Tamilnad Mercantile Bank Limited

Report on Audit of the Financial Statements

Opinion

1. We have audited the accompanying financial statements of M/s. Tamilnad Mercantile Bank Limited (“the Bank”), which comprise the Balance Sheet as at March 31, 2026, the Profit and Loss Account and the Statement of Cash Flows for the year then ended, and notes to financial statements including a summary of significant accounting policies and other explanatory information (the “financial statements”)in which are included the returns for the year ended on that date, of

i) Top 24 branches, Head Office, Integrated Treasury and International Banking Division audited by us and

ii) 598 branches audited by Statutory Branch Auditors located across India.

2. In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of the reports of the Statutory Branch Auditors as referred to in paragraph 20 below, the aforesaid financial statements, read with notes thereon, give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 (“the Act”), as amended, and circulars and guidelines issued by the Reserve Bank of India (“RBI”), in the manner so required for banking companies, give a true and fair view and are in conformity with the accounting principles generally accepted in India including the Accounting Standards prescribed under Section 133 of the Act read with Companies (Accounting Standards) Rules, 2021, of the state of affairs of the Bank as at March 31, 2026, its profit, and its cash flows for the year ended on that date.

Basis for Opinion

3. We conducted our audit of the financial statements in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Act. Our responsibilities under those Standards are further described in the 'Auditor's Responsibilities for the Audit of the Financial Statements' section of our report. We are independent of the Bank in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with ethical requirements that are relevant to our audit of the financial statements in accordance with the accounting principles generally accepted in India, including the Accounting Standards prescribed under Section 133 of the Act read with Companies (Accounting Standards) Rules, 2021, provisions of Section 29 of the Banking Regulation Act, 1949, circulars and guidelines issued by RBI from time to time and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained and that obtained by the Statutory Branch Auditors, in terms of their reports referred in paragraph 20 is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

4. Key audit matters are those matters that, in our professional judgment, and based on the consideration of the reports of the Statutory Branch Auditors as referred to paragraph 20 below, were of most significance in our audit of the financial statements for the financial year ended March 31, 2026. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

5. We have determined the matters described below to be the key audit matters to be communicated in our report. We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of

the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

A. Identification of Non-Performing Assets ('NPA') and Provisioning on Advances Significant estimates and judgment involved Key Audit Matter

Identification of Non-Performing Assets (“NPA”) and provisioning in respect of NPAs and restructured advances are made based on management's assessment in accordance with norms, circulars and directions issued by the RBI on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances (“IRACP norms”) from time to time.

The provision for NPA is based on the valuation of the security available and also requires management estimates and significant degree of judgement by applying both quantitative and qualitative factors prescribed by the regulations. In case of restructured accounts, provision is made for diminution in fair value of restructured loans, in accordance with the RBI guidelines. Ensuring completeness and timing of recognition of NPA, measurement of the provisions, appropriate reversal of unrealized income on NPAs etc., becomes critical requiring proper control mechanism.

Accordingly, our audit focused on analysing the system for identification of NPAs and provision on advances as a key audit matter because of the level of management estimates and judgment involved in determining the provision and the valuation of the security of the NPA loans and the resultant impact on the financial statements of the Bank.

Auditors' Response

Our approach included assessing the design, implementation and operating effectiveness of key internal controls and substantive audit procedures over approval, recording and monitoring of loans, assessing the reliability of documentation, measurement of provisions, identification of NPA accounts, and valuation of security for NPA accounts along with basis and rationale for various other management information.

We have examined the Bank's policies for NPA identification and provisioning and assessing compliance with the IRACP norms.

We have conducted procedures including but not limited to testing exceptional reports generated by the bank's system; review of reports of Statutory Branch Auditors, and review of minutes of meeting of Committees to identify indicators of stress or default events in loan account or product.

We have evaluated details for a sample of exposures for identification of NPA and calculation of Loan Loss provisions including review of valuation of primary and collateral securities as at March 31, 2026 involving estimation.

We have evaluated the Bank's internal control systems' completeness, accuracy, and relevance of data to ensure that the same is in compliance with the RBI guidelines, circulars and directions issued from time to time.

