Our Bureau

Mr S. Radhakrishnan

Chennai , Oct. 9

TAMILNAD Mercantile Bank (TMB) plans provisions against shaky loans to eliminate its net non-performing assets (NPAs).

Today, the bank's gross and net NPAs stand at 11 per cent and 3 per cent of its risk-weighted assets, which means that 72 per cent of its NPAs are covered by provisions.

With a capital adequacy of 18 per cent, twice the statutory minimum, the bank feels it could afford to make aggressive provisions.

In an interview to Business Line, the bank's Chairman, Mr S. Radhakrishnan, agreed that at a capital adequacy ratio of 18 per cent, the bank was overcapitalised, but felt that being conservative would do no harm.

The bank is also not likely to feel the pinch of Basel-II norms of capital requirements (which measure capital requirements in terms of various potential risks), because about three-fourths of its Rs 3,000-crore loan book is loans less than Rs 1 crore, given to traders. Under Basel-II norms, retail loans are reckoned to be safer and require lesser (75 per cent) capitalisation.

Describing the performance of the bank in the first half of the current year, Mr Radhakrishnan observed that there had been an overall improvement in asset quality, with a recovery of Rs 36 crore from delinquent loans.

The bank, however, still has Rs 330 crore of NPAs.

The bank turned in an operating profit of Rs 100 crore for the first half of the year, against Rs 84.42 crore in the corresponding period last year.

Net profit was Rs 32.61 crore, "an improvement" over the first half of last year.

Mr Radhakrishnan said that the bank's average cost of deposits was around six per cent. Average yields on both investments and advances are over 10 per cent, he said.

The bank expects to cross the Rs 100-crore mark in net profits in the current year, compared with Rs 82.35 crore last year, he added.

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