A new bank is born

Kamraz Rural Bank and Jammu Rural Bank merge to form J&K Grameen Bank. R S Gull reports.

After a three year wait for Union finance ministry’s nod, J&K’s two regional rural banks (RRBs) merged to become J&K Grameen Bank. The new entity that will be headquartered at Jammu will have a network of 172 branches across the state. Unlike Jammu Rural Bank (JRB) that has its network in the length and breadth of Jammu, the Karmraz Rural Bank (KRB) is restricted to the north Kashmir district of Baramulla, Kupwara and Bandipora. A new set up may help it extend services to hitherto ‘out of bound belts’.

JRB and KRB are sponsored by the J&K Bank that holds 15 percent of their shares. The remaining equity of the twin entities is with central and state governments at 50 and 35 percent respectively. “The proposal (of merger) came a bit late. But it is a good development,” Dr Haseeb Drabu, chairman and chief executive of the J&K Bank said.

It was during his stint as economic adviser to J&K government that state government approved disinvestment in the two RRBs and assigned its equity to the JK Bank (otherwise owned by it to the tune of 53 percent) to pave way for the merger. “J&K Grameen Bank will revolutionise mainstay of our economy and will have its main focus on agriculture lending and rural lending.

There will be deepening of financial inclusion in the rural sector and enlarging outreach for empowering rural population with variety of banking services. The new formation will ensure much needed credit delivery to promote agriculture production and other productive and employment generating enterprises in the state,” said Drabu.

Apart from reach, the new bank has huge deposit base as well. Together, the two banks have Rs 1090.61 crores of deposits against which their joint loan book is only Rs 359.73 crores. If the two banks get a proper micro-finance business model, the two have the capacity of changing the fate of thousands of people from underprivileged and ‘un-bankable’ class of population given their reach.

Interestingly, there was resistance for merger from inside both banks. JRB officials said that their bank was performing better and earning profit, and that its prospects would get marred as the losses of KRB would add up. For the sake of argument, the KRB for the first time in last 28 years has showed profit, though not that big. KRB officials were averse to the idea saying the merger would impose a JRB bureaucracy over them as the new bank would be headquartered at Jammu. J&K Bank is yet to send a CEO to the new bank and insiders say it may take some time.

“The personnel running these banks need to be trained in better management of the micro-credit schemes and the political interventions must end to permit them prosper,” said an executive of JK Bank who has experience in the micro-credit. He said the bank has drafted a plan to run the new entity on professional lines.

After the notification was issued by the federal finance ministry, undertaking of the two banks stand transferred to the new entity. These include assets, rights, powers, authorities and privileges and all property movable and immovable, cash balance, reserve funds, and investments. However, the services of all the employees of the two RRBs – over 800 – shall continue at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were governed immediately before the effective date of amalgamation. J&K Bank has already released the new entity’s logo.

RRBs were created in 1975. Over the last three decades, more then 90 of 196 RRBs with 14,446 branches across India are running in losses with some of them having their capital base eroded totally. A number of committees have reviewed their performance and made recommendations. It was one such committee that recommended the merger of RRBs at state level on basis of sponsor banks. Apart from bringing in efficiency and transparency, the idea is aimed at helping these small entities to grow in size and have economies of scale that eventually would help them to compete. In the next stage, RRBs sponsored by different banks would be merged at the state level.

J&K has three RRBs of which two are sponsored by JKB and one by SBI. The state is interested in merging all small banks – both rural and cooperative banks – to create a chain that would specifically serve agricultural and marginal section of the society under the JK Bank, so far state’s lone success story on banking front.


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