TAMILNAD MERCANTILE BANK (NSE: TMB) Q2 2025 Earnings Call dated Oct. 29, 2024
Corporate Participants:
Salee S Nair — Managing Director and Chief Executive Officer
Vincent Menachery Devassy — Executive Director
Analysts:
Anil Tulsiram — Analyst
Vinit Jain — Analyst
Lakshminarayanan KG — Analyst
Narendra Khuthia — Analyst
Saket Kapoor — Analyst
Pulavarthi Saikiran — Analyst
Shrish Vaze — Analyst
Chinmay Nema — Analyst
Anant Mundra — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Tamilnad Mercantile Bank Q2 and H1 FY25 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Nair, Managing Director of TMB. Thank you and over to you, sir.
Salee S Nair — Managing Director and Chief Executive Officer
Thank you. Thank you very much for this opportunity. Of course, we announced the results — the quarter results yesterday, for the September quarter of ’24, and we have delivered the highest ever profit — net profit ever in the bank’s history of INR303 crores plus. And this is riding on a net interest income of INR596 crores, interest income of INR1,337 crores and a total income, again, high of INR1,565 crores.
To state some of the highlights for the quarter, on a year-on-year basis, the operating profit has improved from INR365 crores to INR465 crores. It’s a growth of 27.40%. Net profit, as I just mentioned, it is INR303 crores, and this is up 10.58% from INR275 crores in the previous quarter — in September quarter FY24. The net interest margin has increased to 4.25%, an increase of 15 basis from 4.10%. The non-interest income has improved to INR227 crores from INR156 crores. It’s an increase of 45.51%. The gross NPA, benchmark of how we do the credit underwriting has decreased from 1.37% — decreased to 1.37% from 1.70%. That is an improvement of 33 basis points. The net NPA has decreased to 0.46% from 0.99% earlier. That’s an improvement of 53 basis points. Net NPA in fact has more than halved.
The PCR, the on-book PCR, the provision coverage ratio has increased to 66.40% from 41.96%, almost a 25% increase. The SMA to gross advances, when I talk of SMA, it is default to one day, has reduced to 4.16% from 5.59%. So it is not just the gross NPA that has reduced, even the SMA component in the gross advances has reduced, and this has been — this has come down by 143 basis points. So the result of all this is that the return on assets has improved to 1.94% from 1.89%. The capital adequacy has therefore increased to 29.59% from 26.04%, that’s a 3.5% increase from the previous year. Book value of share has increased to INR532 crores from INR466 crores, that is INR532 crores from INR466 crores.
On the growth front, on the business front, the total business has gone up from INR85,092 crores to INR91,875 crores as on 30/9/24. The total advances has moved up from INR37,778 crores to INR42,533 crores, and within the advances, the RAM has moved up to INR39,277 crores. And on the deposit front, the total deposits have moved up from INR47,314 crores to INR49,342 crores. And within the CASA segment, has moved up from INR13,172 crores to INR13,873 crores.
Now when I get to some of the other numbers, the EPS, earning per share has moved up from INR17.27 crores to INR19.15 crores. The other ratios, when I look at the other ratios, I just mentioned about the capital adequacy. This has moved up to 29.59%. The return on equity is at 14.83%, flat at 14.83%, but the NIM, as I mentioned earlier, has moved up from 4.10% to 4.25%, and on a quarter-on-quarter basis has moved up from 4.12% to 4.25%. The credit cost, another barometer of how credit is administered has moved down from 0.85% year-on-year to 0.55%. Even sequentially, quarter-on-quarter, it has moved down from 0.89% to 0.55%.
The cost of funds for the bank has been impacted, and it has gone up 13 basis points from 5.79% to 5.92%. And this is also true not only of sequentially it is also true quarter-on-quarter where it has gone up 13 basis points, but it has been more than offset by the yield on advances, which has gone up year-on-year from 10.19% to 10.47%. Even sequentially from — quarter-on-quarter, it has moved up from 10.22% to 10.47%.
Moving to the — to give some color on the NPA, the significant — we have the NPA’s mix at retail at INR32 crores. I don’t have the percentage here, right? Agri, 48 [Technical Issues] which has been worrying the bank has been contained, is at INR274 crores. It is being tackled progressively and you can see the progress on that in coming quarters. And the slippage ratio, quarter-on-quarter, it has come down from 0.84% to 16 basis, 16 basis. The total slippage across all segments was INR63 crores for the quarter, and it is flat when you look at it — almost flat when you look at it on a quarter-on-quarter basis.
The movement of NPA, as I just mentioned, there was a reduction in the NPA of INR66 crores and the slippage was INR63 crores with the result of the overall NPA has reduced from INR587 crores to INR584 crores for the system. That’s where I say not only in terms of percentage, which largely is a function of the denominator and the expansion of the advances portfolio. Even in absolute terms, we have reduced the number from — the NPA number which has gone down, as I just mentioned, from INR587 crores to INR584 crores.
SMA is well contained. Even SMA 2 is just at 1.15%. As I mentioned earlier, the entire SMA portfolio from default one day is contained at 4.16%. So the entire portfolio which is in the SMA or NPA category is just about 5.5% of the entire advances book. So I think that points to the credit quality that is being maintained by the Tamilnad Mercantile Bank.
On the stressed assets, restructured assets, again, it is getting contained. It is down from 3.23% to 2.42%. It is an addition of the restructured asset advances as well as the gross NPA. So there also, you see that it is almost a percent that has been knocked off.
Operator
Sir, should we start the question-and-answer session?
