Tamilnad Mercantile Bank Files Draft Prospectus For IPO
The 100-year-old Tamilnad Mercantile Bank Ltd., which has had its share of regulatory troubles over the years, has filed a draft red herring prospectus for its initial public offering. The old-generation private sector bank was formed as a lender for the Nadar community in Tamil Nadu.
According to the prospectus, the bank is looking to issue 1.58 crore fresh equity shares as part of its IPO.
Its promoters are also offering 12,505 equity shares as part of an offer-for-sale. This includes 5,000 equity shares each owned by D Prem Palanivel and Priya Rajan, 1,000 shares held by Prabhakar Mahadeo Bobde, 505 shares owned by Narasimhan Krishnamurthy and 500 shares each owned by Malliga Rani and Subramanian Venkateshwaran Iyer.
Merchant bankers to the issue include Axis Capital, SBI Capital Markets and Motilal Oswal Investment Advisors.
Like in the case of a number of old private lenders, Tamilnad Mercantile Bank does not have an identifiable promoter and shareholding is dispersed. Those listed as its largest shareholders all have less than 5% holding in the bank.
The proceeds from the IPO will be used to augment the bank's tier-1 capital adequacy ratio, according to the prospectus. As of March 31, Tamilnad Mercantile Bank's tier-1 capital adequacy ratio stood at 17.93%, as against the regulatory minimum requirement of 10.875%.
For the year-ended March 31, 2021, the bank reported a net profit of Rs 603.3 crore, up 48% year-on-year. Net interest income for the year was at Rs 1,537.5 crore, up 16.5% from a year ago.
Total advances as of March 31 stood at Rs 31,541 crore. Micro, small and medium enterprises comprise 39% of the bank's loan book, while agriculture customer constitute another 27.4%.
Total deposits stood at Rs 40,970 crore at the end of the last financial year, where current account savings account deposits constituted 28.52%. Out of Rs 29,285 crore worth term deposits in the bank's balance sheet, over 90% came from retail customers.
Gross non-performing asset ratio for the bank stood at 3.44% at the end of FY21, compared with 3.62% a year ago. Net NPA, however, rose 18 basis points to 1.98% in the same period. The bank's provision coverage ratio as of March 31 stood at 79.53%.
Share Allotment Under Scanner
Since 2007, the bank's decision to transfer 53,611 equity shares held by three domestic shareholders to certain specified non-resident Indians has been under the scanner.
This same was challenged by a shareholder in the Bombay High Court and later investigated by the Enforcement Directorate and the Reserve Bank of India.
In August 2020, the Enforcement Directorate levied a penalty of Rs 11 crore on the transfer of shares in 2007. Another Rs 5.6 crore penalty was levied related to share transfers in 2011 and 2012.
The bank has filed an application for compounding such violations, it said in the prospectus. The RBI rejected this request saying such violations cannot be compounded. "Through its letter dated July 26, 2021, our Bank has requested the RBI to reconsider our Bank’s compounding application."
Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.
The bank further disclosed that 37.61% of its paid up equity share capital or 5.36 crore equity shares are subject to outstanding legal proceedings which are pending at various forums.
Separately, according to the DRHP, the bank's former director T. Rajakumar, alleging mismanagement, has filed a writ petition dated before the High Court of Madras, seeking to stop the initial public offering.