The Jammu & Kashmir Bank Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
Jammu and Kashmir Bank Limited
Corporate Headquarters M A Road, Srinagar 190001 Kashmir, India CIN: L65110JK1938SGC000048
T +91 (0)194 248 3775 F +91 (0)194 248 1928
W www.jkbank.com E board.sectt@jkbmail.com
Board Secretariat
Ref:-JKB/BS/F3652/2022/36 Date: 17th May, 2022
National Stock Exchange of India Ltd Exchange Plaza 5th Floor Plot No. C/1 G-Block Bandra Kurla Complex Bandra (E) Mumbai – 400 051 Symbol: J&KBANK
The BSE Limited Phiroze Jeejeebhoy Towers Dalal Street Mumbai – 400 001 Scrip Code:532209
SUB:- Transcript of Conference Call held on May 12, 2022
Dear Sirs,
In furtherance to our letter No. JKB/BS/F3652/2022/031 dated May 10, 2022 and pursuant to Regulation 30 and 46 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, please find enclosed herewith the transcript of the earnings call held on May 12, 2022 by the Bank in relation to the financial results of the Bank for the quarter and year ended March 31, 2022.
The Transcript / Audio of the Call can also be accessed on the Bank’s website at the following link:
https://www.jkbank.com/investor/analystInteraction/investorConferenceCalls.php
This is for your information and appropriate dissemination.
Thanking you
Yours faithfully
For Jammu and Kashmir Bank Limited
(Mohammad Shafi Mir) Company Secretary
“J&K Bank Q4 FY22 Earnings Conference Call”
May 12, 2022
MANAGEMENT: MR. BALDEV PRAKASH – MD & CEO, J&K BANK
MS. RAJNI SARAF – CFO, J&K BANK MR. ASHUTOSH SARIN – CREDIT HEAD, J&K BANK MR. ALTAF KIRA – HEAD (RISK), J&K BANK
MODERATOR: MR. RENISH BHUVA – ICICI SECURITIES LIMITED.
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Moderator:
Ladies and gentlemen, good day, and welcome to J&K Bank Q4 FY22 Earnings Conference
Call hosted by ICICI Securities.
J&K Bank May 12, 2022
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 “*”and then “0” on your
touchtone telephone. Please note that this conference is being recorded. I now hand the
conference over to Mr. Renish Bhuva from ICICI Securities. Thank you, and over to you, sir.
Renish Bhuva:
Hi. Thanks, Inba. Hello, and good evening to everyone. Welcome to the J&K Bank Q4 FY22
Earnings Conference Call.
I would like to thank the management team for giving us the opportunity to host the Q4 FY22
Earnings Call. From the management team we have with us today, Mr. Baldev Prakash – MD
and CEO, and his entire top management team.
We’ll start the call with brief opening remarks on FY22 and Q4 FY22 numbers. And then new
MD and CEO will lay down his strategy. And then we'll open the floor for Q&A.
I will now hand over the call to Mr. Baldev sir for the opening remarks. Over to you, sir.
Baldev Prakash:
Thank you, Renish. And a very good afternoon and warm welcome to all the participants for the
investor brief of the J&K Bank for March 2022. Along with me, my CFO – Rajni Saraf;
Ashutosh Sarin – Credit Head; and Mr. Altaf Kira – Head of Risk are there.
As this is my first interaction with you after having assumed the role and responsibility as
Managing Director and CEO of the J&K Bank, I would like to briefly introduce myself at the
outset.
My name is Baldev Prakash. I'm a career Banker with over 3 decades of service in the largest
public sector Bank that is State Bank of India, where after joining as a Probationary Officer in
1991, I have had the experience of working in various roles including the Branch Head, Regional
Head, and the Module Head in GM Network. And before joining my duties here in J&K Bank,
I was discharging my duties as Chief General Manager of Digital and Transaction Banking at
SBI corporate office, Mumbai.
