TAMILNAD MERCANTILE BANK (NSE: TMB) Q1 2026 Earnings Call dated Jul. 28, 2025
Corporate Participants:
Unidentified Speaker
Salee S Nair — Managing Director & CEO
Vincent Menachery Devassy — Executive Director
Sanjoy Kumar Goel — Executive Vice President – Chief Financial Officer
Analysts:
Unidentified Participant
Jai Chauhan — Analyst
Lakshminarayanan — Analyst
Rohan Mehta — Analyst
Anant Mundra — Analyst
Sarthak — Analyst
Santosh — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the Tamil Nadu Mercantile Bank Limited Q1FY26 earnings conference call. This conference call may contain forward looking statements based on the beliefs, opinions and expectations as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant clients will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch tone phone.
We have with us on the call today Mr. Sally S. Nair, Managing Director and CEO Mr. Vincent Menacheri Devashi Executive Director and Mr. Sanjay Kumar Goyal, Chief Financial Officer. I now hand the conference over to Mr. Salih Snail. Thank you. And over to you sir.
Salee S Nair — Managing Director & CEO
Good morning and thank you Rio and it’s a pleasure to be part of this and this call today morning. Yes, I think if you look at the performance of the Merchantile bank for the first quarter of FY26 I think we have delivered a predictable performance. And also if you look at the larger picture we have stabilized more or less. The operations also have been stabilized. The foundation is getting laid. Rather a strong foundation for a takeoff in the subsequent quarters. If you look at the business, I think business has always been a worry particularly with deposits whether we would be in a position to raise it.
I think that’s something that has seen an uptick. Both deposits total business now it stands at 30 June it stands at 98. 93 is up 9.86% and deposits on a year on year basis has more than doubled to 9.38%. 803 incidentally this bank has cropped lakh crores. I think that’s the that has been done. I’m sure many more such peaks will follow. So deposits as I said has more than doubled. The pace of growth has doubled. So we are really really seriously getting back into our resource mobilization for the kind of growth that we are anticipating.
The CASA CASA has been a worry. It has been a worry across the system in the bank as well. And I did outline the last quarter and the previous. We have taken a number of initiatives in this and it is beginning to deliver including the transaction business units that we set in place. And in the first quarter I think again the trend of declining Castra has been arrested and we have been able to reverse it with a year on year, modest year on year growth of 4.51% on a quarter on quarter basis this is an improvement of 34 basis.
The 34 basis point on the CASA share RAND continues to be our focus and that’s up 11.93%. It currently stands at as on 30 June 2025 stands at 42,100 crores. There has been a slight compression of NIM. I’ll come to that later. The operating Profit is at 412.26. It is lower on a year on year there are reasons for which I am sure I will explain. Net Profit is up 6.13%. So on the operating profit what we have also done is we have upfended some of the costs that in the first quarter itself we normally provide performance based incentive.
In last year that was about 36, 36, 37 crores and it’s normally amortized. So first quarter of last year in FY25 we have taken just 8.74 crores. This year the entire 41.27 crores has been upfronted and has been absorbed in the quarter itself. So despite that we have been able to deliver a 6.13% growth again on the net profit side. On the operating profit side, both interconnected of course is that we did have one off in first quarter of FY25 which including recoveries in the technical return of accounts that was not available in quarter one.
So according for all that I think it’s a decent operating profit that we have delivered. A decent net profit that we have delivered. And coming to this side of it, the credit cost is just about 6% again tight control. GNPA down 10 basis 1.22% NNPA year on year 33 basis, 32 basis down virtually it has off return on assets was at 1.88 and it has come down to 1.82 reduction of fixed basis. But sequentially if you look at what we stated last quarter when we were analyzing the results of FY25 and the quarter part of FY25, the March quarter of FY25 was at 1.81.
So there also sequentially it has moved up. Return on equity of course is 13.30 is down but more or less stable at the moment. And PCR on book is 73.04%. So and that’s a sharp increase that you have seen up from 55.22%, 73.82% we have ramped it up to 73. That is on book. That Is the PCR on book and if you also take the technical write offs it is 94.32. As I was saying that we did take a lot of initiatives on the CASA side including we did the impact open seven on digital side and on the branch expansion side I think this quarter itself we have opened new branches all aimed at, all aimed at deposit also in particular casa, the transaction business group that we have initiated in last quarter, early last quarter is slowly beginning to help us turn the tide on casa.
We have also introduced online account opening towards this. And the sum and substance of the aggregated initiatives taken is we have seen a year on year growth of 4.51%. The CASA stood at 14% crore level which I’m sure going forward writing on the initiatives will get strengthened. Retail deposits continues to be good for us 11.25% including the bulk. Bulk is also pointing out to the kind of high net worth individuals that sort of banks with US 11.43% term deposit at 11.28%. So on our resource mobilization, I think our initiatives the branches are beginning to tick and the growth is now beginning to come.
I think at 9.38%. As I said earlier, it is more than double what we have done on a year on year. So Kafa scale is up 34 basis I just mentioned it is at 26.78 up from 26.44. So year on year deposit growth I think has been steadily picking up over the quarters. From 4.64 it has moved up, now stands at 9.8. So in no quarter we have, you know, the growth has flattened which points out to the kind of focus that we are bringing into the area, into this area. And we expect the CASA also to mirror that going forward.
