J&K’s Banking Sector May Change Faster Than Expected

J&K FM Dr Haseeb Drabu and RBI governor Raghuram Rajan interacting with top state officers
J&K FM Dr Haseeb A Drabu and RBI governor Raghuram Rajan interacting with top state officers



Banking sector in J&K is heading towards major policy shift after the banks, the regulator and the state government arrived at a series of decision-making to improve overall well-being of J&K’s conflict-ridden and flood-devastated economy. While some of the decisions were made public by the three stake-holders in the state level bankers committee meeting Monday evening, a few would be announced once certain studies would be carried out.

CMD SBI: Arundhati Bhattacharya

State Finance Minister Dr Haseeb A Drabu was instrumental in convincing the two other state holders that offering a slew of measures was the only way out for helping the local economy revive after the floods decimated it in September 2014. He had a separate meeting with the RBI governor Raghuram Rajan and the visiting CMDs Arundhati Bhattacharya  (SBI), Usha Ananthasubramanian (PNB), Dr Aditya Puri (HDFC Bank) and T N  Manoharan (Canara Bank).


Flood Accounts Moratorium

RBI that regulates the banking operations in India has agreed to examine the extension in the moratorium of debt repayments in cases which were directly linked to the flood impact. RBI had initially suggested that the moratorium be for a year but J&K Bank, the main banker in the state, had sought two years period which was accepted by the RBI. All other banks, however, restricted their re-structuring of the accounts to a moratorium of one year.

CMD HDFC: Dr Aditya Puri

Now when the first year of the moratorium is over, the banks are facing heat. Part of the rehabilitation and the restructuring packages envisaged an interest subvention that was supposed to come as part of the package, which is yet to be announced. They are now seeking extension in moratorium.

However, SBI CMD Arundhati Bhattacharya suggested that the banks should get 10 days more to study the status of these accounts to examine how many of them could be in stress if the moratorium period is not extended. The RBI will sympathetically consider this decision making it mandatory that all the banks will extend the moratorium period.

The package envisaged an interest subvention of five percent on the loans up to Rupees five Lakh under house reconstruction loan package on the pattern of Rajiv Rinn Yojna. Besides, a debt waiver up to Rs three Lakh was also recommended by banks to the state government which in turn was supposed to get it approved by the centre.

Overall banking sector, it is interesting to mention here, had received a total of 31834 applications for restructuring the flood impacted accounts. While 28525 were sanctioned for restricting to the tune of Rs 1843.09 Crore, the actual disbursal of credit has taken place in case of 24003 accounts to the tune of Rs 1228.23 Crore. Insiders in the banking sector, however, said the flood stressed accounts may actually be carrying a cumulative ticket size of more than Rs 4000 Crore.

Dr Drabu said that the economic recovery after last year flood has been slow. “To prevent distress in the market I propose RBI to extend the moratorium on all outstanding advances by one more year,” said the Minister.

Transferring Seasoned Portfolios

CMD Canara Bank: T N Manoharan
CMD Canara Bank: T N Manoharan

The Minister asked the banks to enhance the credit deposit ratio by designing various state specific financial products. “CDR for Kashmir has improved, but in Jammu it is hovering around 30 percent and for Pir Panchal region it is even lower,” the Minister said adding “Government is going to heavily invest in public sector in the Pir Panchal region to invigorate its local economy.”

SBI CMD suggested that while they are facing default in the trading accounts in Jammu, the banks would be keenly waiting for improving the credit absorption capacity of the state. “We should have enough to earn for the deposits by investing in assets,” she said. She suggested all cooperation from the banking sector to help J&K government to do this.

It was in this connection that Dr Drabu successfully convinced India’s premier bank to takeover seasoned portfolios from the J&K Bank, the main banker in the state. She agreed instantly. A seasoned account is a bank account in which there is no crisis for a specific period. Once a bank seasoned an account, it can be taken over by any other bank on the same terms and conditions. The two banks will sit in coming days to decide the quantum of the portfolio that will shift from J&K Bank to SBI. Shifting of a portfolio will mean improving confidence to the non-local banks and easing the capital status of J&K bank for re-investment in other sectors. This can improve the CD ratio of SBI.

SLBC Meeting being presided by Dr Haseeb A Drabu and chaired by RBI governor.
SLBC meeting being presided by Dr Haseeb A Drabu and chaired by RBI governor.


CMD PNB: Usha Ananthasubramanian

To improve the confidence of the banks, Dr Drabu announced that the state government will enacted its own SARFEASI Act, this fall. “The SARFAESI ACT cannot be implemented in the state due to its special position so we are drafting states own equivalent act that will suffice the need of banks operating in the state,” Drabu said. State Law Secretary told the meeting that earlier the state government was thinking of enacted the same law as that of central government by deleting a few clauses which did not suit the state but after the High Court expressly directed that the central act cannot be adopted by J&K, legislating a new law has become inevitable.

The state government was asked to set up a committee that will take care of the concerns which non-local players may have on the bad assets issue.

Dr Drabu also announced setting up of Asset Reconstruction Company (ARC) that will buy bad loans of state subjects from the outside banks. “The company will be a state subject and it will give outside banks a way out to offload their bad loans,” the Minister said. “We have a State Financial Corporation (SFC) and we will be looking into converting it into ARC.”

In another major development, the Finance Minister agreed to a proposal of Punjab National Bank to establish a Farmers Training Institute in the state for which state government will fully cooperate. The Minister also asked the RBI to establish a Bankers Training Institute in the state.

Rajan’s Ideas

The RBI Governor Raghuram Rajan extended his full support for the sustainable economic development of J&K. “We have lots of ideas on table and now it is time to implement the same on ground,” Rajan said. He said a group of major bankers and government representatives will be formed to ensure implementation. He said the stakeholders should sit and examine what kind of partnerships they are looking at and how can they be achieved.


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