Salee S Nair — Managing Director and Chief Executive Officer
You want to add something? I think I’ll leave it to Vincent to…
Vincent Menachery Devassy — Executive Director
Yeah. Good morning, everyone. MD and CEO has mentioned about the highlights of the performance and the improvements, all-round improvements which the bank has made on all areas of efficiency and profitability and also asset quality.
One or two more points which I would like to mention. MD has clearly mentioned about the SMA, what is the SMA and NPA put together and what is the stress to the portfolio overall. And if we look at the sector-wise SMA position, I would like — I am happy to mention that while our NPA in others is now at the highest INR274 crores, but if I look at the SMA, it is only 0.21% of the advances only, SMA category, SMA 0, 1 and 2 put together in others. In MSME also, we were able to contain in a big way. We had a SMA position of 2.19 during Q1 ’24-25, which has come down to 1.78, again showing a very strong position as far as the asset management is concerned. And in agri, I am really happy to mention that our stressed SMA 0, 1, and 2 is only 0.27 of the portfolio, and in retail, it’s only 1.91. So overall, the manage — asset quality management, I would say that it is well under control. We have built a very strong advances book and the stress level is very less going forward — is going to be very less going forward. Thank you.
Operator
Thank you very much.
Vincent Menachery Devassy — Executive Director
Yeah. Over to you.
Operator
Yes, sir.
Vincent Menachery Devassy — Executive Director
We can take the questions.
Questions and Answers:
Operator
Sure, sir. Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Anil from ContrarianValue Edge. Please go ahead.
Anil Tulsiram
Yeah. Thank you for the opportunity. My first question is, we have very strong presence in Tamil Nadu. So what are the strategic plans for expanding further within southern India and potentially other regions?
Salee S Nair
Yeah. Thank you, Anil. I think what we are — we have a plan to open 40 branches in all — in the current year. We have already opened 15 of them. Four have been opened outside the state of Tamil Nadu and 11 have been opened within Tamil Nadu. We have been also facing a challenge of sourcing resources from outside Tamil Nadu to open branches there. Essentially we need a local connect to make a branch a success and get the business.
So what we are addressing is we are taking 170 new officers from the market essentially from outside Tamil Nadu to ensure that our branch presence outside is strengthened and some of the branches we will be opening in the remaining part of the current year would be outside Tamil Nadu and will also ride on the kind of numbers we get from outside Tamil Nadu. The 170 number that I just mentioned would be aimed at opening new branches outside. So the mix of outside branches and within Tamil Nadu branches is something that will depend on the pace at which the branch opens, but ultimately our game plan is very clear that we would be looking at a significant presence outside the state of Tamil Nadu. And the first step in that is hiring resources from outside from the market. The number of 170 is the initial intake I just mentioned.
Anil Tulsiram
Thank you, sir. And the second question is, apart from the existing products, do we plan to launch any new products? Like in the past, we mentioned about affordable housing and gold. So what are our plans for the new products?
Salee S Nair
No. As much as the new products, we are also looking at entering new areas, right? We will be refining the products as we go. The existing products will be sort of refined further to suit the market. That’s certainly on. We are also looking at putting an offering of the recurring deposit in some fashion in that deposit side. But as much as that, we are also looking at entering new areas, as I just mentioned earlier. We are seriously looking at the NRI clientele, NRI customers, and we are looking to open a global NRI center in Cochin. I think that we will try and open for the next — over the next two quarters, aimed essentially at the NRI clientele in the West Asia, in Singapore, in Malaysia, and the world over. Currently, I think our deposit is — the NRI deposit segment contributes just about 4%, and this is something, through opening of this, we expect to ramp it up to over 10%.
We are also looking at a transaction business group, again, looking at current accounts and looking at the entire gamut of operating accounts of the business community, including some of the institutions, temples, societies, governments, and we would be ramping up our presence in the market by hiring feet on street. And this is something again we will have it ready over the next two quarters, and the current account and cash management products, PoS machine, the whole gamut of that would be looked at by this transaction business group and I’m sure that is going to — that will bring Tamil Nadu back into the business community. And as you know that the current account is the trigger point for actually launching some of these customers into the credit area where we gain confidence in giving them credit.
So apart from that, on the credit side also, we have looked at a couple of major offerings are coming on. We are introducing our TMB GST, which is an overdraft facility based on the GST data analysis that we will do. This is going to be online. Apart from that, we’re also introducing a Mini LAP, entirely online, except for that segment where the physical analysis or physical requirement of having the mortgage done. And hopefully, I think this Mini LAP, we intend to deliver in three to four days. And the in-principle should be — would be delivered in a matter of hours.
Apart from that, some of the deficiencies that we have noticed in our services, we are addressing them. Especially we have just got our approval and we have integrated the GST. GST payment has been integrated with our system; we are into the CBDT area and the customs, I think, over the next two quarters, we will be on their platform. Along with this, we are also having a serious look at our Internet banking and mobile banking and to address to — and to enhance the effectiveness of this, and to not only — to benchmark them not only against the market, we are also seeing as a late mover can be even better the products in the — as compared to the peers in the market. Yeah. Anil, thank you.
Anil Tulsiram
Yeah. Sir, one last question. Our NIMs and ROAs are highest among our peers. So is it sustainable and what are we doing that it remains sustainable?
Salee S Nair
NIMs at 4.25%, I think as the business expands, some contraction is necessary — I think would be inevitable, but we will try and protect or defend the 4% NIM. What was the next one?
