Tell me what you want to be when you grow up Tell me about your leaky boat Tell me about your plans and your pains Tell me what I can do for you
I am listening
Annual Report 2007–08
I am listening…
Contents 02 Productisation of Financial Services 04 Apple 06 Dastakaar 08 Agriculture 10
Khatamband
12
Zafran
14
Trump Card
16
Chairman’s Statement
19
Board of Directors
21
Executive Committee
22 Happy Kashmir 25 Financial 2007-08 28 Directors’ Report 26
Management Discussion & Analysis
34
Auditors’ Report
35
Balance Sheet
36
Profit & Loss Account
37
Schedules to Balance Sheet
43
Schedules to Profit & Loss Account
44 Principal Accounting Policies 46 Notes on Accounts 58 Cash Flow Statement 59
Comments of C & AG
60 Report on Corporate Governance
08070xxx_01_25.indd 1
Over the last seventy years the people of Jammu and Kashmir have invested their emotions in J&K Bank. While we have never faltered in giving them outstanding returns on equity, we may not have done quite as well on the emotional coefficient. Besides doing ethical and socially relevant business and making profits for them, and ourselves, we are moving towards being an institution that feels for its stakeholders. We have so far communicated with our constituents. Now we want to have a dialogue; a conversation with our customers. Listen to them. Not just about banking but about them and their concerns. Real people, real day-to-day issues. People are to be at the centre of the new improved J&K Bank. Today, we see a flicker of hope in the state. We want to play a role in converting it into fulfilment; the new optimism has to be converted into an opportunity; promises have to become performance and cynicism has to give way to confidence. Only then the issues confronting society and our economy will get addressed. Before we aspire, as an institution, to lead, we have to learn to serve. We have to listen, in order to be heard. We have to understand, before we can act. We have to empathise, before we suggest In all this, symbolism is the substance. J&K Bank seeks to symbolise a wider and deeper change in our attitude to our work, to our fellow citizens and to our state and the nation. We have to collectively change lives and individually change society.
7/16/08 3:28:55 PM
PRODUCT PROFILE
Productisation of Financial Sevices P Capitalizing on the momentum generated by renewed business strategy adopted by our bank, we have moved far ahead of showcasing only the vanilla product offerings. An institutional process for productisation of all our financial services has been initiated. Customising every financial product in accordance with tthe business scope, market needs while keeping in view tthe mindset of our customer base; we are trying to place the productisation process in the larger socio-economic context of diverse economy like that of ours. Agriculture, horticulture (especially apple), handicrafts, ttourism, saffron etc. are the forte of J&K economy. Keeping this in view, we have, so far designed a specialized offerings bouquet tthat contains economy-specific products like All Purpose Agri-term Loan, Apple Advance Scheme, Dastakar Finance, Craft A Development Finance, Saffron scheme and Giri Finance etc. Given the extent of peoples’ involvement in various sectors of economy and the volume of business in monetary terms, J&K Bank has all along been alive to the needs and the requirements of the grass root level growers, artisans, craftsmen etc. With a strong commitment towards the empowerment of J&K people tthe bank is making efforts to broaden and deepen its financial servicing areas through its customized product process, whereof everyone can participate in the development of J&K economy besides feeling empowered and becoming self-reliant.
02
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 2
7/16/08 3:28:55 PM
08070xxx_01_25.indd 3
7/16/08 3:28:56 PM
Apple
Apple Advance Scheme
POSITION Apple, the king of Kashmir fruit, lies at the heart of horticultural economy of J&K state. Every year hundreds of truckloads of apple reach the markets of Delhi, Punjab, Jaipur, Bangalore, Chennai and Ahmedabad. The potential yearly returns on the fruit, as per some of the findings, stand at somewhere between Rs 2000 to 2500 crores. Almost 2.5 million people of the state are directly or indirectly associated with the apple business.
04
PROBLEM It is a matter of fact that the horticuture especially apple business has a great potential. The enormous potential of this sector has not been leveraged due to the gross under-financing by the banks. This had provided the space for the middlemen, locally known as Aritees, to create a vicious system of exploiting the needs of small and medium sized fruit growers. These Aritees charge hefty rates of return plus commission against the money provided in advance to the small fruit growers. The growers, being indebted, are forced to sell their produce through these Aritees only thereby reducing their bargaining power and ultimately their profits. This halts the trickledown effect of the fruit economy. In absence of any financial backing these farmers used to get their input materials like fertilizers and fungicides on credit that raised the costs and squeeze their margins further.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 4
7/16/08 3:28:57 PM
PRODUCT J&K Bank’s specially designed product named as Apple Advance has struck at the root of this exploitative system that thrived on scant or untimely fund availability and at times even lack of finance through formal channels. Last year, after a detailed study of the apple economy, a need-based, timespecific product was introduced. The product incorporated all the critical inputs necessary to make our financial intervention effective and grower-friendly. Apple Advance was introduced to meet the comprehensive requirements of the apple growers with distinctive features like reduced margins, higher scale of finance that includes production and post harvest maintenance, auto renewal of limits and most importantly very easy and hassle free documentation. With an effective product monitoring mechanism in place, the scale of finance was increased from Rs 1.50 lacs per acre from Rs 40,000 per acre. Regular revsion of scales of finance is carried out to match the rising production and marketing costs. PROCESS The objectives that guided the customization of the product included the easy access, simplified documentation, `avoiding redundancies, shortened process time and flexible fund limit. Even for the growers who have just leased orchards can avail finance under the scheme. With hypothecation of fruit crop and Third Party Guarantee of 2 persons as security and no emphasis on collaterals, the borrower is also allowed drawals up to 50% of the previous years limit till the bank renews the sanction for the next year. The process has been made extremely easy and hassle free to ensure that comprehensive requirements of Apple growers to take care of Production & Marketing Costs are fulfilled adequately and in time. Simplified legal documentation has been made to expedite the loan processing.
