Rising bad loans dented Jammu and Kashmir Bank's fourth quarter net profit 60 percent year-on-year to Rs 101.6 crore. Mushtaq Ahmad, Chairman and CEO, Jammu & Kashmir Bank is hoping that the worst in behind for the bank.
He says FY15 was a tough year for the industry in general and the floods in Jammu made matters worse for J&K Bank.
The bank's net non-performing assets rose to 2.77 percent from 0.22 percent in teh year ago period. Total provisions, excluding for income tax, rose to Rs 380.76 crore during the quarter against Rs 60.57 crore in the year-ago period.
Ahmad says two major accounts slipped into the NPA category resulting in the rise.
He says the bank is trying to strengthen its balance sheet.
Below is the verbatim transcript of Mushtaq Ahmad's interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.
Sonia: This time around, your asset quality has seen just a minor deterioration, your gross non-performing assets (NPA) that is at 5-97 percent versus 5-81 percent earlier. But close to six percent gross NPAs is still a very large amount to have on the book. Can you give us an estimate of whether things will improve in the quarters to come?
A: First of all let me just take you through this overall situation in industry and you will be aware that the past year has been quite tough and challenging for the banking industry because asset quality remained under high pressure. And if you see the previous two years have been worst since early ‘80s when the economic growth, that is growth rate has gone down five percent. Even the current year will remain turbulent as predicted in forecasts by the reliable and credible rating agencies and they forecast that NPAs would rise by around Rs 60,000 crore this year as well. Jammu and Kashmir (J&K) Bank despite the situation overall prevailing in the industry, even the devastating floods in the state compounded the problem of J&K Bank.
At J&K Bank also we went through turbulence and considering the overall situation, as you have rightly said that our profit has dipped by around 57 percent; it has gone down from Rs 1,182 crore to Rs 508 crore. And considering the overall situation and situation back in the state, we have been focusing on our consolidation and strengthening our balance sheet despite all our challenge. I do agree with you that as far as NPAs are concerned, we had a huge hit last year because two major accounts slipped into NPA category and as a result of that, our NPA coverage ration went down from 90 percent to 51 percent in December, 2014. But again we have brought it up in the current quarter, in previous quarter, that is which ended at around 50-59 percent and we do hope that the worst for J&K Bank is behind and we are looking for a very brighter future in the coming quarters.
But I would also like to take you through some of the major key ratios of the bank. The net worth has increased from Rs 5,700 crore to Rs 6,100 crore and if you see my total income, it has increased from Rs 7,157 crore to Rs 7,655 crore so there is an increase of seven percent and operating profit has just dipped by 3.36 percent as against a net profit which dipped by 57 percent. It is basically because of the high provisioning, as I mentioned to you, even beyond that regulatory requirement, we have excess provisions of around Rs 265 crore.
Sonia: I was actually going to come to that, your provisioning number this time has gone up to about Rs 380 crore as you have also mentioned. So, going forward, what will the provisioning run rate be because you have had to make higher provisions?
A: We had to make high provisions because one of the accounts, that is REI Agro, that has been declared fraud and that account you had to provide 100 percent and Reserve Bank of India has allowed all the consortium member to provide that and supplied that provisioning in four quarters but as J&K Bank, we have already provided for more than 80 percent in this particular account. So, the pressure that would have been in the coming quarters, that we have already taken in the current quarter. Going forward, as I said that quarters coming would be quite better for J&K Bank and I do not think that, as I said that the worst is over for J&K Bank and we will be looking for better profits in the coming quarters and also we have laid down our this business plan . And the most important thing going back again to the figures is that our issue of J&K Bank has increased from 39 percent to 42 percent and our net interest margin is at 3.81 percent which is still amongst the best.
Reema: For REI agro you said you provided 80 percent but do you have to provide another 20 percent to meet that 100 percent requirement?
A: Against overall outstanding of Rs 675 crore we have provision of Rs 545 crore.
Reema: And would you have to provide this balance 20 percent for REI Agro in the coming quarter?
A: Yes, coming two quarters, we have to provide. That means Rs 65 crore in each quarter.
Reema: So, Rs 130 crore over two quarters. So what was the reason for this excess provisioning of Rs 265 crore that you have done this quarter?
A: There is no reason, only that you see that as I mentioned to you that the turbulence for the banking industry is going to continue in the current year. So, therefore we should have some cushion available to us.
Sonia: You said there were major accounts that slipped into NPA this quarter and you spoke about this REI Agro fraud case as well…
A: Yes, this slipped in just first quarter of the last year.
Sonia: I am trying to understand whether do you fear that there could be many more accounts that could slip into NPAs and your NPA situation could worsen beyond this six percent mark that you are sitting on?
A: I would simply say that the worst for J&K Bank is over. I am looking that as far as J&K Bank, all the entrepreneur accounts are concerned, I do not see that there is any reason for J&K Bank. But in respect of consortium and multiple banking accounts, one has to remain prepared for some surprises and shocks. But nothing why we should feel that something is going to happen this way or that way. But you see under the present scenario, one should always remain prepared for the things. That is why we have provided extra Rs 265 crore and we do hope that the profitability will increase in the coming quarters.
Sonia: Can you just give some more numbers? What were the exact slippages that you saw in this quarter?
A: Which numbers?
Sonia: Slippages for the bank? The fresh slippages that the bank has recorded in this quarter?
A: Slippage?
Sonia: Yes.
A: These are basically, if you see, these are mainly slippage in the first quarter.
Sonia: What is the total amount?
A: Of this slippage, during the year. You see last year my NPAs were around Rs 800 and it has gone to around Rs 2,700 and three accounts are main in these slippage.
Reema: What would the restructure book stand at now?
A: Restructure book including the restructuring on account of floods, it should be around Rs 2,400 crore, total.
Reema: So, the outstanding restructured book is about Rs 2,400 crore.
A: Yes, it would be that way.
Reema: You spoke about how the bank has made its internal plan and the future plan. Can you tell us in that what is the target reduction in your gross NPA from the current 5.97 percent? How much would you like to reduce it?
A: We are going to try that at least for the current year, it should come below five percent.
Sonia: One final question on what the margins have been that the bank has clocked in, in this quarter and what could it be in FY16?
A: Margin in the current quarter, 3.92 percent and I would always say that our target is that it should be around four percent.
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