Now moving over to my current assignment as MD and CEO of J&K Bank that I assumed on
30th December ’21, I would like to share with you my preliminary understanding of the
institution, its unique characteristics, strengths, opportunities, and challenges. As I have to
present the findings of the diagnostics carried out by me since my joining the institution, my
vision and strategic plan to further capitalize on the strength, reinforce the financial soundness
while addressing the concerns, this presentation may take a little extra time, which may curtail
the time for question-and-answer session. I would request you’re a patient listening from you
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J&K Bank May 12, 2022
please. Backed by a rich legacy of over 8 decades, the Bank has carved out a special position for
itself in the financial landscape of J&K and Ladakh. The brand recognition and the recall of the
Bank in this geography is unparalleled, and is truly a household name, convincingly maintaining
the market leadership tag with over 65% of the market share. UT government ownership further
enhances the brand value and credibility of the Bank. J&K Bank has assumed strategic and
systemic importance for the UTs of J&K and Ladakh as the major provider of finance, especially
to agriculture and allied activities, and MSME to keep the wheels of economy turning and
helping entrepreneurs to realize their economic pursuits.
The Bank enjoys captive clientele of government employees and pensioners, who in addition to
maintaining their salary accounts with the Bank also significantly contribute to lucrative and
healthy personal finance segment as borrowers. Owing to the extensive outreach of the Bank
over the length and breadth of the twin UTs, it has been able to build an unmatched liability
franchise which continues to grow with every passing day, a CASA share ranking among the
best in industry and extremely stable retail deposit component confers a cost edge to the Bank,
which has all along been reflected in comparatively better NIMs, which could be further
leveraged in the competitive pricing of loans.
Designation as agency Bank for government Banking transactions of J&K and Ladakh and lead
Bank responsibilities in 12 of of the 20 districts of J&K also provides additional armory to the
Bank for maneuvering the tide to its advantage. The average household debt in J&K compares
favorably with the neighboring states being significantly lower than Himachal and Haryana or
national average thus offering ample opportunities for further financial deepening, especially in
the agriculture, high density farming, allied agriculture activities like dairy, sheep farming,
fisheries and apiculture, housing, tourism, infra, mini hydro and unconventional power projects,
etc. With low penetration of financial services, the area offers significant opportunities for other
financial services like insurance, assets & wealth management, depository services, broking, etc.
The Bank has adequate infrastructure and footprint across the geography to capitalize on these
opportunities. These growth avenues exist in the business-as-usual phenomenon in this
geography. However, going forward, there is expected to be a big add on effect as an outcome
of the ambitious initiatives of the J&K Government to attract sizeable domestic as well as foreign
investment in the sectors like real estate, horticulture, tourism, healthcare, and other
infrastructure.
The area which would require special focus is the NPA management where all the avenues for
effecting recovery shall have to be vigorously pursued to ensure worthwhile recovery and
unlocking of valuable capital.
The Bank has been recording abnormal SMA figures though the slippages from the portfolio has
been restricted. This area of concern also needs to be addressed directly through concerted
campaigns sensitizing the borrowers to maintain financial discipline and a better repayment
record, which would entail benefits like better rating and pricing, easy access to enhanced
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J&K Bank May 12, 2022
financing or add-on and complementary facilities, etc, while also putting in place the deterrents
for delinquencies.
Growing business in the rest of India geography and evolving strategies for making the outside
of J&K branches to adequately contribute to the bottom line of the Bank is on the top of our
agenda. We can replicate our success stories in agri lending and personal finance in J&K in
select markets in the rest of India and complement the business volumes by taking exposure to
small and mid-corporate good rated borrowers and public sector units.
Increasing share of non-fund business and augmenting our non-interest revenue streams is being
strategized and duly incorporated in our business plans, supplementing the revenue streams with
adequate tabs on the controllable expenditure shall result in improving efficiency of the
resources and finally, moderation of the cost to income ratio to the desired level. Here I would
like to state that the cost to income ratio of the Bank in J&K and Ladakh is in the lower 40s
while the drag is coming from the rest of India business which needs to be specifically addressed.
