Battered by three decades of controversy, TMB looks back to the future

June was a memorable month for the 101-year-old Tamilnad Mercantile Bank (TMB). Last month, the Thoothukudi-based bank witnessed two new landmarks in a history in which the last three decades could easily qualify for a Kollywood blockbuster.

First, it held three annual general meetings — the 98th, 99th and 100th — all on the same day (June 9).

Second, it received approval from the Securities and Exchange Board of India (Sebi) to go ahead with its initial public offering (IPO), to raise around Rs 1,000 crore.

Behind both events lie boardroom battles, legal tussle and public conflicts as well as many critical questions about corporate governance and community-based banks that remain unanswered.

The headline-grabbing part of these developments lie in the fact that 37.61 per cent of TMB’s paid-up equity, or 53.59 million shares, are subject to legal proceedings between Indian and overseas shareholders.

In its draft red herring prospectus (DRHP), the bank had said to incoming shareholders that it will not be able to hold AGMs without court clearance.

That partly explains the reason for the delayed AGMs that ended up being a three-in-one affair.

The bank was originally known as Nadar Bank, set up to serve this tightly knit entrepreneurial community — and changed its name to the current one in 1962.

Its troubles began in 1994 when 67 per cent of its shareholders sold stakes to the Mumbai-based Essar Group for Rs 28 crore, precipitating a rift between the Nadar community and the oil-to-infrastructure Ruia-owned group.

With the Reserve Bank of India (RBI) withholding approval for the sale, NRI C Sivasankaran, a serial deal-maker, stepped in.

His Sterling Group bought the Essar Group shares in 2003 for an undisclosed amount.

But the controversy had left its mark on the community.

One section resisted Sivasankaran’s buyout. It was after a reported truce meeting overseen by former Deputy Prime Minister L K Advani that Sivasankaran agreed to sell his shares back to the Nadar community in 2004.

A group called the Nadar Mahajana Bank Share Investors’ Forum joined hands to buy back Sivasankaran’s shareholding but failed to mobilise the requisite amount.

In 2007, a consortium of 18 foreign investors led by Katra Holdings owned by Ramesh Vangal, former high-profile country head of PepsiCo India, and other people from the Nadar community acquired part of the Sterling stake.

But by 2011, Katra exited by selling its stake to Standard Chartered, this too not without controversy.

The transaction had attracted show-cause notice from the Enforcement Directorate (ED) to TMB and Standard Chartered Bank, among others, for contravention of the Foreign Exchange Management Act.

The bank’s cases are before various agencies including the RBI and ED. By the end of 2021-22, 4,871 cases were pending against the bank or its directors, of which around 4,554 are valued at about Rs 6,209 crore.

The bank did not respond to questions from Business Standard.

Meanwhile, the RBI instructed TMB’s management to get the bank listed by December 31, 2021.

This process has been delayed because the bank’s AGMs could not be held on time.

Sources indicate that the listing is likely within the next few months.

If these controversies were not enough, the DRHP filing in September 2021 drew more controversy, this time from Institutional Investor Advisory Services (IiAS), an influential proxy advisory firm that provides voting recommendations on shareholder resolutions of listed companies.

IiAS approached Sebi stating that the IPO should be allowed only after legal issues are sorted.

Despite these objections, Sebi approved TMB’s IPO.

How will the IPO help this controversy-ridden bank?

People close to the operations of the bank believe that the listing will draw a line under the long-standing disputes since it could offer some investors price discovery to exit.

It could also, said officials, enable the bank to raise fresh capital and expand.

The IPO consists a fresh issue of 15,827,495 equity shares and an offer-for-sale of up to 12,505 equity shares by shareholders.

The lender plans to use the proceeds of the fresh issue towards augmenting its Tier-I capital base to meet future capital requirements.

Axis Capital, Motilal Oswal Investment Advisors and SBI Capital Markets are the book running lead managers.

According to industry experts, TMB has put in a good performance despite these disputes.

“The quality of their assets is good. The bank management always proved that the rise in litigation never affected the functioning of the bank.

"It is like the HDFC of the 1990s, with tremendous growth potential,” said V Nagappan, a Chennai-based market expert.

The numbers back Nagappan’s statement. Out of the 509 branches (106 rural, 247 semi-urban, 80 urban and 76 in metropolitan), only around 40-50 are reportedly loss-making.

Of the overall customer base of 4.93 million, 69.96 per cent comprised customers who had been associated with the bank for over five years. The financials have been decent, too (see chart).

Experts indicate that it may also need a makeover, similar to the way CSB Bank, formerly the Catholic Syrian Bank that went through its own share of controversy and is now owned by the Canadian billionaire Prem Watsa’s Fairfax group, changed its brand identity after an IPO in 2019.

“Nobody holds beyond 5 per cent in TMB, which is why it is still considered a community-based bank.

"To grow further, it will have to come out of the shell and go for a makeover,” said an industry expert.

The IPO could well be its best chance to do that.