J&K Bank: Goals and Promises
Born in 1938, JK Bank held its 86th Annual General Meeting (AGM) on Saturday, August 17, 2024 at 11:00 AM at its Corporate Headquarters, MA Road, Srinagar, in a hybrid mode. The Annual Report 2023-24 (themed as Goals Met: Promises Kept) of the Bank circulated in the meeting reveals that the Bank Deposits grew by 10.44 per cent, Gross Advances by 12.57 per cent and Gross Revenue (Total Earnings) by 19.04 per cent during the FY ending March 31. 2024.
It posted a Net Profit of Rs 1767.27 Crore during the same period, the highest ever in the history of the Bank and being 48 per cent more than FY 2022-23. During FY 2023-24, the Net NPA sharply declined to 0.79 per cent from 1.62 per cent during FY 2022-23. The ROA or profitability (of lending operations) has risen from 0.42 per cent during FY 2021-22 to 0.89 per cent during FY 2022-23 and improved to 1.22 per cent during FY 2023-24. Earnings per Share (EPS) are Rs 16.80 for the year ended 31st March, 2024 as compared to Rs 12.43 for the previous FY 2022-23.
Following the exceptional results and record-breaking performance in FY 2023-24, the Board of Directors of the Bank recommended a dividend of Rs 2.15 per equity share of Re one for the said period. Reportedly, the Bank is working closely with the government on various programmes by extending credit, providing services of disbursing salaries and pension while working for the welfare of entrepreneurs, farmers and common people in Jammu and Kashmir and Ladakh.
The present analysis of Value Creation/Addition for the past three years is based on the Annual Reports of the Bank. The Vision Statement of the Bank also reflects: “Pioneering the economic and social transformation”- To become a committed partner in fostering economic and social transformation across the country through a deep commitment to Value Creation for all our Stakeholders, while continuing to build on our historic business relationship with Jammu & Kashmir, and Ladakh.
It is noteworthy that Financial Statements only exhibit true and fair view of the state of affairs/financial information of a business enterprise but do not reflect the respective contribution of all stakeholders in the value/wealth creation. But ‘Value Added Accounting’ determines how much value is created or added by a business during a particular period and how it is distributed among the various stakeholders contributing towards its creation- be it employees, government, shareholders, society and the business enterprise itself.
A business entity cannot survive and grow if it fails to generate adequate amount of wealth. Value Creation is more than just accumulating money; it is about embracing a growth-oriented mindset. It is about creating financial security/independence/foundation that allows a business entity to stay focused, motivated, pursue goals and navigate easily through troubled waters. An important element in fruitful value creation is to have a clear vision and setting targets that align with the vision.
In this backdrop, the present analysis reveals that the Net Value Added (NVA) generated by the Bank for the past three years fluctuated between 40.28 per cent (FY 2023-24), 45.12 per cent (FY 2022-23) and 42.65 per cent (FY 2021-22). The NVA is the result of Total Earnings less Interest Cost, Net Operating Cost and Depreciation on Physical Assets.
The Total Earnings have shown an increasing trend both in absolute value and in relative terms based on YoY basis over the past three years. On the other hand, Interest Cost also reflects acceleration at a faster rate. As a sequel to it, the NVA declined during the current fiscal compared to previous fiscal by 4.84 per cent. The Value Added Cake of 40.28 per cent (FY 2023-24), 45.12 per cent (FY 2022-23) and 42.65 per cent (FY 2021-22) is distributed among different players who are engaged in its generation.
As far as the sharing of NVA Cake is concerned, the employees claimed 53.04 per cent (FY 2023-24), 59.26 per cent (FY 2022-23) and 71.55 per cent (FY 2021-22). This declining trend in the employees’ share out of NVA could partly be attributed to application of digitalization of banking services under Digital India.
The State Exchequer by way of taxation claimed a share of 12.73 per cent (FY 2023-24), 12.87 per cent (FY 2022-23) and 6.46 per cent (FY 2021-22). This shows the financial commitment of the Bank towards the State by way of corporate and personal taxation which in turn supports the state towards achieving its economic objectives and social infrastructure.
The shareholders were deprived of dividend during FY 2021-22. However, for the last two years, they have been entitled to a share from NVA Kitty at the rate of 1.13 per cent (FY 2022-23) and 4.88 per cent (FY 2023-24). The Bank put a cap on cash outflow in terms of dividend payment in FY 2021-22 strengthening its liquidity position to maintain a proper Asset-Liability Management. The liquidity position comparatively being robust during the past two years, the Bank paid dividend to its shareholders.
The Bank retained an impressive share of 31.57 per cent during the fiscal 2023-24 as against 25.12 per cent and 13.43 per cent during early two years. It seems probable that the Bank strengthens its financial position by ploughing back from the NVA Basket.
It is very interesting to note that the bank reversed its Risk Provisions to the tune of 2.22 per cent during FY 2023-24. However, compared to the FY under review, the Bank created risk provisions to the tune of 1.62 per cent (FY 2022-23) and 8.56 per cent (FY 2021-22). For financial prudence, the adequate risk provisioning has its great role in taking care of Market Volatility-Uncertainty-Complicacy-Ambiguity (VUCA). The Net Profit, thus, for the FY 2023-24 is the outcome of net business operations together with reversal of the risk provisions.
To conclude, the present analysis is based on the maxim that an Annual Report reflects a true and fair view of the state of affairs of a business organization. Hence, Creative Accounting has no role in the preparation of annual accounts. The shareholders of the Bank are satisfied as they have got a remarkable share out of NVA Cake. In a similar vein, the employees of the Bank are also happy to have a lion’s share of the NVA Basket.
They have been fully committed towards Value Creation for their own organization. The society for its welfare and development has also got an amount of Rs 18.91 crores, being 2 per cent of the average net profits made during the three immediately preceding financial years, under ‘Corporate Social Responsibility (CSR)’ programme of the Bank as envisaged under Section 135(1) of Companies Act, 2013.
Reportedly, the key areas of intervention under the CSR Policy are 1) Healthcare and Hygiene; 2) Education; 3) Skill Development and Livelihood Generation; 4) Community Development and Welfare; 5) Ecology and Environment; 6) Rural Development; 7) Promotion of Sports; 8) Promotion and Preservation of Art, Culture and Heritage; 9) Animal Welfare and 10) Welfare of War Veterans, Ex-Servicemen and their families.
These initiatives are also in line with the aforesaid Vision Statement of the Bank. Besides consolidating financial position both by way of Profitability and Value Addition, the Bank should also focus on the Customer Relationship Management (CRM) techniques with due respect, love and affection to its clientele.
This has its own relevance under emotional equity as the people of J&K and Ladakh have an attachment with this financial institution. This amazing feat of goodwill and trust that the institution has earned over the years is in reality the strength of the Bank. Thus, financial equilibrium and emotional equity shall move on the same trajectory which needs to be preserved in times to come at any cost.
The writers are Life Members of Indian Accounting Association (IAA) and Former Commerce Teachers.
