 53.25 percent and portfolio yield of 10.11 percent. Gold loans accounted for 46.44 percent of advances. Sensitivity data showed limited stress even under gold price declines, with nil exposure above market price even at a 20 percent price drop, and only 0.01 percent above market price at a 25 percent drop.

At the risk edge, unsecured exposure stayed contained. Unsecured exposure was 54.42 crore in Q4 FY2026, only 0.10 percent of total advances. That tight guardrail is consistent with the bank’s overall quality metrics and helped keep credit costs near zero.

Profitability improved, but costs and accounting choices shaped the quarter

The quality of earnings improved alongside growth. Net Interest Margin expanded to 4.18 percent in Q4 FY2026, up 27 basis points year on year. The cost of deposits reduced to 5.71 percent from 6.01 percent a year ago, and the cost of funds moved to 5.72 percent from 6.02 percent. That combination supported the strong NII performance.

Expense control also became more visible. Cost to Income ratio fell to 44.80 percent, down 262 basis points. Operating expenses still grew 16.36 percent year on year in Q4 FY2026 to 423.92 crore, driven by employee costs that rose 24.12 percent to 220.68 crore. But the faster growth in income and operating profit indicates that the bank is absorbing a higher investment phase without losing operating leverage.

Management also flagged a key accounting factor affecting comparability. Q4 FY2026 included front loaded provision of 49.80 crore for PBI for FY2026, which is normally accounted in the subsequent year. The bank stated that, normalized for this PBI amount, Operating Profit would be up 41.62 percent in Q4 FY2026 and Cost to Income would be 39.54 percent for Q4 FY2026. For investors, the practical implication is that headline quarterly profitability already looks strong, and the underlying run rate is stronger than what the reported quarter alone suggests.

Shareholder value metrics followed earnings. EPS rose steadily through the year to 23.60 in Q4 FY2026 from 18.44 in Q4 FY2025. Book value per share increased to 638.46 in March 2026 from 568.90 in March 2025. Net worth crossed 10110 crore at March 2026 versus 9009 crore a year ago. Management also noted that a dividend of 125 percent was recommended for FY2026, subject to shareholder approval.

Asset quality is now a core part of the growth story

A growth led bank is only as credible as its underwriting and collection performance. Here, TMB’s Q4 FY2026 data shows clear progress. Gross NPA reduced to 388.21 crore from 556.13 crore a year ago, and GNPA ratio improved to 0.73 percent from 1.25 percent. Net NPA fell to 97.41 crore and NNPA ratio reduced to 0.18 percent from 0.36 percent.

Provision coverage strengthened as well. PCR without technical write off stood at 74.89 percent in Q4 FY2026, and PCR with technical write off was 96.14 percent. The bank highlighted that on book PCR is at a 10 year high.

Slippages remained controlled. Fresh slippage in Q4 FY2026 was 37 crore versus 54 crore in Q4 FY2025, a 31.48 percent improvement year on year. The slippage ratio was 0.07 percent in Q4 FY2026 versus 0.13 percent in Q4 FY2025.

SMA trends provide an early warning view, and those improved materially. Total SMA reduced to 686 crore in Q4 FY2026 from 1139 crore in Q3 FY2026. As a share of gross advances, total SMA fell to 1.29 percent from 2.24 percent in the previous quarter and 2.55 percent a year ago. Management also highlighted the bank’s lowest ever SMA percentage.

Segment level NPA data supports the narrative that the core book is clean and well secured. Retail GNPA was 0.13 percent and agriculture GNPA was 0.16 percent. MSME GNPA at 0.88 percent remains manageable. The stress sits in the others category with GNPA of 6.95 percent. Overall, the bank reported average collateral coverage of 127.52 percent for NPAs and said portfolio loss is expected to be low, with potential for write back of most provision available.

Stressed assets also moved down, with stressed assets ratio falling to 1.14 percent in Q4 FY2026 from 2.01 percent in Q4 FY2025.

Execution focus: expansion, digital shift, and regulatory preparedness

TMB’s operating plan is not only about growing the book; it is also about changing how and where the bank grows. In FY2026, the bank opened 44 branches, including 15 in non Tamilnadu states. Total branches reached 622 at March 2026 versus 578 at March 2025. Non Tamilnadu branches increased to 168 from 153. Management attributed 3.81 percent of business growth in FY2026 to new branches, and noted business per new branch at 40.16 crore annualized for FY2026.

Digital adoption trends add another layer. Digital transactions rose to 74.28 crore in FY2026 from 58.38 crore in FY2025, and digital share increased to 96.85 percent. Branch transaction counts reduced to 2.41 crore from 2.63 crore, consistent with customers shifting to self service and remote channels. Usage data also showed growth in mobile banking: TMB M Bank transaction count increased to 237 lakhs in FY2026 from 165 lakhs in FY2025, and volume grew to 48360 crore from 40229 crore.

On modernization, the bank listed completed initiatives such as Oracle Fusion implementation across HCM, CX and VMS, workflow automation for approvals, and an AI call center. Work in progress items include upgrades to internet banking into a digital engagement hub, mobile banking and UPI enhancements, new loan management systems with Phase 1 completed, treasury software upgrade, automated reconciliation, enhanced onboarding and VKYC, and a co lending platform under progress. The bank also reported that FY2026 IT spend was up 15.80 percent year on year.

Regulatory changes are another investor focus. The bank outlined an Expected Credit Loss impact effective from 01.04.2027. As of 31.03.2026, provisions under current IRAC norms totalled 449 crore versus an ECL estimate of 728 crore, implying one time additional provision impact of 279 crore. Management indicated CRAR impact could be up to 93 basis points, but only 18 basis points if phased over five years. It also stated that 250 crore of contingency provision held sufficiently covers the impact.

The bank also noted that revised RBI guidelines on LCR effective 01.04.2026 would add about 4 percent, and that LCR as on 31.03.2026 was 139 percent.

What Q4 FY2026 signals for investors

TMB’s Q4 FY2026 results combine three threads that are hard to sustain together for long periods: faster growth, stronger margins, and improving asset quality. Deposit growth accelerated, CASA turned into a tailwind, and advances growth remained strong with RAM dominance and low unsecured exposure. Profitability improved as NIM expanded and cost to income reduced, even while the bank invested in people and technology.

The sharp improvement in GNPA, NNPA, SMA and stressed assets ratio gives the growth story credibility. It also suggests that the bank is not buying growth through weaker underwriting. The gold loan portfolio remains large and central, but the reported LTV and sensitivity metrics indicate conservative structuring.

Management’s stated theme for FY2026 was transformation, and the operational data supports that. Branch expansion is widening the footprint beyond Tamilnadu, digital usage is rising with a clear channel shift, and technology upgrades are being executed across core functions. The disclosed ECL impact analysis and the contingency buffer also signal that the bank is planning for the next regulatory cycle.

For investors, the key takeaway from Q4 FY2026 is that TMB is no longer being defined only by a recovery narrative. The numbers show it is trying to scale with cleaner credit, better funding, and improving profitability. If CASA momentum and asset quality trends hold, the bank’s takeoff phase can be measured not by one strong quarter, but by repeatable compounding in earnings and book value.