JK Bank in Focus

Dr Bashir Ahmad Joo

The Jammu and Kashmir Bank, a premier financial institution, has recently been in the news for certain developments with respect to its structure in the light of Private / PSU debate. The news created quite a flurry in the social, academic and business circles alike. This became the matter of discussion and debate; many people started to make their opinions public and tried to galvanize the mass opinion in a certain direction. Many of these opinions were based on genuine concern for the overall welfare of the organization, inadvertently a few tried to tarnish the overall image of the bank by resorting to statements and figures that were far from established facts. However, for an organization that particularly reaches out to the people of this state in every nook and corner and has the welfare of its people as its prime motive, what remains paramount is that it secures the trust and goodwill among the general people that are most valuable for the bank. Against this backdrop, it is sine-quo-non for the stakeholders to distinguish between the reality and the concocted story to understand the true and fair picture of the bank.

No doubt the corporate managers are responsible for acquiring physical and financial resources from the firm’s environment, using them to create value for the firm’s stakeholders like depositors, shareholders, creditors etc. However, before framing an opinion regarding the financial and operational efficiency of the bank in general or its CEO in particular one has to understand environment in which the bank is functioning. The economic environment includes the firm’s industry, input and output markets, and the regulations under which the bank operates. The bank’s business strategy determines how the bank positions itself in its environment to achieve a competitive advantage. In this context, the landmark event that stands witness to the explicit strategy of the present Chairman is about the disclosure of the facts about the financial condition / figures of the bank so that the real position of the bank is made public. The efforts to turn around and improve the bottom line were undertaken right from day one. Though there was a shaky start, however, with a firm vision and steadfast conviction the steps towards restoration started to yield the desired results and value creation is now visualized by everyone.

The challenges were manifold and of serious nature, which had far reaching consequences on the financial and operational efficiency of the bank. Some of the major challenges that the management confronted were the huge slippages of over  12000 crores INR from FY 2015 to September 2018, creation of huge provisions of over  4300 crores INR for Stressed Assets (Loans + Investments) over the last two years, and restoration of  Coverage Ratio that had nose-dived to 50 percent level (as of June ,2016) to a respectable level, surging  of GNPA to 11.20 percent  and accumulation of Stressed Assets at over 20 percent and escalation of Net NPA to unprecedented high levels of 6.81 percent (as of September, 2016), erosion of Capital due to hefty loss of   1632 crores INR and decline in Interest Income, as a result. However, at the same time it is to be understood that all this is to be seen in the light of the scenario of the Indian banking industry and how it has fared during the intervening period. The Indian Banking industry experienced a huge surge in NPAs with the giants like SBI and other PSU banks booking massive losses. Many of the PSU banks had to face Prompt Corrective Action (PCA) restraining them from further lending besides facing other restrictions. The Central Government was forced to infuse substantial additional capital in most of the PSBs to ensure maintenance of adequate capital as per regulatory norms.

Coupled with this national scenario, there had been certain developments in the local environment. The unprecedented floods in 2014 and the unrest of 2016-17 spanning over eight months crippled the economy of the state. Anyone can understand that the financial institution which is closely integrated with the society cannot stay away from the after effects of such cataclysmic events. The bank had to restructure over 40000 business loan accounts aggregating to tune of 4000 crores INR post floods and unrest which involved additional provisioning thereby putting a strain on the bottom line.

It is equally true that the bank showed a loss of 1632 crores INR for March 2017; the heartening fact is that the bank started to recover soon after this shock and registered turnaround in a short span of three quarters and since June 2017 has been showing profit for six consecutive quarters. Strenuous recovery efforts and initiatives taken by the Bank have ensured that despite humongous slippages of over  12000 crores INR since FY 2015, the gross NPAs have been contained at 6000 crore INR levels.  The net NPAs are also witnessing a declining trend from 6.81 percent in September 2016 to 3.91percent in Sep 2018. Likewise, the Capital Adequacy Ratio of the bank has improved from 10.28 percent in December 2016 to 12.02 percent in September 2018. Moreover, the Coverage Ratio that had dipped to 50 percent in June 2016, there has been a steady increase in the same and the bank is well on the path of building an adequate provision in this regard. It is pertinent to mention here that Provision for Coverage Ratio of far bigger public and private sector banks is lower than that of J&K Bank.

