Financial productivity analysis | A case study of J&K Bank Ltd

DR NAZIR A GILKAR

Established by His Excellency Maharaja Hari Singh (1938), the J&K Bank Ltd has been serving the society for the past 85 years. Towards the uplift of socio-economic status of the UTs of Jammu & Kashmir and Ladakh from economic backwardness and driving prosperity across all sectors of the economy, the Bank has been playing a very vital role. It has generated huge employment opportunities directly/indirectly, presently employing 12,786 people regular and 437 non-regular (contractual/outsource) people, as per the Annual Report 2022-23 posted by the Bank on its official website a few days ago. The Bank has appeared as an important financial institution where depositors are investing their hard earned money in different financial products and the Bank subsequently offering to borrowers different credit products. The present analysis, based on available Annual Reports for the past two years, depicts that the total deposits during 2022-23 grew by Rs 7327.36 Crores (6.39 per cent) from Rs 114710.38 Crores on 31/03/2022 to Rs 122037.74 Crores on 31/03/2023, with current and saving account (CASA) ratio registered at 54.10 per cent. Reportedly, Gross Advances of the Bank grew by 16.89 per cent from Rs 70400.68 Crores during FY2021-22 to Rs 82285.45 Crore as on 31st March, 2023. The credit-deposit (CD) ratio is reported at 60 per cent. Pertinently, the Return on Assets (ROA), which measures the profitability of lending operations, the mainstay of Bank, has risen from 0.42 per cent during 2021-22 to 0.89 per cent during 2022-23. Return on Average Net Worth is 15.23 per cent as on 31st March, 2023 as compared to 7.77 per cent for the year ending 2022. For the FY2022-23, Bank posted an unprecedented profit of Rs 1197.38 Crores through its 990 Business Units spread over 18 States and 4 UTs across the country. Earnings per Share (EPS) are Rs.12.43 for the year ended 31st March, 2023 as compared to Rs.6.04 for the previous financial year. This exceptional performance of the Bank has become possible only by the active government support, unmatched commitment of the Banks’ workforce, the emotional attachment/love of the people, cordial Bank-Investor relations and unflinching loyalty of customers with this organization and which is why this Bank withstood all odds over the years and came out stronger and more successful.

The 85^th Annual General Meeting (AGM) of shareholders of the Bank is scheduled on 24^th August, 2023 at 11.00 AM at SKICC, Srinagar.

Financial Productivity is based on ‘Value Added Accounting’ (VAA) which measures and highlights an input-out analysis of an enterprise that gives it a competitive edge over profitability analysis. It determines how much of value/wealth is created or added by an organization during a particular period and how it is distributed among the varied stakeholders who contribute towards its generation- be it employees, government, shareholders, society and the business entity itself. In any business organization, the Balance Sheet and Profit and Loss Account are conventionally the basic financial statements that generate and provide financial information related to financial performance and do not reflect the respective contribution of all stakeholders in the value/wealth creation. But VAA reveals how the wealth generated by the business organization is distributed amongst its stakeholders. No business enterprise can survive and grow if it fails to generate adequate amount of wealth. This practice certainly adds a good deal to the usefulness of financial reports and would help a banking organization as well to make viable strategic decisions. There is ample research evidence confirming that VAA measures have considerable relevance to assess the future prospects and financial health of a banking enterprise. The financial productivity parameter is important to get a sense of bank’s strength. A bank can offer adequate emoluments to Employees, Return on Capital, pay Taxes to Exchequer, contribute towards Social Responsibility and retain earnings for Risk Provisioning only if this parameter is robust. It helps banks to build a healthy Balance Sheet reflecting growth, better asset quality and good prospects of maximization of returns, better capital structure, strong market presence, and impressive brand image and recognition in banking ecosystem.

Against aforesaid backdrop, this case study is attempted to measure as to what extent the J&K Bank is on the growth trajectory and is expected to make a significant contribution for any future strategic planning and development. Interestingly, Gross Value Added (GVA) generated has made a quantum jump to the tune of 21.70 per cent and Net Value Added (NVA) accelerated by 22.17 per cent. The core contributing factor towards this growth has been an increase in total earnings comprising different sources showing an improvement to the tune of 15.47 per cent on YoY basis. Conversely, interest cost has reflected an upward trend to the tune of 12.37 per cent only. The net operating cost has gone up by 0.70 per cent.

Different stakeholders, as detailed hereunder, have preferred their claims for their respective slices of NVA Cake:-

                               
In relative terms, employees got an amount of Rs 59.26 out of Rs 100 of NVA during the current year as compared to Rs 71.55 during the previous year. This is because of the fact that NVA Fund thus generated during the current year has accelerated to a larger extent;

In terms of contribution towards State Exchequer, an amount of Rs 12.87 has been made as against Rs 6.46 during last year per Rs 100 NVA;

           
No dividend was offered to shareholders for the past almost 8 years including the previous year. However, owing to extraordinary improvement in the NVA, the shareholders have been entitled for an amount of Rs 1.13 per Rs 100 of NVA. They shall be paid a dividend of Re 0.50 per share of Re one each to be declared during the ensuing AGM;

Since the credit products have been performing well, the accounts are in a better state of rotation, and with the fast movement of the wheel of credit products, the Risk Provisioning has been optimized to the tune of Rs 1.62 as compared to Rs 8.56 during last year per Rs 100 of NVA; and lastl