J & K Bank — Q1 FY26 earnings call

Call held 28 Jul 2025

Management summary

J&K Bank reported its highest-ever Q1 net profit of INR485 crores, up 16.7% YoY, despite a one-time impairment provision of INR87 crores. The bank saw strong operating income growth but experienced NIM compression and a sequential decline in CASA. Asset quality improved with a significant reduction in SMA-0, and the bank is focused on digital transformation and raising growth capital.

Highlights

  • Net profit of INR485 crores, up 16.7% YoY, marking the highest ever for a first quarter.

  • Operating income increased by 9.7% YoY, with interest earned growing by 9.1% YoY and other income by 29% YoY.

  • Employee expenditure reduced by more than 4% YoY.

  • CRAR recorded at 15.98% with CET-1 at 12.69%, indicating strong capital buffers.

  • SMA-0 to Standard Advances Ratio declined significantly from 15.91% to 9.01% sequentially.

Concerns

  • One-time impairment provision of INR87 crores related to investment in J&K Grameen Bank impacted profitability.

  • NIM contracted to 3.72% for the quarter due to faster transmission of rate cuts on the lending side.

  • CASA ratio declined sequentially from 47.01% to 45.71%.

  • Advances growth was muted at 6.1% YoY, with a degrowth of 2.7% in Q1.

  • Gross NPA slightly increased to 3.5%.

Key financials

  1. Net Profit ₹485 Cr +16.7%YoY
  2. Deposits Growth 12.1%
  3. Advances Growth 6.1%
  4. CASA Ratio 45.7%
  5. NIM 3.7%
  6. Operating Income Growth 9.7%
  7. Interest Earned Growth 9.1%
  8. Other Income Growth 29%
  9. Gross NPA 3.5%
  10. Net NPA 0.82%
  11. PCR 90%
  12. CRAR 16%
  13. CET-1 12.7%
  14. RoA 1.2%
  15. RoE 14.6%
  16. SMA-0 to Standard Advances Ratio 9%

What they filed

Q1 FY27: revenue up 8.5%, net profit down 11.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,124 3,210 3,213 3,269 3,293 +5%3,315 +3%3,273 +2%3,547 +9%
Net profit553 529 582 485 495 −10%581 +10%799 +37%429 −12%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed CRAR at 15.98% with CET-1 at 12.69%. The Board has approved raising INR1,000 crores in equity and INR500 crores in bonds as growth capital.
    CRAR has been recorded at 15.98% with CET-1 at 12.69%. This is without reckoning the net profits for Q1 which has an incremental impact of 48 bps. Though the Bank has sufficient capital buffers at the moment, the Board has already approved raising of equity and bonds to the tune of INR1,000 crores and INR500 crores respectively as growth capital.

Guidance & targets

Credit Growth

  • Credit growth Credit Growth · 2025-'26 · High confidence 12%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

Deposit Growth

  • Deposit growth Deposit Growth · 2025-'26 · High confidence 10%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

CASA Ratio

  • CASA Ratio CASA Ratio · 2025-'26 · High confidence 48%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

NIM

  • NIM NIM · 2025-'26 · High confidence 3.65% to 3.70%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

ROA

  • ROA ROA · 2025-'26 · Medium confidence maintain around FY'24-25 levels
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

ROE

  • ROE ROE · 2025-'26 · High confidence 16% to 17%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

GNPA

  • GNPA GNPA · 2025-'26 · High confidence below 3%
    Credit growth 12%, deposit growth 10%, CASA 48%, NIM 3.65% to 3.70%, ROA maintain around FY'24-25 levels, ROE 16% to 17%, GNPA below 3%.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

Credit Cost

  • Credit Cost Credit Cost · this year · High confidence around 15 to 20 bps

    Previously below 1% → around 15 to 20 bps

    In fact I did not say 1%, I said it would be below 1%, it will be below 1%, it could be around 15 to 20 bps this year.

    — Amitava Chatterjee, Managing Director & Chief Executive Officer

What to watch in Q2 FY26

Technical Recoveries

Next quarter / This year
Current INR74 crores (Q1 FY26)
Target INR250 crores (expected this year)

Why it matters

Significant impact on other income and overall profitability, as management expects a substantial portion this year.

