CRISIL cuts rating for J&K Bank deposits on asset quality concerns

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Rating agency CRISIL has downgraded ratings for the Jammu and Kashmir Bank’s fixed deposits from 'AA' from 'AA-' on increase in the stress on its advances in troubled state and its consequent impact on profitability.

It also placed ratings on “Watch with Negative Implications”.

The pressure on asset quality has been compounded by the increase in stress in the advances given to small and medium-sized enterprises (SME's), Micro, Small and Medium Enterprises (MSME's) and corporates within certain regions of Jammu & Kashmir (J&K). This was in addition to the continued slippages from its large ticket corporate book, CRISIL said a statement.

Gross non-performing assets (NPAs) increased significantly to 9.3% as on June 30, 2016 from 6.0% as on March 31, 2015, primarily driven by slippages in its large loans in corporate book.

Furthermore, significant proportion of stressed advances within the state of J&K are expected to be restructured.

Consequently, the weak assets are expected to sharply increase to around 15% by March 2017 from 11.3% as on June 30, 2016. Both factors put together will have a significant impact on its profitability, it added.

Rating have been kept on watch following emerging developments around the Bank's application to RBI for restructuring the J&K loan book affected by unrest in the valley since July 2016.

The bank may restructure these stressed advances, if RBI approves restructuring as requested by the state level bankers committee of J & K.

Furthermore, the continuing unrest in the Kashmir valley and its attendant implications for depositor behaviour needs to be closely monitored.

Also, equity capital infusion by key stakeholder, the Government of Jammu & Kashmir (GoJK), may be required to remain adequately capitalised considering the extent of impact on earnings profile, it said.