Jammu & Kashmir Bank

Jammu & Kashmir Bank has been consistently posting good results for last couple of years.

The thing that is most interesting is the high return on equity the bank has been generating

Return on Equity for the year ended March 2013 is 23.50%.

It has crossed the mark of 1000 Cr in profit for this year at 1055.1 crore (31.36% growth compared to FY12) and the most interesting thing is it trades at the market cap below 6500 crore. This is what got me really interested.

So a check on good ROE and a check on cheap valuations and check on growth.

There has been some concerns regarding asset quality worsening in the previous 2 quarters,

but still Net NPA of 0.14% and Provision Coverage Ratio is about 94%, which is very high.

Bank is semi-private bank which has 53% stake by J&K State government, but it is run like a private bank and

So P/BV of 1.35 and P/E of 6.08 for FY13 is unwarranted, I feel.

The company has high regional concentration, which can be a huge risk due to security issues prevalent in J&K . Another way to look at it is high regional market share.

Such low valuations with good growth provides a decent risk-return opportunity. The continuity of management is a positive unlike a PSU bank.

The bank has CASA ratio of 39-40%, and it has NIM above 4 %.

So a possible re-rating could lead to higher levels and at P/E of 6.09, the downside seems to be capped as it is a mid-cap share.

As I am new to investing, I am not yet highly skilled in the analysis part. Would like others to suggest some improvements for the same. And even contrarian approach could lead to healthy discussion.

Attached below is excerpt of the research report of Motilal Oswal after Q3 result of FY13. Detailed report is on moneycontrol Stock Advice and Research Section

Jammu and Kashmir Bank (JKBK) posted PAT growth of 36% YoY (7% QoQ) in

3QFY13 to INR2.9b. Core operating parameters were healthy, with NIM at 4.1%

(up 44bp YoY and 13bp QoQ), loan growth of 20% YoY (4% QoQ) and PCR of ~94%.

ï While slippages were contained at INR1.1b (annualized slippage ratio of 1.5%),

negative surprise came from higher restructuring of INR7.3b (2% of overall

loans). The management mentioned that the restructuring was largely on

account of four large corporate accounts worth INR4.7b.

ï While yield on loans declined 11bp QoQ to 12.6%, the decline in cost of funds

was sharper (down 26bp QoQ), and led to margin expansion (13bp QoQ) to

4.1%. Margins were 6% in the home state and 2.5% in states other than J&K.

ï Loans grew 6% QoQ within J&K and 4.5% QoQ in other states. Overall loans

grew 20% YoY.

ï CASA growth was strong at 7% QoQ and 15% YoY, led by 7% QoQ (17% YoY)

increase in SA deposits. CA deposits grew 10% QoQ (9% YoY). CASA ratio

improved to 39.4% v/s 38.2% in 2QFY13.

Valuation and view: JKBK continues to deliver healthy performance on business

growth and NIM. Some of the core operating parameters like CASA ratio of ~40%,

NIM of 4% with the lowest CD ratio of 62%, PCR of 94%+ and RoA/RoE of 1.5%+/

21%+ remain the best in the industry. While the sharp increase in restructured

loans came as a negative surprise, the management stated that these were

technical and no NPV hit was taken. Further, it does not expect significant

restructuring going forward, which provides some comfort. Maintain Buy.


jammu and kashmir bank on most of the evaluationparameters looks good. Be it the nims , casa,. credit growth ,. also the bank has been making high provision and reporting low gross npa and net npa . the change in management has worked well for the bank.

however in the last quarter the provision andcontingencies have gone up to 178 crores otherwise the net profit would have been in the range of 350 crores or a eps of 70 rs .

the bank surely looks undervalued ,., with the interest rates coming down(there will be inc in credit growth and pressure on npas will reduce ) i m projecting a fy14 eps of 240-260 and fy15 eps of 300-320. hence with a pe rerating to 10 pe can lead to mulibagger returns .fy15 price target range 2500-3000

but we need to be patient and keep a close watch on the results and the cause of the same .



Hi Utkarsh. Missed Jammu and Kashmir bank last year @ 800 and haven’t still got into any banking stocks.

As you have mentioned peace in J&K is vital.

There may be moat (regional ) present here. And the bank is not in news frequently. Ignored but a performer :slight_smile:

( Had read Pakistan wants Kashmir due to its oil. Himalayan mountain range was a sea bed. Due to continental drift, we have the mountains now. Untapped potential natural wealth lies beneath. If it is tapped, J & K will prosper more along with Jammu and Kashmir bank ).

Lull in militancy and brisktourismfrom 2yrs is helping the bank.


evaluationparameters andcontingencies

Hi Divyansh,

Although there have been increase in slippages and restructured assets, the capital allocation skill of management has been quite noteworthy.

It also has one of lowest cost/Income ratio in private banking space (0.37 in FY12), followed closely by ICICI Bk (0.375 in FY12).

ROCE was 21.22% in FY12, only behind City Union Bk and Yes Bank.

