Ladies and gentlemen, good day, and welcome to J&K Bank Q2 FY25 earnings conference call, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. I now hand the conference over to Mr. Hardik. Thank you, and over to you, sir.
Thank you, operator. Hello, everyone. Good afternoon. On behalf of ICICI Securities, we welcome you all to the Q2 FY twenty-five post-earnings conference call of Jammu and Kashmir Bank. From the management side, we have with us MD and CEO, Mr. Baldev Prakash, and other officials of the bank. I now hand the conference over to the management for their opening remarks, post which we will have a Q&A session. Over to you, sir.
Thank you, Hardik. A very good afternoon and warm welcome to all the participants to Jammu and Kashmir Bank September two thousand twenty-four earnings call. First, let me introduce my management team, who are accompanying me on this call. Our Executive Director, Mr. Sudhir Gupta, our Corporate Credit Head, Mr. Ashutosh Sareen, our Retail Credit and Liabilities Head, Mr. Narjay Gupta, our Treasury Head, Mr. Mukesh Koul, joined from Mumbai, our IAPM, Impaired Assets Portfolio Management Head, Mr. Rakesh Koul, our Finance Head, Mr. Sushil Gupta, and our Chief Risk Officer, Dr. Altaf Zargar. Before discussing the performance of the bank, let me briefly talk about the macroeconomic outlook. As we have entered into the second half of the year, though global growth appears to be steady, although, however, by historical standards, it remains subdued.
But taking into consideration the continuing geopolitical conflicts and intermittent volatility in the global financial markets, the global economic activity has slowed, has shown resilience in the first half of the current financial year. While IMF has retained its global growth forecast at 3.2% in 2024, it has upgraded India's growth forecast for financial year 2024-2025 by 20 basis points to 7% from the previous estimates of 6.8% in April. This upgrade has come in the backdrop of improved prospects of private consumption, particularly in rural areas, on the back of favorable monsoon, higher sowing activity, and moderating inflation. With these upward revisions, India's growth story remains intact as India continues to maintain its position as fastest growing economy among emerging markets and developing economies.
The World Bank has also upgraded India's growth forecast to 7% for financial year 2024-2025. Private consumption and investment, two major factors of growth with a combined share of more than 90% of GDP, are expanding at a robust pace of more than 7%. Total gross GST revenue for the year to date up to August 2024 stands at INR 9,13,855 crore, which depicts a YoY increase of 10.1%, affirming the continued momentum in the Indian economy.
The resilience of Indian economy has navigated the domestic stock markets to all-time high, with FPI inflows seeing a turnaround from net outflows of $4.2 billion in April to May 2024, to net inflows of $19.2 billion during June to October 2024, that is till October 7, 2024, reflecting investor confidence in India's long-term growth prospects. Though of late, there has been a correction in the domestic markets owing to FPI sell-offs sparked by Beijing's stimulus package. Whereas the United States Federal Reserve has begun the policy pivot by cutting the benchmark interest rate, which is the federal funds rate by 50 basis points, owing to the moderation of inflation and adverse impact of higher rate on unemployment levels, creating recession worries.
RBI has kept the policy repo rate unchanged, demonstrating a balanced approach for managing inflationary risk while considering growth prospects. Coming to the specifics of economic outlook for our home territory, Jammu and Kashmir's GDP is expected to be at INR 263, 399 crore in FY 2025, growing 7.5% over FY 2024. The GDP is likely to double in the next five years with emphasis on service sector, industries, horticulture, and tourism, according to J&K Economic Survey of 2022, 2023. The budget estimates for J&K for FY 2024, 2025 is about INR 118, 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 inclusions.
Further, Union Budget has provided for INR 17,000 crore for J&K, which would lead to improvement in fiscal position and enable the Government of J&K to work on fulfilling the developmental needs and aspirations of local people. After the record inflow of tourists in J&K for financial year 2023-2024, the unprecedented growth in tourism sector continued, continues with INR 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 Tithwal have been opened 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 Rest of India through train, revival of cinematic interest in the region, and the rapidly emerging popularity of Kashmir as a top destination for weddings, season is expected even stronger numbers in the future. This would help the region's economic transformation and tourism industry stands as the second largest sector in Kashmir after horticulture. Now, speaking on the financial performance of the bank.
