InvestorQ : What is your view on TMB IPO since the bank is still barred by the RBI from opening new branches?
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What is your view on TMB IPO since the bank is still barred by the RBI from opening new branches?

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Deepa Salunkhe answered.
2 months ago
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That is true but Tamilnad Mercantile Bank (TMB) is confident that the RBI would soon lift the 3-year ban on opening new branches post the IPO. The Rs831 crore IPO of TMB is open from 5th September to 7th September. While the management has not disclosed any branch opening plans for now, the bank top management is apparently looking at adding close to 100-150 new branches over the next 2 years. However, that would be subject to the approval given by the RBI to open fresh branches. TMB already has 509 branches.

One of the main goals of this IPO is to expand its presence beyond the state of Tamil Nadu and hence more than 75% of the fresh branches are proposed to be opened outside the state of TN. The ban was imposed by the RBI in June 2019 since the bank had not raised its subscribed capital to at least half of the authorized capital, which is statutorily required under the RBI guidelines. TMB is also planning to open digital only branches across India and it is not yet clear if the branch restriction policy would also apply to these digital branches.

Typically, these digital banking units or DBUs are specialized fixed-point business unit with high quality digital infrastructure to deliver digital banking products and services. The idea of these branches is to expand digital financial services and push financial inclusion. As of today, such DBUs can be opened in tier-1 to tier-6 centres without prior RBI permission. TMB has stated that the latest issue of shares would automatically take care of the RBI stipulation and hence they expect that the branch ban should also be eventually lifted.

TMB is well-capitalized bank with a tier-1 capital adequacy ratio of 20.44%. In fact, post the IPO, capital adequacy will increase to around 24%. However, this issue would also help to address the issue that the RBI has on the ratio of subscribed capital to authorized capital. TMB reported 36% jump in net profit to Rs821.91 crore for the FY22 full year. Its CASA ratio at 30.5% as of March 2022 has grown, although it is much lower than the standards of the new private sector banks. Majority of the shares are held within the Nadar community.

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