Riding on the initiatives we have taken on the advances. Yes, on the MSME side we have a lot of initiatives being taken as I did mention the last call as well that we are setting up credit management centers and the quarter we have spent in tweaking this and training a large population of who are going to be in the cnc. The credit channel is managers, you know, undergoing training and as well as we are also looking at setting up the online platform. So there has been a bit of a disruption there which is in the nature of laying the foundation, strong foundation for the investment sector.
In fact this is one sector that this bank would be seriously focused on and you can see some of these as the quarters pass by. Overall on the ran side I think we did deliver. You deliver the bank did deliver 11.93% and of growth and overall growth stands at 10.44%. June we closed at 45% 120 2020. The CD ratio continues to be 8.8 3.86. I think it’s under 85. We would like to see it remain around 85 or under 85. We’re not really worried about this because our capital deposit ratio is in excess of 32% and the leverage ratio is 12.44 which is something that gives us I’m sure not just this bank.
I’m sure the investor community also will take a lot of comfort comfort from that. There has been a lot of talk on in the market about unsecured portfolios, right? I think RBI and the system, the banking industry itself is worried. And when I come to Tamil Nadu Mercantile bank unsecured portfolio just answered 0.28% of the advantage. That is 0.28%. So we are largely secured, our portfolio is largely secured or almost entirely secured. And even in the unsecured exposure The NPA is 0.43%. So even there I think our tight control on the stress continues on the financial performance.
Interest income is up 8.20% and operating profit operating the total income is at 6.77%. Again like I said earlier, there was a one off in Q1 of FY25 which helped sort of improve the interest income in that quarter. If you look at the expenses you will see that There’s a number 20.24 and particularly the employee process 24.24. That is on account of that I just said that the entire performance base instantly 41.27 crores that ultimately in the previous years was amortized over the quarters. We have taken as a consequence a decision to absorb it in the first quarter itself.
So if you remove that, if you even the employee cost comes down to 6.70% comes with 24.24% that is toned there. That also has impacted the operating profit and net Profit is at 6.13. If we had negated although it was in excess of 10%. So the shareholders value we continue to deliver bookward web value of 589 and the net worth of 9,328 crores on the NPA. I think this is again continues to be our major focus in the bank to control these tests. And if you look at it, it is below 550 crores. And that 550 crores has been delivered with zero write offs.
The reduction is entirely the cash recovery and upgrade and also accounting for the fresh addition. So that’s something that we are fairly proud of. GNPA like I said is at 1.22% and MNPA 33 basis points ratio 5 basis points. I think another it is just at 22 crores and down from 54 crores in the previous quarter and year on year down from 5555 crores. SMI continues to be an acceptable level at 3.05% and 10% 1.88%. And the other aspect that I would like to bring to the attention of the analyst is the collateral coverage that we have on this textbook.
As I said earlier, our stressbook GNPA is below 550 crores. It stands at 549.1212 crores and the collateral cover of this book is 108%. And we have provided this book 370 crores. So which means that once we resolving this, which I’m sure will happen over the next year through the year and the year plus this provision that we have given is likely to largely likely to sell. So on the key ratios the mean we did take a bit of a hit 3.84% then this is something that was anticipated and I if you recall I did mention in my last analyst call that our NIM would be between 3.80% and 3.90%.
Of course we did have to rate cuts. That happened half a percent instantly and half a percent subsequently. I think that would that impacts the NIM as the repricing of 10 deposit. I think the bulk of it about 66% of 10 deposits is in the, in the one to two year bucket. So it takes a bit of time to reprice it and that is impacting the cost of deposit. But even then IT is at 6.01% and the yield on advantage is also I think it was marginally come down 10.02 and 3.84 and this, this number of 3.84% going forward we expect it to be in that range or marginally move up.
So I’ll stop here and I think I will take some questions and answer questions and I’ll be happy to answer them. Thank you.
Questions and Answers:
operator
Sure. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press STAR and one on their touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a Moment while the question queue assembles. To ask questions, please press star. And one first question is from Jai Chauhan from Trinetra Asset Managers. Please go ahead.
Jai Chauhan
Good morning sir.
Salee S Nair
Yeah,
Jai Chauhan
thank you for the opportunity. So I just have one question moderating from 4.25 to 3.84 and your guidance of 3.80 to 3.90 for SIPS like I just wanted to know what specific strategy are you implementing for your transaction business group and services initiatives to improve your funding mix and how sustainable is your deposit cost management given the competitive environment? And what levels do you have to defend margins in a declining cycle?
Salee S Nair
Yeah, of course I think it goes without saying that the market is really competitive for deposits, particularly when you look at the flight of deposit, looking for higher yields and happening in the mutual fund industry. So we were conscious of it and that’s why in fact in the last year call or last year call itself, I did mention that we have started a transaction business unit aimed at getting the CASA or retaining and strengthening the CASA base. And. I think over 100 relationship managers have been posted exclusively for particularly the current accounts and current accounts is the focus current accounts and the CASA accounts and they have been posted and they are now in the market and that’s beginning to show in some of the numbers that are coming in. So the CASA mix as I just said riding on the transaction business have been initiated virtually across many of our strategy branches. We do have a manager in strategy branches place to look at the CASA particularly car part of it and like I said that beginning to show some results on a quarter on quarter basis.
