Allocated Rs 633 cr for ECL provisions: Jammu & Kashmir Bank MD & CEO

This journey over the past two and a half years has been remarkably engaging and incredibly interesting for me, Baldev Prakash, Jammu & Kashmir Bank, MD & CEO

Baldev Prakash is the first MD & CEO of Jammu & Kashmir Bank after the post of chairman and managing director was split. Prakash talks about the strategies that were put in place to improve governance and compliance in an interview with Manojit Saha in Mumbai. Edited excerpts:
 

You took charge of the bank on December 30, 2021. What are the steps you initiated to address the governance issues?

This journey over the past two and a half years has been remarkably engaging and incredibly interesting for me. When I took over, we faced numerous challenges in the areas of governance, staff morale, business operations, and compliance. We tackled each issue methodically, collaborating with our teams to brainstorm solutions and address each challenge systematically.

I believe governance was our biggest challenge, but with the active support of our promoters and shareholders, our Board is now fully professionalised. We have also made significant strides in the bank's digital journey, reaching a level we are proud of. Similarly, compliance-related concerns have also been addressed. Institutionalising a system of robust monitoring with regular reviews has helped the bank to achieve its targeted goals & numbers.

I strongly believe that governance and compliance go hand in hand and without a strong governance structure in place, compliance is impossible to achieve. It is also crucial to have a regular review system in place to ensure ongoing compliance.

What are the business growth projections for the current financial year?

Our guidance for core business has been 15 per cent growth for credit and around 12 per cent for deposits. Based on the bustling economic activity in our core operational area, which has been witnessing unprecedented levels of tourist influx around the year, I am confident that we will not only meet but exceed these targets.

Deposit mobilisation has been a challenge for banks in recent times. What are the steps the bank has taken to boost deposit growth?

We have implemented several initiatives, including the extensive distribution of QR codes to the small vendors and MSMEs. In our core areas of operation (Jammu & Kashmir and Ladakh) J&K Bank QR codes are widely accepted, aiding in the accretion of our current account deposits. One major advantage for the vendors is that while some payment companies typically settle transactions on a T+1 basis, we offer instant settlement, providing immediate liquidity support to the vendors. The QR code initiative has been a significant success, helping us shield our CASA base.

Another key initiative was launching a campaign to open savings accounts for school children, aimed at fostering a habit of regular saving from a young age.

We have opened accounts for all the students enrolled in government schools from class 8 and above and have extended this initiative to many private schools as well. These children are likely to maintain their accounts long-term, even into their professional careers.

What is the strategy for loan growth?

Almost 65 per cent of our loans are in the RAM (Retail, Agri & MSME) segment and we are comfortable with increasing this share to 70 per cent. We have diligently pursued process excellence by optimising workflows through the centralisation of our lending operations, ensuring quicker turnaround times for enhanced customer satisfaction.

Beyond our home territories of JK&L [Jammu & Kashmir and Ladakh], we primarily focus on corporate lending to top-rated companies and PSUs, while in our core areas, we concentrate on retail business. Notably, more than 80 per cent of our branches are located in these key territories.

What would be the impact of the RBI draft norms on the liquidity coverage ratio?

Due to the nature of our operational area, we maintain liquidity levels that are higher than the industry average. Our Liquidity Coverage Ratio (LCR) stands at 135 per cent. Based on our projections, the new regulations may reduce our LCR by up to 15 percentage points. Despite this potential impact, we will remain comfortably above the regulatory minimum of 100 per cent.

What is the provision that the bank has made for the expected credit loss (ECL) framework?

We have been proactively preparing for the migration to ECL norms and have engaged a consultant from one of the Big Four firms to ensure a smooth transition to the new system. Initial assessments suggest we may need Rs 700 crore towards incremental provisioning. Currently, we have Rs 633 crore allocated as contingency and floating provisions for this purpose.  Even if the norms are rolled out as early as the next financial year, we will be good to go.

The Cost to Income (C/I) ratio has come down but it still remains high…

Our staff costs were elevated due to legacy issues, resulting in a C/I ratio of around 77 per cent two years ago. We engaged expert consultants to provide specific recommendations for addressing this issue. The consultants’ report was reviewed and approved by the Board, and we are actively implementing the suggested measures. Our target is to reduce this figure to 56 per cent by the end of this financial year itself and to around 50 per cent by the end of FY28.

Our C/I ratio could have been lower if recoveries from technically written-off accounts had been better. Last year, several anticipated recoveries were delayed for various reasons. However, we are optimistic about settling these accounts this year and expect recoveries from technically written-off accounts to exceed last year's figures.

What is the recovery target from technically written-off accounts?

In FY23, recoveries were around Rs 250 crore, and in FY24, they were approximately Rs 175 crore. This year, we anticipate recoveries to surpass Rs 250 crore. These improvements will help us write back provisions and better manage our C/I ratio.