Quarter 2 and first half of financial year twenty-five. The bank has posted another set of another strong set of profitability numbers for this quarter, with quarterly operating profit crossing the INR 750 crore mark, and net profit for Q2 recorded at INR 551 crore, witnessing a growth of 44.6% YoY and 32.6% QoQ, and stays on course towards delivering results as per the guidance for the short and medium term. Overcoming a degrowth in deposits in the previous quarter over the March levels, deposits have grown at 9% YoY. The pressure in deposits that we had mentioned in our Q1 earnings call is clearly evident now, with 4% QoQ growth in the current quarter.
Despite the industry-wide pressure on CASA deposits, with overall CASA in the banking industry declining to the pre-pandemic levels of 39%, owing mainly to the continuing higher interest rate cycle and today's youth with a higher risk appetite, chasing better returns from mutual funds and capital markets, our bank continues to have one of the best CASA ratios in the industry at 48.60%, with CASA in our home territories of Jammu and Kashmir and Ladakh, which accounts for around 89% of our deposit base, still above 51.5%. As we speak, the CASA ratio 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 half year, financial year 2025, CASA is expected to improve further.
Advances have grown at 9.5% YoY, with higher growth in the Rest of India at 10.8% against 7.2% growth in Jammu, Kashmir and Ladakh. Though 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 assembly elections, which have recorded an impressive voter turnout of around 64%. With the successful conclusion of elections, economic activity of UT is expected to gather pace. Further advances to NBFCs have been restricted by design, owing to caution sounded by Reserve Bank of India.
Another factor is the QoQ of the bank on account of a conscious call for the time being, to focus on high-yielding retail loan book compared to corporate loan book, in order to compensate the pressure on margins on account of higher cost of deposits due to changing mix, and results are evident with an improved NIM on a quarter on quarter basis. Personal finance has grown at 11.4% YoY, most prominent being housing loan with growth of 16.6% 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 segments in the 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, that is 72-28 for JK and Rest of India, with a retail corporate split of around two to one, with retail loans dominant in Jammu and Kashmir and Ladakh, and corporate dominating the Rest of India loan book. The income statement reflects a good growth and interest income for half year, growing at 12.9% YoY, and other income at 17.1% YoY, while the operating costs have been restrained, owing to the moderation of employee costs, declining 3% YoY for the half year. Operating profit for the half year has grown by 30% YoY, registering an impressive increase of 32.3% on a QoQ basis.
The bank continues to register impressive profits, with PAT for half year increasing 36.6% YoY, being recorded at INR 966.41 crore for this half year. Despite the industry-wide pressure on margins, which is evident in our case also, with the increase in cost of deposits for Q2 to 4.8% on account of higher accruals to term deposits, bank has not only been able to maintain, but also recorded an improvement in NIM to 3.90% for this quarter, and NIM for half year is recorded at 3.88%, which is above our conservative guidance.
The annualized return on assets and return on equity for half year has been recorded at 1.24% and 16.52%, and are on the right trajectory as per our guidance for this fiscal. Cost 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% and 58.07% for the quarter and half year respectively, and 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. That is 0.91% annualized for the half year, against 1.25% for half year one, FY 2024.
Though the total NPA, including technical write-off accounts, has come down owing to technical write-off recovery of INR 92 crore, which also reflects in the boosted other income for Q2. Gross NPA and net NPA have recorded a marginal increase on a QoQ basis, and have been recorded at 3.95% and 0.85% respectively as on thirtieth September 2024. Provision coverage ratio continues to be at a healthy level of above 90%. The marginal increase is partly on account of recovery actions and the SARFAESI slowing down, owing to the unavailability of revenue officials who were engaged in facilitation of the J&K assembly elections. The restructuring, restructured portfolio is also holding well, with collection efficiency in standard restructured accounts at almost 100% during the quarter and half year.