Read somewhere that since past few years, expansion of branches has only been in state of J&K state and almost NIL in rest of India, which from the point of view of allocation of capital is good as it is a state where it has moat and inherently higher NIMs and high CASA, but it does expose management higher to the risks associated with the state

I may be missing something here, but asset quality still looks more than decent.

Currently trading at a P/E of 5 from FY14 perspective with coverage ratio of 94%(FY13)& 93.76%(FY12) with 2 best being HDFC at 82%(in FY12).

And looking at a bigger picture it seems to be undervalued. Factoring in security issue of the state is a little tough as it is difficult to quantify the risks associated with state.

(The data inputs are from BT-KPMG study which was published in December 9,2012 issue of Business Today in which J&K bank was ranked 4 in mid-sized bank after YES,IndusInd, DBS)

:)) brisktourismfrom

Hi Mallikarjun,

I like the stock not only due to its lower valuation but also due to its productivity and efficiency which generally one doesn’t associate with low valuations public banks. The peace in J&K is becoming increasingly more important due to managements increasing concentration in J&K.

As you mentioned peace in J&K in last 2 years has contributed to the growth.

How does management balances the increase in moat and regional concentration would be very interesting to see from 5 year perspective.




Nawaz Sharif ( PM of Pakistan ) is a hardliner. By 2014, there will be less US and NATO troops in Afghanistan. Pakistan till now was under pressure to guard their border with Afghanistan.

When the pressure eases and withdrawal of US troops, Pakistan may try to revive their policy & export terror to India

ISI, Pakistan Army and Nawaz are the key.

At the same time we must play our cards well. If we don’t goof up on our Kashmir policy, peace will prevail.Next 2-3 yrs is crucial.

Do you have any info about who contribute more to the banks business ?

1). Armed Forces

2). Tourists

3). Residents of J&K

Presence of Army is permanent. Tourism is banking on peace. Residents on tourism.


Utkarsh, some useful links

1). 300 new branches by 2015


2). J&K and Mahindra & Mahindra sign MOU for commercial vehicle finance and car loans


3). J & K bank and its social initiative in uplifting the Apple growers. ( Sorry. I had failed to take into account the exports which contribute a lot to the state economy ).



I have come across this from various resources before, but have bookmarked the following page, it will amalgamate various news regarding the bank from different sources and is updated frequently


Thanku Utkarsh


On a lighter note,

Sudarshan Sukhani has advised to sell the stock, so expect a run-up going forward ! :wink:


Regarding the political factors associated with Nawaz Sharif, I’m studying the situation and effects in Kashmir more deeply and the segregation of revenue from various sources.

Meanwhile, you can check detailed information on Earnings Update,2013 on website


Will get back to you once I complete that part.


Sudarshan Sukhani:-) Noo wish it falls more, so that we can buy…

Thanku for the link…

1). Term Deposits have rose substantially (YoY)

2). Interesting part is deposits from rest of India have increased but deposits from J & K have decreased.( YoY)

It will help, if we dig out more about Revenues and consistency in it, if any.



Yes, the percentage contribution of deposits of J&K state has decreased, but overall it has increased to 40867 crore from 35308 crore.

Having higher share of deposits from J&K would be better, as this state inherently has higher margins due to higher population of Muslims, some of whom do not believe in keeping money on interest (religious factor), hence keeping it mostly in Current Account, which I came to know through one of my Muslim friend.

I don’t exactly know what % of Muslims follow this, but substanially higher margins in J&K is partly contributed by this factor.

That’s why I believe higher concentration in the valley state would lead to better operating perfomance and margins but will increase regional concentration.

Your take on this.


Ya your friend is right. I think most of them follow Quran quite seriously. At the same time, Current Account is very handy for business transactions.

If we come to know the factors which are contributing to the banks performance and if we can be more certain that the factors will continue, it will build our conviction.

I am yet to get a handle on J & K bank and the banking industry.


Some useful and scary links. I had assumed J&K bank had almost nil competition. But after going through this link, feel moat of J&K bank may be temporary. ( Till other banks catch up ).



Jammu region is relatively terrorism free than Kashmir region. J & K bank may have its advantages ( moat ) in Kashmir region, since other banks are yet to catch up in Kashmir region. ( This is my guess ).

( Can you find out, how many branches of J&K bank are there in Jammu, Kashmir and Ladakh region separately). The management had indicated it will increase the branches. We need to know will it be done by internal accruals or by loan.


The advantages for J&K bank are

1). Low cost Current and Savings Account (CASA) of 39.23 %. You had mentioned it in 1st comment. Other banks average CASA are around 30 %.

2). All the state government funds are routed through the bank. This helps the bank to maintain low cost accounts which in turn helps Net Interest Margin (3.97 %). In Jammu and Kashmir region the NIM is 6.20 %.:slight_smile:

3). Net NPA of 0.14 % indicates strong and effective credit appraisal process.

