Jammu & Kashmir Bank Navigates Q2 FY26 with Resilience and Strategic Focus

Jammu & Kashmir Bank Limited has released its Q2 FY26 earnings, showcasing a period of robust business growth amidst a challenging economic environment. While the bank reported a moderation in profitability, largely influenced by one-off factors, its core operational metrics demonstrate underlying strength and strategic progress. For the quarter ended September 30, 2025, the bank recorded a net profit of Rs.494.11 crore, a decrease from Rs.550.92 crore in the corresponding quarter of the previous year. This dip in profitability was primarily attributed to a significant impairment provision and a contraction in Net Interest Margin (NIM).

Despite the headwind in net profit, the bank's business expanded significantly. Deposits surged by 10.2% year-on-year, reaching Rs.1,52,030 crore, while net advances grew by 9.4% year-on-year to Rs.1,05,153 crore. This growth aligns closely with the overall industry trends, reflecting the bank's strong market presence and effective customer acquisition strategies. The bank's loan portfolio saw notable contributions from Corporate and Agriculture segments, which together constitute about 40% of the book and recorded 11.7% and 27.4% year-on-year growth respectively. Personal Finance, making up 38% of the loan book, also grew by 6.9% year-on-year, with significant expansion in the Rest of India region, particularly in housing and car loans.

The moderation in profitability was largely due to a contraction in NIM, which stood at 3.56% for the quarter, down from 3.90% in the previous year. This was influenced by the faster transmission of rate cuts on the lending side and a migration of CASA balances to term deposits. However, management expressed confidence that the cost of deposits has peaked and NIM has likely bottomed out, barring further repo rate cuts. A significant one-off impairment provision of INR180 crores (INR92 crores in Q2 and INR87 crores in Q1) related to the amalgamation of Ellaquai Dehati Bank with J&K Grameen Bank also impacted the bottom line. Despite this, the bank's half-yearly net profit still recorded a 1.3% year-on-year growth, which would have been around 20% excluding the one-off impact.

Asset Quality and Strategic Initiatives

Jammu & Kashmir Bank demonstrated strong asset quality management, with Gross Non-Performing Assets (GNPA) reducing to 3.32% as of September 30, 2025, from 3.95% a year ago. Net NPAs also improved to 0.76% from 0.85%. The Provision Coverage Ratio (PCR) remains healthy, exceeding 90%. This improvement is particularly noteworthy given recent disturbances and natural calamities in the bank's core operating region. The bank has also formulated a special rehabilitation package for affected borrowers, offering relief through extended repayment periods, interest funding, moratoriums, and additional working capital, aimed at preventing further asset quality deterioration.

Cost management remained effective, with operating costs showing a marginal 2.2% year-on-year growth. The Cost to Income Ratio, however, increased to 60.81% from 54.56%, influenced by the aforementioned impairment provision. The bank's Capital Adequacy Ratio improved to 15.27% from 14.99% year-on-year, indicating a robust capital position. Management has also outlined clear guidance for FY26, targeting credit growth of 12%, deposit growth of 10%, a CASA ratio of 48%, NIM between 3.65% and 3.70%, RoA of 1.20% to 1.25%, RoE of 15% to 16%, and GNPA below 3%.

Outlook and Management Commentary

Jammu & Kashmir Bank is strategically focused on expanding its retail footprint and loan book in the Rest of India, aiming for a 50-50 split between J&K UT and RoI in the medium to long term. The bank is also committed to enhancing its CASA ratio through dedicated campaigns, having achieved a sequential improvement after nine quarters. The management expressed confidence in achieving its financial year guidance, emphasizing the underlying strength of its operating performance despite the one-off challenges. The bank's proactive approach to asset quality, strategic expansion, and capital management positions it for sustained growth and improved profitability in the coming quarters.