PERSON Nazir Ahmed Dar, 42, of Seer Jageer Sopore a small apple grower, whose annual fruit returns would just suffice for his basic needs is a beneficiary of this grower-friendly product pf the bank. Just few years back he couldn’t think of owning a vehicle to carry fruits to outside markets but now he not only saves money but also has created many assets of his own. “We have become self-reliant in just one year. We are no more anxious about the market prices in Delhi or any other fruit Mandi (market) outside because we are not their debtors this time. Now, we sell our produce once we get convinced about the rates”, says Nazir Ahmed Dar, 42 of Seer Jageer, Sopore. J&K Bank has freed us from the financial bondage that had restricted not only our growth but also the development of fruit industry of our state, he adds. Mohammad Ramzan Mir, 47 of Sopore says that his profits have almost doubled in just one year after availing the Apple Advance loan from the bank. “Those exploiter Aritees would charge us 20% as their commission which we have saved, thanks to bank’s effective intervention. Even in purchase of fertilizers, fungicides and other pesticides we have been able to save 10 to 20% due to cash payments. We feel confident enough now to grow and dream further, ” he said.
PERFORMANCE Just a year after the product was introduced and marketed in the apple growing belts across J&K the results have been encouraging so far. Thousands of loan cases have been processed and the funds disbursed across J&K. The streaks of confidence galore on faces of the beneficiaries are representative of the growers’ satisfaction and bring alive the bank’s motto of serving-to-empower. This very well sums up the response to our product so far. The objectives of the product were realized as it had been tailored to empower and then to emancipate every small and big apple grower from the vicious network of non-banking intermediaries by reaching out to them with affordable, easy and really fruitful product. And the goal of such a socio-economic revolution that is silent but spread across the state is certainly the apple of our organizational-eye.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 5
05
7/16/08 3:28:59 PM
Dastakar J&K Bank Dastakar Finance
POSITION The handicrafts of Kashmir have always been a source of pride for its people. These famed works of art have throughout history surpassed the barriers imposed by geography. Among all these versatile crafts, carpet weaving and shawl-making stand distinctively out both in terms of exquisite craftsmanship and business volume. Handicraft and handloom sectors comprise a major industrial activity in the state. Among the oldest industries of Kashmir, they support more than five lac people with an annual turnover of Rs. 2,000 crores. PROBLEM However, artisans, craftsmen, and weavers have never been the real beneficiaries of the trade. Lack of capital and their weak socio-economic condition makes them vulnerable to exploitation by traders and middlemen or simply a moneylender, putting them at the mercy of these informal channels of finance. The cost of finance, in essence, far outweighs the gains accrued. The artisans are bound by the harsh terms and conditions of the middlemen and end up bowing to their demands. With the result, a large number of these craftsmen have shifted to unskilled labour bringing this traditional industry to a decline.
06
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 6
7/16/08 3:28:59 PM
PRODUCT J&K Bank in its endeavour to promote trade, industry and to preserve the traditional arts and crafts of the state devised a scheme aimed at the financial needs of the artisan community aptly called ‘JK Bank Dastkaar Finance’. The scheme provides easy and soft credit to craftsmen engaged in the trade and helps them to set up their own ventures, weeding out the middlemen responsible for their exploitation. Keeping in view the specific production cycle associated with this trade the loan comprises of a term loan and working capital components. PROCESS The disbursement is phased in quarterly installments and aligned to the status of WIP (work in Progress). This ensures proper end use, quality control and timely completion of work. The weavers/ artisans are allowed a reasonable time for the repayment of the bank finance. To make the credit hassle free, no collateral/third party guarantee is required. The product has been designed on the bank’s philosophy of confidencebased lending as opposed to collateralbased lending. There is no requirement of any collateral security under this product. The legal documentation has been kept at bare minimum with only two documents to be executed for disbursement of the loan. In order to increase the reach of this product the database of the weavers/ artisans available with various trade associations is being utilized besides identification of people by concerned branches of the bank.
PERSON Abdul Qayoom Mir of Hamichi, Saidpora is a happy man these days. Smiling he says “Free from the clutches of the middlemen I no longer work for anyone but myself. It is all because of the finance I took from J&K Bank, as hassle free and timely finance helped me save time and earn better margins.” Qayoom says he earns more now because of the Dastakar scheme. With a glint in his eyes he dreams loudly about giving his children a better education and life. A fellow artisan Manzoor Ahmad Mir says that earlier he couldn’t negotiate the price of a shawl he had prepared. “As I had already borrowed from the middleman, he would find faults to lower the price further besides the agreed commission. I had no option but either to compromise on price or go for a distress sale. Either way I would lose.” After availing the finance he proudly says that he can sell his product to the highest bidder thus earning maximum profits. The artisans are happy as they see an end to the exploitation, which was gradually forcing them out of the trade itself.