Anil Tulsiram
Return on assets. Our return on assets around 1.8, 1.9 again is the highest.
Salee S Nair
Return on asset, again, we would be looking at in the range of 1.75 to 1.80. 1.75 to 1.80 or maybe between that 1.75 to 2. Shortly 1.75 will be defended.
Anil Tulsiram
Thank you, sir. Thank you and all the best for very detailed answers. Thank you so much.
Salee S Nair
Thank you.
Operator
Thank you. The next question is from the line of Vinit Jain from Siddhi Capital. Please go ahead.
Vinit Jain
Hello. Am I audible, sir?
Operator
Yes, sir. You’re audible.
Vinit Jain
My first question is, we have opened 15 branches in the half year. So do you think are we on track to completely open 40 branches by the end of this financial year?
Salee S Nair
No, like I said, we held back opening up the branches because our desire was to sort of improve our presence abroad, and we also had a resource challenge. So the branches would be opened because, as I said earlier to a question from Anil that we are sourcing 170 new officers from the market, precisely for augmenting our resources with the intention of opening branches. So in the second half, opening 25 branches is something that we will focus on and I see no reason why we will not be able to accomplish that.
Vinit Jain
Okay. So in the past, the bank has mentioned about centralized stream for MSME disbursals and increased focus on the segment, whereas when we look at the numbers, most of the growth is visible in the agri segment. Can you please explain your strategy towards disbursals within the three segments, retail, MSME and agri?
Salee S Nair
So what we are also now looking at, we are — yes, we set up a few centralized MSME hubs, right? And what we are now looking at is a bit of a course correction. We are elevating that MSME hubs into credit management centers where — and moving the credit itself out of the branches so that the branches can focus more on — in the deposit, strengthening the deposit franchise. In the credit management centers, one of the issues that we have is the skill set and that’s something that we will seriously focus on. We are also looking at layering the relationship managers with senior relationship managers, either internally or source from the outside of high quality, high skilled persons who will be looking at the larger value loans and others will be looking at the smaller value. I think this is a lesson that we are — the feedback we are getting and the architecture will be strengthened based on that.
Along with that, the credit management center would not only look at the MSME piece. It will also look at the retail piece per se. So if you look at the agri, the growth in agri has come largely from the agri gold loans. So to push the retail and to push the MSME, we are creating this central management center — sorry, credit management centers, and I hope in the next two quarters, this will be up and running. And this will be specialized setup with shared services and with feet on street and adequately staffed with skilled people, and I am hoping for a significant growth in the credit area, particularly in these two segments going forward. We hope to close the year with a 13% growth in advances per se. And I think we can — we are looking to grow at least 15% in the coming year.
Vinit Jain
But just to get a number from you — sorry?
Salee S Nair
Sorry. No, I’m saying that additional growth is going to be contributed by MSME and retail segments.
Vinit Jain
Okay, okay. Sir, coming to the next question, you have already mentioned about the IT upgrade, which you guys have been looking at. Certainly, the bank is lacking at the net banking interface and also the linkage with CBDT has been a very long waited facility from you. So is there a timeline where you can tell that the net banking experience will upgrade for the customers and when can you have the CBDT linkage for direct payment of taxes, direct access, I must say?
Salee S Nair
Our desire and the focus would be — to have the revised Internet and digital offering in place by the first quarter of next year. As I said, the GST has already been integrated. CBDT is going to be done. CBDT would happen over the next 10 days. Your customs, I think, could take a little more time, but the Internet and digital offering would be in place by the first quarter of next year. IT is not an overnight job. It takes time to study the gaps, to look at what the other peer banks are offering, how do we offer them or perhaps better them. So I think the job is on.
Vinit Jain
Sir, one last question.
Salee S Nair
Additionally, let me also tell you that we are taking — we are augmenting our IT resources. Again, we are taking about 47, Ramesh? 47. 47 IT personnel from the market and that also would be necessary for augmenting our IT offerings.
Vinit Jain
How much on the OpEx do we expect to increase on the cost?
Salee S Nair
The OpEx you have any number on that? I think we will be spending INR100 crores at least on the CapEx side and INR100 crores on the OpEx for maintaining that. And this of course — going forward this will not be essence to, and I think we will look at whatever is required to match up to the market in the IT space.
Vinit Jain
And last question, sir. With the CD ratio about 86%, are you looking to raise funds through other channels to fuel the growth?
Salee S Nair
We would be looking at. In fact, initial phase, because we are still comfortable on the funding, we do have an excess SLR already available to fund growth for some more time at least for the current year. We would certainly be looking at some of the refinance opportunities from SIDBI, NABARD, NHB et cetera that is initially available. We will certainly be looking at it. Other forms of funding, we will be — we will not be looking at in the current year, but we will be laying the path for that in the current year and we will be seriously looking at it next year. Meanwhile, like I said, we are also looking at our — how our deposit franchise is strengthened and the — how the deposit engine fires. I think that’s something we are on the job on a day-to-day basis here to see that it moves up.
We’ve been looking at some of the, like I said, certificate, deposits et cetera, perhaps IBPCs, inter bank participation certificates, deposits et cetera, looking at the need, and like I said, not this year, but perhaps next year. And we’ll also look at some — whether we can raise some of the resources through securitization piece. That, again, is not something that we’ll be considering this year, but everything will be on the table come next year.
Vinit Jain
Sir, one last bit on — can you update on the launch corporate account?
Operator
Sorry to interrupt you, sir. Sorry to interrupt you. I would request you to please rejoin the queue for your follow-up question. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants, please limit your questions to two per participant. If you have a follow-up question, I would request you to rejoin the queue.
