Ladies and gentlemen, good day, and welcome to Jammu and Kashmir Bank Q1 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Chetan Shah from ICICI Securities. Thank you, and over to you, sir.
Yeah. Thank you, Aditya. Good evening, everyone, and welcome to the Q1 FY25 results conference call for Jammu and Kashmir Bank. On the onset, I would like to congratulate the bank for a strong set of numbers. From the bank, we have with us from the management, Mr. Baldev Prakash, our Managing Director and CEO, along with the other senior management team. So now, without further delay, I would now like to hand over this floor to the management. Thank you, and over to you, Baldev, sir.
Thank you, Chetan. Thank you for the appreciation. A very good afternoon, and warm welcome to all the participants to the Jammu and Kashmir Bank, June 24 earnings call. First, let me introduce my management team who are accompanying me on this call. Our Corporate Credit Head, Mr. Ashutosh Sareen, our Impaired Assets Portfolio Head, Mr Shujaat Andrabi. , our Chief Risk Officer, Dr. Altaf Kira, our Deputy General Manager, Treasury, Mr. Ajay Kohli, and our CFO, Mr. Fayaz Ganai. Let me start with some brief macroeconomic and banking industry trends. As per latest RBI bulletin, there are signs of some strengthening in the global economy, notwithstanding the continuing geopolitical concerns. Global trade in goods and services is gathering momentum. In India also, the improvement in outlook on agriculture and rural spending is manifest in signs of weakening momentum in the economy for the current quarter.
The growth dynamics and the impetus of budget of 2025 on CapEx, job creation, and a favorable monsoon point us to a good economic year for the country. We may also be seeing some moderation in the interest rates in the coming day, coming days. Despite some pressures on the liability side, banking in the country is currently passing through a purple patch with best asset quality in decades, peak earnings, efficient IT-enabled digital systems, lowering cost to serve, and readily available systems and collaborations to ensure customer convenience, et cetera. The regulator, being cognizant of the suitability of these good times for making the systems more resilient and sustainable, is bringing in or planning to prescribe more stringent controls and metrics.
Starting with higher risk weights on the unsecured personal loans and exposure to NBFCs, RBI is very watchful on the liquidity matters, as is clear from the very recent draft guidelines on LCR. Implementation of ECL framework is also on the cards, and it can be faced in any time now. J&K economy, too, is moving ahead, with growth estimates being pegged at 7.5% for financial year 2025. The UT budget also lays emphasis on capital expenditure, which is earmarked at 31% on the total, of the total budget. Fiscal deficit of the UT has been forecast within the FRBM limit of 3% on the back of higher central transfers.
The Union Government has provided additional INR 717,000 crore to the UT by assuming the responsibility of annual expenditure of INR 10,000 crore on UT police and INR 5,000 crore as additional grant. The tourist influx is continuing unabated, and the new arrivals during the current calendar year have already crossed the one crore mark in six months. The thrust on unlocking the economic potential of the UT, especially in agriculture and industrial sectors, are the focus areas of the UT budget. Incentivizing the efficient land utilization through medium and high-density plantations under HADP, that is Holistic Agriculture Development Plan, and augmenting the logistics with planned increase of over 25,000 metric tons controlled atmosphere storage space in financial year 2025, are helping growth in production levels at exponential rates.
All these measures are bound to improve the per capita income of the UT households, thus opening more vistas of savings and investments. Coming to the financial numbers for Q1 of FY25, the bank is nicely moving along on the planned lines towards delivering results as per the guidance for the short term as well as for the medium term. First quarter has usually been a lean period, given the cyclic nature of the saving investment cycle in the UT. In addition, this year there has been some holding back in the economic activity during the first quarter because of elections also. The degrowth in deposits over March figure is the result of this phenomenon. However, there is already good traction in the deposit acquisition during the current quarter.
Deposit growth of just under 10% on a YOY basis, with loan book growing at 13% during the corresponding period, has resulted in CD ratio moving up to 72%, which is well within our comfort zone. Credit growth for June over March 2024 is just under 2%. We have been able to maintain CASA in close vicinity of 50%, while some banks have witnessed steep drop from March levels. In the loan book, growth in outside Jammu and Kashmir, Ladakh portfolio has been a tad higher at 15.5% on a YOY basis, against 9.6% in Jammu, Kashmir and Ladakh. Personal finance has grown at 14.6% on a YOY basis, while home loan has grown by 18.1% over the year.