Our CASA share has gone up 34 basis and this is something that we will continue. We have just launched in fact in this month an online onboarding process for the current account holders. We are also looking at several initiatives at the branch level itself. In fact we are looking at nearly 200 data entry operators to re pressure on the counter so that they can start also looking at referrals and asking for savings bank accounts. In addition to this we have also setting the motion launched Elite services group that is aimed at the existing depositors, particularly the same bank holders.
And this elite services group would have relationship managers giving them end to end services to some of the high net worth or high deposit customers or others. So that just been set in and both initiatives together I trust and I am sure will help us retain the existing customers as well as improve the casa. The CASA customers going forward and the CASA share in the advances we are hoping that will start inching up and I think is that you want, is that okay or did I miss out any of your, any part of your question?
Jai Chauhan
Nothing. That’s it from my side. Thank you for that answer. Thank you.
Salee S Nair
Yeah, thank you.
operator
Thank you. Next question is from Lakshmi Narayanan from Tunga Investments. Please go ahead.
Lakshminarayanan
Thank you. As a bank, I look at it, we have, we have one of the best roas among all the private sector banks, especially the, the old gen private sector bank. And we have the highest capital adequacy, we have the best gmp. Right. But I find something that’s holding us back from growing our core which is the msme. And if I look at the last full financial year, the growth has come from gold loans and MSME has actually been struggling for us. Now is it a conscious choice or we are actually losing market share? Because when I look at some of the large private sector banks like the ipapi, HDFC or even INDUS and Bank Access, the growth is coming from the so called business banking, SME banking.
While we seem to have either consciously holding us back and I mean it’s just trying to see why with such strong positioning we are holding back growth.
Salee S Nair
Lakshmi, let me tell you that MSME is the focus for the bank. It’s obviously McIndire. Now when you look at the name McIndyre itself suggests that we have to, we are there in the MSME space. If you look at, you know, the first quarter, I was just mentioning that, you know we are putting in place a lot of initiatives, laying the foundation. I did mention in the last call also that we have started, you know, we have set up risk management centers and when we were looking at centralizing some of the process we realized that you know, it has to move in conjunction with the automation of the appraisal process itself.
So I think that process. So we have sort of stepped back from that. The automation process is now being pushed and we expect by September that process to come online. No bank was looking at MSME processing in a manual way and that, you know, you can’t have, you can’t scale up when it is done that way. So we have now contracted with one of the top in the country to source LOS package and a loan management system package. That implementation, we have already contracted, that implementation has started last quarter. It is not an easy, it takes time to get this, get it on the ground and you know, get the productivity gains from that to start coming in.
And that’s one aspect of it. The second aspect of it is that you know, we have, we have also Recognized that some of our, when we enter the market, we should enter with relations managers and credit analysts of adequate skills. And that’s something that we focus in the first quarter so that we have the foundation, a strong foundation laid for a takeoff in the other quarters. So there have been a substantial training. Several in fact credit journalists have been trained twice in the first quarter. In addition to that, even relationship managers have been trained. Even not within the bank, we have also sent them to train outside.
So this skill set improvement that we are focusing on along with the kind of investments that we are doing it on, the online appraisal system which I just mentioned, the loan organization software, the loan management software in the Gemma for me gives me the confidence that the numbers which you look at the first second quarter begin to show. And in addition to that, we have also set up enough PMCs in the other centers. We have not formalized it. We have placed our leadership there and we are getting them to move into the market and start looking at new business.
Now that’s also yielding some business. Some kind of a flow is happening. And today when I look at the pipeline and I am having a healthy pipeline of crores to 1000 crores which is under process and which I’m sure is going to, going to show some numbers, which is going to increase some numbers for the second quarter. So to put it, you know, to summarize it, yes, that is going to be our focus and that is where you will see some numbers happen in the second quarter and going forward.
Lakshminarayanan
So what kind of growth bank is, you know, either internally budgeting is it and which, which is a key segment because last year the growth has come from gold loans and particularly in agriculture. So what, what would make you happy at the end of one year when you, when the full financial year is ended, what kind of growth will keep the management.
Salee S Nair
Let me just, let me, let me tell you that the growth or the focus gold to us is an OTC over the counter that will continue at the branches. The current growth momentum will continue. There is absolutely no, no, no reduction in that. We will continue there. But where the focus of the bank is currently in ramping up the msme. So you look at msme, the continued growth in the, in the, in the gold loan. I think together we’ll, we. I did mention last call also that we are looking at about 15% tender growth. I am not anticipating particularly the MSME side.
Even in the first quarter. We anticipated that there will be a bit of a disruption and the growth will not happen like I Said the foundation is being laid second quarter also I don’t anticipate on growth but not to the extent but in the second half of the current year that is when we would have both our focus areas filling up the loan stuff as well as the loan management. The phase one of the loan management systems also would have gone live. I think we will see the benefit of that in the second quarter. So both together from the 10.44% that is largely riding now on the gold loan we expect once the growth also starts coming in through the MSMEs MSME sector, MSME portfolio.
I think together I think we should face the growth moving up to about 15%.