The next question is from the line of Lakshminarayanan from Tunga Investments. Please go ahead.
Lakshminarayanan KG
Thank you. Sir, a few questions. First is from your retail book, the average ticket size seems to be around INR6 lakhs or something. And I also understand that most of our loans are to home loans and LAP as well as there is also a bit of loan against shares — I mean, loan against deposits et cetera. So just want to understand what segment we are lending in, what’s the kind of product depth we have in retail. And if our average ticket size is just around INR6 lakhs or so, what kind of home loans we are doing? And how do you intend to increase this retail? I’m asking this specifically because both you and the ED have come from an eminent bank which is into — which actually really expanded in retail. So what are your learnings and what do you want to do in this bank? That’s the second part of the question.
Salee S Nair
Retail book, you are — I don’t know from where you got the INR6 lakh ticket size, is that right? It’s actually I think INR20 lakhs.
Vincent Menachery Devassy
INR6 lakhs includes the entire portfolio, which also includes our jewel loan. So if you add jewel loan and add all retail, and if you divide the total outstanding by total number of accounts, of course, will be INR6 lakhs, but that will give us a completely misleading picture. If I remove my gold loan from the overall portfolio, if I take only housing loan, it is in the range of INR25 lakhs to INR30 lakhs. And we are mostly focusing on tier 3 — tier 2, tier 3 centers and our home loan penetration in tier 1 is less and that is the reason why it is roughly in the range of INR25 lakhs.
Salee S Nair
And Lakshminarayanan, one more thing I’ll tell you. We are conscious of the fact that servicing small loans entails an HR cost. So we would also be looking at how do we improve the ticket size across all segments. Of course, jewel loan is something separate because it is need-based and we are not prescribing any kind of value proposition there, but others, we will be seriously looking at how we can tap a higher segment. That’s going forward.
And as to your next question, having come from SBI, both of us rather, I think I’m happy that you realize that we have come from SBI, I think we would be certainly looking at modernizing the bank. I think this is something I have been telling to my guys also, how do we convert a 103-year-old bank into a 103-year young bank. And I think that requires reinventing the bank itself and modernizing the bank. I think that’s a job. You’ll see the results of it over the next two, three quarters.
See, some of it requires a serious infusion of technology, automation of processes and how do we reduce — increase the productivity of the staff by reducing the cost of dealing both by the customer with the bank and dealing with — internally how do we increase the productivity by reducing the cost of operations itself. I think that’s a serious effort that we are engaged in. I think it will take a while for the results to be seen. We are on — several projects are on the drawing board towards this in the technology sphere, and I think some of the impact would be seen maybe in the second quarter of next year. It’s something that you will have to bear with us. We’ll have to be a little more patient.
But like I said, we have seen numbers that are significantly larger, 50, 60 — 50 to 100 times the size of this bank and we will see that that experience is brought to bear on this bank and the growth numbers is something that we will push going forward without compromising on the profitability angle and see our underwriting skills, how do we automate the process of credit delivery, particularly in the smaller segments. You did mention about INR6 lakhs of ticket size and that — how we can deliver it largely in an automated manner is something we are already on the job. It’s on the drawing board, getting a business rule engine to tackle some of the MSMEs up to INR50 lakhs in the initial phase and going forward — and setting it larger later. It’s all on the drawing board. And one of the focal point or focus point of creating this credit management center is precisely towards that, to bring in operational efficiencies and to bring in a substantial technology effort at automating the whole process along with getting a specialized team to manage the credit. You will see all the results of that I think, like I said, perhaps in the second quarter of next year.
Lakshminarayanan KG
Got it. Sir, my second —
Vincent Menachery Devassy
Lakshminarayanan, a small piece of clarification. See, we have mentioned about the average ticket size and all. This jewel loan general category, which is non-agri, is classified under retail. So that is one of the reasons why we get a distorted picture. Second, if I look at the home loan outstanding, outstanding to the total number of accounts, the average will come to INR12 lakhs. The main reason is some are repaid, some are during — in the course of repayment, some are only partly disbursed. So I have not calculated on the basis of the limit sanction. If I take the average to — the outstanding to the number of accounts, then it is INR12 lakhs. So it is basically because of the repayment and also partial disbursement. Thank you.
Lakshminarayanan KG
Got it, got it. Maybe —
Salee S Nair
Just to add — Lakshminarayanan, just to add, we have just signed a good historic, I would say, wage revision where we are shifting the staff from a fixed model into a CTC model. In fact, it was earlier 19% was on CTC model. The late entrants were on the CTC model. We are now shifting them substantially into the CTC model. 79% would be the final number. So the CTC would be designed. The variable pay would be designed to ensure the growth for the bank. So that’s also one piece that we have sort of tackled.
Lakshminarayanan KG
Okay. So you mentioned a percentage, how much will be now shifted to the variable CTC model, sir?
Salee S Nair
79%.
Lakshminarayanan KG
Sorry, 79%?
Salee S Nair
Not only 79%. There is a 79% as a number that has already been shifted. In the balance 21%, we expect a substantial number also to move in — we have given the options to move into the CTC. We are awaiting their response, but we see a substantial number there also to move into the CTC model. But as it stands, 79%; going forward, another 5% at least to move, at least to move.
Lakshminarayanan KG
Got it, got it. Sir, my second question is that, you mentioned a few people have joined, around 40 odd people have come in the IT division. And I believe that the IT division is based in Chennai.