PERFORMANCE Hamichi, Saidpora is a village comprising of more than 200 families, all of whom are engaged in Sozni embroidery. They were completely unbanked until almost all of them availed the loans under Dastkaar Finance. The Zakura branch of J&K Bank in the city suburbs has disbursed 108 cases of Dastakar Finance in one go while 80 cases are under process. The people of this small village are talking about saving, getting a loan, installments, interest, profits- terms unknown to them earlier. The awareness has also resulted to an awakening of a kind. They are waking up to their needs to make a collaborative effort for common benefits. Like sensing a need for a market the artisans of the village have made a joint effort to form a group to market their finished goods. The change does not only reflect in their tone but in their lives as well, as they are all set to move towards an empowered and bright future that awaits them.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 7
07
7/16/08 3:29:01 PM
Agriculture J&K Bank All-Purpose Agri Term Loan
POSITION Agriculture not only gives riches to a nation, but the only riches she can call her own. Rightly said. Agrarian economy is also the most important component of J&K’s financial system. Thus, agricultural farming including the lucrative horticulture sector and the related business practices, engage 65% to 70% of the state population. Considerably large workforce, both semi-skilled and un-skilled gets employment in this growing sector.
08
PROBLEM The small farmers, who constitute the backbone of this agro-based economy, have had many problems because of being marginalised. Although, this group plays major role in the productivity but has all along been suffering due to lack of finances for the cultivation, harvesting and marketing of their crop. It may be said that the institutional mechanism of credit in rural areas had not been able to deliver.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 8
7/16/08 3:29:02 PM
PRODUCT: JK BANK ALLPURPOSE AGRI TERM LOAN The product aptly named as All-Purpose Agri Term Loan has been designed in a way that lays special emphasis on small and marginal farmers and provide sufficient and, more importantly, timely finances to the farmers engaged in all types of agricultural and allied activities. The product aims to cater to the needs of small farmers within very little land holdings in the rural and semi-urban areas of the state. PROCESS The objective has been to provide easy finance to needy farmers through regular channels of finance and to wean them away from the exploitative circle created by the non-banking intermediaries. For that purpose, the product has been devised in such a way that hitherto un-banked customers get an easy access to banking services through simple and affordable documentation process. A maximum credit of Rs 1.00 Lakh, depending upon the agri-activity to be financed is provided but multiple activities can also be considered for finance. The product is offered at affordable interest rates.
PERSON This finance, which provides up to Rupees 1 lakh, has benefited small fruit and vegetable growers effectively. It has helped them to have major share of their earnings. There are number of beneficiaries, who have had a chance to improve their lives and their life-style. Farooq Ahmed Lone of Batwina Ganderbal gladly feels that he is one of the privileged ones, to have had availed this finance. He is happy to have escaped the shackles of traditional lending system, “The middlemen eyed most of our profit in return for the money we borrowed from them.” He is satisfied with this J&K Bank endeavor to help them have a dignified living. Now growers like him are able to send their produce directly into Mandi or at times outside the state. His fellow farmer, who also encashed this opportunity, have similar sweet tales of success to tell. Such stories can be heard everywhere in surrounding villages like Zazna, Ahan and Nawab-Bagh. For them, the entire process has been simple. Lone admits, “Things like buying of seeds, pesticides and other requirements have been eased out and we get them at much concessional rates now, all because we have the money with us. We feel more independent now”.
PERFORMANCE In December 2006, in just two sittings with the villagers, the Ganderbal Branch disbursed Rupees Eighty five lakh at the doorsteps of ninety borrowers with minimal formalities. As of now, this branch has disbursed almost 4 Crores to more than 400 vegetable growers and none of the monthly installments in these cases are in arrears. This product is available for farmers of cereal Crops and vegetables, orchardists. it is also available to unemployed rural youth for setting up of small Dairy/Poultry units, in purchase of seeds, pesticides/fertilizers, plough animals and farm Machinery. This seems just the beginning, as the fruits of this harvest are expected to yield much. The strengths of being a community bank with a monopolistic presence are being exploited more effectively so that the product reaches all the small-growers of the state. And with every loan granted, we are having more and more happy faces.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 9
09
7/16/08 3:29:03 PM
Khatamband J&K Bank Khatamband Finance
POSITION Introduced in Kashmir by the 14th century Muslim saint from Persia, Shah-i-Hamdaan, Khatamband is an art of designing ceilings with beautiful geometric fitted-in wooden patterns. These ingenious patterns are made of soft pine wood called fir or Budhloo in Kashmiri. It gained popularity for its exquisite beauty and more so for its insulation property, which was essential, given the climatic conditions of this place. The uniqueness of this art lies in the fact that Khatamband ceilings can be dissembled and re-assembled conveniently as per the requirements. It adds an ornamental look to the already magnificent architectures. There are hundreds of designs for the Khatamband wherein artists also experiment with mirrors and colours. The houseboats in Dal Lake stand witness to the magnificence of this craft that attracts every eye around and wins over the aesthetic senses of every visitor. Presently, about ten thousand artisans are associated with it. Now this art is even traveling to places like USA, Australia and many European countries as the local artisans are increasingly getting orders from foreigners.
