Jammu & Kashmir Bank conducted a concall on 25 October 2024 to discuss the financial results for the quarter ended September 2024 and prospects of the bank. Baldev Prakash, MD&CEO of the bank addressed the call:

Highlights:

Bank has posted another strong set of profitability numbers for this quarter in Q2FY25. The quarterly operating profit crossed Rs 750 crore mark. The net profit surged 45% yoy and 33% qoq to Rs.551 crore.

The bank stays on course towards delivering results as per the guidance for the short to medium-term.

Overcoming a de-growth in deposits in the previous quarter, deposits have grown at 9% yoy and 4% qoq.

Bank continues to have one of the best CASA ratios in the industry at 48.60% with CASA in home territories of JKL, which accounts for around 89% of the deposit base, still above 51.50%.

CASA of the Bank is again hovering in the vicinity of 50% with both demand and saving deposits growing over Q2 numbers in absolute terms. With the expected reversal in interest rate cycle in HY2 FY25, CASA is expected to improve.

Advances have grown at 9.5% yoy with higher growth in rest of India at 10.8% against the 7.2% growth in JKL, though the qoq growth has been muted.

Part of the muted growth can be attributed to the slowdown in economic activity in J&K on account of the assembly elections.

With the successful conclusion of the elections, economic activity in the UT is expected to gather pace.

Personal Finance has grown at 11.4% yoy, most prominent being housing loans with growth of 15.6% yoy.

Rest of India growth of 20.3% yoy in personal loans, with 21.2% in housing loans and 25.7% in car loans, is in line with the bank''s strategy of making inroads in retail loan segment in rest of India. 

Sectoral credit to SME has also recorded a yoy growth of 12.7%.

The geographical loan book composition continues to be at around the same levels - 72:28 for JKL and the rest of India with a retail corporate split of around 2:1 with retail loans being dominant in JKL and corporate loans dominating the rest of India loan book.

The operating costs have been restrained, owing to the moderation of employee costs, declining 3% yoy for H1.

Despite the industry-wide pressure on margins with the increase in Cost of Deposits for Q2 to 4.80% - on account of higher accruals to term deposits, Bank has not only been able to maintain but has recorded an improvement in NIM to 3.90% for Q2FY2025.

The annualized Return on Assets for HY has been recorded at 1.24% and Return on Equity at 16.52%, and is on the right trajectory as per guidance for FY25.

Cost to Income ratio, which has been a persistent concern during the recent years, has come down below the level of 60%, being recorded at 54.56% for Q2FY25 and 58.07% for H1FY25. The cost to income ratio is expected to continue to moderate in the short to medium term.

In terms of asset quality, the gross slippage ratio continues to be under control and is below the 1% mark at 0.91% (annualized) for the H1FY2025 against 1.25% for H1FY24.

The bank has recorded recoveries of Rs 92 crore in technically written off accounts in Q2FY2025 boosting non-interest income.

PCR continues to be at a healthy level of above 90%. The marginal increase is partly on account of recovery actions under SARFAESI slowing down owing to the unavailability of revenue officials, who were engaged in facilitation of J&K assembly elections.

The restructured portfolio is also holding well with collection efficiency in standard restructured accounts at almost 100% during the quarter and half-year.

The provision requirement on account of ageing of NPAs for the second half-year is estimated at about Rs 127 Crore but with expected recoveries and resultant provision write backs, the bank expects the credit cost to be benign for FY25.

Even in the current quarter, there is no credit cost in spite of the marginal increase in Gross NPA.

The profit for H1FY2025 adds 100 bps to CRAR ratio. With continuing healthy internal accruals, the bank is not looking at raising any additional equity during the current fiscal but may consider raising debt capital in the second half-year, if required.

The Bank has embarked on an ambitious transformational journey towards a revamped Sales and Service Operating Model for the Bank dubbed as ''J&K Bank 2.0'' for which Ernst & Young has been roped in as a consultant.

This project is a conscious and strategic move to break free from the constraints of traditional banking, propelling the Bank towards a future where agility, sales excellence and customer-centricity define operations.

The tenure of the MD is ending in December 2024 and the process of identifying new MD has started.

The bank has maintained credit growth guidance at 15%, deposit growth 12%, CASA 50%, NIM 3.75% to 3.85%, RoA 1.25% to 1.30%, ROE  17% to 18% and GNPA of 3.50% for FY2025.

The bank expects to maintain a cost to income ratio at 57-58%.

J&K Economy

J&K''s GDP is projected to be at Rs 263399 crore in FY25, growing 7.5% over FY24. The GDP is likely to double in the next five years with emphasis on the service sector, industries, horticulture and tourism.

The budgetary estimate for J&K for FY 2024-25 is about Rs 1,18,390 crore with continued emphasis on developmental activities and provisions for other ongoing initiatives for sustainable agriculture, new industrial estates, employment generation, developing tourism and social inclusion.

Further, the Union Budget has provided for a special central assistance of Rs 17,000 crore for J&K, which would lead to improvement in the fiscal position and enable the Government of J&K to work on fulfilling the developmental needs and aspirations of the local people.

After the record inflow of tourists in J&K for FY 2023-24, the unprecedented growth in the tourism sector continues with 1.08 crore tourists visiting in the first six months of 2024. The tourism sector has recorded an annual average growth rate of 15.13% during the last three years.

Border tourism has picked up and hitherto unknown locations like Gurez, Keran and Teetwal have been opened up for tourism. In the early part of 2024, the number of foreign tourists has seen a staggering 61% increase on a yoy basis.

With the ongoing investments in the tourism sector, Kashmir valley soon getting connected with the rest of India through train, revival of cinematic interest in the region and rapidly emerging popularity of Kashmir as a top destination for weddings, the region expects even stronger numbers in the future.