The loan book composition continues to be 70/30 for Jammu, Kashmir, Ladakh and rest of India. Our cost of deposit has moderated by five basis points from the previous quarter. Gross NPA of the bank has further reduced to 3.91% as on June 2024, coming below the psychological mark of 4%, and net NPA is at 0.76%, while maintaining the provision coverage of 91.57%, all converging towards best, industry best. Aided by a robust early warning signals system and an effective monitoring and follow-up framework, slippages for the quarter have come down to an all-time low of 0.73% on an annualized basis. Recoveries during the quarter were INR 300 crores, which includes INR 28.75 crores in technically written-off accounts.
In line with our guidance based on the recoveries, our credit cost for the quarter is negative. The restructured portfolio is also holding very well, with collection efficiency in the standard restructured accounts at almost 100%. Aging provision requirement for NPAs during the remaining three quarters of FY 2025 is estimated at about INR 145 crore, but with the pipeline of any failed recoveries and expected provisioning write back therefrom, our credit cost shall be benign for the current financial year as well. The income statement is reflective of growth in interest income at 13% YOY for the quarter, net interest income increase of 7%, operating profit by 13% and profit after tax by 27%.
Moderation of cost of deposits to 4.66% and improvement in yield on advances and investment to 9.5% and 6.78% respectively, has resulted in the NIM staying strong at 3.86% for the quarter. The annualized return on asset and return on equity have been recorded at 1.08% and 14.82% respectively. We have created an additional floating provision of INR 66 crore during the quarter to augment the contingency provisions for being in a state of readiness for ECL implementation. The total contingency provisions maintained by the bank, including the floating provisions, are at INR 630 crore.
Preliminary estimates conducted with the onboard consultant have pegged the bank's requirement for ECL at 0.60%, and by that measure, the contingency provisions would be adequate. Other income impact is due to lower technical rate of recovery vis-a-vis first quarter last year, and booking of areas of insurance commission in Q4 of the last year. However, other income is going to improve over the quarters with increased technical rate of recovery, higher volumes in cross-sell, commission on government business, and the revision of fees and charges. There is good news on the employee cost front also. After the one-off reversal of excess provision for gratuity in Q4 last year, we are seeing moderation in the provision of pension benefits that will continue over a prolonged period.
The provision requirement for pension will go further down with the scheduled retirements of good number of high-cost pension-eligible resources over the years. CRAR has been recorded at 15.07% and CET1 at 11.76%, without reckoning profit after tax of INR 415.49 crore, a 50 basis point impact. With healthy approvals, we may not require issuance of additional equity capital, but decision about bonds, Tier 2 Bonds, shall be reviewed in quarter three. You might also have witnessed a lengthy disclosure in notes to account regarding outstanding pension reimbursement due from the Jammu and Kashmir UT Government.
Owing to various reasons and non-implementation of MOU with the UT Government and the bank, which could facilitate seeking of reimbursement of the pension disbursement made by the bank to the UT Government pensioners directly from RBI, as is done by other agency banks. There were delays in reimbursement, resulting in accumulation of outstanding dues. However, the matter has been resolved now with the full reimbursement of all dues happening during this month. And going forward, this issue of delays in reimbursement and accumulation of dues will not happen, as the bank shall be seeking reimbursement of the pension disbursed directly from RBI going forward. Finally, an update about the IT and BPR transformation journey that the bank is undergoing.
Total automation of customer journey for personal loans is complete and delivered, while for MSME and corporate, the solutions are on the anvil and would be in place within three- six months. The central processing units have already been established, both for liabilities as well as for assets, and necessary capacity building, too, has been taken care of to usher in a revamped, technologically modernized, agile, and a digitally future-ready bank focused on delivering the ultimate customer experience. We maintain the guidance for the financial year 2025, as discussed in the March quarter call. I thank you all and acknowledge your guidance, support, and trust. We expect it to continue in the coming days. I will be now glad to have your questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask question, may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, please press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our first question is from the line of Samita, an individual investor. Please go ahead.
Actually, I'm asking about CASA ratio. Is there any in future, will happen?
Yes, sir. About CASA ratio, traditionally we have been above 50%. This quarter also, it is nearly 50%, 49.77%, to be precise. As today we talk, we are already above 50%. Given the franchise of the bank, particularly in the RUSU areas in our core territory, we are expecting it to be above 50% going forward also.
Any future expansion planning outside the Jammu?