10
PROBLEM They say, “The hands that decorated the abodes of the richest remained empty”. Despite having such a great potential in the interiors industry, this handicraft faces challenges at various fronts. The biggest being the lack of requisite and timely finances. With prices of the required timber rising, the craftsmen receive only 10 percent of the advances for the order they get; whileas the rest of payments are made only after the completion of the work. With the result, the coming generations of these people, especially the poor ones are losing interest in this ingenious craft. The children of the existing craftsmen are hesitant to adopt it as a profession. PRODUCT Khatamband craft is a specialized craft that provides employment to few thousand people. A special product was customized according to the needs of the Khatamband craftsmen. The product was tailored to provide comprehensive and timely credit to them, based on proper understanding of the production cycle and need for finance at its different stages. The finance is provided as a revolving facility, eligible for enhancement every year on the basis on the turn-over.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 10
7/16/08 3:29:03 PM
PROCESS The product has been intentionally targeted at craftsmen aged between 18-55 years, no collateral security is asked for and the documentation process has been kept simple. The prospective borrowers have to only submit their identity proofs to avail the facility.
PERSON Mohammad Ismail Najar (61) of Cherari Nambal, Safakadal, a frail old man, is a Khatamband craftsman. The art has descended to him and Ismail’s three sons are carrying it forward. Ismail got a time-bound order worth Rs 80000 with an advance payment of just Rs 10,000. He availed finances from the bank’s Safakadal branch and only then was able to complete the order in time. “We earned good money after we availed the loan under Khatamband Finance Scheme. It helped us to be independent and we could purchase the in-put materials against cash, which saved us at least 5 percent”, says Ismail with a smile of satisfied.
PERFORMANCE The response to Khatamband Finance so far, has been impressive. It has again generated hope among the traditional Khatamband craftsmen, especially small ones. Access to affordable finance is no longer a problem for them. Kindling such hope is the first successful step towards the revival of all such culturally rich arts and crafts.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 11
11
7/16/08 3:29:05 PM
Zafran J&K Bank Zafran Finance
POSITION Kashmiri Saffron – the most expensive spice in the world – has a unique aroma and flavour. It is considered worlds best because of its scientifically proven superior quality, hence commanding a price much higher than the saffron from any other part of the world. Saffron is extensively used for culinary and colouring purposes. Besides, because of its medicinal qualities, it is an important ingredient for both traditional (Ayurvedic and Unani) and allopathic medicines. Its demand in the markets, both domestic and international, is growing. Saffron is a niche-economy, involving hundreds of Kashmiri families. Still, the recent decline in saffron production is going to affect this segment of state economy. In 2003-04, around 6.98 metric tonne of saffron was exported while as the exports declined to 5.19 metric tonne in 2004-05. PROBLEM Although, saffron is considered a very profitable cash crop, the middlemen have plagued its trade, resulting in uneven distribution of returns. With the farmers being at the lowest rung of the ladder, the returns on saffron hardly trickle down to them. These middlemen provide advances to farmers at exorbitant rates, thus suck them into a vicious cycle of exploitation. Farmers need timely finance for saffron bulbs, fertilizers, fungicides, pesticides, irrigation, harvesting and packaging besides other associated activities. Improper cultivation practices as well as post harvest techniques for want of finance have also badly affected the quality of saffron.
12
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 12
7/16/08 3:29:07 PM
PRODUCT With a view of preserving this prized spice, J&K Bank tailored a specific product named JK Bank Zafran Finance. Its purpose is to provide adequate, timely and need-based finance to saffron growers. The scheme is for all saffron growers, especially the smaller and marginal ones including even the contract farmers engaging in or intending to start its cultivation. The quantum of finance is proportionate to the land holding of a grower. The product also provides an additional finance for post harvest and packaging. PROCESS The disbursement is done in two phases; 60% in the first year and 40% in the second, when the growers are in need of funds. The repayment of the advance is scheduled within the four year growing cycle of saffron. Re-financing facility can be availed for fresh plantation of the crop. The documentation has been simplified and kept minimum to make it hassle-free.
PERSON Mohammad Shaban, 60, a native of Pampore, has an emotional attachment with the Saffron land he inherited from his parents. “Previously, I had to lease out the land to a saffron grower for just peanuts, as I didn’t have any money to invest. After availing the Zafran Finance I am getting much better returns ”, says Shaban, who was thinking of disposing off the land earlier but changed his mind after availing the Zafran Finance. “We are mostly dependent on rainfall. The amount and timing of rain decides the fate of a harvest. This has been going on since long. Now, with the decrease in rainfall, things are changing. Only a few affluent farmers have been able to dig bore wells but with Zafran Finance it becomes easier,” says an 80-year-old saffron grower Ghulam Mohammad who has dug a bore well after availing the facility. He is hopeful of reaping rich dividends as experts say that proper irrigation can increase the production by upto 50 per cent. Another grower Mir Ramzan Ahmad used to borrow money from a saffron trader, who would then buy his produce. “I was bound to sell the produce to him only, even when he always paid me less than the market price. Besides, he would force me to sell specially when the prices were low. I had to bear this double loss every year” says Ramzan who after availing Zafran Finance waits for the right time to sell his produce so that he earns maximum profits. “I am definitely earning more but I want to grow further”, he adds.
