We want to address concentration risk in our home ground: J&K Bank chief

In a Q&A, Baldev Prakash dwells on the lender's plan to bring down NPAs and raise Rs 500 cr in equity by the end of FY23

Jammu & Kashmir Bank is addressing the concentration risk in its loan book as it plans to cut down J&K and Ladakh regions share of borrowings to 50 per cent. Baldev Prakash, MD & CEO of the bank tells Manojit Saha in an interview that the lender plans to raise Rs 500 crore in equity capital by the end of the current financial year. Edited excerpts:

The business of Jammu & Kashmir Bank is mainly concentrated in J&K and the Ladakh region. Advances grew by 9 per cent year on year to Rs 75,000 crore by September-end. What kind of growth is expected for the full year?

The bank's retail business is concentrated mainly in J&K and Ladakh. That will continue to grow. Besides this, the shift is toward corporate loan growth, which is expected to come from the rest of India. We have been  seeing good growth in the corporate book the past six months. All these loans are to public sector units and high-rated companies. With this strategy we expect credit growth of 15-18 per cent this financial year.

How do loans in the region compare with those extended in other parts of India?

About 29-30 per cent of the loans extended in the rest of India. We want to raise that number to above 40 per cent in another 2-3 years. Ideally it should be 50 per cent in five years. We want to address the concentration risk in our home territory. Most of the loans extended within J&K and Ladakh are for agriculture, SMEs and the personal segment [retail].

While gross NPAs are at an eight-year low, they are still high at 7.67 per cent. How do you plan to bring them down?

A lot of effort has been made in solving the NPA problem. We are trying to reduce the SMA [special mention account], that is probable NPAs, below five per cent. Now that Article 370 is gone, we are able to proceed against the borrower under the SARFAESI Act. We are taking very strong actions. The target is to take the gross NPA ratio below 6 per cent by  March, and between 3-4 per cent within three years. Net NPA will continue to be around 2 per cent.

The bank was planning to sell Rs 900 crore of bad loans to NARCL. What is the progress?

It is at an advanced stage. There are four accounts where there is visibility. We expect these four accounts, amounting to Rs 300 crore, to be resolved by March. Another Rs 900 crore book will be settled in six months.

Your capital adequacy ratio is below 13 per cent--at 12.86 to be precise. Is there a plan to raise tier-1 equity capital?

Yes, but this is excluding the half-yearly profit. The impact of that would be 55 bps. So we are already above 13 per cent as of now. We are also expecting substantial unlocking of value due to the NPA provisions and recovery, along with moderation of employee and other costs. We already have the board's approval board to raise Rs 1,500 crore via tier-II bonds and Rs 500 crore via tier-I bonds. We are confident of raising tier-II bonds in the current quarter. For tier-I we are looking at the January-March quarter. So by the end of the financial year, we are looking at a capital adequacy ratio of 15 per cent.

What will the route for raising tier-I capital be?

There are two plans. One is the existing shareholders-–one of the governments has shown interest. So we are likely to raise the capital from one of the governments. We have two government promoters [Union territories of J&K and Ladakh]. If that doesn't happen then we have a stake in a subsidiary, PNB Metlife, that we might sell. But that is plan B.