The provisions requirement on account of aging of NPAs for the second half-year is estimated at about INR 127 crore. But with our expected recoveries and resultant provision write-backs, we expect the credit cost to be benign for the current fiscal. Even in the current quarter, there is no credit cost in spite of marginal increase in gross NPA. CRAR has been recorded at 14.99% and CET1 at 11.66%, without reckoning the half-yearly profit, which has an impact of 100 basis points. With continuing healthy internal approvals, we are not looking at raising any additional equity during the current fiscal, but may consider raising that capital in the second half-year if needed. At last, an update on the continuing BPR transformation journey of the bank.
The bank has implemented WhatsApp Banking for offering an additional channel for servicing to our customers. The bank has also embarked on an ambitious transformation journey towards a revamped sales and service operating model for the bank, dubbed J&K Bank 2.0, for which E&Y 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 defines our operations.
So we maintain our earlier guidance for financial year 2025, which is credit growth of around 15%, deposit growth of around 12%, CASA 50%, NIM 3.75%-3.85%, ROA 1.25%-1.3%, ROE 17%-18%, gross NPA 3.5%. I thank you all and acknowledge your guidance, support, and trust, and we expect it to continue in the coming days. I will be glad to have your questions now. Thank you very much.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.
Thank you, ma'am.
Hello?
Yes, Hardik.
Hi, sir. We have actually seen a very strong other income growth. Can you let us know what exactly is contributing to this?
So three factors, basically. One is that the technical write-of f recovery has been quite healthy. We have been able to recover more than INR 90 crore during this quarter. And the second thing is now the annuity which we were purchasing with ROC clause earlier, now we have started purchasing it without ROC clause. So the staff costs have come down drastically, and which we indicated in the Q1 call also. And the third thing is, now the money which has been reimbursed by government on account of pensions, now we are efficiently deploying it in investment as well as in the credit route. That is also giving a lot of boost.
Okay. Understood, sir. Understood. Hello? Yeah, sir, another question is, what is your loan growth guidance, and what exactly are the sectors which will be contributing to it?
So our loan growth guidance continues to be in the range of 15%, and our loan book is consisting of retail around 70% and Corporate around 30%. So we continue to maintain the same percentage, and obviously the retail will be the dominating segment in the long-term growth.
Oh, okay, sir. And sir, in the first question, you mentioned that, about something about the ROC clause. Can you explain what exactly is it?
So we were purchasing our annuities for staff annuity, which the staff benefits annuities we were purchasing with Return on Capital clause.
Mm-hmm.
So because of that return on capital clause, we were paying extra premium of around 25%, 20%-25%. So that, we have then studied the industry, the other banks also. Nobody is purchasing that ROC clause now, so we have actually taken a call to purchase it without ROC clause, as other banks are doing. So because of that, the premium has come down.
Okay. Okay, and can you quantify the impact of that in FY 2025?
So that will be around INR 120 crore-INR 125 crore.
Okay. Understood, sir, and sir, another question is, sir, we have witnessed a marginal decline in yields quarter on quarter. Can you explain what has happened and how should we look at the yields for the full year as well as in FY 2026?
Yield on advances?
Yeah.
It's gone up, I think.
Okay.
I think around 20% it has gone up. Yes, the cost on deposits has also gone up, so the effort will be to see that our yield is improved in a manner that our cost on deposits is less than the, I mean-
Mm-hmm.
The cost of deposits should be in control.
Okay. Sir, so what will you guide for FY 2023, will the margin guidance, the yield and the cost of deposit guidance?
So cost of deposits today, we are at around 4.8%. We are expecting it to be in this range only because the interest rate increase, we are not expecting now. Maybe after a quarter or so, we can expect the decrease, the reversal. But as far as yield on advances is concerned, so in the quarter, one quarter we have increased it from 9.5%- 9.57%.
Mm-hmm.
Maybe in this range, 9.6 or, or something, we are expecting it to be in this range.
Mm-hmm.
We don't find much challenge in maintaining the yield on advances. That's why I told you that our focus is more on growing the retail book so that our yield on advances is improved. Similarly, the treasury yield is also improving, so there also we are getting around 7.12% now.