PERFORMANCE Zafran finance has made the middlemen and other informal channels of finance unattractive for the saffron growers. Besides it has encouraged the small growers to withstand the price fluctuations because now they are not forced to sell their produce and they can wait till they are satisfied with the rates. With the much-needed direct finance leading to the prosperity of some, others have already made up their mind to follow. Hence the product is in demand across the saffron belts of the valley.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 13
13
7/16/08 3:29:09 PM
Trump Card J&K Bank Ration Card
L AY I N G T H E F O U N D AT I O N Deepening of financial intermediation is a pre-requisite for sustained economic growth. We, at the bank, have given a new meaning to Inclusive Growth by working on empowering people and demonstrating that people with lesser means can be reached and reached profitably. For us, making a difference in people’s lives and making profits cannot be mutually exclusive. We are therefore combining the sensibility of social enterprise with the form of a for-profit business. A very novel initiative was started in this direction, which proved to be quite useful in reaching out to almost every household of J&K. The initiative was to print the Ration Books for the Government. The State government annually prints and distributes around twenty lakh ration books to consumer families to facilitate them purchase of rations from govt. owned fair price shops. Practically every family in the state gets a ration book including more than 8 Lakh BPL families. These ration
14
books reach places where even roads don’t go. The ration card, therefore, could be used as an ideal delivery vehicle to reach out to the ‘unbanked’ people and to carry out the empowerment initiative through an assured and established distribution network active across J&K. Our Strategy, Communications and Design teams got together to design an aesthetically pleasant and functionally multi dimensional handbook that would not only get the people their rations but a slew of financial services as well. It was for the first time a professionally designed ration book, with a trendy look was made available to the general public. And apart from ration coupons, the ration book contained pages on financial education; a brief introduction to our various services and products. Not only that, customer relationship forms for a variety of our products like the “Girl Child Deposit Product”, “All Purpose Agri-term loan” etc were provided in the ration books. The results of this initiative were quite remarkable. People in far-flung areas for the first time got something to read about the financial services options available to them. And that too in their own mothertongue. Armed with the simplified
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 14
7/16/08 3:29:10 PM
application forms provided within the ration book, they went to their nearest branches to put their hard earned money to better use instead of keeping the cash at home. Many more even came for credit. Vegetable growers, milk wallas, students aspiring to go for higher studies, young parents concerned about their child financial security; all flocked down to our branches to avail the banking services. The ration books also contained “Personal Information” coupons, which helped the bank create a database of around 20 lakh people. The data would be used for strategizing the Banks other initiatives aimed at economic empowerment. The bank spent quite a sum on printing these ration books, which was otherwise to be spent by the government. But the smiles on the faces of our people were a return that was matchless!!!
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 15
15
7/16/08 3:29:10 PM
Chairman’s Statement A difficult year has gone by and an uncertain one lies ahead. Needless to say, managing a business in an uncertain macroeconomic environment is more complex than in an adverse year. This is true both from a policymaking perspective and from an operational one. As the looming uncertainty is not the result of a single factor there can be no single answer, no elegant solution, that will deliver a quick turnaround.
The dangers of managing a business (or for that matter, an economy) in uncertain environs lie in under estimating the extent and intensity of the downside. There is an obvious upside to this and it can be tempting to drive the business on the basis of what is “likely to happen” rather than “what could happen”. However, taking the latter route minimizes the risk, even as it leaves scope for some pleasant surprises. This in effect means that in the year ahead, conservatism would be the best course for Indian banks. This is the time to strengthen internal systems and controls and exploit productivity and efficiency gains to enhance the bottom line. The year 2007-08 was one of the most difficult in recent times. The list of economic woes was unending: surging inflation, unprecedented oil prices, deteriorating fiscal situation, reversing foreign investment flows and a depreciating rupee. To a large extent, external factors were responsible, but the fact that the Indian economy has, in a matter of months, gone from being the pick of the emerging markets to a vulnerable one raises fundamental questions.
16
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 16
7/16/08 3:29:10 PM
It is now obvious that what we are seeing is an overheated condition of the economy aggravated by adverse supply conditions, from oil, food and other commodities. The situation can also be seen as part of the “impossible trinity” and as such is intertwined with capital inflows, exchange rate, and interest rates. This complex scenario makes policy formulation difficult. The only recourse is to use monetary and other related instruments, but these work effectively when the fiscal side is well in control. With that not being so, the process of managing the downturn is much more difficult, but not intractable. The critical point is that many of the symptoms of the current economic condition do appear to have a long- term dimension that poses risks for sustainable growth. However, to be clear, there is not the least uncertainty about the economic future of India. In other words, the long- term prospects are based on structural advantages while the short run problems have arisen out of situational infirmities. The method and manner in which these situational issues are being addressed — almost exclusively through monetary policy interventions — is sure to result in the impact being disproportionately borne by the banking sector. Indeed, from the manner in which monetary measures are being nuanced it seems clear that financial sector players will have to share a part of the adjustment costs. The mechanics of this are not far to seek. There is bound to be a rise in the cost of funds: advances yield will not adequately compensate the increased costs especially when growth will slowdown and there is likely to be an upward trend
in impairment of assets. This will further depress the advances yield and as such margins will come under pressure. The sector will continue to be plagued by write downs, mark-to-market losses, and falling treasury income. Indian banks will also see the full extent of losses on foreign exchange derivative contracts used to hedge currency risk. In general, confidence levels are low, and uncertainty about write downs continues. This has resulted in sharp corrections in the banking sector. Treasury operations are likely to see higher mark to market losses and fee- based income will plateau. It is clearly not an easy time for anyone in the banking sector. Within the overall macro-economic situation and its attendant sectoral issues, what is the scope and strategy for the J&K bank? For the last one year, in anticipation of the evolving situation, our goal has been to make our business model more flexible, so that even with a slower economy and single-digit revenue growth, we achieve our long-term earnings’ targets. The business model that we worked out three years ago is yielding dividends in terms of its flexibility. So far, the Bank has managed to come through an increasingly difficult period exceptionally well, largely because of our success with anticipating and providing for some difficulties and policymoves. Our 2007- 08 earnings were robust, net interest margins were stable, impairment was reduced, so was the cost to income, and return on equity and assets reached much above peer group levels. The Bank continued to be adequately capitalized as we added our franchise, explored new businesses, and launched new products and partners.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 17
17
7/16/08 3:29:11 PM
Those who have kept track of the evolving strategies and shifts in the Bank business over the last three years should expect us to leverage the autonomous, public-investment driven J&K growth, to lay the foundations for a “contra-cyclical” strategy of growth for the Bank. At the sub-national macroeconomic level, there has been a big boost in infrastructure spending, with minimal leakage into the national/global economy. As such, the asset growth in J&K has, on an average, been about 30 to 48 per cent over the last one year and will continue at this rate for the next 2-3 years. The Bank plans to grow its business outside of J&K at the average sectoral rate of about 15 per cent. This, along with a 35 per cent growth in J&K, would give the Bank an aggregative asset growth of over 25 per cent. This growth, along with a yield arbitrage of 300 basis points, will see that the pressure on net interest margins is minimized and profitability maintained. However, we are factoring in a squeeze on the incremental net interest margin, which is expected to dampen, if not nullify, through better liability management. In other words, with a clear strategy in place, one that is working better than anticipated, there is need only for a reaffirmation of current strategies, structures and potential outcomes.
