J&K Bank: From Consolidation to Growth MAY 21 25 Singapore - - PowerPoint PPT Presentation

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J&K Bank: From Consolidation to Growth MAY 21 25 Singapore - - PowerPoint PPT Presentation

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Corporate Access Forum 2007 J&K Bank: From Consolidation to Growth MAY 21 25 Singapore Structure of Presentation Structure of Presentation Profile of the Bank Profile of the Bank Plan & Strategy of Change Plan

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SLIDE 1

Corporate Access Forum 2007

J&K Bank: From Consolidation to Growth

MAY 21 – 25 Singapore

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SLIDE 2

May 21-22, 2007

2

Structure of Presentation Structure of Presentation

  • Profile of the Bank

Profile of the Bank

  • Plan & Strategy of Change

Plan & Strategy of Change

  • Performance and Outcome

Performance and Outcome

  • Potential of Growth

Potential of Growth

  • Perspective and Macro

Perspective and Macro-

  • economic Context

economic Context

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SLIDE 3

May 21-22, 2007

3

Basic facts Basic facts

Incorporated in 1938 as a limited liability company Listed on National stock exchange (NSE) and Bombay stock exchange (BSE) 53 per cent

  • wned

by J&K Government Rated “ P1 +” by Standard and Poor- CRISIL: highest degree of safety Four decades

  • f

uninterrupted profitability and dividends

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SLIDE 4

May 21-22, 2007

4

One of a One of a Kind 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 Board of

Direct Taxes in J & K

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SLIDE 5

May 21-22, 2007

5

Shareholding Pattern

As on March 2, 2007

53.17 1.12 34.34 10.41 0.29 0.67 GOVERNMENT OF J&K INDIAN MUTUAL FUNDS FOREIGN INST. INVESTORS RESIDENT INDIVIDUALS NON RESIDENT INDIANS Bodies Corporat/Banks/Insu

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SLIDE 6

May 21-22, 2007

6

Infrastructure Infrastructure

  • Fastest growing bank with 525 branches
  • 98 per cent business computerized
  • Anywhere, Tele-banking and S

WIFT

  • Internet, S

MS and Mobile Banking

  • Globally connected ATM network
  • Mobile ATM S

ervice

  • Global Access Debit & Credit Cards
  • Live on RTGS

S ystem of RBI

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SLIDE 7

May 21-22, 2007

7

  • Insurance joint venture with MetLife International
  • Distributor of:
  • Life Insurance products of MetLife
  • Distributorship of Bajaj Allianze General Insurance
  • Providing Depository Services
  • Offering Stock Broking Services
  • Collection Agent for utility services

Other Services: Other Services:

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SLIDE 8

May 21-22, 2007

8

Plan

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SLIDE 9

May 21-22, 2007

9

New business strategy New business strategy

  • 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

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SLIDE 10

May 21-22, 2007

10

  • Operating in a “ closed” economy:
  • limited Leakages
  • lending akin to reserve money
  • More lending within the state:
  • more incomes are generated
  • low cost saving deposits
  • Virtuous cycle of lending and saving
  • liquidity remains within the bank’ s

system, giving:

  • Rising yields
  • Better margins
  • Higher profitability

New Strategy : Analytics New Strategy : Analytics

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SLIDE 11

May 21-22, 2007

11

Operational aspects Operational aspects

  • A 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

  • A more focused balance sheet
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SLIDE 12

May 21-22, 2007

12

Carving a niche, nationally Carving a niche, nationally

  • Nationally, lending in consortium to large corporates

– Reduces margins

  • To improve margins focus on:
  • Under-serviced areas with high turnover
  • Specialised sectoral lending
  • Specialist branch chain – leather, grains, spices
  • Re-pricing
  • A universal bank in J&K and a specialist bank outside
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SLIDE 13

May 21-22, 2007

13

New business initiatives

  • Innovative financial products
  • Monetizing the Bank’s branch network
  • Third party product distribution
  • Investment banking
  • Venture capital financing
  • Channel financing
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SLIDE 14

May 21-22, 2007

14

New financial products

  • Mismatch between growth sources and

credit supply

  • High growth and yield areas under-

serviced in terms of credit

  • Major sectors like horticulture still

financed informally

  • Artisan economy not financed
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SLIDE 15

