Bad Loan book, rising NPAs: Herculean task for JK Bank CEO Parvez Ahmad

Jammu and Kashmir (J&K) Bank’s share price fell as much as 18 per cent before closing with a net decline of 14 per cent in Thursday’s trade as the new management laid out the future road map.

Jammu and Kashmir bank has declared a sound warning regarding huge losses that it would incurr on account of a stressed loan book. Newly elected chairman and CEO, Parvez Ahmed has a herculean task up his kitty, as he clearly mentioned that “all business loans in J&K” are reeling unter acute stress and have thus been categorized as SMA 2 assets, or a stage before non-performing assets (NPAs). He cautioned it could get worse adding the lender had sought relief from the regulator.

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Of the total loan book of R48,854 crore as of June, 2016, the lender has an exposure of around 50% or R24,427 crore to the state of J&K. Ahmed hinted the quantum of loans in danger of turning into NPAs could be around R10,000 crore-R12,000 crore. “An additional provisioning of 5% on a portfolio of say R10,000-R12,000 crore would involve a large amount,” he said. In Q1FY17, the lender reported a profit of only R22.9 crore after making provisions of R313.7 crore. J&K Bank’s net worth as of June was Rs 6,446.9 crore; while the equity capital is Rs 48.49 crore, reserves amount to Rs 6,398.37 crore. Reserve Bank of India (RBI) guidelines define SMA 2 or Special Mention Account 2 loans as those where the principal or interest payment is overdue for 61-90 days.

The chairman said there could be further slippages in the coming quarters. “Coupled with the restructuring of the stressed asset portfolio in J&K, due to the unrest in the Kashmir Valley, this may entail additional provisioning resulting in a negative bottom line growth during the current fiscal, ” Ahmed, who took over at the Srinagar-headquartered lender last week, observed.

The J&K stock tanked 18.36% in intra-day trades on Thursday on the Bombay Stock Exchange before closing the session at Rs 74.80, down 14.12%. The bank reported a profit of Rs 416.04 crore for FY16, down 18.2% over the previous year after making provisions of Rs 973.1 crore, according to Bloomberg. In FY14, the lender posted profits of Rs 1182.5 crore.

Ahmed said the bank had approached RBI seeking relief since the rise in NPAs was due to extraordinary events. “There is a regulatory directive that in case you come across this kind of a situation (unrest in the Valley), we have the option of restructuring the loan accounts and keeping them standard by extending the moratorium period. Such treatment is available from the regulator. We have already moved an application to the RBI for doing the restructuring of the J&K portfolio,” he said.

J&K Bank had a gross non performing asset (GNPA) ratio of 9.31% at the end of June, higher than the 8.32% at the end of March, 2016. While the bank sources approximately three-fourths of its deposits—Rs 69,000 crore as of June, 2016– from J&K, only half it loan exposure is to the state. According to the bank’s FY16 Annual Report, while the Kashmir valley, including Ladakh, accounted for just over 15% of its GNPAs, the north zone, which includes Delhi, contributed close to 44%.

Ahmed noted said that until recently, a relatively healthy J&K portfolio was cushioning some of the high stress arising from the rest of the loan book. However, unrest in the valley had meant that its loan book was under stress across all geographies.

Earlier on Wednesday, Ahmed had tried to reassure depositors saying their investments were completely safe with the bank and that decent returns coupled with festive dividends would return soon.


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