Jammu & Kashmir Bank Ltd. · NSE:J&KBANK
Jammu & Kashmir Bank — CLSA India Forum 2009
45 slides from Jammu & Kashmir Bank's conference presentation, Nov 4, 2009
Slide 1: J&K Bank: Creatively Conservative
CLSA India Forum J&K Bank: Creatively Conservative November 4, 2009 Gurgaon
Slide 2: Structure of Presentation
Structure of Presentation • Profile of the Bank • Business Strategy • Phases of Change • Performance and Outcome • Comparative Position 2
Slide 3: Basic facts
Basic facts ¾ Incorporated in 1938 as a limited liability company ¾ Listed on National stock exchange (NSE) and Bombay stock exchange (BSE) ¾ 53 per cent owned by J&K Government ¾ Rated “P1 +” by Standard and Poor- CRISIL: highest degree of safety ¾ Four decades of uninterrupted profitability and di
Slide 4: One of a Kind
One of a Kind • Private sector bank despite government’s majority holding • Sole banker and lender of last resort to the Government of J & K • Only private sector bank designated as RBI’s agent for banking business • Carries out banking business of the central government • Collects taxes for Central
Slide 5: Shareholding Pattern
Shareholding Pattern 2.28%10.87% 2.66% 53.17% 0.73% 30.29% Governemnt of J&K Foreign Inst. Investors Non-Resident Indians Indian Mutual Funds Resident Individuals Bodies Corporate/ Clg. Mem./ Insur.Cos As on Oct 23, 2009 5
Slide 6: Best of both worlds
Best of both worlds • Private Bank despite government’s majority holding • Public ownership: – Stability – Safety • Private functioning: – Efficiency – Growth 6
Slide 7: Subsidiaries and Investments
Subsidiaries and Investments J&K Bank Financial Services Ltd • Providing Depository Services • Offering Stock Broking Services • Insurance JV with MetLife International • Distributor of •Life Insurance products (MetLife) • General Insurance (Bajaj Allianz) •Two Regional Rural Banks 7
Slide 8: Business strategy: 2005-2012
Business strategy: 2005-2012 • Two legged business model: – Increase lending in J&K, which is • high margin, low volume – target niche lending in rest of the country, to • Improve margins and build volumes – Universal Bank in J&K – Specialist bank in rest of the country 8
Slide 9: Phase I: Looking inward
Phase I: Looking inward • Change in composition of advances – In terms of geography – from ROI to J&K – In terms of asset types – from low margin to high margin • A greater focus on liability management – Increase low cost retail deposits – Increase the maturity structure • Organizational restructur
Slide 10: Phase II: Overhauling outside
Phase II: Overhauling outside • Restructure lending in ROI : – Re-pricing – Reduce consortium lending – Improve WC to TL ratio • Improve ROI margin by focusing on: – Under-serviced areas with high turnover – Specialized sectoral lending – Specialist branch chain – leather, grains, spices • Specialis
Slide 11: Phase III: Size and Structure
Phase III: Size and Structure • Business growth – Organic – Inorganic • Focus on size – Inorganic growth – International foray • Structural reorganization – Towards a conglomerate – Investment banking 11
Slide 12: Contextual Strategies
Contextual Strategies: • In the current and emerging environment, what is required is: – region-specific credit policies that suit the sub- national growth impulses and context, and – productization of finance to suit local enterprises. (Annual Report 2006-2007) 12
