Mr. M. Y. Khan, Chairman and Managing Director, Jammu and Kashmir Bank

Speaks on the bank’s role, position, vision and plans for future.

September 01, 1999 12:00 IST | India Infoline News Service

The Jammu and Kashmir Bank ? a small bank with a leading market share in the State of Jammu & Kashmir, a strong balance sheet but very poorly rated and discounted by the market. Mr. M. Y. Khan, Chairman and Managing Director of the Bank in an exclusive interview with Nirmal Jain of India Infoline speaks on the bank?s role, position, vision and plans for future.

When Mr.M.Y.Khan took over as Managing Director of J&K Bank in December 1996, the bank?s deposit base was Rs28.95bn and advances of Rs13.64bn, which have increased to Rs64.66bn and Rs29.50bn respectively by March 1999. The Bank?s profitability too has risen from Rs183.9mn to Rs854.5mn during the same period. The capital adequacy ratio of the Bank has increased from 15.88% to 24.48% in this period.

The capital and reserves of the Bank have increased from Rs1.77bn as on 31-03-1997 to Rs4.29bn as on 31-03-1999 (capital was Rs478mn). This has happened largely due to the developing new products, improving customer services and augmenting capital base. The Bank has expanded outside J&K and has aggressively computerized its operations. The Bank with its strong fundamentals and inherent potential is poised to scale new heights and face the challenges.

Q. What is the strength of J&K branches and how are the branches distributed?

Our Bank has approximately 390 branches, of which 300 branches are located in the state of Jammu and Kashmir and 90 branches are located in other major cities across the country. Apart from Jammu and Kashmir, the Bank has a strong presence in Maharashtra, Gujarat, Karnataka, Madhya Pradesh, Uttar Pradesh, Punjab, Haryana and Delhi. Since the last few years we have been aggressively expanding our network across the country. During the current year, we will be adding 6-7 branches in the state of J&K and another 10-15 branches outside J&K.

Q. What has been the driving force behind the rapid growth of deposits and advances in the last 3 years?

Currently, our deposits and advances aggregate to Rs94bn, which is twice the amount compared to the amount a few years ago. As a strategy, we have targeted large corporates to expand our business. Today our clientele includes PSUs like Food Corporation of India, Indian Railway Finance Corporation, Power Finance Corporation and also leading private sector groups like Reliance, Hindujas, Finolex, S.Kumar's, Kalyanis, Kirloskar Engines and some other renowned groups. Expansion in branch network and introduction of new products coupled with improvement in Customer Service has contributed to the growth graph moving vertically up.

Q. How is your portfolio distributed?

These large groups, together account for Rs7bn ie 25% of the total lending portfolio. Besides, the major advances are extended to the horticulture sector (around 14%), handicrafts sector (around 13%) and trading sector (around 14%). Most of the advances to horticulture / handicraft sectors have been extended in the State of J&K, whereas trading portfolio is spread all over the country.

Q. When you lend to small horticulture / handicrafts organizations, you must be having significantly higher NPAs?

It is not like that. On horticulture front we have negligible NPAs. Also NPAs in trading and handicrafts sectors are entirely safe and absolutely manageable.

Q. Then, which are the sectors that account for the major part of NPA?

Out of gross NPA of around Rs2.43bn, 25-30% are in the priority sector. Remaining Rs1.25bn are distributed across other sectors.

Q. What measures has the bank taken to recover these NPAs?

We are assiduously monitoring the NPA level and simultaneously ensuring maintenance of standard assets to avert further slippage. The existing NPAs would have been still lower but for the loan waiver scheme announced by Govt. of India a couple of years ago. The recovery process got some reversals as the borrowers? expectations mounted. But the situation is now clear and the borrowers outside the ambit of the waiver scheme have started repayments. Under the Loan Waiver Scheme we have preferred claims and received Rs620mn in instalments in the last two years. Another Rs310mn are expected in the current financial year. In addition to this we are expecting recoveries to the tune of Rs450mn to Rs500mn. This way NPAs will come down considerably.