Salee S Nair
Sorry, I think — if you thought it — I didn’t say they have joined in. We are sourcing them.
Lakshminarayanan KG
Okay. So now this IT team will be — I remember IT team was based in Chennai. So these — this entire staff will be based in Chennai?
Salee S Nair
Yes, yes, yes. Largely they’ll be in Chennai because sourcing of talent to Thoothukudi is a challenge that we have. So this will be in Chennai.
Lakshminarayanan KG
Got it. Sir, one more question if I can squeeze in. So if I just look at your agriculture loans, is it right to say that around 80%, 85% of your agriculture loan is gold loan?
Salee S Nair
It is substantially gold loan. I don’t have the numbers right now. I can get the numbers, but it’s substantially gold loan.
Lakshminarayanan KG
So maybe going forward, in the presentation, if you can just give granular details of the RAM portfolio —
Salee S Nair
We will do that.
Lakshminarayanan KG
It will be helpful for us, we can save some time. Thank you so much. I’ll get back in queue.
Operator
Thank you. The next question is from the line of Narendra from RoboCapital. Please go ahead.
Narendra Khuthia
Hi, sir. Am I audible?
Operator
Yes, sir.
Narendra Khuthia
Thanks for the opportunity, sir. My first question is regarding the MFI exposure, right? So how much of our book is — comprises of micro finance? And are we seeing any stress in any of the segments that we operate in or any geographies? And consequently, what would be our outlook on the credit cost?
Salee S Nair
Yeah. Going forward, I don’t see the credit costs impacting the bank’s functioning much because as a — the unsecured component is — in the bank’s portfolio is less than 1%, and we are not seeing any significant presence there as well. So I don’t think that’s a challenge that I foresee in the next few quarters or going forward. And we will be very, very, very careful in looking at or looking at unsecured portfolio and certainly mindful of the consequences that the market is facing in that area.
Narendra Khuthia
Okay. Okay, understood, sir. So can you expect the credit cost to remain the same at current levels going ahead as well? And what would be your microfinance exposure?
Salee S Nair
Microfinance exposure, like I said, unsecured micro finance exposure would be — I don’t have the number, but it’s insignificant. Insignificant. I think it is not there, right?
Operator
Yes, sir.
Narendra Khuthia
Yeah, yeah. Credit cost same?
Salee S Nair
I think like we said, micro finance, I think, it is practically not there. Not something that worries us at all.
Narendra Khuthia
Okay, okay. Understood. And sir, following up from the previous participant, right, so on the growth part, right, so where do we see — at what size do we see our book to be in FY26 or FY27, if you have a target in mind this should be our loan book number?
Salee S Nair
Very, very — going forward, we will have to look at the impact of what we are engaged in currently. Like I said, we are engaged in several structural changes aimed at kick-starting the — or improving the deposit growth on one side and growth of advances along with quality of the growth on the other side. So the impact of that is something that we will have to evaluate before giving a guidance for the ’26-27 et cetera. But this year, I am hopeful that your advances number should cross 13%, and the deposits should be in the 7.5% to 8% range.
Narendra Khuthia
Okay. And the cost to income?
Salee S Nair
Obviously when I say that, with the structural changes happening and the beneficial impact of it, next year, the numbers for both deposits and advances would be significantly higher. I’ve given you for the current year. The next year would be significantly higher. I’m not going to hazard a guess on the number right now until I evaluate the impact of the changes happening on the ground.
Narendra Khuthia
Yeah, yeah. But that should be better than this year, right?
Salee S Nair
Yes, definitely.
Narendra Khuthia
Yeah, yeah. Understood, sir. And sir, last just one thing I could ask. The cost to income, given that we are investing so much on tech and branch expansion and stuff, so would it remain at the current levels, slightly go below or is there a scope for reduction?
Salee S Nair
The cost to income is currently at 40%? 43%. This 43.51%, the cost to income — it is at 43.51%. It has come down from 46.99% earlier, but sequentially from quarter-on-quarter, it has moved up from 41.42% to 43.51%. One of the — one aspect, perhaps we will not be able to take advantage in the coming quarters is the PSLC income, right? So I suspect this will move up marginally up. I don’t think — but it will be somewhere in the 45% range.
Narendra Khuthia
Okay. Okay, sir. Understood. Thank you and all the best.
Operator
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Mr. Saket, I would request you to unmute your line.
Saket Kapoor
Yes, yes. Yes, madam. Thank you. Namaskar, sir. Thank you to the team for organizing the call. Sir, firstly, as you alluded to the point that we will see transformation for the bank going ahead in terms of the improved business and continuity in profitability. So sir, how are we going to firstly garner deposits for the same? And then secondly, sir, our lending is only towards the RAM segment. So how are we going to diversify into the same or are we going to remain focused only as a RAM player? And sir, you mentioned about the employee cost, this variable pay part, so — and there was also one — some provision of INR117 crore or INR118 crore that we took. So if you could just explain how this employee cost line item is going to behave on a quarterly basis. And then I have a small — one more point to make and I’ll join the queue.
Salee S Nair
Yeah. First question on the deposits. As I was mentioning earlier, we are engaged in setting up and elevating the MSME hubs into credit management centers where we are trying to pull out the credit activity from the branches into these credit management centers for operational efficiency and for ring-fencing the skill set required to manage the credit. So when that moves, along with that, a lot of ancillary functions also will move to the CMC, the credit management center, freeing up the branches from this activity. We noticed — when we did an analysis, we figured out that one of the areas why deposit was not picking up in the branches was because of their attention and because of the focus on the credit and maintaining the quality of the credit and the subsequent audit that happens, tying down their resources.
