SRINAGAR: Key industry body, the Federation of Chambers of Industries Kashmir (FCIK) has raised grave concerns regarding JK Bank’s repeated failure to meet its Priority Sector Lending (PSL) obligations. This persistent shortfall, the Chamber warns, is undermining economic growth, job creation, and entrepreneurship in Jammu and Kashmir, with adverse consequences for the region’s financial stability.
In a detailed statement, FCIK expressed dismay over J&K Bank’s inability to allocate the required 40 per cent of its total advances to PSL, which covers essential sectors such as agriculture, micro, small and medium enterprises (MSMEs), education, housing for the underprivileged, social infrastructure, renewable energy, and exports. These sectors play a critical role in promoting employment and alleviating poverty, particularly in economically struggling regions like Jammu and Kashmir.
The Chamber revealed that, as of September 30, 2024, J&K Bank’s PSL shortfall had surged to Rs 8,372 crore, which could have otherwise fuelled the local economy and stimulated business growth. This funding deficit has also led to financial repercussions, as the Reserve Bank of India (RBI) penalised J&K Bank by requiring it to place the entire shortfall in the Rural Infrastructure Development Fund (RIDF), where it earns a limited interest rate of 2.5 to 2.75 per cent. “While these funds earn a meagre interest rate of 2.5 per cent to 2.75 per cent from RIDF, the bank is obligated to pay its depositors a return of 7 per cent to 8 per cent on their investments,” noted FCIK, adding that these earnings are significantly below the bank’s average cost of deposits, which stands at 4.4 per cent.
Highlighting the impact on key sectors, FCIK observed that MSMEs, agriculture, and other priority areas have suffered, with many small businesses forced to close due to lack of capital, leading to job losses and a worsening economic situation. The Chamber lamented that a substantial portion of the PSL funds could have been directed to restructure loans for MSMEs, in line with Union government and RBI directives, before categorising their accounts as Non-Performing Assets (NPAs). This practice, FCIK argued, runs counter to a Supreme Court ruling in August 2024, which made these directives mandatory. The Chamber criticised the bank’s continuation of its ‘name and shame’ policy against MSMEs, branding it as detrimental to local businesses.
FCIK also highlighted the bank’s excessive collateral requirements for aspiring entrepreneurs, even those eligible for government-backed funding schemes, which stifles innovation and discourages new ventures. Moreover, the Chamber raised concerns over J&K Bank’s financial reporting practices, noting inconsistencies in recent financial statements, where adjustments appeared to exaggerate profits. FCIK called for a comprehensive review of the bank’s operational strategies and urged the Jammu and Kashmir government—acting both as a representative of the people and the bank’s largest shareholder—to intervene and address these pressing issues.
“The government must also address the insensitive approach of the bank’s management and board, as their continued neglect of priority sector lending is not merely a financial oversight but a direct blow to the economic future of Jammu and Kashmir,” the Chamber stated. It urged immediate corrective action to ensure PSL compliance, adherence to government and RBI guidelines, and reforms to safeguard the region’s economic stability