Capital adequacy is another area that we need to focus on. We are figuring at the lower end of
the spectrum when it comes to CRAR, especially common equity Tier 1. The Bank augmented
its capital by Rs. 1,100 crore during the financial year ‘22 by way of preferential allotment of
Rs. 500 crore to the promoters, Rs. 150 crore raised via ESPS, Rs. 93 crore via QIP and Rs. 360
crore as Tier 2 bonds. The response to the QIP was below the expected level, owing to the
geopolitical strife which dampened the market sentiment.
Now, I would like to briefly take you through the initiatives that have either been rolled out
during the quarter 4 of financial year ‘22 and the ones on the anvil for launch. The Board of
Directors has been reconstituted with induction of more independent directors having expertise
in finance, accountancy, information technology. Compliance with all the regulatory
prescriptions with regard to Board and Committees thereof is ensured including the chairing of
the Board meeting by an Independent Director, thus splitting off post of Chairman and Managing
Director has been achieved. Delegation of powers has been reviewed and the committee
approach for taking material decisions has been adopted in line with industry best practices.
Succession planning of the top management level is currently underway to ensure desired
focused attention and oversight of all the verticals and business lines for achievement of the
corporate objectives in each and every segment while avoiding any conflict of interest. We have
also placed President level functionaries to oversee and drive credit and business operations
while maintaining proximity with the operating levels at regional levels for rest of India and
Jammu region. We have also operationalized 3 clusters offices in rest of India in Lucknow,
Mohali, and Bangalore for driving business growth at these centers.
We also conducted a strategic conclave to identify the potential future leader and to evolve
strategies through collective thinking for addressing the areas of concern. The annual business
plan for financial year ’22 - ‘23 was formulated well before the start of the financial year and
promptly communicated to the operating levels to ensure a head start. We have reviewed the
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J&K Bank May 12, 2022
business model in the rest of India and have put in a plan seeking to leverage the network
efficiently while aiming to gain traction in business growth, more sweating for increased
productivity with improved profitability. While the majority of the branches in rest of India shall
focus on Retail, MSME and FOREX business while some designated corporate business units
would focus on increasing volumes through good rated small and mid-size corporates and PSUs.
The strategy has already started yielding results as for the first time after a number of consecutive
quarters of degrowth, the rest of India credit portfolio has grown by over 6% on a Q-on-Q basis
during Q4 of financial year ’22. A process of monthly business and recovery reviews has been
institutionalized to ensure that the growth momentum is consistently maintained every day,
every week, every month, and every quarter. We have rolled out 2 special OTS schemes targeting
NPA accounts of up to Rs. 15 lakh and 15 lakh to 5 crore, respectively. The response so far has
been very good and we are expecting to resolve NPAs amounting to over Rs. 200 crore under
these schemes during the current quarter. In addition, we have redoubled our efforts to pursue
recovery of NPAs vigorously. By employing all available avenues, we are targeting to bring
down gross NPA of the Bank to around 6% level by the end of the year.
Friends, our treasury operations which had been shifted to Srinagar on experimentation basis has
been relocated at the commercial hub, Mumbai to reinstall market connect, vibrancy and profit
center orientation.
The fresh capital infusion during the financial year supplemented by ploughing back of the profit
has resulted in capital buffers improving to 180 basis points over the regulatory minimum.
However, we are looking forward to further augment the capital base during the current financial
year maybe after putting in a couple of good quarterly results which shall improve the pricing
and attractiveness of the Bank stock. The J&K UT government has earmarked Rs. 200 crore in
the annual 2023 budget for infusion of further capital in the Bank. However, instead of increasing
the promoter stake, we would like to increase the public holding.
On the IT and digital front, we are on the cusp of completing rollover to advanced core Banking
solution, Finacle 10, total centralization and automation of account opening and loan processing,
loan appraisal for all personal loans, full automation of EWS framework while we have already
migrated to an advanced version of mPAY, which is our mobile payment app. Automatic
auditing, upgrading of MIS with real time dashboards as part of a decision support system and
improved internal control to name a few. We are targeting to achieve a digital to total transaction
ratio of 85% to 90% by the year end, thereby gaining higher operational excellence, reducing
costs to serve, and releasing more resources for marketing assignments.
We also took some tough calls during the last quarter to reduce the stress in the balance sheet
and also on the profit and loss to pave way for a better and sustained performance going forward.