So once that is freed, we believe the branches’ focus can be brought back into the deposits and their only area of the — mandate, rather the mandate would be the deposits itself, and we are going to see significant — we anticipate a significant growth there. Apart from that, we are also — to augment or verticalize the deposit measures, we are also looking at setting up an NRI center to drive the entire — to bring in focus to the NRI deposit and drive the NRI business across the bank. So that’s another one that will be adequately staffed with presence perhaps even in agents outside the country. And we are also looking at setting up the transaction business group, which would be aimed at the current account. So we are a business-focused bank and we would like to bring that business back into it by getting into the transaction business, managing the operating accounts of our businesses.
And the entire — the product offering would be refined or added to look at their requirements, and this is one focus area where we will — looking at current accounts, doubling our — fiercely looking at it and over the next two years, doubling our penetration into this segment, as well as this will also — should also serve as a lead generation point for our credit offtake. So substantial work is on to improve the deposit base. Like I said, we expect the deposit base to close this year with 7.5% and substantially improve the growth in the coming years.
Saket Kapoor
Sir, the MSME part of the story — yeah, please.
Salee S Nair
Sorry?
Saket Kapoor
You were telling something, sir — may I continue, sir?
Salee S Nair
No, I was just going to the next question that you had asked about the employee cost.
Saket Kapoor
Okay, okay. Please.
Salee S Nair
We had anticipated the employee costs will go up by about INR5 crores per month. And it has been anticipated and provided for. If you look at your results for the quarter, anticipating the requirement, we have already provided for this. So the impact on the profit is going to be minimal going forward on account of the wage revision. You were saying some —
Saket Kapoor
Sir, I missed your number on employee cost. What would be the quarterly number going ahead on account of employee cost?
Salee S Nair
I’ll just give you that number.
Saket Kapoor
And sir, this — the MSME transition story of creating more business, I will take it offline, I could not make the entire part of it. For the NRI deposits — sir, for the NRI deposit part, have we done the groundwork and we will be implementing the same in the near future or we are just scratching the surface now for this?
Salee S Nair
No, no. I think it is just off the drawing board. The groundwork is being — we have just begun the groundwork for it. It is not something that we anticipate any benefit to accrue in the current year. It is more — I think we would hope to get benefit of it in the next year.
Saket Kapoor
Okay. So this will take time to mature or even to kick off?
Salee S Nair
See, structural changes or the transformation, as you put it earlier, is certainly going to take time. We’ll have to — we will keep the engine running until this take roots so that we can push the car into a different speed of it.
Operator
Sorry to interrupt you, sir.
Saket Kapoor
And madam — ma’am, I will join the queue. Please provide an opportunity once again. I have a couple of closing points from my side. Thank you, sir. I will wait in the queue again.
Operator
Sure, sir. Thank you.
Salee S Nair
Thank you.
Operator
The next question is from the line of Pulavarthi Saikiran from Pulavarthi S Advisors. Please go ahead.
Pulavarthi Saikiran
Yeah. Hi. Thanks a lot for taking my questions, sir. You have been a couple of months in the bank. Just want to understand sir, how are you looking at a bank like the size of TMB in the next three years? And what are your priorities and then what kind of timelines and then targets and goals you have for the bank as such? As an investor, it will be very helpful to understand in which direction the bank is moving. That’s the only question I have. Thank you.
Salee S Nair
I think the answer would be modernize, modernize, and modernize, right? Get back into roots, get back into our — into the forte that we were comfortable with earlier, the MSME area. We had a strong deposit franchisee that we intend to recapture by various initiatives that is on the anvil, I’m not going to get into the details of it, including the digital offerings which we are trying to revamp. All this will take time and the results of it, I expect to start being visible from the second quarter of next year or the first or the second quarter of next year onwards, we are going to see visibility on this. So going forward, in three years, it is going to be a completely different bank.
Pulavarthi Saikiran
Sir, if you can provide us further details in terms of the priorities for the bank. When you say modernization, if you can dwell a little further, that will be really helpful.
Salee S Nair
I think I did mention that in the earlier — when I was answering the earlier analysts. One, of course, is that we are centralizing the credit delivery. We are automating the credit delivery in a substantial manner. I think below a certain ticket size, immediate would be INR50 lakhs, we would be automating it totally. We are also looking at significantly improving the skill set of personnel in the credit management center, the centralized credit delivery platform that we are going to have. We’re going to have one each per region with an apex at the head office managing it. That’s going to take care of the credit side of it.
And when the credit is going to move out, the branches are going to be freed and we are going to use the branches for seriously strengthening our deposit franchise. We are looking at increasing our digital offering, customer conveniences, reducing the cost of customer to deal with the bank as well as reduce the cost internally in managing some of the activities within the bank. So process automation is something that would be looked at. Like I said earlier, we are — this would be — we’ll be partnering several firms outside and pick up softwares on a build-operate model. We are also looking at sourcing resources from outside, particularly in the IT area. I just mentioned that we’d be getting at least 47 over the next few months to drive this. While we partner them, the customization of — would be significantly done by our own resources. This is the first intake that we will have, the 47 resources that I mentioned.
