For healthy biz, margins have to remain healthier: Mushtaq Ahmad

Interview with Chairman & CEO, J&K Bank

Mushtaq Ahmad has been steering Jammu & Kashmir Bank as chairman and chief executive since October 2010. In an interview with Somasroy Chakraborty, he shares the bank’s plans. Edited excerpts:

The bank began its much-delayed expansion in the last financial year. Have you set any target?
Planned expansion cannot be delayed. With a business target of Rs 1,00,000 crore and plans to record net profit of Rs 1,000 crore this financial year, we have already chalked strategies to achieve the bank’s medium- and long-term targets. Under stressed macroeconomic conditions, we recorded annual growth of 18 per cent and 20 per cent in total business in the last two financial years, while rise in net profit stood at 22 per cent and 30 per cent. After withstanding the effects of stressed macroeconomic conditions, we expect annual growth of 25-30 per cent, at least in the near term.

Your net interest margin was about 3.5 per cent in the two previous financial years. Would you be able to sustain this?
For healthy business, margins have to remain healthier. We closely monitor our margins in all operational areas. The bank has been focusing on maintaining a high net interest margin. Our target is to keep it at 3.7-4 per cent this financial year. Yields on advances have improved. In the last two financial years, there was an increasing trend of interest spread.

Would you shed high-cost bulk deposits to keep your margin steady?
Mobilising and maintaining bulk deposits are part of the business management. However, volumes are duly taken care of to leverage these, in line with the business plan. Our focus is on retail and Casa (current account and savings account) deposits. With expansion of the branch network in the state, we expect a strong Casa base.

Are you seeing a drop in credit demand?
We are very optimistic on our growth outlook. Our business plan envisages credit growth of about 25 per cent. We expect the retail segment, agriculture and SMEs (small and medium enterprises) to drive our credit growth.

Do you plan to raise capital to support business growth?
Is there a plan to reduce the state government’s stake in the bank?

The bank’s capital adequacy is comfortable. Our capital planning considers different sensitivity projections, in line with the business plan. Considering our projected business growth in the next three years, the bank would have sufficient capital to meet regulatory and internal capital requirements. In the past, internal profit accrual contributed substantially to net worth. However, the bank has options to raise capital, in case of any unforeseen scenario or any plan to expand into new businesses. The government would continue to maintain its current stake.

Is asset quality a worry in the current scenario? What is your exposure to stressed sectors like aviation, power, real estate and SMEs?
We are conscious of the situation the banking industry is passing through. Nevertheless, at Jammu & Kashmir Bank, we are managing asset quality efficiently. It is not a concern. Our provision coverage ratio would remain above 90 per cent. Exposure to the SME sector, where we have manageable stress, would be a tad over 15 per cent. In the real estate sector, it would be 10 per cent. We have exposure in the power sector, but not in state electricity boards.

What is your outlook on interest rates?
With the Reserve Bank of India (RBI) focused on controlling price pressure in the economy, we maintain the central bank would continue on its pause mode during the coming review. The rate spiral has, however, been contained to an extent.