The Indian Companies act, 2013 and Indian Banking Regulations Act, 1949 require every banking company to convene an Annual General Meeting (AGM) of shareholders at least once in a year in the city where its headquarters is situated. An AGM, in essence, is a special occasion when shareholders attend to special/serious issues, observe and respond to special challenges faced by the bank. The 80th AGM of the shareholders of the Jammu & Kashmir Bank Limited (J&K Bank) was held on 7th July, 2018 at SKICC, Srinagar to transact some ordinary and special business. In this meeting, among other things, many items pertaining to the Bank’s operations were deliberated and the Annual Report 2017-18 was distributed amongst its shareholders.
It is noteworthy that the J&K Bank is strong in the state of Jammu and Kashmir because it is rooted in the local culture. It has flourished here because people are emotionally attached to it. The Bank has sustained growth because its past and present employees have nourished it with dedication and devotion. And which is why it withstood ups and downs over the years. Whether readers like it or not but the reality is that the J&K Bank has been playing a key role and significantly contributing in boosting our state economy- be it trade, commerce and industry. It has generated huge employment opportunities directly or indirectly. The Annual Report 2017-18 reveals that currently the Bank provides permanent employment to 10,072 persons (which include 1,985 women employees) in its 904 branches spread over across the country. It has also engaged 1,372 persons on temporary basis, thus the total employees directly associated with the Bank as on March 31, 2018 were 11,444. The Bank created indirect employment opportunities for thousands of persons by funding and making available credit for the micro, small and medium ventures, startups, budding entrepreneurs, for new investment and expansion of the existing units. This speaks volumes about the Bank being main employment provider in our State only next to the state government.
Apart from this, in terms of the provisions of Section 135 of the Indian Companies Act, 2013 the Bank has to ensure upliftment of the marginalized and under-privileged sections of the society under its Corporate Social Responsibly (CSR) Policy. Pursuant to this Section, it has to spend 2 per cent of its average net profits of the last three financial years immediately preceding the financial year 2017-18 towards CSR activities. It is a matter of gratification that the Bank spent Rs31.71 Crores on the various social welfare programmes like promotion of health, education, ecology, community welfare, etc. The amount expended is much higher than required under law. The Bank continues to focus on two of its important CSR priorities, that is, Education and Health.
Though the year 2017-18 was beset with various challenges and hardships, the Bank has reported some growth on several parameters including advances (which grew by 14.25 per cent) and deposits (which grew by 10.41 per cent). The total business of the Bank reached to Rs 1.37 lakh Crores registering an increase of Rs 14,640 Crores (12 per cent) over the business a year ago. Return on assets improved to 0.25 per cent in 2017-18 which was -2.04 a year ago. Interest margin improved to 3.65 per cent from 3.38 per cent in the previous year. Similarly, it posted a net profit of 202.72 Crores in the year 2017-18. These figures abundantly make it clear that J&K Bank is on track to realize normal business growth. It envisages achieving the organizational goals aiming business beyond Rs 1.70 lakh Crores in the current financial year besides supporting government’s agenda of economic development of the state.
However, the financial statements of the J&K Bank depict that its Non-performing Assets (NPAs), commonly known as Bad Loans, are still going up. A majority of the performance parameters witnessed some pressure on asset quality with fresh Non-performing Asset (NPA) addition showing an increase. This naturally is adversely hitting our Bank and giving its stakeholders a big headache. For example, the Bank saw its net NPA rising to 4.90 per cent from 4.87 per cent a year ago. These stressed assets have become a cause of concern.
It would be in place to mention here that when NPAs go up, Capital Adequacy Ratio (CAR) goes below the threshold, leading to dwindling earnings and making a bank unable to lend money. When that happens, fresh capital has to be pumped in so that the common man does not suffer. This is why the Board of Directors (BODs) of the J&K Bank did not recommend any dividend to its shareholders during 2016-17 and 2017-18. The dividend was actually ploughed back so as to augment/conserve the Bank’s Capital Base.
It may be indicated here that the NPA phenomenon is not new. From the day banking started, there have been NPAs but in small numbers and they belonged to small accounts. For example, if 100 account holders that had taken a loan of Rs 1 lakh defaulted, the amount only came up to Rs 1 Crore. Now if a bank gives a loan of, say, Rs 100 crore to one person and when he defaults, it is a huge burden on the bank. Basically the problem this time is that the accounts which have gone bad are huge corporate accounts. Looking at these large accounts that have become NPAs most of them are from the infrastructure sector. It is reported that these companies could not do well because of the slowdown in the economy. The past two/three years were most difficult years for the Indian banking industry as a whole witnessing 135 per cent increase in NPAs. The J&K Bank is not an exception. Thanks to the state government (the promoters of the J&K Bank) that extended full support. The government infused Rs 532 Crores during the tough and challenging previous fiscals 2016-17 and 2017-18 and bailed it out of crisis. It was a very well-planned move to the much relief of its other equity share holders. The Bank also raised an amount of equity capital of Rs 282 Crores in 2017-18 and allotted it to J&K government. This has raised the state government shareholdings to 59.23 per cent. To further strengthen its capital base for growth and expansion, raising more capital becomes necessary. Hence, the Bank plans to raise funds by issue of more equity shares and in the shape of debt instrument/debenture during the current fiscal 2018-19.
It would be in place to mention here that when the loans are given especially to corporate houses it is not that the Bank makes these decisions on its own. All the loans are given with the consent and approval of the BODs comprising, among other directors, a RBI Nominee Director and a State Government Representative. They are all well aware what is happening. They should have taken effective steps much earlier so as to save the Bank from mounting NPAs which it suffered on account of loans given to a few corporate houses that have defaulted.
Anyway, what has happened in a decade or so cannot be rectified within weeks or months. Just because of the NPAs, it cannot be said that Our Beloved Bank is in a mess. But the fact remains that that there is a strain and it can be corrected over a period of time. Therefore, there is no need to be panic and ring alarm bells. Reportedly, the BODs of the J&K Bank has been restructured, strategy reoriented, business reengineered, top management strengthened with elevations and lot of hard work has been done to put the Bank on a sustained path of recovery. Owing to these efforts, the Bank has seen good momentum in the recovery front indicating that its consistent focus on containing non-performing assets (NPAs) is yielding results. Again, Bank’s focus on containing bad loans through closer monitoring and frequent follow-ups are also yielding results from other delinquent accounts. The Bank has many disciplined, dynamic, excellent, talented, visionary professionals working in it under the guidance and leadership of present dispensation who, the writer believes, will make things happen. It simply needs more dedicated professionals to run day to day affairs professionally. It also needs to make recovery laws stringent and initiate criminal proceedings against willful defaulters. As the Bank has a separate Credit Monitoring Cell, it has necessarily to be more vigilant from the date of disbursement itself. The emphasis should be on recovery of NPAs and consolidating the NPA Coverage Ratio which is currently 65.83 per cent. Furthermore, Jammu and Kashmir State is still under-banked and hence needs more of the banking services to reach the interiors of the state. By addressing this issue, the Bank is likely to add to its aggregate business. But, at the same time, the top management should strictly exercise extra caution and conduct an exhaustive survey in the matter.
Writer has been associated with the Department of Commerce and Management Studies, Islamia College of Science and Commerce, Srinagar.