Assessing financial productivity of J&K Bank during the COVID-19

The analysis is based on Bank’s three Annual Financial Reports for the FYs ending 31st March, 2022, 2021 and 2020 respectively available on Bank’s official website
"It has emerged as the prominent financial institution where depositors are investing their hard earned money in different accounts and the Bank lending it to varied customer segments in diverse sectors of economy."
"It has emerged as the prominent financial institution where depositors are investing their hard earned money in different accounts and the Bank lending it to varied customer segments in diverse sectors of economy." File/ GK

J&K Bank is the premier institution that has been playing a key role in boosting the economy of Jammu & Kashmir-be it trade, commerce or industry. It has generated huge employment opportunities directly or indirectly.

It has emerged as the prominent financial institution where depositors are investing their hard earned money in different accounts and the Bank lending it to varied customer segments in diverse sectors of economy. As of now, its presence is spread across the country.

The past three years were almost entirely consumed by the Covid-19 pandemic. Painful memories are still fresh for the society and anxiety is still high over recent economic fluctuations. These were scary and agonizing times and the impact still lingers on.

The 84th Annual General Meeting (AGM) of the shareholders of the Bank was scheduled on 24th August, 2022 at 11 AM through video conferencing.

In this write-up, an attempt has been made to assess the financial productivity of the Bank based on an important accounting measure of ‘Value Added Accounting’-the finer aspect of its financial productivity to gauge as to what extent the Bank is on the growth trajectory.

The analysis is based on Bank’s three Annual Financial Reports for the FYs ending 31st March, 2022, 2021 and 2020 respectively available on Bank’s official website https://www.jkbank.com/investor/financials/annualReports.php.

The technique of ‘Value Added Accounting’ (VAA) is considered as an important approach to measure operational efficiency and productivity of a business organization.

The reason behind this is that the performance of an enterprise is now judged from the different stakeholders’ point of view. Profitability is a test for shareholders only to measure the performance of a business enterprise while as VAA is a measure of productivity useful to all those stakeholders who have contributed in the process of generating value such as employees, investors of capital, government, business enterprise, etc.

Originally the term ‘Value-Added’ or ‘Value Addition’ appeared as a concept in economics but by 1990’s it spread to business and even education sectors.

The primary objective of any commercial organisation is to create value/wealth during a particular period of time for its stakeholders-customers, employees, investors and the government. It should be noted that the interests of these groups are inextricably linked.

In the light of aforesaid discussion, the VAA measures the financial productivity of an enterprise that gives it a competitive advantage. In any business organisation, the ‘Balance Sheet’ and ‘Profit and Loss Account’ are traditionally the basic financial statements that simply generate and provide data related to financial performance and do not show the participation of all stakeholders in the generated value/wealth.

But VAA reveals how the value/wealth generated by the company is distributed amongst its stakeholders. This naturally speaks of the need and importance of this technique (www.mbaknol.com/financial-management/value-added/). Further, on processing the information contained in these financial statements, the value/wealth of corporate entity is ascertained.

No business enterprise can survive and grow if it fails to generate adequate value or wealth. In this direction, inclusion of VAA in financial reporting system gains added significance and becomes highly useful. This practice would really add a good deal to the usefulness of financial reports and would certainly help a banking organization to make viable strategic decisions.

A lot of research evidence is available that reveals VAA based on productivity measures have considerable relevance to assess the future prospects of a bank as well.

Based on the analysis of the available financial instruments carried out by these writers, the J&K Bank has registered gradual improvement in its productivity per Rs 100 of aggregate earnings. The Bank has been in a position to generate Net Value Added or NVA to the tune of Rs 37.94 (FY 2019-20), Rs 41.39 (FY 2020-21) and Rs 42.88 (FY 2021-22) respectively.

The contributing factor towards improvement in Net Value Addition is the continuous cost-effectiveness of interest expenditure as revealed by the present analysis. It was Rs 52.71 (FY 2019-20), Rs 49.30 (FY 2020-21) and Rs 46.65 (FY 2021-22) respectively. However, ‘Net Operating Expenses’ and ‘Cost of Depreciation’ of fixed assets have shown a modest fillip during the period under report.

Different stakeholders have been able to have their respective slices from the ‘Net Value Added Cake’. The employees share increased YOY basis who have taken a lion’s share.

During the FY 2019-20, the employees have been able to consume Rs 20.98 out Rs 37.94 NVA generated while as during FY 2020-21 Rs 23.39 were shared by the employees out of total NVA of Rs 41.39.

In a similar vein, employees’ home take was Rs 30.38 out of Rs 42.88 of NVA generated during the FY 2021-22. This gradual increase in employees’ share could be attributed to new recruitment and additional emoluments paid to the higher ups in the organisation.

With the stability in business operations and improvement in the financial productivity of the Bank, the share of State Exchequer in terms of taxation has also exhibited increase during the three years under report from Rs 0.44 to Rs 1.16 and Rs 2.74 respectively.

The Bank has been showing prudence in ‘Risk Provisioning’. It was because of highly unstable/volatile business operations during the FY 2019-20 that Rs 29.20 was earmarked for risk out of NVA of Rs 37.94. However, during the subsequent two years risk provisioning showed stability by providing for Rs 11.93 and Rs 4.06 as against Rs 41.39 and Rs 42.88 of NVA generated respectively.

Due to financial loss during FY 2019-20, there has been erosion to the tune of Rs 12.68 of the Bank’s share. However, during next two years the Bank could retain a share of Rs 4.91 and Rs 5.70 as against NVA generated during these years respectively.

On the whole, it is apparent that the Bank steered itself through and has been able to register convincing growth in almost all business segments during Fiscal Year ending 31st March, 2022 despite jolts of Covid-19 pandemic.

In view of the above analysis, it is recommended that the Bank should initiate steps for reduction of ‘Net Operating Expenses’ wherever possible. In this regard, it should put in practice ‘Zero Based Budgeting’ to avoid non-value added activities.

The Bank should take steps to rationalize its workforce in the operating Business Units, Regional and Corporate Offices. By making a good blend of technology and human resource, the wage bill would surely be cost-effective. It is pertinent to mention that the shareholders of the Bank during the past three years under report have not been able to get their share out of the NVA generated.

However, reportedly the bank has not been declaring any dividend for the past 7 years or so. The Board of Directors should review its ‘Dividend Declaration Policy’ henceforth so that the shareholders also participate and enjoy their slice out of NVA cake.

The Bank should incorporate ‘Value Added Accounting’ in its Annual Financial Reports as a step towards voluntary disclosure. For any future research, it would be highly interesting for Financial Analysts, researchers and the Bank itself to highlight financial productivity in terms of Net Value Added generated.

Lastly, it may be stated here that the people of Jammu, Kashmir and Ladakh have not only financial relations with the Bank but are also emotionally attached to it.

Because of this plus the active support of the government and unmatched commitment of the Bank’s workforce, it withstood all odds over the years and came out stronger and more successful. The Bank is expected to make more effective efforts to financially serve people and lead Jammu and Kashmir towards a more promising and fulfilling economic future.

The writers are former Commerce Teachers and Life Members of Indian Accounting Association (IAA).

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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