We tested on a samples basis to ensure completeness of documentation, adherence of the approval process to the Bank's Policy, credit review of customers, review of Special Mention Accounts (SMA) reports in RBI's Central Repository of Information on Large Credits (CRILC) and other related documents including evaluation of the past trends of management judgement, governance, and review of internal control. We held discussion with the management of the Bank on various aspects wherein there has been stress and the steps taken by the Bank to mitigate such risks relating to advances.

We have also assessed disclosure requirements for classification and provisioning of NPAs in accordance with RBI circulars including those specifically issued for Covid-19 related matters.

B. Information Technology - IT Systems and Controls

Key Audit Matter

The Bank's operations utilise many independent and inter-dependent information technology systems for processing and recording large volume of transactions in numerous locations on a daily basis. As a result, there is a high degree of reliance and dependency on such IT systems for financial reporting process of the Bank. Controls over access and changes to IT systems are critical to the recording of financial information and the preparation of a financial statements which provides a true and fair view of the Bank's financial position and performance. Appropriate automated general and application controls are required to ensure that such IT systems and applications are able to process the data, as required, completely, accurately and consistently which directly impacts the completeness and accuracy of financial reporting.

Considering the pervasive and intricate nature of the IT systems and its control environment, they may impact the financial recording and reporting of transactions and therefore is a key audit matter as our audit approach could significantly differ depending on the effective operation of the Bank's IT controls.

Auditors' Response

We tested the technology control environment for key IT applications (systems) used in processing significant transactions and recording balances in the books and records. We also tested automated controls embedded within these systems which link the technology-enabled business processes. Our further audit procedures included:

• Assessing the governance and higher-level controls across the IT Environment, including those regarding policy design change, review and awareness, and IT Risk Management practices;

• Testing of design and operating effectiveness of controls across the User Access Management Lifecycle, Change Management as well as effectiveness testing of automated business process controls including segregation of duties;

• Testing of design and operating effectiveness of controls to enable Change Management including how changes are initiated, documented, approved, tested and authorised prior to migration into the production environment of critical IT Applications. We assessed the appropriateness of users with access to release changes to IT application production environments in the Bank;

We conducted review of effectiveness of mappings and flagging of financial transactions, and automated reconciliation controls (both between systems and intra-system); and

Data integrity of critical system reporting used by us in our audit to select samples and analyse data used by management to generate financial reporting.

We obtained an understanding of the Bank's overall financial reporting framework. We tested entries recorded in the books and records, particularly those posted during the financial closing process.

We assessed the overall presentation of the financial statements, including disclosures, to evaluate whether they were consistent with our understanding of the Bank's operations and underlying transactions.

C. Claims against the bank not acknowledged as debt including provision for taxes and other matters Key Audit Matter

Claims against the bank, including provisions for taxes and other related matters, represent a significant area of judgment and estimation by management. These claims are not acknowledged as debt, yet they require detailed evaluation to assess the adequacy of provisions and the disclosure of contingent liabilities in the financial statements. These matters have been identified as a key audit matter due to its inherent uncertainty and its potential impact on the bank's financial position and performance as these items are subject to complex regulatory and legal frameworks and often depend on interpretations of statutes, ongoing litigations, and expert opinions. The evaluation of these claims requires detailed analysis to determine the adequacy of provisions and proper disclosure of contingent liabilities in the financial statements.

Auditors' Response

Our audit procedures to test uncertain tax litigations included understanding processes, evaluation of design and implementation of controls and testing of operating effectiveness of the bank's controls over provisioning on various aspects.

Our audit focused on assessing management's processes and judgments in estimating the provisions and disclosures. We examined relevant documentation, including legal opinions, correspondence with regulatory authorities and other supporting evidence. Our procedures included understanding the key assumptions applied by management, evaluating their consistency with the underlying facts, and assessing the likelihood of future obligations arising from these claims. We considered the adequacy of disclosures made in the financial statements ensuring compliance with relevant accounting standards.

