IPO Alert: What to expect when Tamilnad Mercantile Bank goes public

The banking sector in India contributes around 7.7% to the country’s GDP. It is estimated that the value of total banking assets rose to around $2.52 trillion in fiscal 2020, which represents a CAGR of 2.25%.

The banking sector witnessed a healthy deposit growth of 10% between fiscal 2015 and fiscal 2020. In fiscal 2021, public banks’ growth slowed to 3%, while private banks were able to grow 9% due to better capital buffers. Analysts expect public banks to grow by 6-8% in fiscal 2022, whereas private banks are expected to grow by 9-11%.

Tamilnad Mercantile Bank Limited recently filed a draft red herring prospectus with the Securities and Exchange Board of India to raise money through an initial public offering. The IPO comprises a fresh issue of up to 15.83 million shares and an offer for sale of up to 12,505 shares by existing promoters and shareholders.

The net proceeds from the offering will be utilized towards the augmentation of the bank’s Tier-I capital base to meet the company’s future capital requirements. The proceeds will also be used for ensuring compliance with regulatory requirements on capital adequacy prescribed by the RBI from time to time.

Company profile

Tamilnad Mercantile Bank is a private sector bank with a history of almost 100 years. The bank offers a wide range of banking and financial services primarily to micro, small and medium enterprises as well as agricultural and retail customers.

As of June 30, 2021, the Tamil Nadu-based bank had 509 branches, of which 106 were in rural, 247 in semi-urban, 80 in urban, and 76 in metropolitan centers. The bank has 4.18 million customers in Tamil Nadu, comprising 85.07% of its total customer base of around 4.93 million.

Key Numbers

In FY21, the bank’s gross non-performing assets were at 3.44%, against 3.62% in the previous year. Net NPAs were at 1.98% versus 1.8% last year. Its CASA ratio improved to 28.52% from 25.85%.

The bank had total revenue of ₹42.5 billion in the year ended March 31, 2021, vs ₹39.9 billion in the previous year. The net profit for the year increased to ₹6.5 billion from ₹4.6 billion in the previous year.

Meanwhile, as part of its business operations, Tamilnad Mercantile Bank has taken certain exposure in the form of debt instruments, which are unsecured. As of March 31, 2021, the bank’s unsecured exposures represented 0.76% of its total loans and investments. In case the bank fails to recover the investments in whole or in part, it may affect its financial condition.