Srinagar: Referring to reports that according to it indicate that the JK Bank has 25 billion rupees of loans that is technically unsecured and nonperforming, Kotak Mahindra a financial firm stated the events that unfolded today on the exposure outside Jammu and Kashmir—lumpy assets can move NPLs sharply.
“Despite a steep correction and inexpensive valuations, we are hesitant to change our rating. Lack of confidence in the reported numbers becomes a key source of concern. Maintain REDUCE with TP at rupees 1,550 (from rupees 1,800 earlier),” reads the advisory issued by the Kotak.
It maintained further that accepting the view of the management would also not be completely correct. “We have consistently been worried on the loans outside the state. They tend to be lumpy (the loan accepted as stress is ~1.4% of loans) and part of consortium/multiple banking where the risk is high. The management’s positive view on its top few corporate clients is not a perfect argument as the probability of slippages from large corporate exposure is anyway fairly low. For example, SBI has the bulk of the stress in mid-corporate and SME exposure and limited on the large corporate book. It is the smaller loans that need to be worried about.”
Kotak stated that the management’s acceptance of stress in one of the larger accounts substantiates our view that slippages can be fairly lumpy for the loans outside Jammu and Kashmir. This implies that credit costs would be higher and NIMs could head downwards from here to reflect the rising slippages, broadly reiterating our view on the bank over the past few quarters. Besides, the bank has one of the highest exposures to commercial real estate, ~7% of total loans (~12% of loans outside J&K, Exhibits 3-4) of which ~30% was towards one single corporate client as of FY2013, and 25% of total industry exposure is to stressed sectors (infrastructure, textiles, iron and steel and construction, Exhibit 5). “Further, our cautious view on loan impairment within the state remains as well. We expect an increase in stressed assets within J&K as the bank looks to grow in PSL loans, which tend to be highly delinquent in nature.
KOTAK ISSUES ADVISORY, ASKS BANK TO MAINTAIN REDUCE
