Tamilnad Mercantile Bank's ~Rs 800 crore Initial Public Offer (IPO) opens for subscription today. One of India's oldest private lender is embroiled in a host of controversies. In an instance not witnessed often, the bank will see a new MD & CEO take charge on the day its IPO opens.

Share Market Live

NSE

Krishnan Sankarasubramaniam has taken over as the bank's MD & CEO for a period of three years. He was earlier the MD & CEO of Punjab & Sind Bank. He will succeed KV Rama Moorthy for a period of three years.

The IPO comes at a time when the euphoria of 2021, when as many as 63 companies went public, raising over Rs 1 lakh crore, is missing.

About The Bank

One of India's oldest private sector lenders, Tamilnad Mercantile Bank was incorporated in May 1921 under the name Nadar Bank Ltd in Thoothukudi, Tamil Nadu and commenced its business in November of that year. It adopted its current name in November 1962 and received its license to deal in foreign exchange in 1999.

The bank offers banking and financial services to retail and MSME customers. It has a strong portfolio of advances and deposits from a diversified base including retail, agricultural and MSME customers. As of the financial year ending March this year, the bank has a network of 509 branches and a customer base of 50.8 lakh. Nearly 73 percent or 369 out of its 509 branches are located in Tamil Nadu. The remaining branches are spread across 15 states and four union territories.

As many as 353 branches of the bank are present in rural and semi-urban areas which allows it to focus on agricultural farmers. Under the bank's TMB Dhall Mill and TMB Rice Mill schemes, it has disbursed around Rs 400 crore to set up or acquire mills. The bank's agricultural loan portfolio has increased from Rs 699 crore in FY20 to Rs 1,000 crore in FY22.

Growth Prospects

The Tamil Nadu-based lender believes that the Indian banking sector is significantly under-penetrated which provides an immense growth opportunity for banks and other financial institutions. The domestic bank credit-to-private sector as a percentage of GDP in India was only 55 percent in 2020, even lower than countries like Brazil (70 percent) and Vietnam (117 percent). The number in countries like the US and Japan is near 200 percent.

Led by the government's financial inclusion policies, the number of deposit accounts in India has grown from 90.3 crore in FY12 to 225.5 crore in FY22. Rating agency CRISIL also expects deposits to grow between 9-11 percent in FY23, driven by an expected hike in policy rates, which in turn will be transmitted to depositors in the form of higher deposit rates. CRISIL also sees credit growth of 10-11 percent in 2023.

Asset Quality

As of March 31, the bank restructured advances to around 3,000 borrowers for an outstanding amount of Rs 67.57 crore. Out of these borrowers, 435 of them, with dues of Rs 13 crore were MSMEs. For such accounts, the bank has made provisions of Rs 76.66 crore as of March 2022.

After the Supreme Court order of September 2020, the bank could not classify loans worth Rs 1,015.8 crore as NPA. When these restrictions were lifted in March last year, the bank classified Rs 545.8 crore as NPA while the remaining dues were recovered and the accounts are maintained as standard accounts.

As of March 2022, the bank's gross NPA stood at 1.69 percent from 3.44 percent in March 2021 and 3.62 percent in March 2020. Net NPA stood at 0.95 percent in March this year, compared to 1.98 percent in March last year and 1.80 percent in 2020.

Shareholding Pattern

A professionally managed bank, the Tamilnad Mercantile Bank does not have a promoter or members that form part of a promoter group. Additionally, it also does not have any shareholder who individually or as a group controls voting rights of 15 percent or more in the bank.

Risk Factors

The bank has highlighted the top 10 risk factors to its business:

1. 37.7 percent of paid-up share capital is subject to outstanding legal proceedings which have been initiated by agencies like the RBI, and Enforcement Directorate.

2. Business, reputation and financial results can be impacted by adverse results in legal proceedings.

3. Have received and may receive in the future, multiple anonymous whistle-blower complaints.

4. A former director has filed a writ petition before the Madras High Court to prevent the IPO

5. Regional concentration in South India, Tamil Nadu in particular.

6. Subject to stringent regulatory requirements.

7. Contingent liabilities are in excess of the bank's net worth.

8. The pandemic has and may continue to impact business operations.

9. Susceptible to operational risks, including fraud, petty theft, negligence and embezzlement by our employees or our customers

10. Have had negative cash flows in the past and may continue to have them in the future.

IPO Timeline

The bank will offer shares of the face value of Rs 10 each. The IPO will open on September 5 and close on September 7 this year. Shares will be sold in a price band of Rs 500 to Rs 525 per share. The entire issue is a fresh issue and no part of it will be offer for sale.

IPO Opens: September 5, 2022

IPO Closes: September 7, 2022

Lot Size: 28 Shares

Price Band: Rs 500 - Rs 525 per share

Listing: September 15, 2022

Also Read: Tamilnad Mercantile Bank garners Rs 363.53 crore from anchor investors ahead of IPO

First Published:Aug 30, 2022 4:45 PM IST