RBI prodded bank for IPO, will apply for new branches post- share sale: Tamilnad Mercantile Bank MD says

Tamilnad Mercantile Bank

Prodding by the Reserve Bank of India (RBI) and stakeholders prompted the  101-year-old Tamilnad Mercantile Bank (TMB) to opt for an initial public offering (IPO) this year, Managing Director and Chief Executive Officer K.V. Rama Moorthy said.

TMB’s IPO, aimed at raising in excess of Rs. 830 crore, will open on September 5 and close on September 7.

“On one side, the prodding by the regulator has been happening. On the other side, in 2016 there was an effort in AGM (Annual General Meeting) to go for IPO, it was not passed with required majority at that point of time,” Moorthy said in an interview on September 1.

“In 2020 when the AGM was held, it was taken up. Resolutions (for IPO) were voted in favour of. RBI was also asking to get ourselves listed. For opening a few branches, I think they advised us to get ourselves listed and then approach them for opening new branches,” he added.

TMB faces restrictions on opening new branches for failing to raise its subscribed capital to at least half of its authorised share capital line with requirements.

When asked whether the bank will approach the RBI after the share sale for expansion of its network, Moorthy said the bank will approach the regulator, but did not share details on the expansion plan.

“We will be able to give a guidance (on expansion) post-IPO once we finalise our strategy with board-approved policies in place,” Moorthy said.

TMB has a branch network of over 500 branches in both rural and urban areas, with a majority located in southern states.

Experts said the regulator does not issue instructions pertaining to IPOs to lenders until it finds material concerns at a bank.

“This is a bank-specific restriction. This bank was under some cloud for different reasons, it was having issues and it was not a general instruction that the RBI gave, it is very bank- specific. We don’t know under what circumstances they were imposed,” a senior banker said requesting anonymity.

The Thoothukudi-based bank has set a price band of Rs 500-525 a share for the IPO, which consists of a fresh issue of 15.8 million shares.

At the upper end of the price band, TMB will raise around Rs 831.60 crore from the share sale. Axis Capital, Motilal Oswal and SBI Capital Markets are the lead managers to the IPO.

TMB is  “confident” that the public issue will be well received by investors, the MD said.

“We are confident about the public issue and the performance of the bank. Hundred years of a live organisation with good distinction of continuous profits, and decent dividends, including during the toughest periods of time. At this point of time, I think we are one of the better players in the market as compared to our peers as of now,” Moorthy said.

According to the bank’s FY22 annual report, as of March-end, TMB’s total advances stood at Rs 33,491.54 crore, up 8% Year-on-Year (Y-o-Y).

Some 87% of the lender’s total advances were in the retail, agriculture and micro, small and medium enterprises segments (RAM), the MD said without giving any guidance on credit growth.

“Post-Covid-19, everyone is euphoric about the GDP of the country. Naturally, when the GDP of the country is going to be a little euphoric, I think there will be several factors which will be working in favour of bank loans and GDP growth rate,” Moorthy said.

Total deposits of TMB Bank, as of March 31, stood at Rs 44,933.1 crore, up 9.7% YoY.

“We would like to continue to sharpen our strength, continue to hover around RAM portfolio. There are a lot of opportunities we are able to see with a network of semi-urban and urban areas in the system,” Moorthy said.

Moorthy said that going ahead the bank will only have  “decent” gross bad loan figures to show. The gross non-performing asset ratio (GNPAs) of TMB Bank stood at 1.69% as of March 31, lower than 3.44% a year ago. Net NPAs, too, were lower at 0.95% as of March end.

“With our loan book predominantly lopsided towards secured portion, and on account of small ticket size of loans, risk is getting distributed with some collaterals in place. We should have decent gross NPAs only in the future,” Moorthy said.