Bad loan report: J&K Bank stock tanks over 18%

Even as the lender dismissed news of hiding bad loans, it admits a large account came under pressure in April

Jammu and Kashmir Bank (J&K Bank) stock fell as much as 20 per cent on Friday to Rs 1,472, as a local daily reported that the bank has been under-reporting its bad loans numbers.The stock recovered marginally to close Friday's session at Rs 1,501.35, down 18.42 per cent, even as the bank management tried to allay investor concerns.

Mushtaq Ahmad, chairman and chief executive officer of the private sector lender, said, “J&K Bank has been very transparent and straightforward in disclosing its bad loans. Our balance sheet is audited by not less than five audit firms. While individual accounts of J&K Bank are managed by us on our own, consortium shocks are not under our control. The numbers mentioned in the news article are totally baseless.”

News portal GreaterKashmir.com reported on Thursday that the bank has not classified and declared loans worth Rs 1,100 crore from three different borrowers, as non-performing assets. These include Rs 650-crore loan to a Kolkata-based company engaged in agro and ancillary business, a real estate company in Mumbai and a Bangalore-based communication company.

Mushtaq Ahmad admitted that the bank had exposure to two of the above three accounts, albeit in a consortium. According to him, J&K Bank is part of a consortium lending worth Rs 6,000-7,000 crore to the Kolkata-based agro company and has about 10 per cent exposure (Rs 700 crore) to this company. The account was well-behaving till the March 2014 quarter, but came under stress in April with J&K Bank, though stress had started earlier with other banks, he added.

Notably, United Bank, one of the consortium partners, has issued a winding-up notice to the company. “We (consortium) were thinking how to manage this account and bring out a workable and viable solution. I was about to monitor this behavior for the next 10-15 days, post which would have told the investors about this,” said Ahmad. Though the account has a collateral security, they are pooled under consortium and are on a pari-pasu basis. Ahmad said the joint lenders could go for stock audit and forensic audit of the said account. The Kolkata-based agro account is with the bank since 2009 and the bank made its last disbursement to this account in September 2013.

Though J&K Bank has Rs 400-crore exposure to a real estate company in Mumbai, there is no NPA in this account. No company in Bangalore or Hyderabad is under stress, he clarified. Asked about whether the Kolkata company was related to the National Spot Exchange Limited (NSEL) in any way, the chairman replied in the negative.

The report also stated that the bank's auditors found ‘shocking’ transactions in scores of its accounts and marked some of them in the "special watch " category. The bank though said it was a routine exercise for auditors to mark accounts requiring higher provisioning.

Notably, J&K Bank is among the few banks, which have managed to keep asset quality under check at a time when most banks are struggling with their credit quality (given unfavorable macro environment). The bank's gross non-performing assets ratio has remained in the narrow band of 1.6-1.7 per cent of advances over the past six quarters.

Going forward as well, the bank expects to contain this metric within two per cent of its advances. The restructuring of the Kolkata-based account will push up the restructuring book from Rs 1,576 crore prevailing to about Rs 2,200 crore in the June 2014 quarter.The management remains confident that restructured book will not increase significantly beyond that in the foreseeable future. The bank has been posting higher than industry credit growth in recent quarters. Going forward as well, it expects loan growth in J&K state to be above 25 per cent while that outside the state to be about 15 per cent.