While it may not be possible for a small company like ours to deliver double-digit earnings indefinitely, in the light of a sustained downturn in the markets, J&K Bank has built-in enough flexibility to weather a short-term period of weakness and still deliver the financial returns that our investors expect. Our recent performance has made the organization more optimistic, as strategic shifts in our strategy and internal reorganization have helped us deliver the goods. Over the last two years our organization has become stronger, our implementation has improved, and our employees have developed a more positive outlook about their work and the company. This, more than anything else, has been the key ingredient in overcoming any macroeconomic business cycle or sectoral stringency.
Haseeb A Drabu Chairman & CEO
Our conservatism and consolidation of the last three years has paid off. In spite of the short-term environment issues, we continued to invest. The critical choice we made was not to sacrifice the medium to long-term growth of the company in order to meet a short-term goal, be it business, incomes or profits. Our priority is to ensure sustained long-term profitability.
18
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 18
7/16/08 3:29:11 PM
Board of Directors
1 Haseeb A Drabu Chairman
2 M S Verma Director on the Board
3 G P Gupta Director on the Board
5 A K Mehta Executive Director
2
3
4
5
6
7
6 Abdul Majid Mir Executive Director
7 B L Dogra Director on the Board
1
4 B B Vyas (IAS) Director on the Board
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 19
19
7/16/08 3:29:11 PM
6
8
9 5
1
4
2 3
08070xxx_01_25.indd 20
7/16/08 3:29:14 PM
Executive Committee 1 Haseeb A Drabu Chairman & Chief Executive
2 A K Mehta Executive Director & COO
3 Abdul Majid Mir Executive Director & CFO
4 Ajit Singh Sr. President & CPO
Vice Presidents Ghulam Mohammad Reshi Ghulam Ahmad Regoo Suman Durswal Shamsher Singh Nathyal Madan Lal Gupta Ram Prakash Sharma Mohammad Amin Pandow Abdul Rashid Nazir Ahmad Parimoo Mohammad Amin Narchoor Raja Abudl Latif Mohammad Afzal Khan Bashir Ahmad Lone Om Prakash Sharma Fazle Mehboob Gani Javeed Mustafa Rafiqi Vagish Chander Abdul Hamid Banday Shafat Ahmad Banday Meera Jamwal Roop Krishan Shah Surjeet Singh Abdul Rouf Bhat Abdul Rashid Mohammad Syed Wani S.K.Bhat Nayeem-ullah Khursheed Ahmad Pandit
5 G A Beigh President & Chief Strategist
6 Tafazal Hussain
Company Secretary Parvez Ahmed
President & CCO
7 Sahibzada Ghulam Mohi-udin (not in picture) President & Country Head-Sales
Auditors Gupta Gupta & Associates Chartered Accountants
8 K K Sharma President & CTO
Gupta Sharma & Associates Chartered Accountants
9 Parvez Ahmed President & Company Secretary
Baweja & Kaul Chartered Accountants
Registered Office M A Road Srinagar 190 001 Jammu & Kashmir
Corporate Headquarters M A Road Srinagar 190 001 Jammu & Kashmir www.jkbank.net
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 21
21
7/16/08 3:29:15 PM
22
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 22
7/16/08 3:29:15 PM
THE BEAUTY OF BUSINESS The most famous international brand of natural beauty is Kashmir. While it is a great advantage, it has subsumed many other aspects of J&K; primarily, the presence of life and potential of doing business. The focus on meadows and mountains, and lakes and gardens has put into shade the reality of existence in the state. Yes, there is unparalleled beauty in every speck of Kashmir, there are, but , also real people doing real business. They toil to make a living; they sweat to eke out an existence, they use their creative abilities to create unparallel crafts. They run industries, they manage enterprises. There is vibrancy in their life and business. At the J&K bank, while we adore the beauty of the state, we admire the people’s ingenuity to do business.
