Demonetized money bails out J&K Bank in rating

Srinagar, Jan 04: CRISIL has reaffirmed the rating of fixed deposit of J&K Bank to FAA- and removed it from ‘Rating Watch with Negative Implications'.  ‘FAA –' reflects ‘very high degree of timely payments of interest and principal'. J&K Bank got various ratings with marginal difference by rating agencies like  Ind-Ra, Brickwork and others during last year while the Rating agency CRISIL has downgraded ratings for the Jammu and Kashmir Bank's fixed deposits from ‘AA' from ‘AA-‘ on increase in the stress on its advances in troubled state and its consequent impact on profitability.

Notably, the rating agency had on November 8, 2016 placed the rating on ‘Watch with Negative Implications” on account of the pressure on asset quality compounded by the increase in stress in the advances to small and medium sized enterprises, MSME' and corporate within Kashmir valley. This was in addition to the continued slippages from its large ticket corporate loan book.

Sources said that demonetizing announced on Nov 08 came to the rescue of Jammu Kashmir Bank as unprecedented huge flow of old currency notes were exchanged and deposited into various deposit and advances accounts fearlessly from the eyes of Income Tax department which does not have effective network and lack will to act in Kashmir valley. Further, the J&K Bank holds itself unaccountable for transparency in its working as it has insulated itself against invoking RTI Act and thus not to share its manipulations.

Sources confided that old currency notes has been attributed to the huge recovery of advances in sticky, irregular and even NPA loans that has improved its recovery and affected its Assets evaluation.

Pertinently CRISIL has also reaffirmed the bank's short-term fixed deposits and certificate of deposits programme at ‘CRISIL A1+', indicating the ‘very strong degree of safety regarding timely payment of financial obligations'.

Gross non-performing assets (NPAs) increased significantly to 9.3% as on June 30, 2016 from 6.0% as on March 31, 2015, primarily driven by slippages in its large loans in corporate book.

Furthermore, significant proportion of stressed advances within the state of J&K are expected to be restructured.

Consequently, the weak assets are expected to sharply increase to around 15% by March 2017 from 11.3% as on June 30, 2016. Both factors put together will have a significant impact on its profitability, it added.

Rating have been kept on watch following emerging developments around the Bank's application to RBI for restructuring the J&K loan book affected by unrest in the valley since July 2016.

The bank may restructure these stressed advances, if RBI approves restructuring as requested by the state level bankers committee of J & K.

Also, equity capital infusion by key stakeholder, the Government of Jammu & Kashmir (GoJK), may be required to remain adequately capitalised considering the extent of impact on earnings profile, it said.