Fitch affirms 'AA' rating for JK Bank

Fitch Ratings has affirmed its national rating of very low default risk with a stable outlook for Jammu and Kashmir Bank on the back of the government of India's support for the lender.

"Fitch Ratings has affirmed Jammu and Kashmir Bank Ltd's national long-term rating at 'AA' with a stable outlook," it said in a statement.

An 'AA' national rating denotes expectations of very low default risk relative to other issuers, or obligations, in the same country.

"JK Bank's ratings reflect Fitch's expectation of moderate support from the government of India through the J&K government, if ever required, considering the bank's central role in sustaining the economy of the politically important state of Jammu & Kashmir," Fitch said.

It said the bank dominates the banking business in Jammu & Kashmir, with a 75% market share in lending and a 68% share of deposits.

"JK Bank's asset quality has remained stable, with a gross non-performing loan (NPL) ratio of 1.95% in the financial year ended March, 2011, and 1.89% in the first half of FY'12," Fitch said.

It said the bank has demonstrated a track record of managing its asset quality during the last two decades of socio-political disturbance in the state.

"The bank's profitability has remained solid, benefiting from a high proportion of low-cost current account and savings account deposits, due to higher margins on its loan portfolio in J&K, and its low cost-to-income ratio," Fitch said.

JK Bank had reported a Tier-I capital ratio of 11.33% and a capital adequacy ratio (CAR) of 13.72% last fiscal.

"JK Bank's liquidity profile is strong, given the high proportion of retail deposits in its funding mix, which should enable it to limit its refinancing risk," Fitch said.

JK Bank has 548 branches, over two-thirds of which are in Jammu & Kashmir.