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 23
23
7/16/08 3:29:26 PM
08070xxx_01_25.indd 24
7/16/08 3:29:32 PM
Financials 2007-08
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070xxx_01_25.indd 25
01
7/16/08 3:29:36 PM
&-" /+-.",+-/ !@<M*@H=@MN 6JPM!DM@>OJMNC
@0C@@O -MJADO )JNN<>>JPIOC #6 (!,$* + *. + 1C@ C RMJM@N >JHKMDNDIB JA KMJM@N NC<M@ R<MMMJM@NMJM@N IMJM@NRMJM@NAJMOC@T@<M RCD>CDN CDBC@MOCMJM@NDIOC@KM@QDJPNT@<M 1C@JK@MCJHK<M@?OJKM@QDJPNT@<M !&'% 1C@ JIODIP@?OJM@BDNO@MJH@CM@MJM@NAMJH/N >MJM@NDIOC@KM@QDJPNT@<M & ,!&, * +,!&'% ', *!&'% !PMDIBOC@T@<MJPM+@O&IO@M@NO&I>JH@DI>M@JH@JAOC@ MMJM@N OC@M@=TM@B<M?DIB<C@JH@@<MI@? =TOC@=MJM@NMJM@NAJMOC@KM@QDJPNT@<M (!,$ )-1*,!'* 6JPM T/JHAJMO<=G@G@Q@GJA C !.! & 1C@KJGD>TJAM@R<M?DIBOC@NC<M@CJG?@MNRDOCCDBC?DQD?@I?N>JIODIP@?OCDNT@<MD<=G@K@MAJMH@ JAOC@ OJMN<M@KG@JHH@I?<?DQD?@I?JAAM@@JAO<SAJMOC@T@<M@I?@?*<M>C NP=E@>O OJJIODIP@NOJM@BDNO@MD@ 1C@ CD@Q@?<=PNDI@NN OPMIJQ@MJA/N >MJM@NAJMOC@T@<M MJM@NDIOC@KM@QDJPNT@<M M@BDNO@MDIB<BMJROCJA 1C@JK@MD@I>TJAOC@=M@MJM@NJINO*<M>COJ/N >MJM@NJINO*<M>C RDOCDI RCD>C 0 ?@KJNDON CM@MJM@N JI NO *<M>C AMJH /N >MJM@NGC OC@K@M>@IOJNO?@H>M@ODJIDI ?@KJNDONCJNO?@KJNDONJPMJNOM@O@N JA OC@ M@MJM@N AMJH /N >MJM@N DI OC@ KM@QDJPNT@<M 1C@TD@G?JI@NCM@JIOMD=PODJIAMJHAJM@DBI@S>CJH@CMJM@ 1C@#JM@S !@JM?@?<OPMIJQ@MJA/N >MJM@NB@I@MMJM@N MJM@NJAOC@KM@QDJPNT@<M OCPNM@BDNO@MDIB<BMJROCJA
26
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070330_25_88.indd 26
7/16/2008 6:20:32 PM
!&. +,% &,+ 1C@ M@MJM@NOJ/N >MJM@N 1C@DI>M@PMDOD@NDIOPI@RDOCOC@M@BPGJIN>DJPNNOM@IO@N ?@>GDI@?AMJH COJ C 1C@ +- >JQ@MC !,!&!,!,!. +!& 1 4DOC<QD@ROJKMJQD?@BM@JIQ@ID@I>@CPNOJH@MN TJPM=C@?<NG@RJAI@R&1 DIDODOPM@?PMDIBOC@T@<M 1C@N@DI>GP?@ +JJA>JHKPO@MDU@?=MC@N JHKPO@MDU@?JK@MC@N +JJA 1*N =JOCJINDO@JAANDO@@NN +JJA=MC@NMJGG@?JPOOJ 0 NJI +JJA/1$0@I<=G@?=MC@N NJI +J JA=MC@NJAA@MDIBDGDOT
&& $+ ' !+,*!-,!'& 1C@ JIODIP@?OJ@SKCPG<MGTDIOC@<>LPDNDODJIJAGJR >JNOM@OC@N DI>GP?DIB@SO@INDJI>JPIO@MN@=MC@N =MC@N<M@DIN@HDPM=CRDGGC@GK><MMT JIOC@BMJROCHJH@IOPHK<MOD>PG<MGTDIB@I@MJNO?@KJNDONM@?DO?DN=PMN@H@IOOJPGOPM@ <MODNOJMN 1C@ 1*I@ORJMFJAOC@ M@JINODOPO@NOC@G<MB@NO 1* I@ORJMFDI'( 1C@ CI@ORJMF@S>GP?DIB@SO@INDJI>JPIO@MN@=MC@NCR
D3@5:7E
*@OMJ 2M=
(*' -,!.!,1 *ODQDOTCM@NAMJH/N G<>N GM@MJM@N ?@NKDO@ HMPDOH@IO?MDQ@PI?@MOJIAJMHDOTRDOCOC@=@NON OC@=MPDO@?#DID@N/@GPODQ@NM@D@N!DQDNDJIRDOCM@JH@OJOC@G@Q@GJAK@@MBMJPK=<MQ@?JPOJI@HJM@UJI@)JIOMJGDIOC@)DKPMDOD@N !@KJNDOJMT )DHDO@? +0!) @N )DHDO@? !0) >JIODIP@? OJ <>CD@Q@ KC@IJH@I@N ?PMDIB OC@ T@<M 1C@ IPH=@M JA !@KJNDOJMT <>>JPIONCNOJJ?PMDOD@NRC@M@ PNOJ?DM@@NGDF@JIGDI@NOJ>FOMODQDOTDN=@DIBKMJQD?@?OJ>GD@ION@IO@MNJAOC@ D
