Appoint full-time CEO at J&K Bank on priority to curb slippages: Analysts

They say the move would boost market confidence and help the bank raise tier-I capital

Immediate appointment of a full-time chairman and chief executive is crucial for raising tier-I capital and controlling slippages at Jammu and Kashmir Bank, analysts have said.

According to analysts with foreign broking firm CLSA, the timely appointment of a full-time chairman and CEO at J&K Bank is critical. The transition may raise uncertainty at the bank even as it enjoys a strong deposit franchise in its home state, reflected in its high CASA (current account and savings account) ratio of 51 per cent.

Analysts said appointment of a full-time chief executive would also boost the confidence of market and also help the lender stay on course. The bank's board of Directors has approved the raising of additional Tier-1 and the Tier-2 capital of about Rs 1,600 crore. It will raise the capital in tranches, depending upon the growth.

The bank management, in a conference call after the appointment of an interim chairman, said there would be no adverse financial implications of the investigations, and that the steps being taken are basically intended to improve the functioning of the Bank. However, the market seems to be skeptical about the management’s version. The J&K Bank stock has lost 18 per cent in value in two trading sessions on the BSE. Its share ended at Rs 48.70 per share on Tuesday.

R K Chhibber was appointed interim chairman-cum-managing director effective June 8, after the J&K government removed Parvez Ahmed from post on charges that he was found to be indulging in unlawful activities. The Jammu and Kashmir government holds 59 per cent stake in the bank.

In an analyst call after the Q4FY19 results, the management had said Gross Non-Performing Assets are expected to be around eight per cent and Net NPAs around 4-4.5 per cent in FY20.

India Ratings had downgraded the outlook on ratings to negative in December 2018. J&K Bank faced capitalisation pressure (especially common equity tier-1, or CET1) in view of its high growth aspirations and of continued pressure on asset quality.

The lender could face an adverse borrower selection risk in the medium term. Its internal accruals are likely to remain modest, as the credit cost pressure remains. Growth moderation and high capital buffers would be key monitorables for the resolution of the Outlook.

Searches on J&K Bank premises, which started on Saturday after an FIR was lodged by the ACB, concluded on Sunday and pointed to Ahmed's involvement in corruption, nepotism and favouritism.