Lakshminarayanan
One question related to your annual report. In the annual report certain accounts are actually mentioned as fraud. I just want to understand how much of that is actually being provided in the last two, three years. You know what is the breakup?
Salee S Nair
No, I think let me tell you as per regulation the fraud account has to be fully provided in the same year. And obviously the fraud accounts we have provided 100%. But what is the number in India?
Lakshminarayanan
No, because there is a. There is one which was it happened in I think two years back one cotton thing in Andhra which was almost like 165.
Salee S Nair
Yes, Andhra based account and it is in fact the largest of our of our NPA and we have provided it.
Lakshminarayanan
100% and that has been provided as a. Called us called out as a fraud account.
Salee S Nair
See it was declared but they went to court and RBI advises to actually take the tag off. So it is not called a fraud account at the moment. But besides that we have provided as a prudent measure 100% provision.
Lakshminarayanan
Got it. Thank you sir. I’ll get back into it.
Salee S Nair
Yeah, thank you.
operator
Thank you. Next question is from Sanaa from Evergreen Capital. Please go ahead.
Unidentified Participant
Hello, good morning sir and thank you for the opportunity.
Salee S Nair
Yes, good morning.
Unidentified Participant
I have few questions like the first one is as retail in retail advisors we have seen significant growth at 27.91 on bioi basis. Can you please elaborate on which sub segments are like are driving it? Like is it housing loan, personal loan or vehicle?
Salee S Nair
No, I think housing loan has really not is sort of stable at the moment. It’s largely coming out of the personal loans and to a large extent is coming out of the gold loan where we have sort of started prying open that that segment as well from a gold loan perspective.
Unidentified Participant
All right sir? No thanks. And in MSME books there what is the in MSME loan portfolio? Can you please share the composition in the terms of sub segment and which areas are currently under stress and what is the average ticket ticket size of our MSME loans.
Salee S Nair
In the MSME Shy at we do have. You are looking essentially for the stress in the MSME side, right? Or you are looking for the segment of the msme.
Unidentified Participant
I’m looking for like subsegments in it.
Salee S Nair
Subsegment of the msme. Just give me a second, I’ll just get you that quickly. Come to the page, come to the next one by then I’m sure I can get you that. I think textile is a major area for us.
Unidentified Participant
One more question I have like in the changing like there is a continuous changing interest rate environment how how are we placed? Like how are we going to maintain a CASA ratio forward and how are we looking to build it up?
Salee S Nair
I did mention this earlier also that we have taken a few initiatives here. I did mention about an initiative that we took in the last quarter of 25 where we said we are setting up a transaction business group and we have cited the number of Lexic managers in the market to look at the current accounts and the target accounts. And in the first quarter of this year we have also taken initiative in the form of setting up a initial resource group that is looking at the high net worth, the high deposit, high value depositors and particularly on the current account space.
I think that that we have sort of initiated in about about 50 Elite Services Group arms have been sort of set up sort of. We have sort of set them up in the first quarter and together with the transaction business group I am sure that the CASA space we will come back. We have seen some erosion there in the last year and that’s something that we wanted to reverse and we’re happy to state that in this quarter. I think some results are being seen on that and we are seeing like I said 34 basis we have seen in the kata share so reversal that erosion sort of seems to have been able to arrest it.
And in fact, in fact the CASA share has moved up and I am sure that with the kind of initiatives that we are taking we are also looking at several regional incentives in this space. We have brought in the customer experience package has been implemented in the first week of July. We are in the process of completely revamping our Internet banking package so that the customers get the conveniences and several services they have to come to the customer. The branch today is tackled through the Internet banking. So that’s something that we will see happening towards December of this year.
It’s a little distance Away but these are all initiatives that we are taking to arrest the. To strengthen the current account and share these band the CASA concession ratio. And in the branch itself we are looking at you know business process management where we are trying to reduce the. Reduce the current manual workload on the branch so that they have. They are free the from the daily routine, the maintenance work and then put into. They can be shifted into the claims role. That’s also a working process and I’m sure we can. As the days goes by we can give you more color on that.
And the. What you did mention earlier about the. About the area that we are in. I just got that breakup of advances that we have. We are significantly on the textiles we have a thousand out of the total portfolio we have about 1100 plus. On the textiles, food processing we are quite strong. We have about 772 crores. Engineering, iron and steel, about 200, 230 crores. Gemstone, jewelry, chemicals, engineering, construction. I think we are there across several sectors. So it is fairly well diversified portfolio that we are looking at. And within the MSME itself if you look at the micro we have about 9,000 crores small.
The small enterprises at another 3,800 MSME and the medium about 600. So it’s again fairly well diversified. And the ticket size I think would be. I think that’s where one we are focusing and improving the ticket size and it’s about, you know it’s about 20 to 25 lakhs. Closer to 25 lakhs.
Unidentified Participant
Okay sir. Thank you so much sir.
Salee S Nair
Thank you.
operator
Thank you. Next question is from Rohan Mehta who’s an individual investor. Please go ahead.
Rohan Mehta
Hello. Good morning sir. Thank you for the opportunity. I had a couple of questions. Just wanted to get your opinion on what your growth expectations are in terms of deposits. Do you see them outpacing advances and if we have any particular strategy on that front.