Slide 13: Strategic Inference
Strategic Inference • Smaller banks — focused and niche players — with regional dominance to outperform. – Banking verticals with defined slivers of business – Focus on SMEs and the informal segment • Bi polar structure to emerge • Muddled middle of the Indian banking sector to get squeezed. 13
Slide 14: Advocating Conservatism
Advocating Conservatism “The dangers of managing a business in uncertain environs lie in under estimating the extent and intensity of the downside” (Annual Report 2007-2008) 14
Slide 15: Adapting to Change
Adapting to Change • Business model: – Flexible – Adaptable • Making liabilities the driver • Insulate earnings from environment – Linking asset to local needs – Linking liabilities to local sources 15
Slide 16: Results
Results • Conservatism and consolidation of the last three years has paid off • The critical choice was not to sacrifice medium to long-term growth to meet a short-term goal, be it business, incomes or profits. • Our priority is to ensure sustained long-term profitability. 16
Slide 17: Results
Results • Despite adverse environment: – Earnings are robust, – Net interest margins increasing – Impairment lower – Cost to income reduced – Return on Equity rising – Return on Assets up and above peer group levels. 17
Slide 18: Liability Structure: Stable
Liability Structure : Stable 40 35 30 25 20 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10 18
Slide 19: Cost of Deposits: Contained
Cost of Deposits : Contained 7 6 5 4 3 2 1 0 2005- 2006- 2007- 2008- H1 09-10 2006 2007 2008 2009 19
Slide 20: Cost to Income Ratio: Sharp drop
Cost to Income Ratio : Sharp drop 45 40 35 30 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10 20
Slide 21: Advances Yield: Increasing
Advances Yield : Increasing 12 11.5 11 10.5 10 9.5 9 8.5 8 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10 21
Slide 22: NIMs: Rising
NIIMs : Rising 3.4 3.2 3 2.8 2.6 2.4 2.2 2 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10 22
Slide 23: Return on Assets: Constant rise
Return on Assets : Constant rise 1.4 1.3 1.2 1.1 1 0.9 0.8 0.7 0.6 0.5 2005- 2006- 2007- 2008- H1 09-10 2006 2007 2008 2009 23
Slide 24: Return on Equity: On the rise
Return on Equity: On the rise 20 18 16 14 12 10 8 6 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10 24
Slide 25: Earnings per share
Earnings per share 105 85 65 45 25 5 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-1 25
Slide 26: NPA Coverage: Among the highest
Q 4- 04 0 10 20 30 40 50 60 70 80 Q 05 1- 05 Q 06 2- 05 06 Q 3- 05 Q 06 4- 05 Q 06 1- 06 Q 07 2- 06 07 Q 3- 06 Q 07 4- 06 Q 07 1- 07 Q 08 2- 07 Q 08 3- 07 08 Q 4- 07 Q 08 1- 08 Q 09 2- 08 Q 09 3- 08 09 Q 4- 08 Q 09 1- NPA Coverage: Among the highest 09 Q 10 2- 09 10 26
Slide 27: Financial: Valuation Ratios
Financial : Valuation Ratios 2005-06 2006-07 2007-08 2008-09 H1 09-10 Earning per Share (annualized) 36.48 56.62 74.26 84.54 104.10 Net Asset Value 371.20 414.36 476.28 541.04 593.09 Adjusted Book Value 343.43 374.43 434.30 481.74 568.97 Price to book value ratio 1.23 1.73 1.35 0.91 0.97 Price to ad
Slide 28: Profitability Ratios
Profitability Ratios 2005-06 2006-07 2007-08 2008-09 H1 09-10 Net Interest Margins (%) 2.68% 2.97% 2.95% 3.15% 3.01% Interest Spreads (%) 2.61% 2.79% 2.64% 2.84% 2.75% Yield on Advances (Av) (%)(ann.) 8.48% 8.58% 10.44% 11.53% 11.25% Yield on Investments (Av) 6.22% 6.20% 6.70% 6.79% 5.77% (%)(Annual
