Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+’ ratings on the fixed deposit programme, certificate of deposits and short-term fixed deposits of The Jammu and Kashmir Bank Limited (J&K Bank).

 

The ratings continue to factor in J&K Bank’s healthy capitalisation and resource profile. The ratings also consider importance of the bank to the government of Jammu and Kashmir (J&K) given its importance to the financial ecosystem in the geography and its strong position in the union territories of J&K and Ladakh. These ratings, however, are partially offset by the vulnerability of the asset quality to socio-political sensitivities and regulatory developments, the bank’s small market share in the overall banking sector in India with high geographical concentration and modest, albeit improving, earnings profile.

Analytical Approach

For arriving at the ratings, Crisil Ratings has assessed the standalone credit risk profile of J&K Bank. The ratings also factor in the support, in case of any requirement, from the governments of J&K and Ladakh, given the importance and strong position of the bank in the union territories.

Key Rating Drivers & Detailed Description

Strengths:

Healthy capitalisation, aided by support from the J&K government and the government of Ladakh: The bank’s capital position remains healthy, with networth of Rs 14,252 crore as on March 31, 2025 (Rs 12,236 crore as on March 31, 2024), being supported by positive internal accrual. Moreover, as on March 31, 2025, the bank reported a common equity tier (CET) 1 of 12.95% and an overall capital adequacy ratio (CAR) of 16.29%.

 

While J&K Bank is relatively small in terms of size when compared with banking peers, it is the largest bank in J&K and Ladakh. Given its high systemic importance to the territory’s economy, the government of J&K has extended need-based support to the bank in the past and is expected to continue doing so. The bank has received Rs 1,000 crore from the government of J&K since fiscal 2019 till date in the form of equity capital (excluding capital raised via employee stock purchase schemes). This strongly reflects the intent of the government to extend support to the bank on an ongoing basis.

 

Following the capital raise in fiscal 2024, shareholding of the government of J&K and the government of Ladakh, cumulatively, decreased to 59% as on March 31, 2024, from 63% as on March 31, 2023, and remained at similar level as on March 31, 2025. The governments of J&K and Ladakh, cumulatively, have retained majority stake in the bank even after the change in the political status of J&K and are expected to continue holding majority stake in the bank over the medium term.

 

Thus, the bank is expected to get continued support from the government of J&K and the government of Ladakh, as and when required, as it is the primary lender for the union territories. Moreover, in addition to the governments of J&K and Ladakh, which will retain majority stake in the bank over the foreseeable future, the involvement of the central government and expectation of potential support from it, has also increased after change in the political status of J&K. Any material changes in the shareholding and/or change in the importance of the bank to the governments of J&K and Ladakh, will remain a key rating sensitivity factor.

 

Healthy resource profile: J&K Bank's resource profile remains healthy evidenced by its stable retail deposit base and leadership position in the union territories of J&K and Ladakh, which allows it to hold majority of the territory's deposit market. As on March 31, 2025, the bank’s overall deposits stood at Rs 1,48,569 crore, which marks an annual growth of ~10%. Of this, ~88% was housed in the union territories of J&K and Ladakh. The bank’s deposit franchise is expected to remain healthy and benefit from its strong foothold in the deposit market of the territory. Furthermore, the share of low-cost current and savings account (CASA) deposits in total deposits consistently remained above 50% for the eight years till fiscal 2024 and stood healthy at ~47% as on March 31, 2025, which is significantly higher than the industry average.

 

Also, the fixed deposit (FD) base of the bank is granular in nature, with ~26% of the FDs under Rs 5 lakh and ~67% of the FDs under Rs 1 crore ticket size. The depositor profile base for the bank remains strong with well-spread maturity profile of deposits. Additionally, retail term deposit renewal rate over the past five fiscals has been in the range of 85% to 90%.

 

Weaknesses:

Improving asset quality, albeit vulnerable to socio-political sensitivities and regulatory developments: Asset quality for the bank continued to improve during fiscal 2025, with its gross non-performing asset (GNPA) reducing to 3.4% as on March 31, 2025, as compared with 4.1% as on March 31, 2024, and 6.0% as on March 31, 2023. The improvement was primarily driven by healthy recoveries or upgradations and lower slippages (as a percentage of opening gross advances) which have reduced to 1.0% during fiscal 2025 (1.3% in fiscal 2024).

 

As on March 31, 2025, the provisioning coverage ratio (PCR; excluding technical provisions) maintained by the bank was ~77.3%, leading to comfortable net NPAs (net non-performing assets) of 0.8%. In terms of segmental GNPAs, the bank’s corporate portfolio has exhibited high slippages in the past and GNPA for the segment. However, the same improved to 5.3% as on March 31, 2025, from 7.1% as on March 31, 2024. Over the last few years, the bank has provided for the stressed accounts in this book and has also been cautious in account selection. Recoveries from the corporate loan book will remain monitorable over the medium term.