Despite the constraints bank is confronting at the industry level as well as at local level, the key financial indicators clearly indicate that the bank has professionally managed the crisis situation and has been able to maintain a steady growth to attain its long term goals.

Key Financial Indicators Sep 18 HY Mar 18 FY Sep 17 HY Mar 17 FY Trend
Net Profit (`Cr) 146.34 202.72 101.83 -1632.29 Increasing
Deposits (`Cr) 81429.22 80006.50 70384.60 72463.09 Increasing
Net Advances (` Cr) 63691.19 56912.75 51341.32 49816.11 Increasing
EPS (`) Annualized 5.26 3.64 3.66 -33.59 Increasing
Post Tax Return on Average Net worth % 4.69 3.42 3.66 -26.98 Increasing
Net Income Margin % 3.72 3.65 3.74 3.38 Steady
 Post Tax Return on Assets % 0.31 0.25 0.26 -2.04 Increasing
Cost of Deposits % 4.87 5.01 5.24 5.87 Improving
Yield on Advances % 8.86 8.77 9.39 10.02 Healthy
Gross NPA (` Cr) 6067.66 6006.70 5982.87 6000.01 Controlled
Net NPA (` Cr) 2488.82 2791.12 2442.59 2425.37 Improving
GNPA % 9.00 9.96 10.87 11.20 Improving
 NNPA% 3.91 4.90 4.76 4.87 Improving
PCR % 69.46 65.83 69.23 66.88 Improving
CAR % 12.02 11.42 11.09 10.80 Improving

(Source : J&K Bank Press Release Published in local dailies, October 29, 2018)

It worth mentioning here that recently in a report compiled by ETIG Database published in a leading national business daily (Economic Times; Nov 13, 2018) quoting the JK Bank stock as ‘attractive’ and “buy” recommendations of a number of other market analysts on the basis of Bank’s sustained profitable performance over six consecutive quarters is also a pointer towards the reinforcement of confidence among the existing and prospective investors and also of stock analysts in the resurgence of the bank.

Parameter / Analyst ICICI Direct Research Prabhudas Lilladher Motilal Oswal
Analysis Year 2018 2018 2018
Rating Buy Buy Buy
Target Price Expected 58 94 100
Target Period One Year One Year One Year
Potential Upside 38% 123% 138%

A key aspect of good financial performance and operational efficiency is that the bank/ firm  should always try to unearth the problem areas with the help of in house research or by collaborating with some research institution and should be proactive in accepting the positive criticism, suggestions and research outputs. Such feedback would trigger a positive introspection leading to further strengthening of the fundamentals of the bank. However, it is appreciable that the bank management has made amply clear policy in this regard and is open to positive criticism, analysis and interpretation of financial results that will bring to light any weaknesses or any short coming and even suggestions which would enable them take timely corrective actions, if required. The management seems to have managed the concerns professionally and the outcome is discernibly visible in their improved performance during the last six quarters.

However, going forward their true mettle will be tested from the mechanism they will put in place to deal with core concerns/issues like ensuring improvement in asset quality especially the J&K restructured portfolio, release of locked resources by resolution of NPAs or through professional recovery management, addressing the looming IL&FS crisis, improving capital adequacy, adoption of professional risk management practices, sustaining profitability and maintaining the growth momentum for opening more avenues of employment for the youth of the state. Moreover, bank management has to understand that equality concept used in balance sheet has lost its relevance and it is now equity concept which is now-a-days in vogue i.e. asset side of the balance sheet should always be mirror image of liabilities side. Hence, bank is required to put in place professional approach for management of both assets and liabilities. Lastly, as stakeholders we stay hopeful that this premier financial institution of the State, which is the bank of the people, should strive hard to touch newer heights and milestones in the coming days under able leadership of present chairman but importantly with help of its ever dedicated workforce.

Dr. Bashir Ahmad Joo is Professor (Banking & Finance), Department of Management Studies University of Kashmir


The article was first published in Greater Kashmir

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