Banking In Trouble

By the end of December 2012, 1590 branches of 42 banks and financial institutions serving J&K had Rs 60245 crore deposits as their cumulative advances were at Rs 21729 crore. They had Rs 1279 crore of bad assets. More than half of the deposits (Rs 37249 crore) and two-third of the overall advances (Rs 14557 crore) were with state owned J&K Bank. Though the overall credit to deposit ratio (CDR) at 36.07% is still at its lowest, if compared at the national level, the banks in the state have changed their attitude towards the market they are operating in. Kashmir Life publishes a detailed report about the banking scene that was authored in January 2002 to help readers understand how money market improved in J&K’s last one decade.


Apparently, the banks operating in the strife-ridden Kashmir are in no mood to oblige Finance Minister Yashwant Sinha. Since September 2, 2001 when he directed banks to shift back their branches to their original locations by December 31, just one branch has been re-opened and 23 others continue to function from “safe distant” locations, some of them even 300 km away.

The State Bank of India (SBI) tops the list with 11 branches, followed by JK Bank (JKB) with five and Central Bank of India (CBI) with two branches. Punjab National Bank (PNB), Canara Bank, Allahabad Bank, Bank of India and Punjab and Sindh Bank have one branch each as ‘displaced’. Insiders in the banking sector said three branches are being shortly made operational from their original locations.

Like every other sphere of activity, banks also suffered in militancy. It was during the initial days of militancy when banks ceased functioning totally. In panic, banks like Andhra Bank, the State Bank of Patiala and Indian Bank stopped their operations, closed branches, fled and resumed work in Jammu. Even the Reserve Bank of India (RBI) and the NABARD closed down their offices in Srinagar and started their operations from Jammu. Others with a huge network shifted branches from “dangerous” to “safer zones” with some of their premises converted into mini-garrisons.

When most of the people closed their accounts with the nationalised banks and opened it with the Jammu and Kashmir bank (JKB), it stunned all others. Facing a shortage of staff, most of them became unviable overnight. The then Grindlay’s ANZ, now the Standard Chartered (It was purchased by J&K Bank for Rs 2 crore in 2002), one of the oldest banks in Kashmir, was left with a petty Rs 29 crore deposits. “Public Sector banks could not serve their customers well and that was the main reason why major parties like LIC and some units of the Army even shifted from SBI to JKB,” said a senior officer in JKB.

“At one point of time, we had 25 branches operating from safer places”, says MK Koul, Chief Manager of the SBI. Since the bank was having Kashmiri Pandit staff, the mass exodus of the community left the SBI network with less than 20 percent of the manpower. Grenades were hurled near the bank branches in the countryside that terrified the employees. An officer of the rank of AGM got a bullet also. Eventually a call by militants to withdraw savings from the public sector banks plumed the deposits, he says.

“By the time fresh recruitment’s of around 350 employees were made, the bank was in shambles as most of the branches were functioning in a jumbled fashion”, added another SBI official. At the moment, 11 of its 50-branches in Kashmir are functioning from shifted locations. “Three of them are non-functional and may not reopen, two will be reopened in February as the state government has agreed to provide security and decision about others will be taken after the issue of security is settled”, adds Koul.

M Y Khan

 The case of Punjab National Bank is no different. “After around 250 of our staffers fled and a series of militant attacks – some kidnappings of our staff and even one of our branches being gutted, we had no option but to shift 14 of our branches”, said PNB Chief Manager in Srinagar. “In 1992 our deposits went to an all time low of Rs 35 crore but the management made local recruitment (50 people) and we gradually resumed smooth functioning”, he adds. Of its two shifted branches, it managed approval of merger of one rural branch with the nearest one in a south Kashmir Kulgam township while the second was made operational from the original place two days ahead of Yashwant Sinha’s deadline. He says if his bank waits for the security from the state government, then they may never function. “In certain cases, we are literally running the show without proper security,” he added.

It is the security that was the main issue for the banking sector. Last time, when Yashwant Sinha presided a meeting of the banks and FIs, it was decided that the banks will manage security on their own by appointing ex-servicemen as the strained police-paramilitary forces will at the most manage the area security. This was despite the fact that it is only Jammu & Kashmir Bank that alone has lost as many as 17 of its staffers of various ranks to the 13 year old strife and faced 98 percent of the total robberies at the hands of militants.

“We had the same problem. When we took it up with the state government and calculated the expenses, it became quite cheaper for us to have our own security”, said Mr Mohammed Yousuf Khan, Chairman JKB. At one point of time, JKB did offer help in managing the ex-servicemen for other branches. But there were no takers.

Barring JKB that added over 40 branches to its 118-branch network in last 13 years, no other bank had opted for any kind of expansion. Of SBIs 50 branches, 15 are loss making. PNB has four out of its 24 branches in Kashmir that are in red. By the end of 2001, Kashmir had around 400 branches of banks run by 14 public sector banks, two regional rural banks, the central and the state co-operative banks with the private sector Jammu & Kashmir Bank leading the industry.