Salee S Nair
See the initiatives that we have taken, we have taken on both sides of the balance sheet. We are focusing the liabilities, we are focusing on the assets I just mentioned there must be that we didn’t see the growth coming back into the msme. The first quarter was a conscious call to lay the foundation.
So both sides the growth we expected to move up the deposits we did on a year on year basis. I did mention that we doubled the pace of growth so that growth would continue there. And we are hoping that the end of the year in excess of 10%, maybe between 10 and 12% is what personally I anticipate in response to the Kind of initiatives that we have taken on the liability side, revamping the branches, more branches are coming on stream. We have just done seven branches in the first quarter and we have just appointed the 29 branch managers for new branches.
So that methodology also we are now looking at, you know, we have the branch managers in place before the branch itself so that they can connect with the market and on day one, they can start with a certain critical mass.
Rohan Mehta
So that’s also happening. So the branch expansion is
Salee S Nair
on. There are several initiatives being taken on the virtual side. So altogether we are hoping that we end up the year on the deposit side on a 10 to 12% growth. And on the advances, our ambitions are slightly higher. I think I did mention earlier in response to a call that once the growth in the MSME comes back, which is bound to.
Given the kind of initiatives we have done and given the kind of pipeline that we currently have across the country and across the centers, we expect the MSME to contribute equally to the growth. And we are hoping to close the year with a 15% kind of growth.
Rohan Mehta
So it is happening on both sides.
Salee S Nair
The advanced growth may be. Continue to be a little higher than the deposit growth. The deposit we anticipate, like I said, in the 10 to 12 months and advances closer to 15%.
Rohan Mehta
I see. I see. Thank you. Thank you for that input, sir. In the second half of this year, do you see our cost of funds stabilizing or reducing? Since, you know, that exerted some pressure on our NIMS in the first half,
Salee S Nair
in the second half, I expect that NIM to stabilize in the sense, like I was mentioning earlier, the repricing of term deposits that we have substantial is. It will take a while and as the repricing gets passed on, because quite a bit of repricing on the asset side has already been absorbed. So we expect the NIM to not be stabilized. My personal anticipation is that as.
As we close the year, we should be looking at the NIM in the 3.85 to 3.95% kind of range, because that is the kind of numbers when I extrapolate, I get. So it all depends on, again, on the MSME side. Also, we are consciously looking at how do we price our MSME for a finer. That we get a larger chunk of the market in areas that we operate.
Rohan Mehta
So even after accounting for that, I think that we should be in the
Salee S Nair
3.85 to 3.95% kind of NIM in the year.
Rohan Mehta
That’s. That’s helpful, sir. Just a couple of more Questions. Would you expect our GMRA to move a little higher since SMA2 has also moved up to 1.02% in the coming quarter.
Salee S Nair
SMA2 Again, it unfortunately was a function of precise time when the quarter closes. You know, you had two holidays there. So ordinarily I think, because there was a bit of a spike essentially on that count going forward, I think I don’t see that happening on the SMA2 or SMA itself. I think we are at 3.05%. I think that’s the kind of number I think perhaps even better than that. Right? It is, it will be even better than that.
So I don’t anticipate, you know, some of them clipping into the, into the NPA status going forward. We will continue to keep the npa. My own reading of it is that it will not go beyond 550 at any case. And as the, as the expansion advances portfolio happens as a percentage, it should continue.
Rohan Mehta
Just one last question. If you could give some color on since some of our shares have been in litigation, any visibility on when there can be some closure on that since it’s been weighing on our capitalization and valuations.
Salee S Nair
We did have, you know, there was a we, John. The 7th or 9th of July, forget which date this is. The litigants were before the High Court and, and they are postponed to the October for a final posture. So sometime in October that’s likely. I mean I can never know on the legal side how much time it takes. But what is happening is that is not impacting the band in any way. So that is something that we have ensured and we have also, you know, if you look at the ed’s TOCOS notices and we have got expert opinion from the top, one of the top legal firms in the, in the country and they have stated that it’s not going to really, really impact us given the fact that the TOCOS notice was for the conversion or the issue of bonus shares which involved no additional funding funds.
So I, I don’t think that’s going to impact the bank in any way. But we also like you sir, of the issues before the, before the court and I’m sure, and I really, really can’t put a, put a time frame into that even the kind of, you know, you know, that is normally taken in the legal, in the legal. While handling the legal remedies. Yes. Process.
Rohan Mehta
Fair enough. Just to close it. You spoke about MSME, sir. So since our SMA 0 and 2 both have increased, do you see any stress towards MSME or if you could give some visibility on that.
Salee S Nair
Like I said, one advantage this bank has. I did mention also that while talking about the GNPA that our GNP of current 549 crores is 100 covered by collateral to the extent of 108% when the GNPA gets and we are sitting on a 370 crores of provision. So when the GNPA gets resolved the provision will come back. So that also gives us an advantage in actually managing the MSME portfolio itself. In the sense that you know the request mechanism is fairly strong and that you know, you see it moving between SMA012 etc but it never sort of flows into the GNP and that’s something that we have been seeing and it sort of toggles come back between SMA1 and SMA2 some.
