MSMEs have made loan requests worth ₹650 cr under ECLGS 5.0: Salee S Nair

In Q4, the bank reported NIM of over 4 per cent largely because, in anticipation of higher deposit costs, we repriced advances earlier

Tamilnad Mercantile Bank (TMB) expects its loan book growth to continue in FY27 despite the West Asia crisis and rising deposit costs, driven by loans to micro, small and medium enterprises (MSMEs), housing and cars. Salee S Nair, the company’s managing director and chief executive officer, tells Subrata Panda in a video interview that the bank has seen encouraging traction under the government-backed ECLGS 5.0 scheme to support MSMEs. TMB is expanding beyond Tamil Nadu and plans to open 60 new branches — many outside the state — in FY27. Edited excerpts: 

 

What are your MSME clients telling you about the stress arising from the West Asia crisis?

 

Availability of raw materials and rising costs have raised concerns around potential stress in the sector. However, in our book, the impact has not really been significant because we are predominantly a secured lending bank. The advantage for us is that the recourse mechanism is strong and the collateral coverage is substantial — in some cases going up to nearly 170 per cent. As a result, the stress element has not really been reflected in our portfolio yet. That said, we continue to monitor the situation very closely.

 

Are you seeing traction for ECLGS 5.0?

 

We are seeing a positive response emerging from this initiative. Wherever there is a possibility of alleviating stress through the government-guaranteed limits, we are willing to extend support under the scheme. We were among the first banks to operationalise the guarantee scheme and proactively engage with customers. So far, requests over ₹650 crore have come in. We are evaluating all these proposals from an eligibility standpoint. We have the bandwidth to extend ₹2,500 crore of loans through ECLGS 5.0.

 

Amid the West Asia crisis, how do you plan to grow your loan book?

 

The current environment will certainly remain an overhang. We closed FY26 with MSME growth of 14.81 per cent, with a significant portion of that growth coming in during the second half. We expect this momentum to continue into this year as well. Another key contributor to the nearly 20 per cent advances growth in FY26 was gold loans. However, we do not expect gold loans to grow at the same pace in FY27 because last year’s expansion was driven substantially by the sharp rise in gold prices. Whatever moderation we may see in gold loan growth, we expect to more than offset through MSME lending. At the same time, we are beginning to see encouraging signs in the housing loan segment, as our technology platform becomes fully operational. We are also focusing more actively on retail products like housing loans and car loans. For FY27, we are maintaining guidance in the range of 17-18 per cent, which we see as the minimum floor.

 

Have deposit rates hardened?

 

On deposit pricing, we are already seeing some degree of hardening. Last year, our cost of deposits closed at around 5.71 per cent, and we do not expect to sustain that level this year. Even if repo rates remain stable, we anticipate some upward movement in deposit costs. We have already factored that into our asset pricing strategy. As we are still a relatively small bank, we are able to monitor pricing very closely and align lending rates with deposit costs in order to protect our net interest margins.

 

Your net interest margin (NIM) expanded in Q4FY26. Will you be able to sustain it over 4 per cent in FY27?

 

The bank reported NIM of over 4 per cent in Q4 largely because we had repriced advances earlier in anticipation of higher deposit costs. The benefit from higher advances pricing flowed through immediately, while deposit costs had not yet increased proportionately. For FY27, we would still expect NIM to remain broadly in the 3.95-4 per cent range.

 

What are your branch expansion plans for FY27?

 

In FY26, we had guided for 50 new branches, though we eventually opened 44. We initially planned another 50 branches for FY27, but we have now revised that target upwards to 60 branches. A meaningful portion of these additions will be outside Tamil Nadu.

 

If you were to pursue inorganic expansion, what areas would interest you?

 

If we were to pursue inorganic growth, it would more likely involve acquiring a small NBFC along with its operating footprint and human resources. One area where we still see room for strengthening is at the ground level in terms of workforce capability and skill sets. Acquiring an institution with an established operational network could help accelerate that process. That said, nothing is currently under active consideration.

 

What is your broader vision for Tamilnad Mercantile Bank over the next few years?

 

TMB remains largely a Tamil Nadu-focused bank. Over the next few years, our aspiration is to evolve into a strong South India-focused regional bank and, eventually, in line with the broader Viksit Bharat vision, emerge as a truly national institution. The building blocks for that transformation are already being put in place. Once the technology and human resource transformation pieces are firmly in place, we believe the bank will be well-positioned for sustainable long-term growth. Our expansion strategy will increasingly focus on states such as Kerala, Karnataka, Maharashtra and Gujarat. Over the next few years, a meaningful share of our new branch additions will come from these markets.