 

Nevertheless, given the bank’s exposure towards micro, small and medium enterprises (MSME) and financial markets segment, the asset quality of the bank remains vulnerable to economic and regulatory developments. Moreover, the bank’s portfolio remains highly susceptible to socio-political developments in the union territories of J&K and Ladakh, given the high regional concentration in operations.

 

Modest, albeit improving, earnings profile: Profitability remains modest, as reflected in the return on assets (RoA) ratio of 1.3% during fiscal 2025, even though it has improved from 1.2% in fiscal 2024 (0.9% in fiscal 2023). The earning profile was supported by improvement in the net interest margin (NIM) as well as controlled credit costs. NIM improved to 3.6% in fiscal 2025 from 3.5% in fiscal 2024 and credit costs stood nil as on March 31, 2025, which were negative 0.1% and 0.1% in fiscals 2024 and 2023, respectively. Furthermore, the operating expenses as a percentage of average total assets remained flattish at 2.5% for fiscal 2025 (same for fiscal 2024). Further improvement in the earnings profile and its sustenance will remain monitorable.

 

Small scale of operations with high geographical concentration: In the overall banking sector, J&K Bank remains a small-sized bank with a market share of less than 1%. Total gross advances and deposits as on March 31, 2025, stood at Rs 1,06,985 crore and Rs 1,48,569 crore, respectively. Of the total advances - 67%, and of the total deposits - 88%, were housed in the territories of J&K and Ladakh, which indicates a very high level of regional concentration in the bank's operations. While the bank plans to reduce its concentration risk to the union territory of J&K by expanding its retail portfolio across India, the concentration in J&K is expected to remain high over the medium term.

Liquidity: Strong

The bank's liquidity position is strong, supported by a strong retail deposit base that forms significant part of the total deposits. As on March 31, 2025, the bank’s liquidity coverage ratio (LCR) was 117.85% and its excess statutory liquidity ratio (SLR) was 5.66%. The bank's liquidity also benefits from access to systemic sources of funds such as the liquidity adjustment facility from the RBI, access to the call money market, and refinance limits from development institutions.

Outlook: Stable

J&K Bank’s capitalisation and resource profile is expected to remain healthy being aided by continued support from the governments of J&K and Ladakh, given the bank’s strategic importance and stable retail deposit base and leadership position in the union territories of J&K and Ladakh.

Rating sensitivity factors

Upward factors

• Sustained improvement in the GNPA ratio to below 3.5%
• Significant improvement in the earnings profile demonstrated by sustained improvement in RoA
• Increased geographical diversity of operations

Downward factors

• Material and prolonged weakening in the asset quality reflected in the GNPAs rising above 6%, leading to moderation in the earnings profile
• Significant and sharp reduction in cushion in capital adequacy ratios over regulatory stipulation

About the Company

J&K Bank, headquartered in Srinagar, was established in 1938. As on March 31, 2025, The J&K and Ladakh governments owns 59.4% shareholding in the bank. The bank provides a variety of products including retail, corporate, agriculture and MSME. It also has a branch network of 1,019 branches, of which 878 branches are operated in the regions of J&K and Ladakh.

Key Financial Indicators

As on/for six months ended	Unit	March 31, 2025	March 31, 2024	March 31, 2023
Total assets	Rs crore	169,468	154,527	145,962
Total income (net of interest expenses)	Rs crore	6,931	6,029	5,502
Profit after tax	Rs crore	2,082	1,767	1,197
Gross NPA	%	3.4	4.1	6.0
Overall capital adequacy ratio	%	16.3	15.3	15.4
Return on assets*	%	1.3	1.2	0.9

*Calculated on average total assets

Any other information:

Crisil Ratings also took note of the demand order received by the bank, as intimated by the bank on February 5, 2025, from the Joint Commissioner, Central GST Commissionerate, Jammu, for goods and services tax (GST) liability with interest as applicable, along with penalty amounting to Rs 16,261.33 crore. The GST liability is Rs 8,130.67 crore with interest as applicable and penalty of Rs 8,130.66 crore. The demand notice is related to interest receivable under the transfer pricing mechanism (TPM) between the bank’s corporate headquarters and branches from common pool of funds, which has been treated as financial services and GST has been levied thereon for the period from July 8, 2017, to March 31, 2020, for transfers under the bank’s TPM.

 

Crisil Ratings understands from the management that the said matter is under litigation, however, is unlikely to have any material financial impact on the bank. Nevertheless, the final judgement in this regard is awaited and will remain monitorable.