Detailed Narrative
Robust Business Growth and CASA Strength
Jammu & Kashmir Bank demonstrated strong business momentum in Q2 FY26, with deposits growing 2.4% sequentially and 10.2% YoY, while advances increased 3.9% sequentially and 9.4% YoY. A key highlight was the sequential improvement in the CASA ratio to 45.89% from 45.71%, outperforming the industry trend where the overall CASA ratio has declined from 42% to 36%. This indicates a strengthening deposit franchise and a stable, low-cost funding base, with management targeting a 48% CASA ratio for FY26.
Moderated Profitability and NIM Contraction
Profitability for the quarter moderated YoY, with net profit growing 1.9% QoQ to INR 494 crores. The Net Interest Margin (NIM) contracted to 3.56% for Q2 FY26, down from 3.90% in the previous year, primarily due to faster transmission of RBI's cumulative 100 bps rate cuts on the lending side compared to liabilities, and migration of CASA balances to Term Deposits. Management believes the cost of deposits has now peaked at 4.86% and NIM has bottomed out, barring further repo rate cuts, and expects to meet the annual guidance of 3.65%-3.70%.
Significant Asset Quality Improvement
The bank achieved substantial improvement in asset quality, with Gross Non-Performing Assets (GNPA) reducing to 3.32% and Net Non-Performing Assets (NNPA) to 0.76%. The annualized gross slippage ratio remained below 0.90%, and the Provision Coverage Ratio (PCR) stayed healthy above 90%. This improvement occurred despite regional disturbances and natural calamities, supported by a special rehabilitation package for affected borrowers, and management aims to bring GNPA below 3% by year-end.
Impact of One-off Impairment Provision
The bank's profitability was notably impacted by a one-off📎 impairment provision totaling INR 180 crores for the half-year (INR 92 crores this quarter and INR 87 crores last quarter). This provision was made on investments in Jammu and Kashmir Grameen Bank due to its amalgamation with the loss-making Ellaquai Dehati Bank, a government policy decision. Excluding this one-off📎 hit, the half-yearly net profit growth would have been approximately 20% YoY, leading to a revision in RoA guidance to 1.20%-1.25% and RoE to 15%-16% for FY26.
Strategic Focus on Retail and Rest of India Growth
The bank is strategically focusing on expanding its retail footprint, particularly in the Rest of India (ROI), which saw a 16.1% YoY growth in its loan book compared to 5.9% in J&K and Ladakh. The goal is to achieve a 50-50 split of the loan book between J&K/Ladakh and ROI in the medium to long term. Corporate and Agriculture segments also performed strongly, growing 11.7% and 27.4% YoY respectively, contributing significantly to the overall advances growth.
Controlled Operating Costs and Capital Adequacy
Operating costs remained well under control, showing only a marginal 2.2% YoY growth. The Capital to Risk-weighted Assets Ratio (CRAR) stood at 15.27%, with Common Equity Tier 1 (CET1) at 12.11%, indicating strong capital adequacy to support future growth. The increase in cost-to-income ratio to approximately 60% was attributed to the one-off📎 impairment provision, which management expects to normalize, and noted that staff costs have decreased over time.