J and K Bank Q4 FY26: Record profit, lower costs, and conservative guidance

Jammu and Kashmir Bank ended FY25-26 with another record year on profitability. The bank reported a net profit of INR 2,363.47 crore for the full year, up from INR 2,082.46 crore in FY24-25. The March quarter was even stronger, with net profit at INR 797.81 crore versus INR 584.54 crore in Q4 FY25.

The year’s results were shaped by two opposing forces. Margins and non-interest income were under pressure, but operating costs fell, creating operating leverage. Management also described FY25-26 as challenging, especially in the bank’s core geography, but stated the bank broadly delivered on market guidance, with a marginal miss only on NIM.

Financial performance: profit growth despite softer margins

Interest earned grew 4.9 percent year-on-year to INR 13,145.19 crore in FY25-26, while interest expended grew faster at 7.8 percent to INR 7,269.42 crore. That kept net interest income growth muted at 1.4 percent, with FY NIM declining to 3.60 percent from 3.92 percent.

Non-interest income also fell. Other income declined 16.9 percent to INR 939.85 crore for FY25-26. Within this, treasury and trading income was negative for the year at minus INR 30.50 crore versus a positive INR 66.82 crore last year. In the concall, management also attributed a meaningful hit to other income to an impairment provision of INR 180 crore linked to the Gramin Bank investment, connected to an amalgamation.

What stood out was cost control. Operating expenses declined 4.1 percent to INR 3,829.13 crore, supporting an operating profit of INR 2,986.48 crore. Cost-to-income improved to 56.18 percent for the year. Management attributed employee cost moderation to tapering pension-related obligations and a shift towards NPS, along with retirements reducing headcount.

Financial summary

Balance sheet growth and mix: strong advances, deposits still concentrated

On the balance sheet, deposits grew 11.3 percent to INR 1,65,354 crore as of March 31, 2026. Advances grew 18 percent to INR 1,22,641.01 crore. The credit to deposit ratio improved to 74.17 percent from 70.13 percent.

Deposit mix shows industry-wide trends. Term deposits grew faster than CASA deposits, with term deposits rising 14.2 percent while demand and savings deposits grew 7.1 percent and 8.4 percent respectively. The CASA ratio declined year-on-year to 45.65 percent from 47.01 percent. However, management highlighted that on a sequential basis, the bank improved CASA ratio from 44.10 percent at December 2025 to 45.65 percent at March 2026.

Geographically, the bank remains heavily anchored in Jammu and Kashmir UT. As of March 31, 2026, 82.7 percent of deposits were from Jammu and Kashmir UT and 17.2 percent from Rest of India. Branch presence also remains concentrated, with 82.7 percent of branches in Jammu and Kashmir UT.

Yet the loan growth strategy is clearly shifting. Management said loan growth in Rest of India was much higher than in Jammu and Kashmir and Ladakh during FY25-26, resulting in a loan book mix of 63 percent in the core geography and 37 percent in Rest of India. The management reiterated a medium to long-term vision of a 50-50 business split between the core geography and Rest of India.

Asset quality: improving ratios and high provision coverage

Asset quality metrics improved further. Gross NPA ratio reduced to 2.50 percent and net NPA ratio to 0.64 percent as of March 31, 2026. Gross NPAs fell to INR 3,124.84 crore from INR 3,604.84 crore a year ago.

Movement in gross NPAs during FY25-26 shows steady recoveries and write-offs. The closing gross NPA balance declined 13.3 percent year-on-year. Sector data indicates that personal finance, the largest segment by exposure, had a GNPA ratio of 0.81 percent. Some categories show higher stress, such as services at 7.33 percent and manufacturing at 6.99 percent. Real estate had a high GNPA ratio of 21.66 percent, but the exposure was small at INR 763.05 crore.

The bank reported a provision coverage ratio of 90.33 percent, largely stable versus last year. Management repeatedly emphasized recovery mechanisms and low credit costs. In the concall, management also mentioned introducing zonal recovery outfits called Zonal IARBs, designed as specialized recovery teams.

Management commentary: costs, technology, and a cautious FY27 stance

A recurring theme in the concall was cost efficiency. Management confirmed that employee costs are expected to trend lower, driven by retirements and a shift of pension obligations to NPS. It also disclosed that Q4 employee cost included a one-off reversal of INR 153 crore due to a discount rate change in retirement benefits, which reduced reported employee expenses in the quarter.

On execution, management said several initiatives have already been implemented and are now functioning. It cited end-to-end digitized loan journeys across all loans, not only retail, and claimed that turnaround time for corporate, mid-corporate and SME loans has come down substantially.

The bank also discussed early-stage moves in co-lending. Management said co-lending started late in Q4 and indicated an initial target of around INR 1,000 crore, with board approval to scale up to INR 5,000 crore, depending on how the portfolio performs.

Guidance for FY26-27 was deliberately conservative. Management cited geopolitical uncertainty and a reduced growth forecast for India as reasons for caution. The bank guided for 12 percent credit growth, 10 percent deposit growth, CASA ratio around 45 percent, NIM around 3.5 percent, RoA around current levels, RoE around 16 percent, and gross NPA below 2.25 percent.

Capital planning also featured in the call. Despite reporting capital adequacy of 16.55 percent and CET1 of 13.54 percent, management said the bank will consider raising about INR 1,250 crore of capital in the current year, with ECL implementation notified from April 1, 2027. On ECL, management provided a broad estimate that over a five-year period the bank may need to provide around INR 1,600 to 1,700 crore, while stressing that actual numbers depend on each bank’s model.

Takeaways

Jammu and Kashmir Bank’s FY25-26 results show a bank generating record profitability while managing costs tightly. Loan growth was strong, especially outside the home geography, and asset quality continued to improve with provision coverage staying above 90 percent.

At the same time, the numbers also show where the pressure points remain. Margins declined in a lower rate environment and other income was volatile, with negative treasury and trading income for the year and a disclosed impairment linked to the Gramin Bank investment.

The conservative FY26-27 guidance sets a lower bar, but management indicated an intent to over-deliver if the environment supports it. For investors, the next year’s watch list is straightforward: margin recovery, stability of non-interest income, execution of Rest of India growth without asset quality dilution, and capital actions ahead of ECL implementation.