May 21-22, 2007

15

Third party products Third party products

  • Make branch network a distribution channel

for financial products

  • Reduce incentive for major banks to enter J&K
  • Beef up non-interest incomes
  • Reduce income volatility
  • Make assets sweat harder
  • Improve business per branch per person
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SLIDE 16

May 21-22, 2007

16

Investment banking Investment banking

  • Leveraging our core competence of domain

and geographical expertise, and having

  • J&K Government a captive client

– State Government investing $240 billion in power

  • ver four years

– Mandated to take Power Development Corporation public

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SLIDE 17

May 21-22, 2007

17

Organizational restructuring

  • Aligned people strategy to business strategy
  • New business processes aligned to changing banking

environment

  • Performance based variable pay introduced
  • Business centric organisational structure created
  • Brand Strategist and visual makeover done
  • Re-designing its visual brand image and give it a very

distinctive and contemporary bank personality

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SLIDE 18

May 21-22, 2007

18

Performance Performance

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SLIDE 19

May 21-22, 2007

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Better liability structure Better liability structure

28 29 30 31 32 33 34 35 36 37 38 2004-2005 2005-2006 2006-2007

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SLIDE 20

May 21-22, 2007

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Cost of Deposits Cost of Deposits

4.4 4.45 4.5 4.55 4.6 4.65 4.7 2004-2005 2005-2006 2006-2007

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SLIDE 21

May 21-22, 2007

21

Higher Asset pricing Higher Asset pricing

7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3 9.5 2004-2005 2005-2006 2006-2007

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SLIDE 22

May 21-22, 2007

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Cost to income ratio Cost to income ratio

36 38 40 42 44 46 48 2004-2005 2005-2006 2006-2007

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SLIDE 23

May 21-22, 2007

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Rising margin Rising margin

2 2.2 2.4 2.6 2.8 3 3.2 2004-2005 2005-2006 2006-2007

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SLIDE 24

May 21-22, 2007

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Return on assets Return on assets

0.2 0.4 0.6 0.8 1 1.2 2004-2005 2005-2006 2006-2007

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SLIDE 25

May 21-22, 2007

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Return on equity Return on equity

4 6 8 10 12 14 16 2004-2005 2005-2006 2006-2007

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SLIDE 26

May 21-22, 2007

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Earning per share Earning per share

10 15 20 25 30 35 40 45 50 55 60 2004-2005 2005-2006 2006-2007

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SLIDE 27

May 21-22, 2007

27

NPA coverage NPA coverage

40 45 50 55 60 65 70 75

Q4 0405 Q1 0506 Q2 0506 Q3 0506 Q4 0506 Q1 0607 Q2 0607 Q3 0607

NPA COVERAGE RATIO (%)

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SLIDE 28

May 21-22, 2007

28

Financial : Valuations ratios Financial : Valuations ratios

S.No. Ratios

2005-2006 2006-2007

1 Earning per Share (annualized) 36.48 56.62 2 Net Asset Value 371 .2 41 4.36 3 Adjusted Book Value 343.43 374.43 4 Price to book value ratio 1 .23 * 1 .73 @ 5 Price to adjusted book value ratio 1 .33 * 1 .91 @ 6 Price Earning Ratio (On Annualised EPS) 1 2.50 * 1 2.63 @ 7 Market Cap. To Deposits (%) 9.41 % * 1 3.77% @ 8 Market price as on date ( Rs. ) 456.05 * 71 4.85 @ 9 No. of Shares 48477702 48477702

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SLIDE 29

May 21-22, 2007

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Profitability Ratios Profitability Ratios

1 0 Net Interest Margins (%) 2.68% 2.97% 1 1 Interest Spreads (%) 2.61 % 2.79% 1 2 Yield on Advances (Av) (%)(annualized) 8.48% 8.58% 1 3 Yield on Investments (Av) (%)(Annualized) 6.22% 6.20% Monthly average 6.74% 6.65% 1 4 Cost of Deposits (Av) (%) (annualized) 4.55% 4.50% Monthly average 5.25% 5.28% 1 5 Return on Assets (%) (annualized) 0.67% 0.96% (Monthly average) 0.79% 1 .1 4% 1 6 Return on equity (%) (annualized) 1 0.21 % 1 4.67% 1 7 Gross Profit to AWF (%) (annualized) 1 .69% 2.02% 1 8 Net Profit to AWF (%) (annualized) 0.70% 1 .00%