The bank has several novel schemes in New Delhi. For eg. in some branches of New Delhi the bank has been able to have a traders / fruit growers association who undertake the repayment responsibility of their members, which does a great deal in recovery and resultant reduction in NPA. These branches have considerable autonomy in granting over draft facilities, as the risk is minimal. About 65% of NPAs are from J&K whereas 35% are from outside.

Q. Currently, what are your net NPAs?

Currently, our gross NPAs are 7.9% of total advances which will be reduced to 6.7% in the current year while net NPAs which were 3.79% of advances will be reduced to around 3% this year.

Q. When you have such adequate profits, why don't you make provisions for entire NPAs to reduce your net NPAs to zero?

No. As per prudential norms / guidelines, we can provide upto a certain amount of sub-standard, doubtful and loss assets depending on the security support and other collaterals backing the assets. I can assure you that the NPAs are substantially provided for, and 100% transparency is ensured in respect of status and health of such assets. Considering the age of the Bank the NPAs? level is quite low. But we are not complacent.

Q. How is the regional distribution of deposits?

Jammu and Kashmir accounts for 70% of deposits. This has been traditionally our stronghold and within the state of Jammu and Kashmir our market share will be 75-80%. In case of advances, approximately 50% of advances are within the state of Jammu and Kashmir whereas the rest are outside. Outside advances are largely accounted for by the large corporates.

Q. How do you see this ratio changing?

Over the next 3-5 years the ratio of deposits from the regions other than J&K will increase to 40% and growth of advances will increase to 50%.

Q. What is your target profitability this year?

At net level our profits, which were Rs850mn last year, should increase by around 40% to Rs1.2bn. This trend is also evident in our Q1 results, where our net profit has jumped to Rs280mn ie 40% yoy jump. At gross level, our profits were Rs1.7bn last year, which should increase to Rs2.4bn, out of which Rs600mn will be tax provisions and another Rs600mn will be various provisions including that for NPAs.

Q. What were the provisions for NPAs last year?

Approximately, Rs1.23bn.

Q. What are the key strengths of J&K Bank?

Our cost of funds is very low. It was only 7.6% last year. J&K Bank?s administrative expenses are only 10.15% of total income, whereas all India average for all the banks is 17.5% The company has been able to leverage upon growth and has restricted its administrative cost to increase profit margin.

Q. Why is the cost of funds so low?

J&K Bank is the exclusive bank for funds management of J&K State government. J&K Bank is the only bank to have such privilege whereas most other State governments have several commercial banks through which the business is distributed. This gives a float, on an average, of Rs4-5bn and at times Rs12bn. J&K bank also has 150,000 salary accounts of State government employees.

More than 40% of our deposits are low cost deposits. This phenomenon will not change in the years to come, as we will continue having low cost funds of the Government.

Currently, 35% of our branches are computerized and they account for 60% of business. In another 2-3 years time, 60% of our branches would be computerized, accounting for 80% of the business. The bank would like to maintain its pace of growth both in advances / deposits as well as profitability.

Q. What is the break-up of your deposits, credit deposit ratio and yield on investments?

The break up of the deposits is as under:



% to total

Term Deposits



Savings Bank Deposits



Demand Deposits






Our credit deposit ratio is around 47%. Yield on investments (which constitute about 53% of our total assets) was around 11.30%, three years ago. The same has risen to over 13% in the last year. Earlier, the major investments were in call market. Now the bank monitors its investment closely to optimize the yield.

Q. Despite strong fundamentals, the stock of the Bank has not been faring well. Can you elaborate the reasons?

I feel the performance of the stock has not been as per our expectations. It has mainly been due to market sentiments particularly towards the bank stocks. There has however been an encouraging movement in the past few weeks and we are hopeful of better upward movement.

You may be surprised to know that J&K Bank had offered the share at 50% discount to book value. Even today the book value of the share is Rs88.32 as against the offered price of Rs38 per share. Of late the share has moved up. It is currently trading between Rs32-34. I am sure the share would do still better in the days ahead.

Let me make it clear that J&K Bank is conscious of its responsibility towards its shareholders. We have their interests upper-most in our mind. Though the yield on investment in today?s market is good, yet we believe that some investor friendly steps are needed. We are actively considering the same.

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