For classification of NPAs, we recognized even the non-financial infirmities like pending stock
statement submission, audited financials that cause delay in renewal of such loans, though not
being 90 days past to on financial obligations. Earlier during the financial year, the Board of the
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J&K Bank May 12, 2022
Bank had approved creating a corpus aggregating to Rs. 319.36 crore on voluntary basis for
pension liabilities on account of medical allowance and variable pay though this was not
mandated under AS15. The board had approved funding this corpus over a period of 5 years
starting from financial year 21-22. The Bank had made contributions of Rs. 48 crore toward this
fund during the first 3 quarters of financial year ‘22. We took a call to fully fund the corpus
during this year itself, thus providing the remainder of Rs. 271 crore fully during the quarter 4
so that we are not precluded from declaration of dividends in the financial year ‘23 and beyond,
when we are envisaging better results and resumption of dividend payments to our shareholders.
Coinciding with the reformative business processes initiated within the Bank, we are witnessing
some positive changes in the overall business environment. The pandemic is ebbing. Economic
activity is gaining traction. J&K UT is receiving a huge number of tourists and a good season
seems to be in offing - overall a promising start for the financial year 2023.
My focus during the first few months at the helm of this Bank was on revamping the structure,
the business model, growth strategies and firmly put in place a framework that can lead this
institution to truly realizing its potential by capitalizing on its unique attributes and core
competencies.
I will now briefly run through the financial numbers of the Bank in Q4 and financial year ended
March 22:
The Bank has clocked a YoY growth of 6% in deposits and 5% in advances. The growth in Q4
has been promising with deposits growing at 5% Q on Q and advances 3% Q on Q. The demand
deposits have grown at an impressive rate of 14% during the quarter 4, but the highlight is the
6% Q on Q growth in the loan book and rest of India after witnessing countless consecutive
quarters of degrowth.
Our CASA at 56.56% is among the best in the industry, which lends us a cost edge as our cost
of deposit is 3.65% for the year. Despite providing for some exceptional items, as I mentioned
earlier, we have been able to register Rs. 500 crore plus profit figures for the financial year
delivering a 16% YoY growth after 7 years of muted profitability. Our NIM remained stable and
at a healthy level of 3.5%.
On the asset quality, we have improved our gross NPA to 8.67% that is 100 basis points down
from the previous year. Likewise, there has been improvement in net NPA from 2.95% in ‘21 to
2.49% as on March 22, and the provision coverage ratio from 81.97% to the current level at
84.26%. And capital adequacy has also improved by 103 basis points over last year to 13.23%
providing a headroom for the growth.
Anticipating improvement in the operating environment, our guidance for the year ‘22- ‘23 will
be deposit growth of about 12% to 15%, advances growth of about 15% with J&K UT growing
at about 20%. Net recovery is in the range of Rs. 1,000 crore, credit cost of below 1%.
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J&K Bank May 12, 2022
We acknowledge your support and trust and we expect it to continue in the coming days. I'm
looking forward to more interactions with the analysts and investors in the days to come. We are
also contemplating to host an investor and analyst meet during the second or third quarter
wherein we would like you to personally feel and observe the business environment in our home
turf to gauge the systemic relevance of the Bank for the twin UTs of J&K and Ladakh which in
turn confers on it a value proposition which needs to be acknowledged and unlocked.
We can take some questions regarding the strategic plan as I have will presented.
For any queries regarding the numbers, you can always contact our investor relation department,
and we shall be glad to respond to it. We always look forward to your guidance and advice for
improving our working. Thank you so much.
Moderator:
Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer
session. We'll take the first question from the line of Renish Bhuva from ICICI Securities. Please
go ahead.
Renish Bhuva:
So, there's just a couple of things, okay. So, one is that we all are aware about our full liability
franchise in J&K. But when it comes to the asset side, we have our own learning curve on the
asset side. So, briefly, if you can throw some light, let's say, on the asset side which product will
be your focus product going ahead and which geographies you will target to grow that product,
sir?
