J&K Bank outlines new business strategy

Approves higher FII investment limit

SRINAGAR, August 28, 2006 "� J&K Bank, which has started a new chapter with its brand re-launch, will shore up its lending in its home market of Jammu & Kashmir to leverage the economic rebound in the state. In addition, the Bank is putting in place a strategy that will make it a super specialist bank focusing on high-potential emerging commodity sectors around the country.

J&K Bank's board has also approved a proposal to increase the limit for foreign institutional investments in the bank to 40 percent from 33 percent earlier.

The Bank will continue to strengthen its balance sheet and increase provisioning for bad assets to international best practices by the year ending March 2008. J&K Bank already boasts one of the strongest balance sheets in the Indian banking sector, following proactive asset quality management practices followed over the past 5 quarters, under the leadership of Dr. Haseeb A. Drabu.

"The change in our logo reflects the bank's new business thinking and attitude. We are taking proactive steps in leveraging the recovery in our home market, as well as by identifying emerging niche opportunities in the national market, both of which can bring us higher returns. This summarises J&K Bank's twin strategy going forward," said Dr. Drabu, the Bank's Chairman & CEO.

"Simultaneously, the Bank will follow rigorous prudential norms to ensure that growth and expansion is along sound lines, and that business risks are absorbed without any significant dent to the Bank's business outlook. The bank has proactively strengthened its balance sheet by aggressively providing for bad assets over the past 4-5 quarters," Dr. Drabu added.

The initial results of the new strategy are encouraging; profits rose by 54 percent for the year to March 2006; net interest margins were up 3.04 percent. The asset quality has seen a further improvement and the gross NPA levels declined to 2.5 as a percent of the gross advances of the Bank. The Bank aims to increase provisioning for bad assets to 80 percent by the year ending March 2008.

LEVERAGING J&K'S ROBUST GROWTH

Dr. Drabu's vision is for the Bank to further strengthen its dominant position in its home market of J&K, both benefiting from and feeding the economic revival underway in the state. Traditionally, the Bank has raised low-cost deposits within the State but lent about 60 percent of its advances outside of J&K.

But peace initiatives of the past two years have facilitated positive socio-economic and political developments, supporting an economic boom in Jammu & Kashmir. The state's economic growth has outpaced that of the country as a whole. The J&K economy has expanded by an average of 10 percent over the 3 years to March 2006, bettering the Indian economy's average of 8.1 percent.

The national and state governments are also committed to reviving the economy by supporting the development of key infrastructure including power, roads and telecommunications through fiscal incentives. Consequently, the demand for funds is rising, and margins are more attractive than they are outside the state.

"Over the past decade, J&K Bank has followed the model of raising low-cost deposits within the state and lending outside of the state. The focus will now be on increasing lending within the state at relatively higher rates," said Dr. Haseeb A. Drabu, Chairman & CEO, J&K Bank.

By increasing this, the bank enhances margins and boosts the virtuous cycle of savings and lending, Dr. Drabu said.

"This macro aspect combined with the micro reality of advances yield being much higher in J&K than outside gives the shift in business composition an unassailable and compelling logic. At the macro-level, it gives the Bank a self-perpetuating business growth and at the micro-level it is margin-enhancing for the bank," said Dr. Drabu.

J&K Bank is unveiling products and services, tailoured for reviving sectors such as tourism, carpet making, horticulture, and leather.

The Bank is uniquely positioned. It is J&K's premier business institution and banker to the state government. With a near 80 percent market share in J&K, it is best placed to benefit from the economic boom sweeping the J&K economy. The Bank is also classified as a private sector bank, which allows it flexibility in raising and allocating funds.

SUPER SPECIALISATION AT NATIONAL LEVEL

In the national market, the bank will implement a strategy to become a super specialist bank. It is setting up a chain of super-specialist branches in key centres, which will offer products and services designed for specific industries. Such products will command better premiums and yield higher margins as compared with plain vanilla products commonly offered in the market.

Accordingly, the bank is looking at a leather chain in Chennai, Kanpur, Agra and Kolkatta. Similarly, spice branches in southern India and castor branches in western India are in the process of being set up, Dr. Drabu said.

"Depending on the way the experiment shapes up, the bank can become a super-speciality bank focusing on financing commodities. In addition to creating an identity outside J&K, this strategy will have forward linkages with large corporate businesses as most large Indian companies are essentially commodity corporates," Dr. Drabu said.

About The Jammu & Kashmir Bank Ltd.

J&K Bank is a private sector bank established in 1938. Based in Srinagar, the Bank dominates the banking space in Jammu & Kashmir, and has played a vital role in the state through its history. About 60 percent of its 516 branches are located in J&K state, and the rest are spread across the country. The bank is fully computerized, with branches inter-linked, allowing for easy, anywhere, anytime banking. The bank has made profits through most of its history. For the year to March 2006, the bank reported a 54 percent rise in net profit to Rs. 176.8 crore. The bank began the current fiscal on a good note with a 29 percent increase in net profit for the quarter ended June 30, 2006, yoy. The fee based income increased by 21% for the same period.