So, sir, last year also, we have opened a few branches in the rest of India territory. This year also, we have a plan of opening between 15-20 branches in the rest of the India. And, of course, Jammu and Kashmir and Ladakh need-based expansion, based on the business requirement or for the purpose of financial inclusion, will continue happening.
Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Harsh, from Yashvi Securities. Please go ahead.
Hi, sir. I just wanted to check if there is any update on the guidances that were given in the past quarter, if there are any changes?
Yes. First, our guidance remain the same.
Okay.
We have given the guidance of credit growth of around 15%.
Yes.
Volume growth of around 12%, CASA 50%, NIM 3.75%-3.85%, ROA 1.25%-1.3%, ROE 17%-18%, and gross NPA 3.5%. We will maintain this guidance.
So the other guidance of the employee cost, that was a 5%-6% increase and OpEx, an 8%-10% increase. Does that also remain same?
Yes, that also remains same. It will be, single digit.
Okay. Okay. Yeah, that was all the questions I had. Thank you so much.
Thank you, Harsh.
Thank you. Ladies and gentlemen, a gentle reminder to all participants, you may press star and one to ask question. Our next question is from the line of Chetan Shah. Please go ahead, sir.
Yeah. Sir, two, three questions from mine. So largely, sir, on the asset quality, so sir, are we seeing any pockets of stress, and on the personal loans, like we see that there are many banks who are highlighting stress in the microfinance portfolio, so we don't have any exposure, but we have a large personal loan portfolio. So are we seeing any bits of stress there?
So Chetan, our personal loan portfolio consists of majorly, the consumption loan and personal loan to the government employees of Jammu and Kashmir and Ladakh UTs. Their salary is being credited to our account, our savings bank account, and the EMIs are being debited from saving to the loan account. This product is quite old product, so there's hardly any delinquencies in this, so we don't foresee any stress in this portfolio.
And, the second thing is, about over and above this, we have a enabling MOU with the government, which enables that in case of death or any dismissal of government employee, so the terminal benefits first right will be with the bank loan, and then the remaining amount will be paid to the concerned employee's family.
Sure, sir. So, sir, any other pockets of stress we anticipate or any pockets where you are seeing some early warning signals where we are restricting our growth in that segment?
So as of now, we don't have any concern on asset quality. In fact, there's no big account, more than 10 accounts, which is maybe more than INR 10 crore account, which could be stressed. So as of now, we are better off.
Yeah. So, and from the margin front, I think, many banks have still not been able to curtail their cost of deposits significantly. I think for us, cost of deposits are almost peaked out. And so, now we don't anticipate any rise in the cost of deposits, right? Will that be a fair assumption to make?
Yeah. Yes, it is a fair assumption.
Sure, sir. So that's it from my end. Yeah. Thank you.
Thank you, Chetan.
Yeah.
Thank you. Our next question is on the line of Amit Kumar from Master Trust. Please go ahead.
Hello, sir. Am I audible?
Yes, Amit.
So, sir, my question is that, do you see any growth in your revenue from the rest of India vertical in the coming quarters?
So, rest of India vertical has been quite vibrant during the last year also, and the two areas have been continuously under focus. One is the big loans, corporate book, that is all high-quality loans, high-rated loans, and the second is the home loan segment. So, obviously, that book is growing at a pace over 15%, so obviously the revenue will go up.
Okay, sir. Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask questions. Our next question is from the line of Jai Mundra. Please go ahead, sir.
Yeah, hi, sir. If you can, sir, talk about the geographical, sorry, the state situation in the last three months, I mean since the last quarter, and your outlook in the UT of J&K and Ladakh, and how do you see the growth there in the J&K business, in the J&K region?
Yes. So, Jay, two, three things which I would like to tell you about this is, one, is that, the tourist inflow is continuing, and we are expecting to make one more record this year. By the end of this year or before the end of this year, the train connectivity will be completed with the rest of India to Delhi, and obviously the tourists will continue coming in the bigger number. So, that will have a positive impact on the earnings of locals and the local households. And, number two is about the elections. You see, the, the type of turnout in the elections has been unprecedented. After so many years, we have seen more than 50% turnout in the recently held Lok Sabha elections.
So these are the good signs which, which are, indicating towards the better days to come. Yes, a few incident here and there on, in, in particularly in the Poonch-Rajouri area, but... and, in the Samba and Kathua in border area, that has happened, but I think we believe very, sincerely that these are only the, the scattered incidents and may not going to have a negative impact on the growth story of the UT.... As far as the Amarnath Yatra is concerned and Sri Mata Vaishno Devi Yatra is concerned, again, the, the yatris, the numbers are going up and up every year.
