CRISIL downgrades J&K Bank's deposits

Stress on asset quality is a key concern, says the ratings agency

Rating agency CRISIL has downgraded Jammu & Kashmir (J&K) Bank’s fixed deposits from ‘AA+/stable’ to ‘AA/negative’. The move reflected the stress on the bank’s asset quality and the expected impact on its profitability, the agency said in a statement.

The rating on the bank’s short-term debt instruments has been reaffirmed at ‘A1+’, which reflects J&K Bank’s healthy resource profile and the systemic support it is expected to receive in the event of distress, given its dominance in J&K and its status as banker to the state government.

The bank’s resource profile is marked by a stable retail deposit base.

The share of low-cost current account and savings account deposits in the bank’s overall deposits stood at 41 per cent as of June 30, significantly higher than the sector average of 32 per cent.

The strengths, however, are partially offset by the bank’s average asset quality and the small scale and high geographical concentration of its operations.

In recent months, there have been material slippages in the bank’s large corporate book. The weak asset quality in the corporate advances segment was due to exposure to high-risk sectors and borrowers, CRISIL said. The bank’s overall gross non-performing assets increased from 1.7 per cent at the end of March this year to 4.2 per cent as of June 30, primarily due to slippages in two large corporate accounts.

At the end of March this year, the bank’s total assets stood at Rs 78,620 crore, against Rs 71,740 crore as of March 31, 2013.

The weakness in the bank’s corporate loan book is expected to be compounded by the impact of the recent floods in the state. The significant losses to commercial property and assets for small and medium enterprises and traders are likely to affect asset quality. About 45 per cent of the bank’s advances are in J&K.