Rate cut will impact NIM, recovery expected in 3 quarters, says Tamilnad Mercantile Bank CEO

Tamilnad Mercantile Bank

Tamilnad Mercantile Bank expects a short-term impact on its Net Interest Margin due to a potential rate cut by the Reserve Bank of India but is drawing up plans to maintain NIM at around 3.7 percent.

"Around 50 percent of our advances are linked to the repo rate. So, we will have a bit of a hit, and it will take two to three quarters to recover,"  Tamilnad Mercantile Bank CEO Salee S Nair has told Moneycontrol.

"When a rate cut happens, there is always a lag before deposit rates are realigned," he said. "However,  we anticipate that the margin will normalise in three quarters, as liabilities are restructured at lower rates."

The RBI  will take a call on rate cuts when its monetary policy committee meets for a bi-monthly review from February 5 to 7, as concerns mount over slowing growth.

On January 29, Tamilnad Mercantile Bank reported a 6 percent year-on-year growth in net profit at Rs 300 crore for the December quarter. The bank's operating profit was up 10 percent at Rs 408 crore.

Its net interest income for the quarter came in at Rs 570 crore, an increase of 6.15 percent from the year-ago period, the bank said in a release to exchanges.

Gross Non-Performing Assets (NPAs) declined to 1.32 percent, down 37 basis points from 1.69 percent in the previous year. Provision Coverage Ratio (PCR) saw a increase to 69.07 percent, up from 41.93 percent last year.

The bank's capital adequacy ratio (CRAR) improved by 340 basis points at 29.35 percent this quarter, up from 25.95 percent in the previous year. One basis point is one-hundredth of a percentage point.