Tamilnad Mercantile settling all disputes, keen on opening branches: CEO

Lender waiting for RBI to ease restrictions, says K V Rama Moorthy about his expansion plans

Tamilnad Mercantile Bank (TMB), the 100-year-old lender preparing for an initial public offering (IPO) of Rs 830 crore, plans to expand as it waits for the Reserve Bank of India to lift restrictions on it setting up new branches. K V Rama Moorthy, TMB’s managing director and chief executive officer, spoke to Shine Jacob talks about branch expansion, IPO and focus on RAM (retail, agri and MSME) portfolio.

Edited excerpts from an interview.

What will be the major changes that the IPO will bring to the TMB table?

This initial public offering (IPO) is not going to make any huge change for the bank in terms of its operations; that is what I personally believe. There has been a retail franchise concentrating business on CASA (current and savings account ratio) on liability side and focusing on the retail, agri and micro small and medium enterprises (RAM) on the asset side and then on the relationship-based banking. In the short-term, capital adequacy ratio may go up to 25 per cent. In a reasonable period of a couple of years, we should be able to maintain the same level of ROE (return on equity). 

What will the Rs 800 crore be used for? Why didn’t you go for the offer for sale?

This will be for practically augmenting the growth capital of the bank. We have aspirations to grow over the next three to five years, both in terms of the digital as well as the physical way. This is going to be an augmenting source for growth capital of the bank that will be more useful in capacity building.

Initially, the board as well as AGM had authorized for at least 5 per cent OFS and 5 per cent new issuance. Around six existing investors had offered to sell shares through OFS. Earlier, we had planned the OFS, but due to the delay in getting approvals, the portion was withdrawn. That's the reason why we have 10 per cent dilution all be fresh issues.

You have around 509 branches across the country. Out of that only a few are reportedly loss making. What are the major reasons for this and what are your expansion plans?

As per the March 2022 numbers, out of 509 branches, only nine branches are loss making. Very close monitoring and focusing on the right areas of the business at the grass root level are the reasons for this success.

Once the norms for opening of branches will be liberalized by the Reserve Bank of India (RBI), post IPO, we will be sitting in our board and finalizing the expansion plans. I think most of the branches should be able to break even within a year or so. We will be keen on opening branches in potential centers only. With more digital banking, cost structure will not be a burden on us. We will be able to maintain cost to income ratio at a decent level.

There seems to be too much focus on retail, agri and micro small and medium enterprises (RAM) segment with 88.14 per cent of the business coming from that. How are you looking at further diversification?

As of now, we continue to focus on RAM and may be here and there exposure to mid-corporates are there, where at least the customer is known to us and where the business model is understood by the bank. Ideally, a non-RAM portfolio to be in the range of 15 per cent should be okay for a bank of our size and geographic distribution.

RAM is not one segment, within this retail, agri and MSME are diversified segments only. Out of this, MSME will be around 40 per cent, retail will be around 20 per cent and remaining will be agriculture.

There is a viewpoint that your bank is too much South focused, with around 369 branches located in Tamil Nadu. Going forward, will this be your strategy?

As I told you once that liberalizing policy is in place and we are let off from that restriction of opening branches, we will sit with our board and have a preliminary survey made. We will see to it that wherever ample opportunities are there to grow and break even within a year, we should be keen on opening branches. We will also be opening cost-effective digital banking also to take ahead the business aspirations of the younger lot. 

Around 37.61 per cent of TMB’s paid up equity, or 53.59 million shares, are subject to legal proceedings between Indian and overseas shareholders. Will this be a huge concern for you going forward?

On a major chunk of the 20 per cent dispute, DOE is looking into it. They are examining the Foreign Exchange Management Act (FEMA) angle of at least seven FIIs holding in fact. Remaining disputes are around parties, sellers and buyers of shares. As far as the bank is concerned, we have been performing well with these disputes in place. We had been sharing our dividend also to all our investors in the past also. With one more regulator stepping into the shoes, we should be able to find some logical answer to all these impending issues.