Release Date: May 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Jammu & Kashmir Bank Ltd (BOM:532209, Financial) reported a strong Q4 performance with double-digit deposit growth and 14% loan growth, in line with market guidance.
- The bank's gross NPA ratio improved to 4.08%, and net NPA ratio to 0.79%, with a provision coverage ratio (PCR) of 91.58%, reflecting strong asset quality.
- The bank achieved a record-breaking profit of INR 1,767.27 crore for FY24, a 48% increase YoY.
- Retail deposits constitute 88% of the total deposits, and the bank maintained a CASA ratio of 50.51%, indicating a strong deposit base.
- The bank's capital adequacy ratio improved to 15.33%, with a CET1 ratio of 12.02%, ensuring a strong capital position.
Negative Points
- The bank's net interest income (NII) growth was limited to 10% YoY due to a higher rise in interest expenditure at 30% YoY.
- The cost of deposits increased, putting pressure on margins, with the weighted average term deposit rate rising to 7.2%.
- The bank's fee income as a percentage of assets remains suboptimal at 40 basis points, compared to the industry average of 90-100 basis points.
- There were significant slippages in the MSME and agriculture sectors, although the amounts were small and recoveries are expected.
- The bank's exposure to infrastructure projects with pending DCCO (Date of Commencement of Commercial Operations) is INR 1,416 crore, which may require higher provisioning.
Q & A Highlights
Q: What prevents Jammu & Kashmir Bank from increasing its loan-to-deposit ratio further, and where do you see it in the next one to two years?
A: Our MBR is below 70% currently, and we are targeting around 72% during the year. We will shift some of the investment book to our credit book as needed. The J&K economy has been improving consistently, and this trend is expected to continue. Rail connectivity with the valley will boost tourism and agriculture, supporting the bank's growth.
Q: What is the outlook on employee costs for FY25?
A: We had excess provisioning in our superannuation funds, leading to a reversal of INR243 crore. Additionally, shifting to non-ROC annuities will save INR150-200 crore annually. Many high-cost employees are retiring, further reducing costs. We expect employee costs to grow by 5-6% in FY25.
Q: Can you provide guidance on other operating expenses for FY25?
A: Technology investments will continue, with OpEx of INR135 crore and CapEx of INR180 crore in FY24. We anticipate other operating expenses to grow by 8-10% in FY25.
Q: What is the expected credit cost for FY25?
A: Aging provision requirement for NPAs is estimated at about INR200 crore. However, with expected major recoveries and provision write-backs, the credit cost will be near zero or negligible for FY25.
Q: How do you see the growth in the J&K economy translating into the bank's loan book growth?
A: The J&K economy has been improving, with significant growth in tourism and agriculture. The home loan segment is seeing over 20% growth, and medium-sized industries are coming up in Jammu. We expect these trends to continue, supporting the bank's loan book growth.
Q: What is the proportion of J&K government employees' unsecured loans in the personal finance portfolio?
A: Around INR18,000-20,000 crore of personal loans are to J&K government employees, with a delinquency ratio of less than 0.5%.
Q: What is the impact of the new RBI guidelines on project financing for Jammu & Kashmir Bank?
A: The draft guidelines indicate that we will not have any significant impact. The affected exposure is around INR1,416 crore, which is a small portion of our total portfolio.
Q: How do you plan to improve fee income, which is currently suboptimal compared to peers?
A: We have implemented a system of large credit unions with relationship managers to get holistic value from accounts. We are also focusing on increasing treasury and Forex income and have seen 60% growth in cross-selling income.
Q: What is the outlook on cost of deposits for FY25?
A: Most of the repricing of term deposits has already happened, and we expect the cost of deposits to remain around 4.67-4.7%. Any rate cuts by regulators could further impact this.
Q: What is the proportion of J&K loans in the overall loan book, and what is the impact of current issues in Ladakh?
A: 67% of the total loan book is from J&K, and 2% is from Ladakh. The current issues in Ladakh are not serious, and the major segments there are holding well.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
