The J&K Bank  has been in operation from 1938. The present article attempts financial analysis of the bank for recent five years 2006-2010. The analysis based on corporate annual reports is in respect of throughput contribution, value added creation, risk mitigation and commercial productivity of the bank.

The output  of the bank inter alia can be expressed in terms of value added. The concept of ‘value added accounting’ – a very useful innovation – incorporates a new dimension to the existing accounting literature. Value added represents the amount of wealth the bank has created during an accounting period. It is very essential for the survival of the bank.

The average aggregate earnings of the bank comprise income from advances 68.03% income from investments 23.23% and fee based income 8.74%. All these three sources of income during the period of study have registered fluctuations and thus volatility. However, during the current fiscal (2010) the fee based income has substantially improved upon to 11.98% which is an appreciable feature of the income-mix of the bank.

The gap between aggregate earnings and the cost of deposits of the bank averaged at 42.10%; whereas net value added averaged at 35.23% have also shown fluctuations and volatility.

The mobilization of funds is the main performance function of the bank because all other functions depend on the size of deposits. More deposits means more advances and investments and sequel to it more value added for the bank. Further, deposit mobilization barred a few instances of operational risk like human errors or frauds or forgeries is a safe pasture of the bank business. The commercial productivity so measured in respect of deposits reveals efficiency of the bank which also indicates customers satisfaction or even delight and trust in the bank. The net value added has accelerated at a faster rate at 1.407 (times) as compared to deposit mobilization at 1.219 (times) which clearly reveals the fact that the deposit mobilization has played an effective role towards net value creation of the bank.

The other prime function of the bank is credit deployment which is the real activity that needs to be managed effectively to generate adequate net value added keeping in view the three coordinal principles of banking like “profitability – liquidity – solvency”. Credit portfolio being the core and dynamic activity requires a close and continuous monitoring to minimize the impact of credit risk, The commercial productivity thus assessed with regard to credit advanced by the bank highlights that net value added was on the increase at 1.407 (times) which as against credit deployment at 1.339 (times) indicates that credit advanced  has effectively contributed towards net value added generation of the bank.

The bank also invests a portion of its funds in the corporate securities. The ‘credit plus investment’ indicates as to what extent the bank has channelised its funds in credit and investment avenues put together. The value added primarily is a function of earnings from credit and investment portfolio. Like credit deployment, investment in securities also suffers from a risk called market risk. However, to safeguard its earnings the bank puts in expert portfolio management practices to avert market risk to a great extent. The commercial productivity in terms of ‘credit plus investment’ of the bank indicates that net value added again went up at a higher rate (1.407 times) as against this variable which moved up to 1.058 (times) reflecting that interms of volume and effective management of credit aud market risk ‘credit plus investment’ has substantially contributed to the generation of net value added for the bank.

The working funds are the sum total of assets employed in the business of the bank. Efficiency of the bank is not always reflected by the size of its balance sheet but by the return on its assets employed. The speed in net value added growth  is also related to the corresponding upward movement in the total assets employed to measure the aggregate productivity of the bank. The net value again scaled up faster (1.407 times) vis-à-vis working funds at 1.204 (times). This fairly reveals that working funds have productively been utilized to generate value added.

The commercial productivity in a competitive environment in which the bank operates is an important indicator of efficient performance of the bank. During the period of 5 years of the study and especially during the  current financial year ending 2010 the bank exhibited encouraging results in respect of value added vis-a-vis select business variables put to analysis. The state-of-the-art technology and advantage of the large pool of highly motivated, talented and well developed human resource with total job commitment, courageous zeal and pioneering efforts put in have proved a success in keeping pace in the advancement of the bank. There is no doubt that the bank is competent enough to outperform other players in productivity enhancement mainly because of its dedicated human capital.

(Dr. Nazir Ahmad Gilkar is Principal, Govt. Degree College, Sogam (Lolab), Kashmir. He is a life member of Indian Accounting Association. He can be mailed at gilkarna@rediffmail.com)

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