So, we still have around INR250-odd crores recovery expected in technical written-off accounts this year. I am not very sure. I mean I expect them to come in the next quarter, but I am not very sure because at the last moment, there are certain glitches, but then they are all resolved accounts, I mean it is not that the resolution is still pending, they are all resolved accounts. So, the repayments are going to come. Since we hardly have any loan where we are the major lender or the prime lender or the sole lender, they are all consortium advances. So, there are many factors which lead on to the actual recovery when it happens. So, we expect around INR250 crores more to come this year.

Risks & concerns

  • One-time impairment provision from RRB amalgamation

    medium

    INR87 crores provision due to equity erosion in J&K Grameen Bank, described as non-recurring.

    Management acknowledged

  • NIM compression due to rate transmission

    medium

    NIM contracted to 3.72% due to faster transmission of rate cuts on the lending side and lagging relief on deposit costs.

    Management acknowledged

  • Geopolitical situation and terror incident impact

    medium

    Pahalgam terror incident and heightened tensions impacted financial results and necessitated extension of repayment periods for some accounts, particularly in tourism sector.

    Management acknowledged

  • Industry-wide credit growth slowdown

    low

    Systemic credit growth declined to a three-year low of below 9% in May 2025, impacting the bank's advances growth.

    Management acknowledged

  • Increase in SMA-2 numbers

    low

    Some increase in SMA-2 due to people delaying repayments after proposal for notification of disturbed area, but expected to be managed through restructuring.

    Management acknowledged

Q&A highlights

8 direct
Other Income Components and Recurring Basis Direct
See, the other income if I give you the changes that have happened, there has been a decrease in commission exchange income by around INR11 crores, but there has been an increase in trading and treasury income by almost INR25 crores. There is a decrease in miscellaneous income by INR169 crores, that was on account of technically written-off recovery reduced by INR173 crores due to NARCL release of provisions in Q4, and this is as far as QoQ is concerned. And as for YoY, the decrease in treasury income by INR32 crores that is on account of INR87 crores impairment that I spoke of...

Management provided a detailed breakdown of other income, clarifying the impact of one-time items like the INR87 crores impairment and expected future recoveries.

Asked by Saket Kapoor

NIM Compression and Profitability Drivers Direct
First of all, the position of J&K Bank is better than most of the other banks because it has a very high CASA ratio of above 45%. Now, it is 45%, it has come down a bit, but then it was not supported with the kind of IT we now have. And through IT and technology we already have plans to improve our CASA and take it up to 48%.

Management explained how the bank plans to mitigate NIM compression through its strong CASA base and strategic efforts to improve it further, alongside conscious deposit maturity profile management.

Asked by Saket Kapoor

Cost of Funds and Impact of Rate Cuts Direct
See, first of all, the decrease in interest rates passes on to the borrowers much sooner than the effect happens on the bankers as far as the depositors are concerned. So, there is a lag. That is one thing. Second, I just now said that we are doing some course correction related to the residual maturities of our deposits. So, for that reason, we have consciously kept certain rates in deposits slightly higher than the market rates of longer maturities so that we can improve our maturity profile.

Management clarified the reasons for the delayed reduction in cost of funds despite rate cuts, attributing it to market lag and a deliberate strategy to optimize deposit maturity profiles.

Asked by Solanki

Credit Growth Source (J&K vs. Rest of India) Direct
See, I have already mentioned before and I am repeating it, my credit growth will come 50% from Jammu and Kashmir region and 50% from rest of India. This is for this financial year. Going forward, my portfolio I want the portfolio to be 50:50. At the moment, it is 70:30. I expect the portfolio to become 50:50. So, obviously target of growth from rest of India would be higher in the coming years.

Management provided a clear strategic direction for credit growth, aiming for a balanced 50:50 portfolio split between J&K and the rest of India, implying higher growth from outside J&K in the coming years.

Asked by Sneha Ganatra

IT Investments and Cost-to-Income Ratio Direct
See, on the technology front, we have already done most of the investments that were needed to take the Bank to that level where it can compete with any other Bank in the country. So, there are a very few things which requires major expenses. So, the expenses on IT will not have that impact if I look at the return that we expect from those applications, that will be much more than the expenses that we make in IT. So, expenses in IT will not be a threat to the cost-to-income ratio.

Management assured that significant IT investments have largely been completed and future IT expenses are not expected to negatively impact the cost-to-income ratio due to anticipated returns.

Asked by Sneha Ganatra

SMA-0 Reduction Strategy Direct
What we needed to do was to align the repayments, the EMI dates of the borrowers with their cash flows. Earlier, it was not there. Traditionally, the EMI dates were the last day of the month or the second last day of the month, and essentially, the cash inflows used to happen in the first week of the month. So, we have now aligned the repayments with the cash flows. So, that has resulted in SMA-0s at least...

