By Jindal Haria

India Ratings and Research (Ind-Ra) has rated Jammu & Kashmir Bank Ltd’s additional Tier 2 bonds as follows:

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Basel III compliant Tier 2 bonds*

-

-

-

INR10,000

IND AA/Stable

Assigned

*yet to be issued

KEY RATING DRIVERS

High Strategic Importance: The rating reflects the bank’s high strategic importance in the politically sensitive state of Jammu & Kashmir (J&K). The bank has been receiving equity infusions from the J&K government. The bank plays a major role in the state economy (estimated 60-65% share in advances within the state). This is the only bank in the J&K state which acts as the agent bank of the Reserve Bank of India. 

Equity Capital Buffers to be Strengthened:
As of 1HFY18, the bank had a Tier 1 capital ratio of 9.19% (FY17: 8.70%) and capital adequacy ratio of 11.09% (10.80%). The Tier 1 capital improved on account of an equity infusion of about INR2.82 billion by the government so far in FY18. The bank is in the advanced stages of discussion regarding converting INR2.8 billion of leasehold land to freehold and plans to raise INR6 billion-7 billion of equity in FY18 through a qualified institutional placement which would additionally shore up common equity Tier 1 capital. The issuance through qualified institutional placement would result in the J&K government’ shareholding reducing to 53.17% (similar to the levels of December 2016) from 59.23% as of October 2017. The strengthening of capital buffers is important in light of its modest asset quality as of 1HFY18, with gross non-performing assets of 10.87% (FY17: 11.20%), restructured assets of 10.4% (11.1%) and net non-performing assets of 4.76% (4.87%).

Adequate Liquidity:
Asset-liability tenures are well matched for the bank with no negative mismatches up to the one year bucket. The liquidity profile is supported by a high current account savings account ratio (1HFY18: 50.4%; FY17: 51.7%) with sticky deposits originating from state government bodies, regional banks and trusts. The agency expects the bank to remain comfortable on the liquidity front in the short to medium term.

To read a detailed rating rationale,
click here.


RATING SENSITIVITIES

Negative: The rating could be downgraded if the quantum and the timeliness of capital infusions from the state government do not substantiate the agency’s view of special status of the bank. The special status needs to be demonstrated through maintaining strong capitalisation to manage growth, cover credit costs and maintain reasonably high buffers above the regulatory levels.


COMPANY PROFILE

The Srinagar-based JK Bank was established in 1938 by the state government. It is majority owned (59.23% as of October 2017) by the J&K government.

FINANCIAL SUMMARY

 

Particulars

FY17

FY16

Total assets (INR million)

820,187

802,681

Total equity (INR million)

56,764

64,240

Net income (INR million)

-16,323

4,160

Return on average assets (%)

-2.0

0.5

Equity/assets (%)

6.9

8.0

Capital adequacy ratio (%)

10.8

11.8

Source: Company, Ind-Ra

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

4 September 2017

5 May 2016

2 September 2015

Issuer rating

Long term

-

IND AA/Stable

IND AA/Stable

IND AA/Stable

IND AA/Stable

Basel III compliant Tier 2 bonds*

Long term

INR20,000

IND AA/Stable

IND AA/Stable

IND AA/Stable

-

Lower Tier 2 bonds*

Long term

INR6,000

IND AA/Stable

IND AA/Stable

IND AA/Stable

IND AA/Stable

*Details are provided in annexure

ANNEXURE

ISIN

Instrument

Date of Issue

Coupon Rate (%)

Maturity Date

Issue Size (million)

Rating/Outlook

INE168A08038

Basel III compliant Tier 2 bonds

24 March 2017

9.5

24 June 2022

INR10,000

IND AA/Stable

 

Total Unutilised

 

 

 

INR10,000

 

 

Total

 

 

 

INR20,000

 


ISIN

Instrument

Date of Issue

Coupon Rate (%)

Maturity Date

Issue Size (million)

Rating/Outlook

INE168A08012

Lower Tier 2 bonds

30 December 2009

9

30 December 2019

INR6,000

IND AA/Stable

 

Total

 

 

 

INR6,000

 


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, structured finance and project finance companies. 

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Analyst Names

  • Primary Analyst

    Jindal Haria

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001750

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121