Credit Rating

Secretarial Section Head Office, 57- V.E. Road, Thoothukudi – 628 002. ☏: 0461-2325136 e-mail: secretarial@tmb.bank.in CIN: L65110TN1921PLC001908 Ref.No.TMB.SE.74/2026-27 05.10.2026 The Manager The Manager National Stock Exchange of India Limited, BSE Limited, Exchange Plaza, 5th Floor, Plot No. C/1, Phiroze Jeejeebhoy Towers, 'G' Block, Bandra - Kurla Complex, Dalal Street, Bandra (East), Mumbai - 400 051. Mumbai – 400 001. Ref: Symbol: TMB / Scrip Code: 543596 Dear Sir/Madam, Sub: Intimation under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – Issuer rating assigned by India Ratings Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we would like to inform that India Ratings & Research Private Limited vide its letter dated October 05, 2026, has assigned ‘IND AA-’; Outlook Stable Issuer Rating. We are enclosing the letter issued by the rating agency with this intimation. Kindly take the same on record. Yours faithfully, For Tamilnad Mercantile Bank Limited Swapnil Yelgaonkar Company Secretary & Compliance Officer India Ratings Assigns Tamilnad Mercantile Bank ‘IND AA-’; Outlook Stable Oct 05, 2026 | TAMILNAD MERCANTILE BANK LIMITED | Others India Ratings and Research (Ind-Ra) has rated Tamilnad Mercantile Bank Limited (TMBL) as follows: Details of Instruments Size of Rating Regulator of Date of Coupon Maturity Rating Instrument Type Issue (INR Assigned with Instrument Issuance Rate Date Action million) Outlook/Watch Issuer Rating # - - - - Assigned AA-/Stable # There is no instrument being rated and hence, Regulator of instrument is not applicable. The rating scale and definitions are being followed as stipulated in SEBI Master Circular for CRAs. Analytical Approach Ind-Ra has taken a standalone view of TMBL while assigning the rating. Detailed Rationale of the Rating Action The rating reflects an improvement in TMBL’s profitability buffers in FY26, supported by enhanced internal accruals and efficient capital utilisation, leading to an improvement in the capital base. The bank has demonstrated prudent provisioning for stressed assets, leading to an improvement in provision coverage ratio, and has been maintaining adequate capitalisation. The rating also factors in an improvement in TMBL’s asset quality, as evidenced by a steady decline in gross non-performing assets (GNPAs) and stressed assets, as well as manageable slippages along with healthy recovery. Furthermore, the bank’s granular retail deposit franchise and moderate loan-deposit ratio (LDR) ratio provide headroom for credit expansion. However, the rating is constrained by TMBL’s modest loan book size relative to its peers, high geographic concentration, and shareholding overhang. List of Key Rating Drivers Strengths Stable and granular funding franchise Improving asset quality Healthy capital buffers and internal capital generation Robust earnings profile Weaknesses Geographic concentration may constrain growth in the long run Detailed Description of Key Rating Drivers Stable and Granular Funding Franchise: TMBL has a well-diversified granular deposit profile, with a low reliance on bulk deposits. Its retail deposits constituted over 83.3% of the total deposits in 1QFY27 (FY26: 85.7%; FY25: 86.2%), with the overall current accounts and savings accounts (CASA) constituting 26.1% (1QFY26: 26.8%; FY26: 28.1%; FY25: 26.4%). The bank's disciplined liability management has also enabled it to lower its funding costs, with the cost of deposits declining to 5.68% in 1QFY27 (1QFY26: 6.01%; FY26: 5.71%; FY25: 6.01%), benefiting from deposit repricing and evolving interest- rate cycle. That said, the deposit franchise continues to exhibit regional concentration, with Tamil Nadu (FY26: 79.5%; FY25: 73.9%) remaining the bank’s dominant deposit market. Ind-Ra believes TMBL’s granular deposit profile, stable CASA ratio and strong retail deposit franchise provide adequate funding stability and support its liquidity and profitability profile. Improving Asset Quality: TMBL’s asset quality profile remains strong, as reflected in continued decline in GNPA to 0.69% in 1QFY27 (1QFY26: 1.22%), mainly driven by healthy recovery and write-offs. While GNPA witnessed a marginal uptick during 1QFY27 due to a few legacy slippages, the overall stress pool remains low and well contained. Further, the bank's secured lending profile, significant gold loan exposure, low credit costs, and strong collateral coverage support asset quality resilience. The gold loan-related credit costs are likely to remain contained; although concentration levels and regulatory developments will remain key monitorables. The continued reduction in legacy stressed assets and manageable incremental slippages provide comfort regarding the sustainability of the bank’s asset quality metrics. Healthy Capital Buffer and Internal Capital Generation: TMBL’s capitalisation remains exceptionally strong, with the Basel III common equity tier 1 ratio improving to 31.3% in 1QFY27 (1QFY26: 29.9%), supported by healthy internal accruals and a reduction in risk weighted asset density driven by the increasing share of gold loans in advances portfolio. Given the bank’s strong provision coverage and low GNPA levels, incremental provisioning requirements are likely to remain modest; although any adverse asset quality developments remain a key monitorable. Given its comfortable capital position, the management does not foresee any requirement for raising capital in the near term. Robust Earnings Profile: The bank’s return on assets increased to 1.9% in FY26 (FY25: 1.8%). TMBL continues to exhibit strong profitability, supported by healthy margins, low credit costs, and a predominantly secured lending portfolio. Earnings generation remains robust, enabling steady capital accretion and supporting business growth. The implementation of the credit management centre, business rule engine, loan origination system and integrated back office has improved TMBL’s productivity and scalability. While profitability benefits from the bank's strong gold loan franchise and conservative risk profile, continued diversification of the asset mix and liability franchise would be important to sustain earnings resilience over the long term. TMBL’s long-running Foreign Exchange Management Act-related share transfer dispute stems from foreign share transfers (2007-08) and a subsequent bonus issue (2016). Following the enforcement directorate’s(ED) show-cause notices in 2014, an INR170 million penalty imposed in 2020 was reduced to INR34 million by the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act (SAFEMA) Appellate Tribunal in July 2026, which also dismissed the ED’s confiscation claim. However, adjudication of the bonus share-related show cause notice issued in 2017 remains pending. The proceedings also included allegations against the then directors and officials for facilitating share transfers without the requisite Reserve Bank of India (RBI) approvals. Notwithstanding these legacy issues, TMBL has strengthened its leadership with former State Bank of India (‘IND AAA’/Stable) executives, including the managing director and chief executive officer, executive director, chief risk officer from Union Bank of India (‘IND AAA’/Stable), head of credit and chief financial officer, who have driven transformation across governance, technology, business expansion, and people management, supporting improved growth and profitability. The bank continues to be under RBI’s oversight, with two RBI nominee directors serving on the board. Geographic Concentration May Constrain Growth in the Long Run: TMBL’s business profile remains characterised by a high geographic concentration in Tamil Nadu, where the bank derives a substantial portion of its deposits (FY26: 79.5%; FY25: 73.9%) and advances (80.9%; 79.4%). While this concentration exposes the bank to adverse regional economi [Showing first 8,000 characters — download PDF for full document]