Slide 29: Asset Quality
Asset Quality: 2005-06 2006-07 2007-08 2008-09 H1 09-10 Gross NPAs (in Rs Cr) 370.19 501.83 485.23 559.27 478.36 Net NPAs (in Rs. Cr) 133.87 193.57 203.55 287.51 116.95 Gross NPA Ratio ( %) 2.52% 2.89% 2.53% 2.64% 2.23% Net NPA Ratio (%) 0.92% 1.13% 1.08% 1.37% 0.55% NPA Coverage Ratio (%) 63.64% 61
Slide 30: Operating Ratios
Operating Ratios: 2005-06 2006-07 2007-08 2008-09 H1 09-10 Operating Expenses to AWF (%) (ann.) 1.36 1.35 1.31 1.34 1.37 Operating Expenses to Total Income (%) 19.00 18.08 15.06 14.56 14.77 Operating Expenses to Other Income (%) 311.00 232.47 164.73 192.15 117.50 Staff Cost to Total Income (%) 10.59
Slide 31: Efficiency Ratios
Efficiency Ratios: 2005-06 2006-07 2007-08 2008-09 H1 09-10 Cost to Income Ratio (%) 44.57% 40.13% 38.24% 37.81% 34.92% CD Ratio (%) 61.67% 67.79% 66.04% 63.42% 64.82% CASA Ratio (%) 34.17% 37.02% 39.16% 38.11% 36.98% Business per Employee (In Rs Cr) 5.56 6.17 6.28 7.07 6.91 Net Profit per Employee
Slide 32: Capital Adequacy Ratio – Basel II
Capital Adequacy Ratio – Basel II 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% J&K A xis Canara HDFC ICICI ING OB C P NB SB I B ank B ank B ank B ank B ank Vysya As on June, 2009 32
Slide 33: Higher Tier I Capital (Basel II)
Higher Tier I Capital (Basel II) 16% 14% 12% 10% 8% 6% 4% 2% 0% J&K Bank Axis Bank Canara HDFC ICICI Bank Indian PNB SBI Union Bank Bank Bank Bank As on June, 2009
Slide 34: Net Impaired Loans
Net Impaired Loans 3% 2% 2% 1% 1% 0% J&K Bank Axis Canara HDFC ICICI ING OBC PNB SBI Bank Bank Bank Bank Vysya As on June, 2009
Slide 35: Coverage Ratio
Coverage Ratio 100% 80% 60% 40% 20% 0% J&K Axis Canara HDFC ICICI ING OBC PNB SBI Bank Bank Bank Bank Bank Vysya As on June, 2009
Slide 36: RoA (Annualized)
RoA (Annualized) 2% 2% 1% 1% 1% 1% 1% 0% 0% 0% J&K A xis Canara HDFC ICICI ING P NB SB I B ank B ank B ank B ank B ank Vysya As on June, 2009
Slide 37: CASA Ratio
CASA Ratio 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% J&K Bank Axis Bank HDFC ICICI Bank ING Vysya PNB SBI Bank As on June, 2009
Slide 38: Cost to Income
Cost to Income 70% 60% 50% 40% 30% 20% 10% 0% J&K Axis Canara HDFC ICICI ING OBC PNB SBI Bank Bank bank Bank Bank Vysya As on June, 2009 38
Slide 39: Staff Expenses to Total Income
Staff Expenses to Total Income 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% J&K Bank Axis Bank HDFC Bank ICICI Bank ING Vysya Canara Bank OBC PNB SBI As on June, 2009 39
Slide 40: Earnings per Share
Earnings per Share 40 35 30 25 (in Rupees) 20 15 10 5 0 J&K Axis Canara HDFC ICICI ING OBC PNB SBI Bank Bank Bank Bank Bank Vysya As on June, 2009 40
Slide 41: Book Value
Book Value 1000 900 800 700 600 500 400 300 200 100 0 J&K Bank Axi s Bank Canar a HDFC Bank ICICI Bank ING Vysya PNB SBI Bank As on June, 2009 41
Slide 42: The “Kashmir” question!
The “Kashmir” question! (Price/Book Value Ratio and Price/Adjusted Book Value Ratio) P/BV P/ABV 2.5 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10
Slide 43: The Puzzle! P/E Ratio
The Puzzle! 14 P/E Ratio 12 10 8 6 4 2 2005-2006 2006-2007 2007-2008 2008-2009 H1 09-10
Slide 44: Recap
Recap • J&K Bank will outperform the sector • With rising margins and lower costs, even as • Economic growth in India declines and • Banking sector slows down in uncertain environment and wavering policy prescriptions 44
Slide 45: Thank you!
Thank you! © usK Bank