Record.
This year it is a record number.
Record.
And your assessment of the credit growth in J&K region?
So if you see that the economy of Jammu and Kashmir is likely to go, grow by 7.5%, so by that estimates, we are quite confident it will be above 15%.
Right. And sir, what we hear is that other private banks have started accelerated their branch opening and their customer acquisition in the state of J&K in the last three, four years, which was not the case earlier. How do you see the competitive assessment, you know, now versus, let's say, two, three years back? Is, is there any perceived- is there any perceptible change in the competitive scenario there in terms of deposit or loan growth?
Yes. So, yeah, there, there is definitely a branch opening by other banks. It is happening for the last three years, which I am able to see. And, obviously some competition will be there, and that competition has to be met by us on the strength of, one, that the customer loyalty and service. The other is that we have improved our offerings by way of adopting more and more digital initiatives. And, going forward also, this journey, we will continue with more aggression. And we are quite confident we will maintain our market share. So far, we have done it. And, number two, the overall economy of the state and UT is going to see a sea change because of various reasons, including the HADP, which I referred in my opening remarks.
So, that is one, and the other thing is our continuous increased focus in the rest of India. So there also, we are likely to get a good increase in the market share in the rest of India. So overall, we don't see much a thing of concern as of now.
Right, sir. And last question, sir, from my side. We have this unsecured personal loan book, which primarily pertains to J&K state employee.
Yes, sir.
Any change in the credit behavior there, or, you know, in terms of asset quality? Because we keep hearing, you know, negative news flow on the unsecured side. Thank you.
No, absolutely. In fact, this book is there, so, the delinquencies are hardly any delinquencies.
Yes.
This has been always consistently around less than 0.5%, and that, too, after some time, once the terminal benefits are settled, the money is received in our account. So, this book has been always a good asset for the bank, and this will continue to be in future also.
Thank you.
Our next question is from the line of Umang Shah from Kotak Mutual Fund. Please go ahead, sir.
Yeah. Yeah, hi, good evening, and, thanks for taking my question. Sir, firstly, congratulations on a good quarter. Just a few questions. One is, I'm sorry I missed your comment on the pension disbursement front. If you could just explain it again, and was there any one-off component in the employee cost or the OpEx line item for this quarter?
So, Umang, as far as the pension is concerned, there's no one-off. Last quarter, we had one-off because of the gratuity, the provision, which was written back. And, this year, the pension is. There are two things have happened. One is that the normal retirement this year, there is a retirement, there was a retirement of 400 employees who were eligible for pensionary benefits. And, going forward, also, in the next four years, we have calculated more than 1,200 employees.
1,200.
1,200 employees are getting retired, so that will have a positive impact on the provisions for pensionary provisions.
Yes.
And, over and above that, we had the practice of taking the ROC clause in the NPS.
Yes.
So that has been revisited. So because of that, also, we are getting a-
Lower. We are shifting to non-ROC.
Non-ROC and around 25%?
Yes, 25%.
25%-30% saving is happening because of that. So that's why this, this will be, the saving will be on a prolonged basis.
Okay, sure. And the pension disbursement, which is mentioned in the notes to accounts, I mean, there is no transaction related or the impact related to that in the PNL per se, right?
No. This was, actually, the pension disbursement to the government pensioners. We had the MOU, but it was not getting implemented. We wanted to get it directly from Reserve Bank of India, and now that issue has been settled, so entire money has been paid. Going forward, this money we will be getting directly from RBI so that there is no delay as far as reimbursement of pension from government is concerned.
Yes.
Okay. Okay, understood. Understood. But that's helpful. And sir, second question was on asset quality. Now, clearly, the slippages seem to be undershooting. And given that first quarter is usually a little slow quarter, per se, but clearly, I mean, you have kind of surprised positively on the credit cost as well as slippages front. Do you think for the full year, you would want to kind of revise your credit cost guidance per se, or you still retain your full year credit cost guidance which you had given earlier?
No, I think we will maintain the credit cost, which will be benign, going forward in the next three quarters also. And, our asset quality, we have given a guidance of 3.5%. We will be definitely likely to achieve that.