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070330_25_88.indd 27
27
7/16/2008 6:20:33 PM
!+,*!-,!'&' !&+-*& -+!& ++ 1C@ ODIB@ J )O? >JGG@>O@?MJM@NMJM@NDIGDA@&INPM@=PNDI@NN?PMDIBOC@ADIDJH@JA/N >MJM@NJM?DIBMJM@N?PMDIBOC@T@<MPI?@MM@KJMOOC@M@=TB@I@MJH@JA/N MJM@N 1C@ JM?@?@ PNDI@NN&I>JH@?PMDIBOC@#DIDOJM JIODIP@?OJ?DN>C<MB@DON)@ONJA'(0OOJMDGT 0OJHHDOO@@H@@ODIBNJA0OJIQ@I@? ?PMDIBOC@T@<M 1C@=GJ>FOG@Q@GH@@ODIBNNP>CC@?PG@DION 1C@?DNOMD>O>M@?DOKGGJN@GTO)@Q@GN * !'&$*-*$&#+ 1C@K@MAJMH@JAORJ/@BDJIOJMT 1C@ ?@KJNDONJA'M@MJM@NAMJH/N >MJM@NMJM@N@NCM@MJM@NMJM@NMJM@N?PMDIBOC@K@MDJ?PI?@MM@QD@R 1C@?@KJNDONJA(MJM@N@NCM@MJM@NMJM@N@NJA&I?D<)O? /&0&)JI@JAOC@G@M@?DOMTJAOC@>JPIOMTM@ DK@ @OJNTNO@HN@?PM@N KM@Q@IODIBHDODB@NJAAM@OJ(6 IJMHNDJPNOMODJIN@O> &IOPI@RDOCOC@>C@DI OJMC@N@NJA OC@ O@?OJQ<MDJPNOTK@NJA&INK@>ODJI P?DONDI>GP?DIB/DNF PMM@IO P?DO &I>JH@ P?DO 0+ - P?DO 0OODJI '*('*, '. *&& '( OD>@DI>JMKJM@ 1C@>JMKJM@KCDGJNJKCT@I>JHKCF@S>COD>@NN @AA@>ODQ@NPK@MQDNDJI@H@IOJAQGP?@? DI OC@ NO@ @MODAD>JHKGD@JA>JI?DODJINJA JMKJM@GPODQ@!DM@>OJMNJAOC@ @NJAOC@ OAMJHOC#@= ODQ@GTJIOJMM@NDBI@?AMJH!DM@>OJMNCDKJAOC@ OJMNKG<>@JIM@>JM?OC@DM?@@KN@IN@JAD@NM@I?@M@?=T*M *PNCOOJMNJAOC@
28
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070330_25_88.indd 28
7/16/2008 6:20:33 PM
-PMNP>JM?@? =T OC@ /@N@MQ@ PODQ@ !DM@>OJMN JI OC@ OJMNJAOC@ C@ *M ) !JBM< !DM@>OJM M@ODM@N =T MJO>JM?@ RDOC MOD>G@ JA OC@ MOD>G@NJA NNJ>DO
COJM !DM@>OJM !DM@>OJM "S@>PODQ@ !DM@>OJM "S@>PODQ@ !DM@>OJM !DM@>OJM
!* ,'*+ * +('&+!!$!,1 +,, % &, 1C@ J<M?JA!DM@>OJMNC@M@=T>JIADMHNOC
&I OC@ KM@K<M>JPION OC@ <=G@ <>>JPIODIB NOO@? NP>C <>>JPIODIB KJGD>D@N JINDNO@IOGT JHKDD@IO ><M@ AJM OC@ H@ JA >JPIODIB M@>JM?N DI <>>JM?@ RDOC OC@ KMJQDNDJIN JA OCDN >O AJM NJHKODIB AM>JPIONJI<BJDIB>JI>@MI=
%
/@HPI@M
/N
.P
*! -CDG">JIJHD>N
"SK@MD@I>@T@<MN
T@<MN
!
)
">JIJHD> ?QDNJMOJ$JQO JA'(
/@HPI@MGP?@N NJIOMD=PODJIOJKMJQD?@IOAPI?
"*-),6"!#,/- /1,#1%"#&+ + & )6" / +!&+/" "&-1,#/"*2+"/ 1&,+ $$/"$ 1&+$/0 ,/*,/"-"/*,+1% \\\\+&)\\\\
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070330_25_88.indd 29
29
7/16/2008 6:20:33 PM
5=@AI>7697?7@F 1C@!DM@>OJMN@SKM@NNOC@DMNDI>@M@OC@OJMN <>FIJRG@?B@RDOCD@J JK@MF"S>COJMNPNOJH@MNOJMNKG<>@JIM@>JM??@@KDC@I<=G@?OC@ JM?@IQD<=G@BMJROCJINJGD?JPIOMT
#JM
30
-G<>@0MDI
J & K BA N K A N N UA L R EP O R T 20 07– 0 8
08070330_25_88.indd 30
7/16/2008 6:20:33 PM
* $")"*/&. 0..&+* *!* (4.&. *<>MJ HJI@O<MT"IQDMJIH@IO @>JHDIB ?Q@MN@
IJHDIJPN=@BDIIDIBOC@ADMNOOMJI?NC<MK@NONDIBG@ ?GDI@@Q@MJA KJDIONDIOC@=@I>CH<MF0@IN@S I@I?JINO*<M>C OC@G