Jammu & Kashmir Bank

Sorry. Do not have access to the Q&A.
Guess u have to wait until the transcript is uploaded or listen in on researchbytes.

Notes from AR FY16

Disc - I hold


A well run conservative bank which has been hit temporarily, internally (bad debts) and externally (socio-political developments in the state)

While current market price looks appealing, the question is how long can an investor wait till the situation clears, business recovers and value is recognized - 3 years, 5 years, 7 years?

Con Call Oct 16

• Parvez Ahmed – New CEO & Chairman
• Situation challenging - JK (Tension in Kashmir Valley) and RoI (NPA)
• External consultant to formulate business plan/strategy (HR + IT)
• No dividend for FY17-18
• Plan to raise to 1000cr from markets in this FY – Tier II capital

• Further slippages possible
• Negative bottom-line growth for next 2 quarters, Consolidation might take 4-6 quarters and good growth momentum after that
• Target to get provisioning ratio to 90% by FY18
• One-time cleanup by March 31, 2017

• NPA – 10%, Restructured – 6%
• Growth: 10-15%
• AAA rated business is doing well, B category business has risks – need to develop capability to evaluate this better

• Stress due to unrest
• Retail – Mostly govt employees, not impacted by unrest
• Business loans – cash cycle is interrupted, 4-6 months to return to normalcy
• High margin business, not much credit absorption capability in state
• Jammu and Laddakh province doing well, Kashmir not so well
• 20% growth in Jammu and Laddakh, Kashmir would be impacted.
• Revenue split - Jammu + Laddakh – 35% Kashmir – 65%
• No issue with Apple orchard business

Disc - Sold before 18% fall, continue to track company with interest, not a buy/sell reco

Since J&K bank’s maximum business is in the state of J&K, betting on the bank is betting on improving the situation in J&K. With current situation, I feel it is extremely unlikely that situation can improve anytime soon. It seems it will deteriorate further before it starts improving back.

With so many opportunities to invest in good companies, I am not one should look at this stock as an ‘investment’. Even bottom fishing is extremely difficult when you do’t know where is the bottom.

I have invested into this stock about 2 years back when Mohnish Pabrai invested into this bank and was singing praises in public forum. But after observing it for few quarters, I decided to sell it at a loss. Looking back, I think I made an excellent decision.

The gloomy scenario of conference call is enough to push this stock to atleast 4-6 months of price correction / consolidation. The stock had seen good accumulation in 60-70 zone…if these investors decide to exit, then the syock may go towards 50 or maybe even lower…But once it starts showing turnaround signs, it would be a very good candidate for long term investment…the next bout of accumulation may be around April -june 2017…till then its better to watch J&K bank from the sidelines.

Fundamentals of the bank…cleaning balance sheet and organization structure.
It will take me at least 4-6 quarters to turn around the things and give a better balance sheet where you can see lot of strengths in it.I will not focus on profits but on balance sheet consolidation, restructuring and built the cushions in the system over and above the industrial level which will give a lot of confidence to the quality investors to invest in J&K Bank. I am sure that once we reach to that particular level, this will give huge comfort to the investors and we would be able to attract the best quality investors across the globe.


  • A historically well run & conservative bank.

  • Bad debts may get resolved in sometime, but business growth is uncertain, given the political situation.

  • It will get a boost if it is acquired by or is merged with another stronger bank with complimentary strengths, given its current low valuations, spurred by the government’s thrust on bank consolidation

Con Call Q2 FY16

Hand holding of customers during civil unrest & long history of helping state creates very high emotional equity in J&K bank.

NPA coverage ratio is at 54%, Rest of India further slipped by another 1000 Cr. Plan to take provisioning ratio 90% in next 3-5 years. Expect slippages to slow down substantially & plan to present clean balance sheet in FY17 - clean meaning recognise doubtful accounts proactively.

Civil Unrest
Civil unrest impacted JK portfolio but it has eased now & things should improve in FY17 after rehabilitation package. Loan repayment timelines extended to Dec 2017- due to restructuring for JK loans. The broad contours of restructuring include holiday for principal & interest, additional funding upto 20% per case basis, The restructured portfolio size impacted in JK due to civil unrest is around 5000Cr - already 2500 Cr has been restructured.

