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Mushtaq Ahmad, MD and CEO at Jammu and Kashmir Bank believes further development in the state coupled with expansion in other geographies will drive strong loan growth for the bank. He also plans to step up the bank's fee income (currently below peers) over the next two-three years. In conversation with Sheetal Agarwal, he talks about the road ahead for the bank. Edited Excerpts:
J&K Bank aims to grow its loan book by 15-20% over next two-three years, what will be the key drivers of this growth?
We believe our loan growth target is achievable. Maximum growth is likely to come in from Jammu and Kashmir itself. We will lend to companies supporting development activities in the state. So, contractors, companies engaged in road and railways projects as well as the ancillary sectors. Healthcare is another segment to see strong demand. We also aim to ramp up our presence outside J&K. This fiscal, 58% of our total branch expansion will be is outside J&K.
We are trying to achieve profits of Rs 1,700-1,800 crore over the next 2-3 years (versus Rs 1,055 crore in FY13) and are on track to achieve this target.
Finance minister and J&K CM believe the bank should expand internationally. What are the bank’s plans there?
We still have scope to expand in J&K and within India. While we have one or two places in mind globally, we need another couple of years to start some action on that front. Within India, we plan to ramp up our presence in Maharashtra, Karnataka, South-East India and some parts in Central and Northern India.
J&K Bank’s core fee income growth has lagged its own loan growth since the past few quarters. How to plan to improve this income?
We have not been able to expand our fee income due to regulations on insurance distribution business which restricted the pace of growth of this segment in the system. Secondly, our focus was largely on corporate lending and term loans so far. Now, we are also looking to increase working capital financing.
We are expanding our subsidiary J&K Bank Financial Services (Depository services, Broking, etc) and it should stabilize over next couple of years. We believe fee-based income should form 12-15 percent of total income over the next two-three years from about 6-7% currently.
About 55% of your loan book comes from corporate segment. Are you witnessing any pressure on the asset quality performance?
We are quite selective in credit decisions. Our asset quality is quite strong and hopefully we should be able to maintain it in the Dec 2013 quarter. We have successfully sailed through the tough times in past 2 years and maintained our asset quality within 2% of loan book. Since we are a part of the system, we should see some impact of any negative surprise on the consortium lending book. However, we believe gross NPAs should remain below 2% for the bank and coverage ratio will be high at 90% plus going forward. Our aim is to do proper NPA management, identify weaknesses and address them immediately.
What will be the bank’s margin drivers going forward?
Our net interest margin (NIM) was at 4.35% in the September 2013 quarter. We would be comfortable if we keep it above 4%. Our strong CASA ratio of 38.5% is key margin driver.