“Unless the situation stabilizes, we would not get any permission to open new branches”, said an officer in one of the nationalized banks. “Even now when we are functioning, some of our branches are in loss, we are defying the categorical RBI directions that all the loss making branches must be closed down,” the officer added. The Union Finance Ministry has made it clear in anticipation that any bank keen to add to its network in Jammu & Kashmir will get license in record time.

J&K’s banking sector will not be able to increase the credit inflow to Rs 5,000 crore mark by March 2002 as was announced by Yashwant Sinha in September. Owing to the lack of vibrant industrial activity, the extension of Disturbed Area Act to Jammu and massive migration from the border areas in wake of the war hysteria, the banks insisted that they can’t keep the promise in the next fiscal.

In September 2001, the overall advances were at Rs 3874 crore and Sinha wanted them to reach Rs 5000 crore by March 2002. While NABARD was supposed to disburse additional Rs 250 crore under RIDF, the rest was to be managed by the banks.

“The maximum credit absorption would have been in the industries sector but due to the lack of infra-structural facilities, new units are not coming up and the existing units are also turning sick,” the RBI DGM (RPCD) has suggested, according to well placed sources. While the extension of the Disturbed Areas Act to Jammu has prevented fresh entrepreneurs from going for new projects, almost 50 percent of the units in Kashmir have migrated and state government has not made any effort to transfer them to the parties interested in takeover, it added.

State Bank Of India, Srinagar -- Photo: Bilal Bahadur
State Bank Of India, Srinagar — Photo: Bilal Bahadur

The state government is quite desperate that the promise made to it was honored. Actually, said a senior officer in the state finance ministry, incorrect figures were provided to the visiting finance minister when he presided over a high level meeting of banks and FIs operating in the state. “Against the credit inflow of Rs 3874 Cr announced by the Finance Minister the actual cumulative advance figure of all the banks in the state was at Rs 3527 crore only”, he said, adding, “By now it might have crossed Rs 3650 crore but (still) not touched Rs 3800 crore” as he was made to announce. With the state government well aware of the actual facts, they are unable to comment whether the wrong figures were just a mistake or something deliberate.

According to this officer who is privy to these developments, the actual annual action plan for all the banks for 2001-02 stands fixed at just Rs 565.17 crore of which only Rs 213 crore were disbursed in favor of 22990 beneficiaries by September last. “Even they are unable to achieve this target,” the officer said citing the instance of 2000-01 when they disbursed Rs 367.01 crore against a target of Rs 473.67 crore.

There are 27 banks with 955 branches operating across J&K. As on September 2001, they had cumulative advance of Rs 3642 crore against the total deposit of Rs 12231 crore. A detailed analysis of the figures suggest that the private sector JKB has made total advances of Rs 2343 crore against its deposits of Rs 6550 crore through its 294-branch network while the major public sector banks like SBI, PNB and UCO bank have advanced just Rs 662 crore against the deposits of Rs 3191 crore. This leaves 14 other nationalized banks with advances of Rs 182 crore against total deposits of Rs 827 crore. Put together the nationalised banks have advanced Rs 844 crore against their total deposits of Rs 4018 crore. Against a CD ratio of 36 percent of the JK Bank, the 17 nationalized banks lag behind at 21 percent. This is interesting to mention here that most of the advances have gone to the priority sector.

Apparently banks are quite scared from lending their deposits in Kashmir. Against deposits of Rs 281.23 crore in its 50-odd branches, the SBI has made advances worth Rs 60.68 crore by December 31, 2001 in the six districts of Kashmir valley. Making a CD ration of just 21 percent, most of this money has gone to the priority sector. PNB that, according to insiders in the banking sector, is performing better has advanced Rs 71 crore against a deposit of Rs 194 crore, thus achieving a CD ratio of 37 percent.

“We have the problem of recoveries. See, we financed 1500 unemployed and advanced Rs 15 crore and we got nothing in return,” said a senior officers in one of the leading nationalized banks. He says the bankers in Kashmir have always the problem of controlling their NPAs.

However, a senior officer at the JK Bank said Kashmir has comparatively the lowest NPA even less than the national average. “They make advances even using the crude procedures. They even seek mortgages, first for financing a car while across India the vehicle is the mortgage”, Mohammed Yousuf, a senior manager said. He says the nationalized banks need to be cooperative and not evasive. “We asked them to finance 100 taxis but they refused and neither of them (nationalized banks) did entertain any of the cases to finance the houseboat owners,” another officer of the rank of Chief Manager said.

Having a direct interaction with the nationalized banks, one of the senior officers in the state finance ministry said, “They lack will.” Sharing his experience, he said these banks have the only objective of getting deposits from Kashmir and invest it somewhere else. “They were always having problems in the state. Before militancy, they used to claim that the people with least exposure to banking turn defaulters. After 1989, they say they can’t advance money because of the uncertainty,” he added.

Even within the state, according to a director rank officer who has direct interaction with the banks, “They discriminate between regions and try to play one region against another for no reasons.”


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