Loans to salaried employees of state government were not impacted & also fruit delivery to rest of India recovered. Tourism & allied sectors have been badly hit & package shall help to normalise things.

CASA ratio improved by 500 basis points due to demonetisation. Received 11000 Cr in deposits, no issue of liquidity.

Plan to hire 1000 people to expand branches by 100, mainly in JK state. Operating expense ratio expected to go up to 50% & it includes expansion costs. Tier II capital can be raised from markets & JK government has committed to this round of fund raising.

JK bank portfolio has loan book 26000 Cr, NIM of 5 to 6%, expect CASA to go upto 50% in next 2 years.

Plan to sale stake in met life will not materialise very soon.

Disc - No investments, please do your own due diligence

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One of the general concerns with PSBs is that a healthy bank might be merged with an ailing one.
Just want to confirm that this cannot be done with Jammu and Kashmir Bank since it is not owned by Government of India.

Experienced boarders, please comment.


I would like to put my perspective based on my Kashmir stay. In Kashmir there is almost no digital economy purely runs on CASH… I have never seen such a huge cash dependency in any places in India and almost from restaurants to departmental stores everything runs on cash.

Even government emporiums prefer cash over cards… J&K bank is almost everywhere I had travelled in Kashmir and they outnumber all banks in terms of ATM;s as well. So majority people withdraw cash from this bank ATM only.

My feeling is also the account opening penetration is very less and even loans are taken more from outside banks.

So there is definitely a huge scope for J&K bank to expand and it will be one of the biggest beneficiary once people embrace digital and online payments. If they are able to tie up with J&K tourism and come out with more products it could be game changer as well.

ADMIN and THREAD OWNER , please feel free to delete this post incase it didn’t comply to forum policy.

Wow! No activity on this thread at all for the last 2 years, that alone makes me hopeful that there is a good case to relook at this situation.
Im no expert on banks which I know are among the most difficult cos to understand and value as there is no way for a lay investor to know the quality of loan assets.
However it looks to me that the valuations for this bank have been beaten down so much this is now perhaps a Grahamian net-net situation.

  1. Total Assets (adjusted for net NPA) of 86893 cr now available at a mkt cap of 3202 cr ie 3.68% of assets

  2. Cash balance 3931.6 cr+ RBI balance of 4328.36 cr = 8260 cr vs mkt cap 3202 cr so its trading at 39% of the actual cash on balance sheet. Share price 57.50 vs cash 148 per share.
    Compare this to the most beaten down pvt banks like LVB and South Indian bank.
    LVB: mkt cap 2908 cr vs cash 316.79+RBI bal 1698.17=2014.16, mkt cap to cash 1.4
    South Indian Bank : mkt cap 4370 cr vs cash 962.81 and RBI bal 3258.24=4221.05, mkt cap to cash 1.03
    J&K bank is at 0.39.

  3. The bank also has g secs worth 17197 cr

  4. In addition, the bank owns 5.08% of PNB Metlife, which PNB is now desperate to list via an IPO for which papers have already been filed, with an initial estimated valuation of 8000 cr, so J&K bank would have a liquid asset that they are quite willing to dispose of worth 400 cr. This is carried at 102.19 cr on the balance sheet.

  5. The share last traded at this level in 2009 so its a 9 year low.

  6. The bank dominates banking in J&K and has done so almost since the time it was established in 1939, to the extent that it now accounts for around 63% of deposits and loans so its got pretty much a captive depositor base. No other bank really counts in this state (there are only 8 major banks), and as far as I can determine, private banks are not very keen to expand here (only HDFC+ICICI are present). PSBs are anyway in no position to expand now. CASA % is 50.89% and has been 50%+ in the past as well. This is probably why the bank got into trouble in the first place with bad loans, as they get plenty of cheap money with cost of deposits of only 5.01% whereas theres not been that much scope to deploy the money in the state itself. The point is its got a very strong franchise, and although as with most banks, they made a lot of bad loans in the past, they are in a much better position to build themselves back up with such a strong base. This process has already started.

  7. Capital Adequacy ratio is 11.42% and the bank will be raising capital upto 1000 cr via QIP. The J&K state govt has a infused a total of 532 cr in FY17 & FY18 via pref allotment at Rs 68 & Rs 79 respectively, the govt stake is now 59%.