And even in the SMA space itself. It’S, it is, it’s moving around the 3%. So I don’t anticipate stress in the MLB sector in the current portfolio. And like I said, the incremental portfolio that we are looking at, the new additions we are looking at, we are, you know our LMS and LOS packages are getting implemented to just add to that. I can also tell you that we have just built a business rule engine. We got a top management consultant of the country to help us build up business rule engine that just been completed. Now we are in the process of validating the risk modeling that has got into it and trying to embed that into the LMS package and hopefully by September I think we should be able to do that and that should improve the quality of the incremental portfolio that the new portfolio that we are going to add.
So the existing portfolio largely collateralized, we don’t have much of an issue there on the search side. And the incremental portfolio we are putting in place systems to see that the quality is maintained.
Rohan Mehta
Understood sir. That’s reassuring. Thank you for taking my question. Sir. That was all from my side. All the best. Thank you.
operator
Thank you. Before we take the next question, a request to participants to please limit your questions to two per participant. The next question is from Anant Mundra from My Temple Capital. Please go ahead.
Anant Mundra
Hello. Thank you for the opportunity sir. So my first question is on the agri and retail side, most of our. Loans are gold loans. Is that understanding correct.
Salee S Nair
When you say mostly your understanding is right?
Anant Mundra
Okay, okay, answer. So MSME, you mentioned that implementing the Los LMS Q3, Q4 we should start seeing a pickup. But is there any kind of a guidance that you can give us as to what number should this scale up to by the time we exit Q4.
Salee S Nair
See this implementation that we are on. I did mention that the. Even without the implementation itself we have strengthened our relationship mechanism and we have generated a substantial pipeline. So quarter two we hope to focus on the implementation of the LMS below it of course is when you look at the retail side of it. So lms, the loan management system, which not only looks at the appraisal side of it, it also goes beyond the disbursement into maintenance of the technology as well. So it’s going to take some time. I think phase one would be here in the second quarter and phase two we hope to have it in the second and the third and the third quarter we hope to complete phase two.
So despite some disruption that will happen on that, I anticipate the MSME growth to be about. It should be in the 8 to 10% or maybe closer to 10%. That’s what we anticipated. And overall with the kind of focus that we are going to bring into the, into the personal segment, the continued focus on the gold loan collectively we expect the advances number on a year, on year basis raised towards the 15% mark.
Anant Mundra
So we are holding on to whatever guidance that you had given last quarter. There’s no change in any other guidance.
Salee S Nair
That you had given last quarter? No, no, no, no, no. The first quarter like I said, was an aberration because of the foundation that we wanted to lay down for our growth.
Anant Mundra
Even the cost to income. So I mean there’s a presentation I think on slide 26 that the cost to income has constantly been going up.
Salee S Nair
So I didn’t mention this, and I didn’t mention this in my opening remarks that you know, there is there the personal, sorry, performance based incentive that we usually give to our staff for that last year was amortized. In fact it has been amortized over the years. It has been amortized across four quarters over the years and we picked up only 8.7 month crores of that in the first quarter of last year. This year we have decided to absorb the whole PBI, the performance based incentive in one shot in the first quarter itself. That is 41 crores plus.
If you negate that impact your cost to income ratio would be closer to 46 I think something that you can yourself calculate. So that was 41 crores that we did and that also impacted the operating profit, that impacted the net profit. Obviously it would have been much, much better had we amortized it. This is A contribution that we thought of uptrending the entire expenses because this expense actually belongs to the previous year.
Anant Mundra
So this, I mean then of course this should kind of peak in Q1 and then normalize Q2, Q3, Q4 onwards.
Salee S Nair
No, once it has been. Ah yes, yes, obviously, obviously. So once it has been absorbed in Q1 it gets sanitized of Q2. Right.
Anant Mundra
So. So my final question. Sorry.
Salee S Nair
Yeah, tell me.
Anant Mundra
So my final question was that we’re taking a lot of initiatives in terms of, you know, tech initiatives and a lot of capex is going on. So I mean most of this expenses being capitalized or we are expensing it directly from the pnl.
Salee S Nair
See the software is being capitalized. Much of what is happening is on the software side has been capitalized and it has been capitalized over three year period. That means 1/3 of it, 33% is actually only will impact the PNL in terms of depreciation. It has been capitalized and extended off over a period of three year period.
Anant Mundra
Did you give some color on the. I think we were planning to set up some NRI centers and some credit management centers and I think we had even started some pilot on that. So could you give some color on where we are on that front? Two things.
Salee S Nair
NRI center we did. The initiative is on, we have located the place and you know the infrastructure is getting ready. We are also going into the market. I don’t know if you have seen it that we are looking for a leader to head the GNFC that the global NRI center we are looking at. We just come out with an advertisement. We have had two rounds, one round internally to get the right person. So we went out and there was some bit of an issue on the person we stole. So we have come out again. So that process is on and I expect in the second quarter that process will be completed and we would have global NRI center ready for action.
Meanwhile, the focus continues across the branches. We need the leaders so that we get into the linkages not only within India, also abroad. So unless that happens. So that continues to be a work in progress on the CMC and like I said, we have set up the CMC on a pilot basis in Kurtupuri and I have also stated earlier that the leadership for the cmc, the vertical heads and the CMC head we have appointed across all the 12 regions and while the CMC is getting formalized in the other regions we have told them to move into the market and start looking for MSME business in the pilot which is happening in the in Tutukudi region.