We’re also looking at getting into — deepening our ties within Tamil Nadu branches as well as strengthening our branch network outside. I mentioned earlier that we’d be opening 40 branches. That task is on, and to staff some of them, to relieve the pressure on the staff, we are also getting 170 officers recruited and they will be recruited outside Tamil Nadu, to be stationed outside Tamil Nadu. So that’s something that we will be focusing on. I did mention about some of the other aspects that sort of moved out of the drawing board, which is NRI center that we are focusing on, looking at increasing the current 4% share of the deposit base to over 10%. That’s something that we will try and see whether we can achieve it by the first quarter of FY27 to raise it beyond 10%. We are — I also mentioned that our offering to the — the cash management services offering to the current account holders and the businesses, which was our strength earlier, would be brought back and the entire gamut of our offerings will be digitalized. And that’s one area that we are seriously looking at.
Operator
Thank you. [Operator Instructions] The next question is from the line of Shrish Vaze from Moneylife Advisory Service. Please go ahead.
Shrish Vaze
Thank you, sir, for the opportunity. So my first question is regarding the gold loan. So could you provide the proportion of gold loans as a percentage of the total loan book? And what would be the split between retail and agri? And if you can also provide the LTV at which — for the total gold loan portfolio.
Vincent Menachery Devassy
Yeah. So gold loan we are very mindful of —
Salee S Nair
No, I think Vincent would answer that.
Vincent Menachery Devassy
Yeah. So gold loan, you have asked about the LTV. So basically RBI has given a clear-cut picture — direction as to what should be the LTV. And we are well within that LTV for different segments. So the LTV for retail and SME will be different from that of agri. So we are mindful of that. And we have a monitoring system also put in place to ensure that at any given point of time, there is no LTV breach, and we are also developing capabilities to ensure that sufficient advanced warning signals are generated by the system the moment it nears the LTV level.
So I didn’t get the first part of your question. You were asking about the percentage between retail and agri. So out of our total agri portfolio, I would say that around 85% will be — it may be 1% or 2% here or there, around 85% will be agri and the remaining non-agri. We will be foraying into another segment, which is SME, and the work is on, and that product will be rolled out in a very, very few days’ time or maybe one or two weeks’ time.
Shrish Vaze
Yeah. So just if you can provide me the proportion of total gold loan book as a percentage of the total loan book, what would be the number?
Vincent Menachery Devassy
Yeah. As you know, our total advances portfolio is INR42,533 crore, of which housing loan is roughly INR5,000 crores, INR4,898 crores. Jewel loan is INR15,639 crores; roughly INR15,650 crores. That is the total jewel loan out of INR42,533 crores of total advances portfolio.
Shrish Vaze
Got it, sir. My second question is, around that — there was a news — there was some news that the bank had hired an external consultant for revamping the MSME strategy. If you can provide some details around this, like what exactly are you thinking and what exactly are you thinking around this strategy and what exactly is the consultant task is, like around revamping. Thanks.
Salee S Nair
The consultant task is two-fold in fact. One of course is this — the way credit delivery was happening in the bank was largely manually done. So the — automate the process is one aspect of it. The second is getting the skill sets centralized and creating the hubs. Now we have elevated that to the credit management centers. So they would be looking at both these aspects, which is the automation of the credit delivery mechanisms, and the second, of course, as I mentioned, setting up the credit monitoring centers.
Operator
Thank you. The next question is from the line of Chinmay Nema from Prescient Capital. Please go ahead.
Chinmay Nema
Good morning, sir. Hope I’m audible.
Operator
Yes, sir. You are.
Salee S Nair
Yeah.
Chinmay Nema
Yeah. Sir, just wanted some color on the large ticket size lending that we are into. So last year around this quarter, we had some large slippages due to some of the larger loans that we have given. Just want to understand what is the lumpiness in the current book and what are the segments that we operate in in larger ticket sizes and where do you see this book going?
Salee S Nair
No, I think as I was mentioning, we did have a not-so-good experience of the large bouquet size earlier, and we have been consciously wearing that down. And it currently stands at just about 8% of the total book and we are not getting into any of the large segments or the corporate at all at the moment. And we will get our house in order before we look at changing the mix of our portfolio and we would certainly maintain 90% at the retail, agri, and MSME space. And we may not be looking at growing the corporate book in any significant manner going forward.
Chinmay Nema
No, are we actively running — churning down that book or are we limiting our exposure to whatever relationships we have right now?
Salee S Nair
No, we are maintaining the existing relations, yes, but we will also see whether we can continue to have an 8% to 10% of corporate book. As the book expands and our — we would certainly keep — like I said, it’s not the focus at the moment, but as the book expands, we will be looking at some — the corporate book going forward, but the ticket sizes would be — would not be something that will shake the market.
Chinmay Nema
Sir, would it be possible for you to call out the average ticket size in this segment?
Salee S Nair
I think I don’t have the number right away. I can furnish it to you, but it’s not very significant. Like I said, it’s just about 8%. And within that, the large industry is about INR980 crores, right? It’s not very significant at all.
Chinmay Nema
Okay, sir. Thank you. I’ll fall back in the queue.
Operator
Thank you. The next question is from the line of Anant Mundra from Mytemple Capital. Please go ahead.
Anant Mundra
Hello. Thank you for the opportunity, sir, and congratulations on a good set of numbers. Sir I just wanted to ask two questions with regards — on the corporate governance side. So there’s been some instability in the bank in terms of the MD and the Chairman for the past two years. Now we are happy that you’ve joined and we hope you continue, but the bank is still without a chairman. So by when can you — do you think we can resolve that? And the second question was also with regards to the disputed shareholding, and when can we expect the resolution for that? And what is the contingent liability or any liability that we’ve recognized on our balance sheet due to that? Thank you.