Okay. Okay, sir. That's it from my side. Thank you.
Thank you.
Participant who wishes to ask a question may press star and one on their touch-tone telephone.
Any other question, Hardik?
We have questions from the line of Jai. Please go ahead, sir.
Yes, Jai?
Yeah, hi, sir. Sir, firstly, you know, there were media reports saying that the bank could see or the bank is likely, you know, I mean, something in terms of succession. If you can clear, I would take this opportunity to understand, you know, what does that mean, or this is the normal succession planning at the bank?
This is a normal succession planning process now, Jai. Actually, my tenure is ending at the end of December. So that process has been started by the government, and might be those reports you must have seen in the newspapers.
Sir, the MD of J&K Bank, would this be... And who appoints the bank? That government, do the J&K Bank government has a role, or this is purely by RBI, or this is a joint thing, or how does it look?
It is more of a joint, sort of effort, because the J&K government is the promoter 55%, I mean, majority shareholder. So they basically have the say in selection of one or two or three candidates. Then finally, the one out of that lot is selected by the Reserve Bank of India and advised.
So sir, what is the status? I mean, has the board sent one name, or how is it right now, or where are we in that process?
So that process is already started, as you have already indicated. We are yet to send it to Reserve Bank of India. Maybe in a few days' time, we should be able to send it, but the process is on an advanced stage now.
Okay, sure. Secondly, sir, if you can highlight, are there any areas while we see that, you know, credit costs have been almost negative, but are you seeing any... I mean, if you can share your SMA number, maybe 0, 1, and 2, and are you seeing any trends, any portfolio which is seeing a little bit of higher stress? Or first, if you can share the SMA 0, 1, 2 number in absolute rupees crore.
Yes.
And then-
Our SMA numbers, zero, SMA-0 is INR 13,300 crore today, and our SMA-1 is INR 4,086 crore, and SMA-2 is INR 3,000 crore, for this is as on thirtieth September. And today, our SMA-0 has come down to INR 4,195, SMA-1 , INR 3,000 crore, and SMA-2 , INR 1,200 crore. So what we are seeing actually, SMA, if it goes up, then salary comes and other payment, repayments come. Then it goes up, after the fourth month, it goes down drastically. And, yes, the numbers seems to be still little on a higher side, but we are working on it, and you'll find that every quarter on quarter basis, it will further go down.
We don't find much stress in our book, and in fact, if I can say that the big accounts, say anything about INR 20 crore, we don't have any account SMA today out of the bigger accounts. These are all smaller accounts, agriculture and retail, mainly.
Okay. So, sir, this SMA-0 plus 1 plus 2 of roughly INR 20,000 crore, there is no corporate account which is more than INR 20 crore. Is that the understanding?
There is no account in SMA more than INR 20 crore in the corporate book.
Right. That is very good to hear. And so, sir, I mean, you were saying that these accounts may be in SMA, but even when the salaries process, they become perfectly standard.
Absolutely. It is very interesting because the book, traditionally, all the installments fed in the system to be paid on the last day of the month, thirtieth or thirty-first. So that is the problem actually, because of that, the last day of the month, you'll find the higher level of SMA, and then the salary comes on first or second or third, then immediately that goes down.
And then secondly, what is your thought process on bringing down GNPA? I mean, you could have either negligible credit costs or negative credit costs that you are showing right now, or you can have slightly accelerated pro, accelerated GNPA, and, you know, maybe, a accelerated write-off and bring down GNPA. So how do you look at the write-off? Because current stress formation is clearly negligible, so maybe you can use that time to, you know, bring down GNPA, or how do you look at it?
Actually, we have a very calibrated approach towards bringing down the gross NPA as well as net NPA. That approach has actually paid rich dividends so far. We continue to have the similar approach, I mean, both credit as well as risk, because we have been continuously bringing the overdues for the small loans and taking actions under SARFAESI and other, where various other enablers, with a disciplined approach. Because of that, lot of people have finally turned, and then they have repaid the money. That's why we have been able to bring the level from around 10%- 3.95% today, and our guidance is 3.5%. We are expecting that we may even beat that.