The project is on. And that is where like I said, the centralization of process is working well, you know, it is representing in some in a fairly sizable or a significant reduction in the turnaround time. But like I said, all this can, you know, rectify only once the. Once the platform is platform is there and that LMS platform is the one we are currently working on. Platform is completed in September, the phase one I mentioned and the CNC pilot in Tutukudi is on the platform so that we can test out the platform. And once that is completed, I think sometime in October we will sort of move the CMCs into the other regions as well.
So while the platform is moved, the infra is already being built. Like I said, the leadership has already been posted for the kind of takeoff that we are hoping to happen in the third quarter.
Anant Mundra
Thank you, thank you for the detail. That’s it from mine.
operator
Thank you. Participants are requested to please limit your questions to two per participant. The next question is from Jay Prakash Kumar from Coleman Capital. Please go ahead.
Unidentified Participant
SMA account. Yeah. Okay.
Salee S Nair
What specific are we looking at in this.
Unidentified Participant
What is the definition, what is this definition of SMA account? Is it due for some days or here? Because restructuredly I reported separately so I just wanted to understand what is you.
Salee S Nair
Looking at the definition of SMA?
Unidentified Participant
Yeah, yeah.
Salee S Nair
SMA is essentially part one day after 90 days. After that it becomes NPA. And within that 90 days structure, 90 days period you have up to 30 days of SMS 0, 31 to 60 days of SMA 2 and 62, you know, 89 days or 90 days of SMS. Sorry, SMA 2 SMS 01 and 2. 30 days, 30 days, 30 days, right. And 90 days it becomes. So these are what you’re seeing as evolved in the 90 day bucket.
Unidentified Participant
Got it, got it. Thank you sir, thank you. And you mentioned in the last quarter there is some extra capex we are doing in terms of automation and maybe some system implementations. So do you expect this earlier to continue that increased capex or there’ll be some quarter, let’s say by.
Salee S Nair
On the IT side it would continue? Like I said, we have contracted several packages of which some of them have already been implemented in this quarter. On 7 July, the customer experience package that we have taken from one of the leading software companies in the world, Oracle. So that has been implemented in BNB first fortnight of July. So that aimed at, you know, giving the leeway for improving the product for customer at the counter in in the branches and giving a 360 degree of the customers so that you know the customer interaction relationship and with a clear impact on CASA happens.
So that is on the CX side we have implemented, you know, the BMS package which is the vendor management system. We spend about 1,400 crores for running the bank. So that package has also been implemented in July this month and several others are in the hopping. I did mention about the lms. So the phase one is on. LOS also it is on. That is LOS is looking at the retail LMS is looking at the MSME that’s on and I think the first phase one, the phase one is likely to be completed in September and apart from that we are also looking at the Internet banking.
We are completely revamping our Internet banking package. Whatever services is available across the counter, we want to make it available through the Internet banking package. So Eduard, which is the Infosys company, we have contracted them for a complete revamp which should be ready by December and on the 1st of January we hope to have it fully launched for benefit of our customers. So that’s the other package on and within the branches itself to improve the productivity and reduce the manual way of handling it. We have brought in the business process management and I think several projects are underway.
I think some of them have already been done and we are already started getting the benefit of it. I think going forward, I think we hope significant improvement of productivity will happen there. Apart from that, we are also looking at the old record, cartonizing and digesting the old records and moving it out so that we revamp some of our branches from a customer’s perspective. So a lot of initiatives are being taken. I think that’s the first set of initiatives I did mention across whenever I have calls with the analyst in the last two quarters and that’s something on and we will consolidate this for the benefit of business.
We expect the second half to have some impact of it and that is where my confidence comes from. The fact that I can increase the deposit will certainly cross the 10% year on year end and advances will inch closer to 15%. Confidence comes from the fact that some of these initiatives are going to give me leg up in in the second half.
operator
Thank you. Next question is from Sartak from Bullseye. Please go ahead. There seems to be no response from Sartak. We move to the next question. Next question is from Darshan Devora from Invest Group. Please go ahead.
Sarthak
Yeah, thank you for the opportunity. Firstly, congratulations on a reasonably good set of numbers. Especially adjusting for the Q1 FY25 figure as well as the accelerated provisioning for the performance performance incentive which have taken in this quarter. My questions were regarding the loan mix. So currently what percentage of our loan book would be fixed in nature versus linked to EBLR versus MCLR?
Salee S Nair
EBLR MCLR is about 56 EBLR 50%.
Sarthak
So in terms of fix, in terms of fixed is it zero? Fix book is zero.
Salee S Nair
So fixed book, what is the extent of fix book that is negligible.
Right. I. I’ll get you that number. But it is almost entirely the floating split between MCLR book and the EBLR book. Like I said, the 45,000 crores is evenly split between the two almost evenly split 22 book. I think that is very very little, not really good impact.
Sarthak
And you said that the average the deposits will take about maybe overall like maybe a year, year and a half to reach I loan book. Like what is the tenure of a loan book?
Salee S Nair
The average maturity. I think I will have to get you that number because you have that number.
I’ll give you the number.
Sarthak
Okay, all right, got it.
