State government has lost over Rs 200 crore of its fresh capital investment in J&K Bank. The falling share price of the bank is giving jitters to the state government, the bank’s majority stake holders.
Some time back, the state government had made fresh capital investment of Rs 532 crore at Rs 79 per share taking its shareholding to almost 60 percent. The value of the capital investment has depreciated as is apparent from its share price, which closed on Tuesday at Rs 42.65 at BSE and Rs 42.95 at NSE.
The price of a share has gone down to half of the value it has a year ago, at about Rs 85.
A top government official requesting anonymity said the bank is hit by failure of corporate governance in the past few years. The net worth of the bank has drastically eroded by over Rs 1400 crore, which, he said, will be approximately 10 years future net profits of the bank.
A banking analysts pointed out that the market capitalisation of the bank has almost reduced by over Rs 850 crore.
“Further it is the unique situation, where the share price is less than book value or market capitalisation is less than net worth. Generally market capitalisation is very high compared to the net worth of a company,” the analyst said. “In case of HDFC Bank, against net worth of Rs 1 lakh crore, the market capitalisation is more than Rs 5 lakh crore. This kind of situation arises in organisations, where investors don not have confidence on the company and its management and depicts weak corporate governance. This indicates, that, the investors have low confidence on the bank,” he said.
Another expert was quick to point out that the bank has also reported excess net worth of Rs 650 crores in the annual report of 2016-17 by including revaluation reserve in the net worth, which is a mistake in the annual report, for which SEBI will punish the bank any time. The revaluation reserve does not form part of the net-worth as per generally accepted accounting policies and as per RBI master circular.
Some investor relations experts have called huge contingent liabilities being carried in the books of the bank as “a demon sword”. They have predicted fall of the bank share to the level of Rs 20.
A contingent liability is a potential liability that may occur depending on the outcome of an uncertain future event.