Bank to lend men

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The state owned J&K Bank is planning to put a director each on boards of local companies it supports. A Kashmir Life report.

In coming days a change is on offing in the business sector of J&K. The state owned J&K Bank is contemplating the idea of putting a director on board of the small, unlisted companies that work with it.
The initiative comes at a time when financial institution sees a significant portion of its advances triggering a change in the state. “At one point of time, exposure of a few crores to an enterprise would mark a huge development but now we have many instances in which the exposure has crossed Rs. 100 crores,” a top executive of the bank told Kashmir Life. The exposure is not to the existing businesses only but also in a number of green field projects as well and this all happened when the turmoil prevented any outside investor coming to Kashmir.
For the Bank the major concern is that all the companies in J&K are unlisted family businesses. In such kind of concerns, corporate governance tends to be low, a universal phenomenon in small sector enterprises.
The Bank initiative has many targets. “Time and cost overruns have become a routine and it is telling upon the viability of the projects,” bankers say. “While appointing independent directors will infuse a culture of governance and a system of accountability of within, it will also help the bank to protect its interests.”
The objective, a senior executive at the J&K Bank said is “not only to protect the interests of the bank but also to help the entrepreneurs to grow from family held to public limited companies by providing them real time better quality information and governance. This will help the entire economy of J&K.”
Commercial banks are generally not known to insert directors on company boards, but J&K bank sees itself as a development financial institution of J&K.
Sources in the bank told Kashmir Life that it has already identified almost a dozen odd companies in Kashmir that would be asked to take a banker on its board. In fact, in one case, the company has not refused to oblige the financial institution because time overruns in implementing its major projects has dented its credibility.
The reaction to the initiative is guarded and mixed. “It is a mixed signal – if the bank is keeping a director on board of the local companies it means to professionalize the systems but at the same time it is a watchdog indicating a trust deficit,” says Dr Mubeen Shah, the president of Kashmir Chamber of Commerce & Industry. “Any decision by the bank has to be balanced.”
“If the decision is driven by capital exposure then it would not be good,” says Shakeel Qalander of the Federation of Chamber of Industries Kashmir (FCIK). “Yes, it will be a great leap if the bank has some equity participation in the companies.” Qalander says that the bank can explore the possibility of having stakes in the managements of the special purpose vehicles (SPV) and industrial clusters that will automatically help it to have a role in the proper management and monitoring of the individual companies that operate within particular clusters. “Bank having equity participation in companies will be a new thing and would be welcomed by the companies,” he said.
“Yes, having equity participation is an option but would take some time,” a bank executive admitted.
The bank that has emerged as the main driver of the businesses and trade in Kashmir over the years is leading the sector by example. By the end of March last, J&K Bank had the largest share of Rs. 10256.24 crore comprising 68.45 per cent in the aggregate outstanding credit of banking sector of Rs.14982.65 crore in the state. With Rs. 4345.18 crores investment in the priority sector which is more crucial to the development of the periphery, the bank has a sixty percent share in the aggregate exposure (Rs. 7291.37 crores) of the banks on this front. So it is always in a position to trigger reforms in the businesses or introduce the new ideas.

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A journalist with seven years of working experience in Kashmir.

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