Baldev Prakash:
Good question. Renish, actually, all the segments like agriculture, retail as well as MSME will
be on our focus and the stages we have decided that already we have with Phone Pe Loan which
is a digital loan for the employees of department only of J&K government. So, now, the Phone
Pe Loan facility that a digital loan has been rolled out to all the government departments and
going forward in a month or so, we will be rolling out to all corporates of the J&K government.
So, that is one and then going forward, we will be approaching the Ladakh UT also so that the
employees of that UT also are covered under this scheme. And the effort is that all the retail
loans are done through digital mode only. And we are going forward, we are now very
aggressively working for the AMTs, advances monitoring team because as of now, as you know,
that the assets in the MSMEs are basically spread out and the credit risk is spread out across
geographies. So, from 1st of June, all the teams will be specialized teams will be headed by the
relationship manager and the team will be owning a number of accounts of 30 to 35, and it will
be supported by the Credit Support Officer. So, these teams will be exclusively responsible for
maintenance, growth, and audit related issues of the MSME, which will give us definitely edge
and it will further improve the quality of our portfolio.
Renish Bhuva:
And sir, any growth numbers would you like to guide for.
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J&K Bank May 12, 2022
Baldev Prakash:
As I've already told, we are looking for around 12% to 15% growth as far as the deposits is
concerned, and we are looking for around 15% of growth in advances during the current year
and in the J&K UT, we are expecting a growth of 20% in advances.
Renish Bhuva:
And just the last question from my side on the margin. So, we already entered the rising interest
cycle. So, looking at your asset mix and your deposit profile, how should the margin trajectory
going ahead, I mean do you foresee a margin expansion or, let's say, margin will remain static
at around current level, sir.
Baldev Prakash:
So, Renish, what we are thinking is that our NIM should be in this range only because our CASA
portfolio is quite strong and we are confident that this will be maintained at around 56%, 57%
level, and the credit growth which is expected mainly in the retail segment and agriculture
segment. So, we are confident that it will be maintained in the similar range.
Renish Bhuva:
So, our SA rate is linked to the benchmark rate or how is it sir?
Baldev Prakash:
It is both, it’s external also as well as MCLR also. I think around 40% is external and 60% is
MCLR.
Renish Bhuva:
So, I’m saying SA rate, not the asset book.
Baldev Prakash:
Pardon. Renish, you have to repeat.
Renish Bhuva:
So, this saving rates are linked to the repo rate or it is the fixed rate pool.
Baldev Prakash:
The saving rate as of now is fixed, and then with respect to RLR, that’s linked to the repo rate,
repo linked lending rate, that’s the external benchmark rate. Our Risk Head is responding to this
question, Renish.
Altaf Kira:
So, if we look at it with respect to the margins, I think the margins are settling as sir
rightly said, because due to the hardening of the interest rates there, because of our rate sensitive
assets are at higher end. So, it will give some benefit of that and going forward, the margins will
be higher than this.
Moderator:
We'll take our next question from the line of Gaurav from Bowhead India. Please go ahead.
Gaurav:
I think it's a long time that we have had a stable CEO at the helm. So, I’m sure that with your
presence we achieve the numbers which we had all been waiting for the last 5, 6 years. Sir, with
that, what about your capital raising plan, if you can highlight, so since we are already low on
the CET1, what are our plans on the equity?
Baldev Prakash:
As I have covered in my opening remarks, so last year it is around Rs. 1,100 crore, Rs. 1,103
crore of the capital, and the same effort will continue this year also. Government of J&K is
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J&K Bank May 12, 2022
expected to provide around Rs. 200 crore which they have already budgeted and once after a
quarter or so, we are confident that our rating will be improving with the growth in the
profitability as well as in the business. So, we will be again reaching and going to the market for
raising capital in Tier 1 as well as in Tier 2.
Gaurav:
Sir, in terms of your operating profit, do you have any targets for FY23? Like for FY22, you
generated Rs. 1,369 crore of operating profit. Do you have any target for FY23?
Baldev Prakash:
So, this year actually Gaurav, our operating profit has been impacted because of this provision
which was amortize for 5 years, but we have covered it in this year itself. So, that is amount of
around Rs. 270 crore.
