Banking on Kashmir

The government decision to make RBI its debt banker in place of J&K Bank may have proved a blessing in disguise for the later.

They have been always been blamed for remaining traditional, but they always made money at the J&K Bank. Earning profits is nothing exceptional, what is different is how the bank tackles issues. Take the instance of state government getting RBI as its debt banker from this year. It proved a blessing in disguise and affected two major changes immediately.

Firstly, it unlocked around Rs 2300 crores of state’s “structural deficit”. Though state planners thought this amount will stay in the state but it could not because J&K has subdued appetite for credit especially because of the tumultuous three summers between 2008 and 2010. But the bank’s ability to deploy such a huge amount without keeping it parked with RBI was a major exercise. It did it with ease and in certain cases at better margins.

Secondly, this helped the bank in doing away with the misconception that the bank is earning from the state government. The fact always was that earnings on OD from state government were always a fraction of the bank’s overall income. This year’s balance sheet is likely to prove that.

The second major development was that it off-loaded part of its equity in the MetLife at “very handsome” rates that fetched a good income. Around 40 percent of MetLife shareholding was sold by the bank and other shareholders in the MetLife to accommodate the PNB that helped the insurance company to get bigger with expanded reach.

The bank that bought 25 percent of the shares in the MetLife in 2002 has invested more than Rs 200 crores in it. Soon after the take off, when the sector started exhibiting phenomenal thirst for more capital, the RBI in 2009 issued guidelines restricting investments of the banks into the sector beyond 10 percent of their net worth. This led to the J&K bank diluting its shareholding. In fact during the pre recession era, the bank was actually keen to come out of the JV, a decision that was later discarded. Now the entry of PNB has helped J&K Bank to get good returns of its investments.

J&K Bank stays as MetLife’s front running corporate agent in J&K and elsewhere it earns a fairly good amount by selling the insurance products.

But what is more interesting is that the bank has kept this substantial amount as a cushion. It did not add this amount to its profits in the last quarter. So expect, the bank announcing a huge profit at the end of the year as its expansion continues.

Overall the banking sector performed quite well. By the end of September 2011, the overall credit exposure of the banks in the state stood at Rs 17,280.51crores of which Rs 11,751.66 crore (68%) belonged to the state owned J&K Bank.


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