Synopsis
Compared to its share price of Rs. 150 two years back, J&K Bank is now trading at close to Rs. 60, a massive cut of 60%.
ET Bureau 
This fundamentally strong bank has been hit by two calamities in the past two years. The first was the massive flood in Jammu and Kashmir in September 2014. Even before the state could recover from its aftermath, the civil unrest in the Valley added to the state's misery. Since around 78% of the bank's total deposits and 93% of its low-cost current and savings accounts are from the Jammu and Kashmir region, the bank was among the biggest victim of the two events. This was reflected in its stock price movement: Compared to its share price of Rs. 150 two years back, J&K Bank is now trading at close to Rs. 60, a massive cut of 60%.
However, with the civil unrest settling down, the situation has started improving and business activity is slowly picking up. Since the business had already hit the lowest possible level, analysts are hopeful that things can only improve now. The bank's deposit growth is already healthy and credit growth is expected to pick up in the coming quarters.
Though the bank only disburses around 50% of its loans in the Jammu and Kashmir region, the turmoil had a severe impact on its overall asset quality— several businesses were not able to repay loans on time. In a bid to be transparent, the bank's management is recognising non-performing assets (NPA) at a faster rate. The bank has shown the highest ever gross NPA addition of Rs. 968 crore in the second quarter of 2016-17. With the balance sheet cleanup in focus, the management is also providing for this gross NPA addition, with the highest ever provision of Rs. 992 crore for the second quarter. Since most of the troubled loans have already been recognised, chances of further gross NPA addition are few. However, the third and fourth quarter of 2016-17 will see further recognition of NPAs and margin improvement can be expected only from 2017-18.
The bank's capital adequacy ratio (measure of a bank's ability to absorb losses) is expected to come down from 11.3% in 2014-15 to 9.4% in 2016-17 due to the turmoil. However, the state government has already indicated its willingness to infuse additional capital, if needed. The central government's strong support to the state will also help. J&K received around 10% of the total central grants compared to 8.2% for UP, the largest state. The Reserve Bank of India is also helping J&K Bank in its efforts to restructure loans following the civil unrest and, thereby, revive local businesses.
Just like its business and asset quality, the bank's valuation is also at a very low level and this gives immense scope for improvement in future.
Selection Methodology: We pick the stock that has shown the maximum increase in 'consensus analyst rating' in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts.
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Source: https://m.economictimes.com/wealth/invest/jk-bank-turnaround-possible/articleshow/56269832.cms
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