  8. The bank has a provision coverage of 65.83% which is among the highest and mgt does not expect major additional slippage. Gross NPA 6007 cr (11.2%), net NPA 2791 cr (4.9%)

  9. Business seems to be turning around and the mgt is optimistic on growth prospects within the state. Credit growth in FY18 has been 14% and NIM has been 3.65% which is already among the highest, and mgt indicates high degree of confidence in NIM getting better.Deposit growth was 10.41%.

  10. A big chunk of their NPAs comes from 2 accounts: Bhushan steel and Essar steel, which seem to be near resolution or atleast look like they could be resolved by the end of the year with not too much of a hair cut.


  1. Civil unrest situation may intensify in J&K which will impact business and NPAs

  2. There are some restructured assets from the 2014 floods and unrest period in 2016 that may slip. Restructured book of 4,794 cr : 700cr is due to floods (in FY15) and 3,700 due to civil unrest. The RBI provided moratorium period for the 700cr got over on Dec’17.
    On the repayments : The government has announce a budgetary subsidy of 1,000cr, wherein borrower will pay 2/3rd of the total amount and 1/3rd (interest burden) will come from state government. This state assistance should limit the possibility of defaults, also with the bank so dominant in the state, I would imagine no local would want to get onto the banks bad books.

  3. Possibility of upto 25% equity dilution due to capital raising, however this should help business growth hence should be beneficial in the longer term.

So overall it looks like a really good investment case to me.
However there may well be aspects I have not understood properly that would undermine the investment case, so input from senior members would be welcomed!

All figures quoted above are as of March 31st,2018. Mkt cap and share price as of today.

Im also including here:
The FY18 annual report
JKAR1718.pdf (2.7 MB)

PNB Metlife IPO plans and valuation

Disclosure: Invested, 42% of stock portfolio.

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Just wanted to check if there isn’t a typing error in your post, so 42 % of your portfolio is a single stock ?



Courtesy screener.in
Market cap = 3200cr.
Net worth =5200cr.
Nnpa =2800cr as you have quoted… Assuming nothing is recovered from the gross npas(quite harsh, I know, but let’s imagine) … Then it is still trading 1.33 times adjusted book value.

Vicky- Net worth is actually 6158 cr per 2018 AR, so its 0.95 P/ABV worst case scenario.
Unadjusted BV is 110, so P/BV is 0.52.

Sarthak-yes I do have it as 42% of my portfolio, this will go down bit as I invest in other opportunities, but I do have pretty high conviction on this one. Of course I might be wrong!


Wish I had THAT sort of conviction on a stock. I think I am just too conservative. Since when have you been holding?

I used to listen to concalls of j&k bank long back… It gave no hints of upcoming NPAs…maybe it will give much improved performance in future… All the best to you for that…if you like it, you can buy it and post what you like about it. But 42% is way too much allocation IMHO. Most people will tell you the same. Or Maybe your portfolio is small idk.

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@shyampn Request you to reconsider the portfolio allocation as 42% is really huge and that too risking on banking sector in the current situation.

Question is not 42 % of stock portfolio …the question should be what is this stock of overall savings / assets . BTW allocation is individual decision as charlie munger says 3 stocks is more than enough to own. But you need to be absoultely sure what you doing which in Financial sector is not easy as you wont get all the information

I am holding J&K from last two years. This business has very wide moat , they are lowest cost producer of capital but in finance sector you need very good management to give return. An idiot can run this bank as you have lowest cost base and you can find good returns with lowest risk (lend to good companies ).

I had put same amounts in following 3 years back Bajaj finance , Indusbank and J&K Bank. So you can imagine what happens to returns with quality. other two are mutilbaggers while JK is down 40%. I did not sell when it was up 40% for me . I believe they should be able to do good job unless everyone in bank is fraud.

Hello all, yes its a risk, but just looking at the current cash position, the wide moat the bank has, the change in mgt, IMHO its a good risk. Besides, its a small % of overall net worth with a potential big payoff.
Banks with far worse competitive positions, lower assets and provision coverage, and lower NIMs are selling at much better valuations and I think as better results come in over the next 3 years, there should be a rerating. I may well be wrong though!
I bought my entire position last month @ average of 56.80.