We have obtained details of completed tax assessments and demands from the management of the bank for reviewing the estimation of tax related claims, provisioning and the possible outcome of the disputed cases.

We considered legal precedence and other rulings in evaluating management's position on these provisions made and/or reversed.

For those matters where management concluded that no provision should be recorded, we also considered the adequacy and completeness of the banks disclosures made in relation to contingent liabilities.

Information Other than the Financial Statements and Auditors' Report thereon

6. The Bank's Board of Directors is responsible for the other information. The other information comprises the Corporate Overview, Directors' Report including annexures to Directors' Report, Management Discussion and Analysis, Basel III - Pillar 3 disclosures and Corporate Governance report included in the Annual Report but does not include the financial statements and our audit report thereon. The other information is expected to be made available to us after the date of this auditor's report.

7. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance / conclusion thereon.

8. In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether such other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

9. When we read the other information, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

10. The Bank's Board of Directors is responsible for the matters stated in Section 134(5) of the Act, with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards prescribed under Section 133 of the Act read with Companies (Accounting Standards) Rules, 2021 in so far as they apply to the Bank and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the RBI from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

11. In preparing the financial statements, the Board of Directors is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

12. The Board of Directors are also responsible for overseeing the Bank's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

13. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

14. As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Bank has adequate internal financial controls system with reference to financial statements in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures in the financial statements made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the Bank to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the audit of the financial information of the Bank and such branches included in the financial statements, of which we are the independent auditors. For the other branches included in the financial statements, which have been audited by Statutory Branch Auditors, such branch auditors remain responsible for the direction, supervision and performance of the audits carried out by them. We remain solely responsible for our audit opinion.

15. Materiality is the magnitude of the misstatements in the financial statements that, individually or aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning of the scope of our audit work and evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatement in the financial statements.

16. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

17. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

18. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the financial year ended March 31, 2026 and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Emphasis of Matter

19. We draw attention to Note No. 14(k) of Schedule 18 - Pending disposal of the appeal before the Appellate Tribunal, the Bank has fully provided and pre-deposited the penalty of 51699 Lakhs on December 16, 2022, relating to alleged irregularity under FEMA in respect of transfer of shares, during the years 2007, 2011 & 2012 levied by Directorate of Enforcement. The Bank has also fully provided the penalty of 5 225 Lakhs levied by Directorate of Enforcement for alleged FEMA Violation against 11 persons who were Directors / Company Secretary of the Bank at the time of transfer of above shares and pre-deposited 20% thereof amounting to 545 Lakhs. Further, the bank has also provided a sum of 52 Lakhs on the basis of legal opinion towards leviable penalty in respect of show-cause notice from Directorate of Enforcement, for the issue of Bonus Shares to the above-said transferees.

Our opinion is not modified in respect of the above matter.

Other Matters

20. The Statement incorporates the relevant Financial Statements / information of 598 branches audited by Statutory Branch Auditors of respective branch appointed by the Bank for this purpose whose Financial Statement / information reflect total assets of Rs. 48,631 Crores as at March 31, 2026 and the total revenue of Rs. 4,424 Crores for the year ended on that date, as considered in the Financial Statements. These branches cover 84.87% of Advances, 77.54% of Deposits and 42.16% of Non-Performing assets as at March 31, 2026, and 66.07% of revenue for the year ended March 31, 2026. The Financial Statements / information of these branches have been audited by the Statutory Branch Auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is solely based on the report of such branch auditors.

21. Our opinion on the financial statements, and our report on other legal and regulatory requirements below, are not modified in respect of the above matters with respect to our reliance on the work done by and the reports of the statutory branch auditors.

Report on Other Legal and Regulatory Requirements

22. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with Section 29 of the Banking Regulation Act, 1949 and Accounting Standards as per section 133 of the Act read with Companies (Accounting Standards) Rules, 2021.

23. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949 and communication received by the Bank from Reserve Bank of India, and on the consideration of the reports of the Statutory Branch Auditors as referred in paragraph 20 above, we report that:

a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit and have found them to be satisfactory;

b) the transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and

c) the returns received from the offices and branches of the Bank have been found to be adequate for the purpose of our audit.

d) The Profit and Loss account shows a true balance of profit for the year then ended.