Management detailed the specific operational steps taken, such as aligning repayment dates with cash flows and creating specialized IAPM branches, which led to a significant reduction in SMA-0 accounts.

Asked by Sonal Minhas

Clarification on Credit Cost Guidance Direct
In fact I did not say 1%, I said it would be below 1%, it will be below 1%, it could be around 15 to 20 bps this year.

Management clarified the credit cost guidance, specifying a much lower range of 15-20 bps for the current year, which is a significant positive revision from the initially perceived 'below 1%'.

Asked by Sonaal S Kohli

Tourism Activity Revival in J&K Direct
Although it is still muted, but I believe after the Amarnath Yatra is over, I believe the tourism will pick up again.

Management provided an outlook on the critical tourism sector in J&K, acknowledging its current muted state but expressing optimism for a revival post the Amarnath Yatra, which is important for the regional economy and credit quality.

Asked by Sonaal S Kohli

3 min read 8 chapters

Detailed narrative

Q1 FY26 Performance Highlights

J&K Bank commenced the new financial year with a strong performance, reporting a net profit of INR485 crores, marking a 16.7% increase YoY. This represents the highest net profit ever recorded by the bank for a first quarter. Operating income grew by 9.7% YoY, driven by a 9.1% increase in interest earned and a 29% surge in other income, despite challenging regional circumstances.

Impact of One-Time Impairment Provision

The bank's profitability was affected by a one-time impairment provision of INR87 crores during Q1. This provision was necessitated by the erosion of equity value in J&K Grameen Bank following its amalgamation under the 'One State, One RRB' concept. Management emphasized that excluding this non-recurring impact, the net profit growth would have been upwards of 30% YoY, reflecting robust underlying earnings momentum.

Deposit and CASA Trends

Deposits registered an above-average YoY growth of 12.1%, surpassing the 10.1% growth seen across Scheduled Commercial Banks. However, the CASA ratio experienced a sequential decline from 47.01% to 45.71%. This reduction was attributed to the migration of CASA balances into term deposits, as customers sought to lock in higher yields prior to anticipated interest rate cuts. The bank aims to improve its CASA ratio to 48% through IT and technology initiatives.

Advances Growth and Portfolio Strategy

Advances growth remained relatively muted at 6.1% YoY, with a 2.7% degrowth in Q1, aligning with a broader industry slowdown. While the corporate loan book remained flat, personal finance grew 7.4% YoY and agriculture 19.9% YoY. The bank's strategy involves increasing its retail base, particularly in the Rest of India, with a target of achieving a 50:50 portfolio split between J&K and the Rest of India from the current 70:30.

Asset Quality Management and SMA Reduction

Gross NPA slightly increased to 3.5%, primarily due to a degrowth in gross advances rather than a substantial increase in NPAs. Net NPA stood at 0.82%, with a healthy PCR above 90%. The bank achieved a significant reduction in its SMA-0 to Standard Advances Ratio, which declined from 15.91% to 9.01% sequentially, by realigning repayment dates with borrowers' cash flows and transferring larger loans to specialized Impaired Assets Portfolio Management (IAPM) branches for focused recovery.

Capital Adequacy and Future Capital Raising

The bank maintained strong capital buffers, with a CRAR of 15.98% and CET-1 at 12.69%. To support future growth and maintain capital adequacy, the Board has approved raising INR1,000 crores through equity and INR500 crores through bonds. This capital infusion is expected to further strengthen the bank's ability to pursue its growth objectives.

NIM Compression and Cost of Funds Strategy

Net Interest Margin (NIM) compressed to 3.72% for the quarter, primarily due to the faster transmission of rate cuts on the lending side compared to deposit costs. Management noted a conscious decision to keep deposit rates slightly higher for longer maturities to improve the bank's maturity profile, with an expectation of a reduction in the cost of deposits from the next quarter.

Digital Transformation and IT Initiatives

J&K Bank has completed the end-to-end digitization of all its loan journeys, including retail, agri, corporate, and MSME. The bank is also implementing Business Rule Engine (BRE), Customer Relationship Management (CRM), data analytics, and AI into its IT systems. These initiatives aim to enhance efficiency, identify stress early, prevent slippages, and position the bank as an 'IT-led Bank' without significantly impacting the cost-to-income ratio.

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