Warning On Losses For Rest Of FY17 Sends J&K Bank’s Stock Hurtling
Jammu & Kashmir Bank to focus on “cleaning up balance sheet” in remainder of fiscal
An attempt to clean up the balancesheet of Jammu & Kashmir Bank will take a toll on its profitability and the bank is likely to post losses in the remainder of the current financial year, said Parvez Ahmad, chairman and chief executive officer of the bank in a telephonic interview with BloombergQuint.
“I’m taking the longer route, two to three quarters (there will be a loss), and by March 31 the position will become clear,” said Ahmad.
The bank held an investor conference call on Thursday to outline the road map for the rest of the financial year. “The action points for the second half of the current fiscal will be focusing or targeting recoveries in the NPAs (non-performing assets) through various modes and also the focus will be on the consolidation and clean-up of the balancesheet with the idea of making the balancesheet more strong,” he said.
In the quarter ended June, J&K Bank posted a net profit of Rs 22.88 crore, compared with a loss of Rs 56.02 crore in the preceding quarter. Total bad loans during the quarter spiked to 9.31 percent of total advances from 8.32 percent as on March 31.
The bank has not yet reported its financial results for the quarter ended September.
Shares of the bank plunged more than 18 percent intraday before paring some losses and closing 14 percent lower at Rs 74.80 on the Bombay Stock Exchange, following management commentary.
Outlook On Loan Growth
J&K Bank has reduced its one-year marginal cost of funds lending rate (MCLR) to 8.75 percent with effect from October 10. This is currently the lowest in the industry. State Bank of India, HDFC Bank, and ICICI Bank have a one-year MCLR of 9.05 percent.
“There was room for reducing the rates in line with the policy action taken by the Reserve Bank of India and we’re looking for a lot of clients in the rest of India, hopefully, who will be looking for that kind of pricing range,” said Ahmad.
The Reserve Bank of India last week announced a policy rate cut of 25 basis points, taking the repo rate to 6.25 percent.
As on June 30, J&K Bank had a loan book of Rs 48,854.42 crore. Half of this is from the state of Jammu and Kashmir and the other half is from the rest of India, according to Ahmad. Around 80 percent of the loans emerging from outside Jammu and Kashmir are to corporates, while 80 percent of loans in the state are retail loans, he said.
“Outside the J&K state, we’re targeting a moderate loan growth of 10-15 percent, not compromising on quality,” said Ahmad. “And in the J&K state, there are a couple of regions that are not affected by the unrest. We’re focusing on Jammu and Ladakh and we want to grow in these regions by 18 to 20 percent.”
The bank is witnessing a sharp uptick in deposits and expects to close the year with a growth of 15 percent. “Deposits are picking up sharply because there is not scope for making much investment for the time being in the context of the Kashmir province,” said Ahmad.
Fundraising Plans
This financial year, J&K Bank plans to raise Rs 1,000 crore by way of Tier-2 capital.
According to Ahmad, in FY18, J&K Bank will raise Tier-1 capital. This will be by way of an equity issue, a rights issue, or an issue of global depository receipts.
J&K Bank is a state-owned bank, with the state government of Jammu and Kashmir holding a 53 percent stake as on June 30.
The bank will also consider selling its stake in PNB Metlife, Punjab National Bank’s insurance joint venture with Metlife International.