With respect to the matter to be included in the auditor's report under section 197(16) of the Act, we report that since the Bank is a banking company, as defined under the Banking Regulation Act, 1949; the reporting under section 197(16) in relation to whether the remuneration paid by the Bank is in accordance with the provisions of section 197 of the Act and whether any excess remuneration has been paid in accordance with the aforesaid section is not applicable.

24. Being a Banking Company, the Companies (Auditor's Report) Order, 2020 issued by the Central Government of India in terms of the powers conferred by subsection (11) of Section 143 of the Act, is not applicable.

25. As required by Section 143(3) of the Act, based on our audit and on the consideration of the reports of the statutory branch auditors as referred to in paragraph 20 above, we further report to the extent applicable that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

(b) In our opinion, proper books of accounts as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.

(c) The reports on the accounts of the branch offices of the Bank audited under section 143(8) of the Act by the Statutory Branch Auditors of the Bank have been sent to us and have been properly dealt with by us in preparing this report.

(d) The Balance Sheet, Profit and Loss Account and the Cash Flow Statement dealt with by this Report are in agreement with the books of account and with the audited returns from the branches.

(e) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act read with Companies (Accounting Standards) Rules, 2021 to the extent they are not consistent with the policies prescribed by the RBI.

(f) On the basis of the written representation received from the directors and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2026 from being appointed as a director in terms of section 164(2) of the Act.

(g) With respect to the adequacy of Internal Financial Controls with reference to the financial statements of the Bank and the operating effectiveness of such controls, our separate report in Annexure A is attached.

(h) The entity being a banking company as defined under Banking Regulation Act, 1949, the remuneration to its directors during the year ended March 31, 2026 has been paid / provided by the Bank in accordance with the provisions of Section 35B(1) of the Banking Regulation Act, 1949.

(i) With respect to the other matters to be included in the Auditors Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our knowledge and belief and according to the information and explanation given to us:

i. The Bank has disclosed the impact of pending litigations on its financial position in Schedule 12, Note 14(k) of Schedule 18 of the financial statements;

ii. The Bank has made provision as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts as detailed in Schedule 12 and Note 7 of Schedule 18 to the financial statements and;

iii. There has been delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank and the details are disclosed in its financial statements - Refer Note No. 14(l) of Schedule 18 to the financial statements.

iv. a) The management has represented that, to the best of its knowledge and belief, other than as

disclosed in the Note 15 of Schedule 18 to the financial statements, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Bank (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

b) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the Note 15 of Schedule 18 to the financial statements, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

c) Based on such audit procedures that were considered reasonable and appropriate in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub-clause (a) and (b) contain any material misstatement.

v. As stated in Note 1(b) of Schedule 18 and as disclosed in Profit and Loss Account under 'Appropriations' to the Financial Statements:

(a) The final dividend proposed in the previous year, declared, and paid by the Bank during the year is in accordance with Section 123 of the Act, as applicable.

(b) The Bank did not pay any interim dividend during the year.

(c) The Board of Directors of the Bank have proposed final dividend for the year which is subject to the approval of the members at the ensuing Annual General Meeting. The amount of dividend proposed is in accordance with section 123 of the Act, as applicable, until the date of this report.

vi. Reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 is applicable from 01 April 2023.

Based on our examination which included test checks the Company has used multiple accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) and the same has operated throughout the year for all relevant transactions recorded in the respective software.

Further, for the periods where audit trail (edit log) facility was enabled and operated throughout the year for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with. Additionally, the audit trail has been preserved by the company as per the statutory requirements for record retention.

For Sundaram & Srinivasan, For Chandran & Raman,

Chartered Accountants Chartered Accountants

FRN: 004207S FRN: 000571S

T S Dinesh Kumar S Pattabiraman

Partner Partner

M. No.: 229153 M. No.: 014309

UDIN:26229153 UDIN: 26229153

Place: Thoothukudi Place: Thoothukudi

Date: April 27, 2026 Date: April 27, 2026