Salee S Nair
The first one, of course, we hope to have the Chairman in place by May of next year. And I think that’s something that the Reserve — we have also written to the Reserve Bank, and we’ll have it in place. I think the name would be known by the first week, first quarter, and of course, there is an approval process by the Reserve Bank. In any case, by May next year, this bank would have a chairman. That’s the first one. On the disputed shares, second question, I think it’ll be interesting if you can give me an answer yourself because your guess is as good as mine.
Anant Mundra
Okay. But sir, any contingent liability that you’ve recognized because of that or anything that we quantified?
Salee S Nair
How is the bank involved in this? It is between the transferer and the transferee, know?
Anant Mundra
Right. But probably because it was enabled by the bank, so — I don’t know. Okay. All right.
Salee S Nair
What does the bank — we don’t have anything on that.
Vincent Menachery Devassy
There’s no liability on the part of the bank. Now it is a dispute between the transferer and transferee. Bank is not a party to that.
Anant Mundra
Okay. Okay. All right. Thank you, sir. Thanks for the clarification.
Operator
Thank you. The next follow-up question is from the line of Lakshminarayanan from Tunga Investments. Please go ahead.
Lakshminarayanan KG
I see last year in Q2, we recognized one account as a non-performing account. Just want to understand what has been the resolution on that because that is sizable and that was actually little — a shade more or less than INR100 crores. What has been the activity there and how are we placed because we are supposed to recover it completely? Just your thoughts, sir.
Salee S Nair
Yeah. I think it has not been resolved as yet, that much I can tell you, but it is at an advanced stage. And let me also tell you that we have provided 90%. And when the resolution happens, we are going to see a substantial write-back of the profits and the resolution is going to happen, I think, over the next one or two quarters, I think. It is going to happen.
Operator
Thank you.
Salee S Nair
We will have it resolved. I think the discussions are on for ways to look at resolving it. And I think one of the other banks involved has already — seems to have settled it. So resolution is in sight, hand.
Operator
Thank you. The next follow-up question is from the line of Saket Kapoor from Kapoor & Company. Please go ahead. Mr. Saket, I would request…
Saket Kapoor
Yes. Yeah, yeah. Yes, ma’am. Thank you, sir, for the follow-up. Sir, as you can yourself understand in the call that your investors, analysts community are not very well fed with the understanding of the bank and the continuity of the profitability also. That is the reason why even having, as you did allude to the fact of the highest NIM in the industry, highest ROA, the market value or the market cap, we are not even trading 1 time book. So there is definitely some disconnect between the investing community and the management who are managing the day affairs or the business of the bank, so — and that gap needs to be bridged with the right feedback and more engagement with the stakeholders. Otherwise, sir, as you alluded in your press release about creating value for your stakeholders, the value creation process is all based on the trust and the probability of the bank delivering on the set of numbers as guided by you and your team. So this gap needs to be filled, sir, and that could be done only by you and the people by displaying what you people are currently speaking and better engagement with your stakeholders. This was my first brief understanding, sir. And the employee cost part —
Salee S Nair
I completely agree with you, and over the next quarters, you will see more of engagement between this bank and the investment community. We will certainly ensure that happens. We will also look at the — periodically giving you a peek into what we are doing, and the kind of numbers, we will also give you enhanced transparency in the numbers. All that we will do. Of course, I never understood why the bank is actually trading below 1, because if you look at the profitability, it has been delivering quarter-on-quarter in a very steady manner. But going forward, I think we would be looking to strengthen the confidence of the investing community in this bank, which I understand is only by — through engagement, periodical, and continuous engagement and also in providing you the numbers that you would like to base your judgment on. So I think we will do that going forward.
Operator
Thank you.
Salee S Nair
There were issues in the bank — okay, sorry. I think that’s fine. Yeah.
Operator
Thank you. The next follow-up question is from the line of Vinit Jain from Siddhi Capital. Please go ahead.
Vinit Jain
Thank you for the opportunity. My question has been answered. And wish you the best, sir.
Operator
Thank you.
Salee S Nair
Thank you. Thank you.
Operator
The next follow-up question is from the line of Anil from ContrarianValue Edge. Please go ahead.
Anil Tulsiram
Yeah. Thank you for the follow-up. Sir, in the past, we have some problems with the RBI on various things. So what are we going forward so that these problems don’t arise again? So that’s the last question from my side. Thank you.
Salee S Nair
We wish to be a completely compliant bank, and when you are on that, I don’t think there will be an issue with the RBI at all.
Anil Tulsiram
Okay, thank you.
Operator
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Nair, Managing Director of TMB, for closing comments.
Salee S Nair
Thank you very much for the participation. And as the gentleman said at the end, one of the ways in which we intend to bring the confidence back by the investing community into TMD is through repeated interactions and engagement with the investing community, which is something that we will continue. I think that we’ll take that as a feedback and we will certainly continue. As I mentioned, we are engaged in a significant transformation of the bank, and transformation is not something that happens in a quarter or overnight. So this will take time and the results of which will start showing up over the next — after a couple of quarters. Certainly in the next year, we are going to see a significant impact of the changes or the structural changes that we are carrying out both in terms of business growth as well as in terms of the profitability numbers. And rest assured, the changes that we are bringing and what the profitability numbers and the engagement — through the engagement with the investing community, we will certainly pass on the information in the right amount so that you can take a proper judgmental — proper call on Tamilnad Mercantile Bank. Thank you. Thank you, everyone.
Operator
[Operator Closing Remarks]