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SLIDE 30

May 21-22, 2007

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Asset Quality: Asset Quality:

27 Gross NPAs ( Rs. in Mns) 3702 5018 28 Net NPAs ( Rs. in Mns) 1339 1936 29 Gross NPA Ratio ( %) 2.52% 2.89% 30 Net NPA Ratio (%) 0.92% 1.13% 31 NPA Coverage Ratio (%) 63.64% 61.43% 32 Gross NPA to Net Worth Ratio (%) 20.57% 24.98% 33 Net NPA to Net Worth Ratio (%) 7.44% 9.64%

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SLIDE 31

May 21-22, 2007

31

Operating ratios: Operating ratios:

2005-2006 2006-2007

34 Operating Expenses to AWF (%) (annualized) 1 .36% # 1 .35% # 35 Operating Expenses to Total Income (%) 1 9.00% # 1 8.08% # 36 Operating expenses to other income (%) 31 1 % # 232.48% # 37 Staff Cost to Total Income (%) 1 0.59% # 1 0.69% # 38 Interest Earned to AWF (%) 6.71 % # 6.89% # 39 Non Interest Income to AWF (%) 0.44% # 0.58% # 40 Capital Adequacy Ratio (%) 1 2.1 4% 1 3.24% Tier I 1 1 .76% # 1 2.60% # Tier II 0.38% # 0.64% #

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SLIDE 32

May 21-22, 2007

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Efficiency Ratios: Efficiency Ratios:

2005-2006 2006-2007

20 Cost to Income Ratio (%) 44.57% 40.1 3% 21 CD Ratio (%) 61 .67% 67.79% 22 CASA Ratio (%) 34.1 7% 37.02% 23 Business per Employee (Rs. In Mns) 55.57 61 .74 24 Net Profit per Employee (Rs. In Mns) 0.26 0.4 25 Business Per Branch (Rs. In Mns) 845.61 937.34 26 Net Profit per Branch ( Rs. in Mns) (Annualized) 3.94 6.09

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SLIDE 33

May 21-22, 2007

33

Perspective

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SLIDE 34

May 21-22, 2007

34

Triad of potential Triad of potential

  • A. Restoration of Peace

B. Low base

  • A. Normal Growth effect
  • B. Gap Filling
  • C. Reconstruction
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SLIDE 35

May 21-22, 2007

35

Civil society normalisation

  • Domestic changes:
  • Democratically elected sub-national government
  • Local body election after 32 years
  • S

ame party in power at the Centre and the S tate after

  • First time a coalition government at the state level
  • International peace process:
  • S

rinagar-Muzaffarabad road opened after 52 years

  • Visa requirement within the greater Jammu and Kashmir a

abolished Full diplomatic relations between India and Pakistan restored

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SLIDE 36

May 21-22, 2007

36

Economics of Peace: Economics of Peace:

  • A. Pure growth effect

– Increased level of economic activity due to improved socio-political situation – As a result, bank’s business opportunity set widens For example:

  • Tourist inflow in 2006 has already crossed 1989 levels:

– Income multiplier of tourism sector is 1.66 – Private sector investments in tourist infrastructure – Credit to tourism industry has picked up

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SLIDE 37

May 21-22, 2007

37

J&K Economy : Basic Indicators J&K Economy : Basic Indicators

Total Population 1.01 crore Area 1,01,387 sq kms Density 100 per sq km ( 325 ) Per capita Income Rs 16,190 (Rs 23,222) Population BPL 3.48% ( 26.10%) Literacy 55.52% ( 64.84%) Unemployment rate : 4.21 ( 3.09)

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SLIDE 38

May 21-22, 2007

38

Economic Infrastructure Economic Infrastructure

Road Length (Kms/100SqKm) 35.71 (104.64) Telephones/100 of population 7.76 (13.57) Post offices/Lakh of Population 15 (14) Bank offices per 100 SqKm 0.85 (2.18) Doctors per lakh 48 Average population per bank office 13000 (16000) Hospital Beds per lakh 111