As of now, NPA seems to be absolutely no worry there.
Right. And then, last thing, if you can highlight, you know, where do you think the growth would be coming from within J&K and outside J&K? Yeah.
So, now J&K will pick up because J&K, you know, the first Lok Sabha elections and then the assembly elections back-to-back. First, my staff was little involved in the election duties, and the government also was under model code of conduct. That has had an impact on the growth of the bank. Now, since everything is over, we are expecting that J&K economy now pick up, and the J&K book will show a better growth. Rest of India is already growing. We are expecting naturally, because half second half or the third and fourth quarters are generally better as far as growth is concerned. The momentum will remain in the Rest of India, maybe the numbers will further improve, but now the momentum will be picked up in J&K and Ladakh.
Right. And sir, if I may just add, what is your... Is there any sensitivity of the, now there is a regime change in the J&K? I mean, maybe very early days, but is there any, I mean, what could be the risk in terms of growth, maybe new regime, you know, maybe going slow on the earlier projects which have already been started, or maybe, you know, in the, in the interim period till the time they come out with their own spending plans, could there be a risk in terms of the projects which are already halfway completed, or could there be any other policy change, you know, which could impact J&K Bank? Thank you.
We don't find much concern on that front there. One, that whatever projects are going on are of big projects, basically the infrastructure projects, where I don't think any impact will be there of the local governance. The second thing is the growth is expected to come from MSME and the agriculture, where the policy framework is already in place. The type of policy the government is having, HADP, Holistic Agriculture Development Plan for agriculture. And similarly, one scheme, we call it Yuva scheme for MSME, which has been launched during the last one or two years. So those schemes are actually giving a lot of benefit to the people at large. So any popular government would rather further strengthen those schemes instead of putting the brakes on those. That is what my belief is.
So instead of any concern, I think we find that there will be further booster to the economy, and to these schemes.
Sure, sir. Thank you so much. I will come back in the future.
Thank you, Jai.
Participants are requested to ask question. Press star and one on the touch-tone telephone. The next question is from the line of Hardik. Please go ahead, sir.
Hello?
Yes, Hardik.
Hello.
Yes, yes.
Yeah, but I have a follow-up question. Can you let us know your NPA recovery and technical write-off recovery pipeline?
Technical write-off recovery pipeline, our target is... How much is our target for the year?
We are anticipating a recovery of about INR 1,531 crore in the financial year, and out of that, we have already achieved INR 760 crore. Further, recovery of INR 721 crore will be activated in some accounts, big five tickets.
You are talking about NPA?
Yes. And that, in case of technical write-off accounts, we are anticipating a recovery of about INR 350 crore in the next year, two quarters.
Let me sum up for this.
Mm-hmm.
As far as NPA is concerned, the recovery is expected in the range of INR 700 crore- INR 800 crore. As far as technical write-off account is concerned, we are expecting INR 300 plus crore. Out of that, almost 125 we have already recovered. Rest of the amount will be followed in this half year.
Okay, sir. Clear. That's clear, sir. And, one more question, sir. Can you tell us what your cost to income guidance is, and how should we, how should it be directionally?
Cost to income guidance, I think we have given it 58%, 57%-58%. It will be definitely better than that.
Okay, sir. Okay. Yeah, that's it.
So Hardik, if there are any questions, we can take. Otherwise, we will request the participant can send the questions over email also.
Yeah, sir, I think we are almost done. We'll, the operator can announce that if anybody has a question, you know, they can come back directly to the bank, or can route it through us. Yes, sir, we can conclude if you have any concluding remarks. Thank you.
Yes. So thank you, Hardik, and, thank you, Jai. Thank you all the participants for joining in today and being part of this earnings session. We hope to remain engaged more often, and we will be looking forward to your suggestions and guidance for further betterment of our institution. For any further questions, queries, details, comments, et cetera, the team is always available, and you can also direct your queries to our investor relations desk, and we will definitely respond. Thank you so much.
On behalf of ICICI Securities, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.