Okay, perfect. Sir, and last question to mind was, pertaining to your tenure. I mean, we are kind of closing in to the end of your current tenure, which will be December 24th. By when should we expect the board will take a call in terms of submitting your name for renewal? Any thoughts on that? Yeah, that's the last question to mind.
Okay. So Umang, that process has already started, and all the stakeholders are seized of the issue. I think shortly we will be able to inform all the stakeholders about the future course of action and the success and planning of MD and CEO.
Okay. All right. Perfect. Thank, thank you so much, and, I wish you good luck. Thank you.
Thank you.
Thank you. Our next question is from the line of Prabal from Ambit Capital. Please go ahead.
Yeah, am I audible?
Yes, very much.
Thank you, sir. Thank you for the opportunity. My first question was, how do you assess the impact of the new draft circular of RBI on LCR?
Yeah, Prabal, so, as of now, our LCR is around 135%. We have calculated the impact of the draft guidelines. It will be around 15% on our bank. So if we take into account that impact, it comes to be 120%. So, against a minimum of 30%, we are much, much better off.
Got it. And, and would you like to maintain more, liquidity on the balance sheet, or you are comfortable with the new normal of 120% now?
No, 120%, we are absolutely okay.
Okay. So second question was: What is your credit to deposit ratio aim? Currently it is at 72%. So how do you think about that going in?
Credit deposit ratio has been in the range of 70%-74%. In the last year also, I think we will maintain it between 70%-75% maximum.
Sir, when you are moving outside of Jammu and Kashmir and doing more of the corporate loans, what kind of customers are these? What is the rating profile of these customers? What segment do you typically have right to win?
So as far as rest of India corporate segment is concerned, we are having the best of the, the corporates. Best of the corporates, all triple A rated or the government Maharatna and, and similar companies. So, these are all, almost very good customers.
Okay. Here you would be facing competition from some of the larger banks. So how do you compete with these people and get the mandate from ourselves?
So we compete, and sometimes we win, sometimes we lose, but generally, on the strength of our low-cost deposits, we compete with the major banks in this segment.
Right. And these are mostly PSU customers, mostly government-backed, government-backed borrowers?
You can say 65%-70% are government-backed.
Okay. Sir, and, you mentioned that your aim is to improve ROA to 1.25. Currently, it's at 1.10. What are the levels you see of the improvement here on?
So I think 1.25 is on the radar by the end of this year. And, Ishaq, you want to tell something? The continuity.
Yes. Actually, if you look at this quarter also, like, MD Sir mentioned in his opening remarks, that we have made a provision, additional provision of INR 66 crore in the floating provisions for this contingency provisions. So if we reckon that also, so we are, we are already above the mark that we have given the guidance, and definitely we are going to maintain it at a level better than what we had guided.
Okay. Got it. Okay. Thank you, sir. All the best.
Thank you.
Thank you. Our next question is from the line of Harsh from Yashvi Securities. Please go ahead.
Hi, sir. Thank you for the follow-up question. I had a couple of questions. So a couple of quarters ago, we had guided by FY 2028, we would be looking at a bottom line of INR 4,000 crore. So would that still stay?
Yeah, it stands. We have planned and we have budgeted our internal target, keeping that target in line.
Okay. Okay. And sir, I see a slight increase in the yield on the advances part, but last quarter we had guided that it would remain flat. So do you see a further scope of increasing the yield, or would this be the peak?
I think this will be broadly in this range only.
Yes, the recoveries actually that happened during this quarter, the INR 272 crore in the live NPAs, there are some upgrades also. And in the upgrades, there is some realization of the unapplied interest. So that also helps us the yield in some of to some basis points of the yield, it comes from that also. So this phenomenon happens. Otherwise, normally, what we had guided that this yield will be in this range only, the 9.4%, 9.4-9.5%. It remain like that because the portfolio is like that only. Yes, there will be some change if there is a repricing on account of some policy, interest rate changes, policy rate changes, then definitely there will may be a change in the yields also.
Okay. Sir, last question, could you mention the share of business that the bank has in the state of Jammu and Kashmir?
We are holding about 70% in Jammu, Kashmir, Ladakh, and 30% in rest of India.
Okay. Okay. Thank you so much, sir.
Thank you.
Thank you. Ladies and gentlemen, a reminder to all participants, you may press star and one to ask question. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to management for closing comments.
Thank you very much, and thank you all the participants for joining in today and being part of the healthy interaction. We hope to remain engaged more often, and we will be looking forward to your suggestions and guidance for further betterment of the bank. 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.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.