Salee S Nair
And you need to get the average maturity of the terms on the term loan. I think that’s what you are looking for, right?
Sarthak
It will get repriced anyway. I’m assuming it’ll get repriced either.
Salee S Nair
Look at is the term deposit. There’s 66% as I said in the one to two year bucket, another 20% in the six to one. So 86% is you know in that. But it takes a bit of time. I think that’s where the, the pass on nature of your repo cut impacts.
Sarthak
Got it. And just you know in terms of the MSME space you did mention that in terms of your loan book you don’t see stress because of the collateral that you have in place vis a vis the loan amount, outstanding loan amount. But generally speaking, do you see any slowdown in cash flows or in growth of the MSME sector
Sarthak
in the msme? Is that the kind of loyal base that we have, we have been having, we are trying to expand beyond that. Ensures that the collateral factor that is inbuilt into the whole mechanism of credit delivery ensures that even if it gets into an SMA SMA it sort of tosses back into the standard.
It keeps moving up and down on the, on the. So that’s not much of a worry for us. My, our worry is the kind of incremental, you know when the new contract, a new MSME business. How do we maintain the same level of quality. Obviously it can’t be collateralized to the extent that the existing book is, you know, so to that extent that is one of the reasons why we are investing heavily in the, in the BRP and the kind of LML packages and the linkages that with outside world in terms of data collection so that we can cleanse the data quality appraisal.
That’s something that we will take care. But on the cash flow side, as of now we have not seen any kind of, in any kind of, you know, a lowering of it or an area of concern from a cash flow perspective. I think that continues. And let me also give you sir, that we are putting in place a standard monitoring mechanism to study the cash flow from that perspective. That’s one of the other projects that I didn’t talk of that is coming on stream maybe in the third or the fourth quarter. But as of now we have not seen much of ever either.
operator
Thank you very much. The next question is from Santosh from Skkhur. Please go ahead.
Santosh
Hello sir. Am I audible?
Salee S Nair
Yeah.
Santosh
Okay, great. So I have two questions. One is about the. You spoke about NIM in the forthcoming quarter to be something like 3.85, 3.95%.
Salee S Nair
Yeah.
Santosh
So what gives us this confidence in the rate reduction, rate reducing scenario when there is a reduction environment and at present our means are much lower than that. What use of this confidence?
Salee S Nair
See, what we are also trying to do is on the MSME side, we have actually dropped our rates to align ourselves to the market so that in our, to avoid any takeover that may happen. See, we have a sizable goal on where that is going. Right. And there we are introducing, in fact, if I tell you we are introducing 18 products getting to separate segments in the golden portfolio. And this is, this is one portfolio that has been giving us the kind of, you know, support in, for the, for the profits earlier. And we will continue focusing on that.
And there, you know, the yield, we anticipated it to be a little higher than what we are getting earlier because the new products particularly aimed at the consumption segment will carry a higher rate of interest. And I noticed that that segment is in fact growing. So that will help us to weather the policy cuts that we are seeing. That is where the confidence comes at. You know, we can in fact look at 3.85 up.
Santosh
Can we share about the demand in the golden.
Salee S Nair
I’m telling you from the kind of growth I’m seeing it across my branches.
Santosh
Okay.
Salee S Nair
Yes.
Santosh
Second question is about the disclosure. Separate disclosures from Golden So what’s happening is that when you see a presentation we just see a disclosure for RAM subsection that is Retail, agriculture and msme. But there is no separate mention of the gold loan amount that’s outstanding. So any reason we can’t do that because many other banks do that and they particularly disclose gold loan. And then we can understand that’s something.
Salee S Nair
We can do it next quarter onwards so that you get a better insight into it. There is no reason, there’s no particular reason. This is done and it is done. So if there is a demand you will certainly enter to it. We’ll have that done from next part of course.
Santosh
Okay, that’s great. So just now just for the sake of information what could percentage of total ramp.
Salee S Nair
40%.
Santosh
Great sir, thank you so much. And if you all success.
Salee S Nair
Thank you.
operator
Thank you very much. We’ll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Salee S Nair
Yes, thank you Rio. I think like I said earlier, this first quarter is. I look at it more as a stabilizing quarter a quarter that is laying the foundation. And I think the numbers that has been delivered, you know, particularly when I look at the deposits, I think I’m satisfied that my branches are now beginning to deliver. Particularly when I look at the fact that the deposit growth has. The pace of growth has doubled. The copper space is reasonably good. Particularly when I look at the fact that the one time expenditure I have upfronted it and again on the nim, I think the nim, I don’t think we expect the NIM to go down from where it is today.
So the growth along the NIM is likely to push up the profit as it comes in. The next lot of initiatives that are being taken I hope will result in and I’m sure it will result in the process, the number, the growth numbers moving up. I did mention that we expect the deposits to grow in excess of 10% and the advances closer to 15%. So I hope you know my words will be validated by the performance of the next quarter and the quarter will follow. Thank you. Thank you. Thank you all for participating in this analyst meet. And if there are any questions separately also you can take it with us and we’ll be happy to share it. Thank you.
operator
Thank you very much on behalf of Tamil Nadu Mercantile bank limited. That concludes the conference. Thank you for joining us ladies and gentlemen. You may now disconnect your lines.