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SLIDE 39

May 21-22, 2007

39

Inter regional variations Inter regional variations

  • Bank Branches/Area

– Leh : 1 branch per 3000 sq km – Jammu : 1 branch per 15 kms

  • Bank branches /Population

– Kupwara : 20,000 people per branch – Leh : 1000 people per branch

  • CD Ratio

– Kargil : 11.41% – Srinagar : 81.99%

  • Per Capita Income

– Srinagar : Rs 17896 – Kupwara : Rs 9999

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SLIDE 40

May 21-22, 2007

40

State Income: State Income:

6973 8858 12182 13824 16597 18009 20530 5500 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2005-06

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SLIDE 41

May 21-22, 2007

41

3 3.5 4 4.5 5 5.5 6 1 9 9 3

  • 9

4 1 9 9 4

  • 9

5 1 9 9 5

  • 9

6 1 9 9 6

  • 9

7 1 9 9 7

  • 9

8 1 9 9 8

  • 9

9 1 9 9 9

  • 2
  • 1

2 1

  • 2

2 2

  • 3

2 3

  • 4

2 4

  • 5

2 5

  • 6

Economic Growth: Trends Economic Growth: Trends

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SLIDE 42

May 21-22, 2007

42

Credit gap Credit gap

  • J&K accounts for 0.70 per cent of national GDP
  • Yet, it absorbs only 0.30 per cent of total national

credit

  • Productive sectors of the economy account for less than

5 per cent of the credit disbursed in J&K

  • Comparable national average is 30 per cent
  • J&K accounts for 1 per cent of India’ s population
  • Yet it accounts for only less than 0.2 per cent of

personal credit disbursed in India

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SLIDE 43

May 21-22, 2007

43

Reconstruction Impact Reconstruction Impact

  • B. Normalcy plus economic reconstruction
  • Economic growth accelerates due to reconstruction of

economy through : * autonomous investments in physical infrastructure * Induced investment in production activity Example: Acceleration of Economic growth:

  • State SDP growth :

13.5 per cent

  • Commercial Agricultural growth : 9.7 per cent
  • SMEs projected at :

16.3 per cent

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SLIDE 44

May 21-22, 2007

44

Peace through Economic Reconstruction

Prime Minister’s Reconstruction Plan:

Timeframe : 2005-06 to 2008-09 Size : Rs 240 bn Focus areas: Power, Roads, Hospitals and Tourist Infrastructure

Asian Development Bank’s Multi-sectoral Investment Plan:

Timeframe : 2005-06 to 2009-10 Size : Rs 20 bn Focus areas : Rural connectivity, Urban Infrastructure

Japanese Bank of Industrial Cooperation:

Timeframe : 2007-08 to 2010-11 Size : Rs 35 bn Focus areas : Water supply and Urban sanitation

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SLIDE 45

May 21-22, 2007

45

S taggering Numbers

Prime Minister’ s Reconstruction Plan:

Rs 240 bn Asian Development Bank’ s Multi-sectoral Investment: Rs 20 bn Japanese Bank of Industrial Cooperation: Rs 37 bn In addition to this, Normal spending plans: Rs 45 bn p.a Three year autonomous expenditure of: Rs 340 bn+ All this money will be managed by and will pass through the banking channels of the Jammu and Kashmir Bank And this is not all… ..

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SLIDE 46

May 21-22, 2007

46

Private Investment :Picking Up

Quantity:

Investment in the SME sector till July 2005 : Rs 35 bn Proposals in the pipeline: Rs 120 bn The flow of funds is in the range of : Rs 500 bn Quality: Top notch Indian corporates: Bharti Reliance (ADA) Infocom Mahindra and Mahindra Lupin Laboratories Essar telecom

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SLIDE 47

May 21-22, 2007

47

Catching Up Catching Up

From current levels to “Catch up” with national average:

  • Of personal finance, credit has to triple
  • Of credit intensity, credit in J&K has to increase five-fold

But by then,

  • National average would have risen….
  • Game of catching up will drive and sustain volumes and asset

growth of the Bank

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SLIDE 48

May 21-22, 2007

48

Bottom line impact Bottom line impact

Per capita Income levels rise:

