It is universally established that modern economies have developed primarily by making best use of the banking systems and financial institutions. In the context of developing economies, these institutions have been making significant contributions over the years to their economic growth and development. Fundamentally, banking system is about creating value for stakeholders. Slowdown in economy, banking frauds, mounting NPAs, erosion of capital due to fluctuating share prices in the recent days, etc. shook the confidence of stakeholders. This naturally makes it essential to probe the role of corporate governance on banks’ performance and the cause of price fall in shares. In an effort to ensure good corporate governance practices in banks, RBI (the regulator) interacts closely with the government and SEBI (capital market regulator) in this regard. With the revised SEBI guidelines, it becomes necessary for every financial organization to ensure higher stakeholder values.
As regards the Jammu and Kashmir Bank Limited (J&K Bank), it being the state’s premier financial institution is playing a pivotal role in the socio-economic development of J&K. The Bank is at the forefront in extending credit facilities (with more than 70 per cent of total credit) to the people of Jammu and Kashmir. As the state government’s equity holdings are almost 60 per cent making this organization a state-owned Bank, it is categorized as ‘Old Private Sector Bank’ as per RBI guidelines.
The emancipation and wisdom of Pochkhanwala is realized with great significance today when in the Vision Document of the J&K Bank he focused on ‘Stakeholder Value Creation’ being the fundamental for the establishment of the Bank. In pursuance of this vision, the Bank has been in operation successfully right from 1938 and has been meeting the claims of stakeholders like employees (wages), government (taxes), shareholders (dividend), Bank (expansion and diversification), etc. It is noteworthy that the whole banking industry has been facing slump across the country during past few years. But the J&K Bank has withstood all the odds and registered increasing profits since last two years with all the key financial indicators and ratios showing some improvement. Despite all odds, the Bank has continued to shoulder its socio-economic responsibility and has been a key player in employment generation in the state. However, some media reports during past few days about the financial health of the Bank are quite disturbing and worrisome, giving its stakeholders a big headache.
It may be mentioned here that Omer Abdullah and Mehbooba Mufti are well qualified–former a student of Business Education and the latter a student of Legal Studies. Both of them have been corporate practitioners. They know the corporate sensibilities and delicacies. They must restrain themselves from doing anything that may harm a corporate institution. Kashmir society has lost everything during the past several decades. One or two institutions are worth recognition and J&K Bank is really an institution the Kashmir society must be proud of. Hon’ble Governor on receipt of complaint should have probed the matter before going to public. He being Chancellor of universities should have discussed the subject with the institutions of higher learning. Be it recalled that Dr Manmohan Singh was not feeling shy to attend and deliberate upon budgeting in pre-budget sessions conducted by Delhi School of Economics when he was the finance minister of India. Then why our politicians and bureaucrats feel shy to discuss corporate governance, financial profitability and productivity of corporate entities with academia to learn, un-learn and re-learn concepts and strategies?
Pertinently, the present Chairman of the Bank is not only a banking practitioner but also a professional, qualified company secretary. He should have made a presentation of the performance of the Bank in presence of the academia/in the office of CAG. The corporate issues being delicate in nature are not discussed on streets. It is not everybody’s cup of tea because there is every possibility that a corporate entity may tumble, workforce in thousands may render jobless, economy may shatter, businesses may fall down and the like.
The Bank may come forward with Human Resource Management Audit, Secretarial Practices Audit under Corporate Governance Audit Report as on 31th December, 2018. The present writers have been taught in the class rooms that a Balance Sheet reflects a true and fair view of a corporate entity. If the Bank does not resort to ‘Creative Accounting’ (understating of provisions), the fundamentals of the Bank as per the half-yearly report ending 30th September, 2018 are strong. However, the share value increases or decreases not merely because of the fundamentals of corporate entity but also due to some play of other market factors-where the speculators bull and bear have an active role. Notably, the stock market fluctuations are governed by two-thirds of the sentiments.
While pursuing the half-yearly report as on 30th September, 2018 (and the annual report ending 31st March, 2018) it is evident that J&K Bank has registered 6 consecutive profitable quarters. Despite challenges on NPA front and a loss of Rs 1,632 Crores in 2016-17, it has improved on all key parameters during these quarters. The Bank envisages achieving the organizational goals aiming business beyond Rs 1.70 lakh Crores in the current financial year. The analysis of key financial indicators (half-yearly report as on 30th September, 2018) further reveals that the Bank has earned a net profit Rs 146.34 Crores, received deposits Rs 81,429.22 Crores, made net advances Rs 63,691.19 Crores during the period. The size of the Balance Sheet seems to have gone up. Further, Net Income Margin being 3.72 per cent; Post Tax Return on Assets being 0.31 per cent; and Post Tax Return on Average Net-worth being 4.69 per cent in the same period. The debt recovery has improved to a larger extent. The other key financial indicators are Gross NPAs 9 per cent; Net NPAs 3.9 per cent; Provision Coverage Ratio 69.46 per cent; Capital Adequacy Ratio 12.02 per cent, etc. These figures are indicative of fundamental health of the Bank. Thus, it is encouraging that in the last few quarters the bank has shown growth when other such financial institutions have been witnessing a fall in their assets across the South Asian Region.
The past Chairmen of the Bank, MY Khan and Haseeb A Drabu, have also immensely contributed to the development of the Bank. The Bank has worked restlessly in pursuance of the motto of Accountability-Transparency-Merit (ATM). This slogan must be sustained in all operations of the Bank under all circumstances.
Lastly, safeguarding the interests of J&K Bank should be priority of every state subject. It is a cherished institution of our society. It has played a critical role in supporting our business community in difficult times. This is an important institution the sovereign character of which needs to be duly protected. J&K Bank is a societal asset and therefore it is our moral duty to refrain from negating its contribution towards our society.
The writers are former Commerce Teachers and Life Members of Indian Accounting Association
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