Gaurav:
Sir, that is anyways part of the exceptional items, right? It is not the operating profit. The
operating profit which I am referring to Rs. 1,370 crore odd, that is excluding the exceptional
item of Rs. 270 crore.
Baldev Prakash:
That has affected this quarter’s operating profit. So, going forward, we are confident of achieving
appropriate profit of – so we are expecting Gaurav a 25% growth excluding this one-time item
from this year.
Gaurav:
And sir, you mentioned 1% for FY23. Sir, can you hint at the absolute number since there is
some confusion, some Banks leave it on assets, some Banks leave it on advances. What does,
sir 1% translate to in terms of absolute number?
Baldev Prakash:
I'm sorry, Gaurav, please. Can you repeat? I’m not able to hear correctly.
Gaurav:
Sir, in your credit cost, you gave a guidance that for 1% credit cost for FY23. I wanted to check
the absolute number here, that 1% translates to what kind of absolute number for credit cost with
the provision line item in your P&L.
Management:
Actually, Gaurav, the ageing requirement for the year ’23, it is below Rs. 500 crore. Usually, we
have made additional provisions for a number of accounts for the current year also. So, their
liability will be less than Rs. 500 crore. So, actually the credit cost will be below 1%. Though
we have given a conservative figure of 1%, it will be much below that figure.
Gaurav:
So, 1% wouldn't mean what, Rs. 500 crore.
Management:
Less than Rs. 500 crore.
Gaurav:
And sir, in terms of your employee cost, on a full year basis, that has gone by % around 18%.
So, for FY23, how do you see that line item?
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J&K Bank May 12, 2022
Baldev Prakash:
Actually, Gaurav, that is a matter of concern for us actually because we are among the high cost
to income ratio, mainly contributed by employee costs. So, one is that that that productivity of
the employees, as we have covered that marketing teams will be now strengthened and rolled
out in all the zones of the Bank. And the productivity and profitability of the employees will be
in focus, number one. Number two, the areas which I think need more focus is the increase of
income, non-interest income as well as other income of the Bank, that will also improve the cost
to income ratio. And plus wherever that income leakages are there in the form of commitment
charges or processing charges, etc, that will be blocked proactively.
Gaurav:
And sir, lastly, what's the modified duration for our investment book?
Baldev Prakash:
Just a moment. I’ll let my -- Risk Head will be responding this. Just a moment please.
Altaf Kira:
Our AFS portfolio is very small as on date, most of the securities in AFS are short dated, that is
the CDs mostly and the T bills. So, actually, those won't have much of an impact there. The
maturity over there is less than 1 year. And definitely the modified duration is far below 1. So,
those won’t actually have the impact of this hardening of interest rate with much effect there,
because actually, these discounted papers and very short-term papers. In fact, AFS group is
purely consisting of these securities as on date. We were actually anticipating there will be some
north way movement of the interest rates, the interest rates were actually bottoming out. So, we
were not taking any positions. We were not building our HTM book over the last 1 or 2 years
actually. That is why the yields from our investment group were also a bit low, because we were
actually going with the short term investments only, and Treps lending and other lending. So, as
you see, we were actually anticipating the rates to go up and then there would have been erosion
of value. Now, we have started building this HTM book also with high coupon securities with
better yield. So, over this period the yields will also improve. We had a lot of surplus, and the
surplus now being deployed, at better rates, we’ll see a better return and the interest income will
definitely improve over this year.
Moderator:
Thank you. I would now like to hand the conference back to the management of J&K Bank for
closing comments. Over to you, sir.
Baldev Prakash:
Thank you, ma'am. And as I have stated already in my opening remarks, the Bank is on the
growth trajectory now. And whatever the stress was there in the loan book has already been
booked and we are well capitalized also as compared to the last year. Of course, that effort will
continue. And the provision coverage ratio is quite healthy. And so that Bank is bound to achieve
new heights during this year. So, I request all support from all our stakeholders. Thank you very
much.
Moderator:
Thank you. On behalf of ICICI Securities that concludes this conference. Thank you for joining
us and you may now disconnect your lines.
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