  • savings rate increases;
  • financial savings increase proportionally

Capacity for servicing personal loans will increase With such a massive investment dose:

  • inflation likely to increase ….
  • real rate of interest will decline…
  • making mortgages more attractive

Retail lending increases

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SLIDE 49

May 21-22, 2007

49

Trickle down impact Trickle down impact

Crowding in of investment:

  • public investment in infrastructure will induces private

investment with backward and forward linkages

  • Credit demand for financing SME’s and ancillaries

associated with infrastructural projects picks up

  • Credit demand for induced demand : financing private

sector projects SME lending will increase

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SLIDE 50

May 21-22, 2007

50

To sum up To sum up

  • New strategy has started paying off
  • Consolidation Phase will now give way to margin

enhancing growth phase, led by – High growth of J&K – Reconstruction – Specialised lending

  • Better financial intermediation through innovation
  • Raising J&K level of credit absorption to national

levels

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SLIDE 51

May 21-22, 2007

51

Contra cyclical in 2007 Contra cyclical in 2007-

  • 08

08

  • Expansion
  • Aggressive credit growth
  • Improved liability management
  • Productivity enhancements

– Labour – Capital

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SLIDE 52

May 21-22, 2007

52

Macroeconomic Context Macroeconomic Context

  • Stage set for a moderate pace of loan

growth in 2007-2008

  • Expected range of growth is 20–22 per

cent.

  • Monetary policy will be contractionary
  • Liquidity scenario will be be biased

towards tightness.

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SLIDE 53

May 21-22, 2007

53

Macroeconomic Outlook Macroeconomic Outlook

  • Positive:
  • Signs of overheating
  • Rising inflation
  • Correction will not be sharp despite an adverse

monetary policy,

  • momentum should ensure a soft landing
  • Economy should expand by 8 percent,
  • Inflation will rise to around 5.5 – 6 percent
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SLIDE 54

May 21-22, 2007

54

Global Growth Global Growth

  • Asia expected to grow at 7.5 percent in fiscal

2007-08,

  • Expansion of 8.3 percent in 2006,
  • India will continue be an out-performer
  • This will impact FII and FDI inflows
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SLIDE 55

May 21-22, 2007

55

Global Growth: monetary impact Global Growth: monetary impact

  • Higher relative growth prospect will continue

to bring high capital inflow

  • Currency appreciation pressure.
  • Most important macroeconomic variable for

management and tracking in 2007-2008 is exchange rate

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SLIDE 56

May 21-22, 2007

56

Monetary Policy Monetary Policy

  • Entire monetary policy and liquidity

management will be hinged on how RBI chooses to handle exchange rate.

  • To hold the exchange rate at currently levels it

will have to push money into the system.

  • So aggressive use of CRR and other levers of

liquidity control is likely.

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SLIDE 57

May 21-22, 2007

57

Monetary Policy Monetary Policy

  • Interest rates will rise by another 50 bps

through the last quarter.

  • Some levers of liquidity control will be

tightened

  • Credit slowdown will happen
  • Cost of deposits will rise
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SLIDE 58

May 21-22, 2007

58

Fiscal Policy Fiscal Policy

  • Lower fiscal deficit should support lower bond

yields.

  • Increased income limit for TDS on interest on

bank deposits may lead to higher deposit mobilization

  • Dividend distribution tax of 25% makes money

market funds less attractive and can lead to higher deposit growth

  • SARFAESI Act now available to RRBs to recover

bad loans; RRBs to accept NRE deposits

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SLIDE 59

May 21-22, 2007

59

Banking Sector Outlook Banking Sector Outlook

  • Increase in risk weightage:

– RBI may further tightened norms due to continued high asset prices. – risk weightage for loans to the commercial real estate sector from 100% to 125%. – investment in mortgage-backed-securities (MBS) will attract risk weightage of 125%. – Risk weightage on home loans from 50% to 75%. – Provisioning liability for banks.

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SLIDE 60

May 21-22, 2007

60

Recap Recap

  • J&K Bank will grow its business much faster
  • At rising margins and lower costs, even as
  • Economic growth in India declines marginally

and

  • Banking sector slows downs with cautious
  • utlook on performance
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SLIDE 61

Thank you! Thank you!