Mr. Mushtaq Ahmad, Chairman & CEO of Jammu & Kashmir Bank, has more than 35 years of experience in banking. Mr. Mushtaq Ahmad joined the bank in the year 1972 as Probationary Officer and during his banking career he had held various important and senior positions in the bank as a part of Corporate Management Team. He has practical experience in the field of Finance, Corporate & Retail Banking, Treasury & Investment Management, International Banking, Liability & Risk Management and General Administration/HRD. Under his leadership, J&K Bank is aiming high on expanding its operations outside the State of Jammu & Kashmir.
Jammu & Kashmir Bank functions as a universal bank in the state of Jammu & Kashmir and as a specialised bank in the rest of the country. J&K Bank follows a two-legged business model whereby it seeks to increase lending in its home state which results in higher margins despite modest volumes, and at the same time, seeks to capture niche lending opportunities on a pan-India basis to build volumes and improve margins. J&K Bank operates on the principle of 'socially empowering banking' and seeks to deliver innovative financial solutions for household, small and medium enterprises. J&K Bank was incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+ by CRISIL, indicating the highest degree of safety.
Speaking exclusively to Hemant P. Maradia of IIFL, Mr. Mushtaq Ahmad says, “The Bank targets a credit growth of over 25% and deposit growth of over 17-18% for FY13.”
What has been the growth in loan book in Q1 and Q2? What are the key growth drivers?
Advances of the bank increased by 25.84% and stood at Rs 33,225.27 crore as on June 30, 2012 as compared to Rs 26,403.47 crore for the corresponding quarter of the last fiscal.
We are envisaging 25-30% growth in our credit portfolio during FY 2012-13. We expect around 30% credit growth in key sectors of Agriculture, Corporate and MSME.
What has been the growth in deposits so far in FY13?
Despite all odds, Bank’s total deposits grew by 23.30% to stand at Rs 53,117.10 crore on June 30, 2012 as against Rs 43,077.93 crore for Q1 of last FY.
What is your credit-deposit ratio?
Our CD ratio as on March 31, 2012 stood at 62%.
What is the cost of deposit and yield on advances?
The cost of deposits as on March 31, 2012 stood at 5.92%. The yield on advances has improved to 11.45% compared to about 10.68% YoY basis. So, we are witnessing an improvement of 77 basis points in the advances yield.
What kind of credit growth and deposit growth are you expecting in FY13?
With due consideration of the challenges facing the Indian economy, the J&K Bank targets business of Rs. 100,000 Crore by March 2013 as against Rs. 86,000 Crore as on 31st March 2012 so as to register a growth of over 25%.
The Bank targets a credit growth of over 25% and deposit growth of over 17-18% for FY13.
Tell us about your asset quality? What is the outlook for NPAs during FY13?
J&K Bank follows a prudent approach in expanding quality credit assets in line with our policy on Credit Risk Management. Coupled with the close monitoring and efficient management of the loan book this has contained the slippages to very low level.
The result is a quality loan book with a 1.6% Gross NPA and a 0.14% Net NPA. The policy shall continue to further improve the bank’s asset quality.
However, we are closely monitoring our assets and will perform better in the coming quarters.
Where do you expect incremental NPAs to come from?
Due to recessionary environment some of the large industries are witnessing liquidity concerns which might force them to go for restructuring. However, our exposure to these industries is on blue chip and financially sound companies. We do not see any stress on our credit portfolio.
Our exposure to Power and Construction sector is approximately 10% of the total credit portfolio with major exposure to public sector power companies of state and Central Government. Similarly, our exposure to Telecom and Aviation sectors is not substantial; all the accounts are standard with upto date debt servicing. At the same time we don’t have any exposure to State Electricity Boards (SEBs).
What kind of slippage have you witnessed during Q1 and Q2?
We have a very strong portfolio of assets which have strong cash flows and have comfortably serviced their debt obligations. However, some of the accounts which are not significant in terms of exposure have been restructured and some of the small portion has been downgraded. This substantiated by our NPA ratio which is among the best in the industry.
What is the proportion of restructured assets in total loan book?
The percentage of restructured assets to the total advances is one of the lowest in the industry. However, due to general situation there could be some stress here and there. But we have sufficient cushion for such eventualities.
What is the provision coverage ratio?
The bank’s provision coverage ratio as on June 30, 2012 stood at 94.09%.
What is the proportion of CASA out of total deposits?
Our CASA (Current and Saving Accounts) ratio as on 31.03.2012 stood at 41%. With the Bank’s expansion policy unfolding on the ground, the Bank expects to improve CASA ratio further.
Where do you see NIMs going forward?
Maintaining healthier margins is the key to healthy banking business and we monitor closely the status of margins in all our operational areas.
The Bank has all along been focusing on maintaining high net interest margin (NIM) and targeted a NIM of 3.7% to 4%+ for the fiscal year 2012-13. The yield on advances has improved to 11.45% compared to about 10.68% YoY basis. So, we are witnessing an improvement of 77 basis points in the advances yield. There is an increasing trend in interest spread during the last two years from 3.46% to 3.57%.
How has been the growth in fee income?
The fee income growth has not been substantial due to variety of reasons. However, we expect a good increase in the current fiscal year.
Are you well capitalised for future growth? What is the capital adequacy ratio?
J&K Bank is comfortably placed in terms of Capital Adequacy (well above the regulatory minimum of 9%) at 13.75% as on June 30, 2012. The bank’s future capital planning is worked out under different sensitivity projection in consonance with the envisaged business plan.
Capital Adequacy ratio (CAR) over medium term is monitored by regular Internal Capital Adequacy Assessment Process (ICAAP).
From the bank’s projected business growth for next three years, J&K Bank will have sufficient capital to meet its regulatory as well as internal capital requirements on account of retaining major part of bank’s earnings / profits in the business.
However, the Bank has multiple options available to raise capital in case of any unforeseen scenarios or for any strategic expansion plans into new businesses, which includes raising Tier 2 capital.
As on 30-06-2012, Tier-2 constitutes only 19.50% of bank’s Tier-I capital. So, there is headroom of 80.50% available to the Bank for raising Tier II capital.
What outlook do you see for interest rates?
The RBI remains focused on controlling price pressures in the economy. The upside risks from inflation has sustained as was reflected in the quarterly review of Monitory Policy by the Reserve Bank of India (RBI) announced on 31st July 2012. We maintain our view that the RBI would continue its pause mode during the upcoming review (September 17th). The rate spiral has, however, been contained to an extent.