4). Net NPA of 0.14 % and NPA coverage ratio of 94.01 % is best among the bests.

5). Which boosts the bottom line.





And J&K bank is solely implementing the J&K governmentas flagship Sher-e-Kashmir Employment and Welfare Policy for Youth (SKEWPY)

Regarding expansion,they will be done hopefully through internal accruals:-)


Do you plan to raise capital to support business growth?
Is there a plan to reduce the state governmentas stake in the bank?

The bankas capital adequacy is comfortable. Our capital planning considers different sensitivity projections, in line with the business plan. Considering our projected business growth in the next three years, the bank would have sufficient capital to meet regulatory and internal capital requirements. In the past, internal profit accrual contributed substantially to net worth. However, the bank has options to raise capital, in case of any unforeseen scenario or any plan to expand into new businesses. The government would continue to maintain its current stake.




Hi Mallikarjun


Since they are different from the usual basket of stocks and how to make different ratios and matrix and restructuring to fit together and get the overall situation of bank is what I’m still working on.


I have searched this forum for a model/framework to work for the banking stocks but haven’t found one and using traditional valuation metrics would be a huge over-simplification, I believe


If you or any other forum member have any framework regarding detailed valuation of banking stocks, please share your philosophy or link here





Annual report for FY13.

There has been much said about the deteriorating asset quality of J&K,

if one refers to restructuring part of the banks AR (page 49-50),

The amount outstanding end of FY12 was 1365.75 crore and provision provided was 82.25 crore (6.022%)

The amount outstanding end of FY13 was 1490.49 crore and provision provided was 150.94 crore (10.13%)

So the provisions percentage has increased to 10.13% of restructured book and overall outstanding restructured assets has increased by 9.133%.

Provision coverage has always been on higher side, showing prudence on part of management.

Here are some comparisons with HDFC Bank

HDFC bank has

  1. doubtful assets of 382.67 crore which has provisions of 15.54 crore ( 4.06%)

  2. loss assets of 16.72 crore which has provisions of 1.02 crore (6.1%)

  3. standard & sub-standard assets of 128.73 crore, provisions 2.13 crore (1.654%)

  4. total 528.12 crore, provisions 18.69 crore (3.54%)

JK Bank has

  1. doubtful assets of 139.76 crore which has provisions of 108.46 crore ( 77.6%)

  2. loss assets of 0.28 crore which has provisions of 0.28 crore (100%)

  3. standard & sub-standard assets of 1350.45 crore, provisions 42.2 crore (3.125%)

4)total 1490.49 crore, provisions 150.94 crore (10.13%)

In all the segments of restrctured assets, JK Bank has made higher percentage provisions than industry leader, which gives more comfort and increases margin of safety as the bank hasn’t followed any aggressive accounting to inflate numbers.

However, the concern of extremely high standard restructured assets remain as compared to HDFC bank (1350.45 crore JK Bank vs 128.73 crore HDFC Bank)

JK Bank has Net NPA of 55.27 crore (Gross 643.77 crore) (PCR>90%) &

HDFC Bk has Net NPA of 468.95 crore (Gross 2334.64 crore) (PCR~80%)

Other parameters (except valuation) are hugely in HDFC Bk favour like CAR , CASA, income growth, EPS growth, BV growth

So, decrease in standard restructured assets, which is high currently would be a key pointer to look out for.

Also,on a related note

RBI has made some stricter norms regarding restructured assets, which may lead to some increased provisions as more assets are included in sub-standard instead of standard.


Also, this would give us clear idea about how many restructured assets are due to DCCO and how many are due to other reasons like delay in payment.


Hi Mallikarjun


If here




Hi Utkarsh… Jammu and Kashmir bank is undervalued. If there are reasons for that, then we must be careful. Since no seniors are invested, its difficult for us to take a cal.


Technical Analysis from hemant bhaiya

j&k was in a sideways consolidation between 700 and 1000 between mid-2010 to mid-2012 after which it broke out to reach almost 1500 and then sold off to re-test the breakout zone. it is right now consolidating above the breakout level and is also testing 200 dma. if that holds, we should soon see a re-test of 1500. wave-wise, stock is in early stages of final fifth wave uptrend which should take it to 1500-1600 atleast before a size-able correction takes place.



Compared the returns of HDFC bank and Jammu and Kashmir bank from 1999-2013.

1). J & K bank has given 42X returns.( 1999 September closing price = 28.90 )

( 2013 May closing price = 1221.10 )

2). HDFC bank has given 35x returns.( 1999 September closing price = 100.95 )

( 2013 May closing price = 700.45 ).

Have left out dividends in calculation.

1.J & K bank = 219.90 rs dividend from 2000-2013

2.HDFC bank = 125.6 rs dividend from 2000-2013.

Historical returns doesn’t guarantee future returns.

Presently HDFC bank p/e is 24.39

J & K bank p/e is 5.64.


Going forward if J & K bank delivers , i think it will outperform HDFC bank considering the present valuations.