Jammu & Kashmir Bank (JKBK) hosted an investor conference call to spell out its strategy (already communicated through a press release) after Parvez Ahmad (executive president previously) was elevated as the chairman and CEO for three years.
The situation in the Valley remains tense, which could weigh on near-term stock performance. We cut earnings estimates post management guidance of clean-up in ensuing quarters. JKBK has recognized 14% of loans as GNPA and 6% as restructured loans for its outside J&K loan book (50% of loans).
Even assuming 5% additional stress from this book, addition to stress loans is likely to be Rs 13 billion (2-3% of overall loans).
J&K business makes 6% margins, and the book has held up well so far (GNPA of 3.8% v/s overall of 9.3%).
J&K flood loans have been rescheduled (Rs 5 billion). Recent unrest in the Kashmir Valley has been worrisome, impacting cash flows for the trades, SME and corporate segments. Two-thirds of J&K book belongs to the Kashmir Valley. As of now (although early days), management is seeing some delay in payments for loans worth Rs 100 billion.
Trade, SME and large corporate book together account for Rs 114 billion (22% of overall loans). During such exceptional situation, rescheduling of loans and regulatory exception are possible.
Significant stress addition is likely to exert pressure on earnings due to higher credit cost and interest reversals. Management is targeting to reach 90% PCR (including technical write-off), but this will be based on profitability.