Revive SFC First

Narrow resource base has historically remained a key factor responsible for the huge infrastructure deficit in J&K. That was perhaps why the NHPC has been able to harvest more from state’s abundant water resources than the SPDC, the state’s wholly owned hydropower generating corporation. Though it has improved the situation, post-Baglihar, but it would require lot to match the NHPC.

Same situation exists in other sectors. At one point of time, the industry was unable to take off because they lacked the capacity to initially manage the equity party and later having courage to use debt for creating institutions.

Now situation is changing. The banks operating in the state are flush with funds. They have a surging vault of deposits but lack enough of avenues to manage investments in an economy that still cannot absorb half of the deposits that exist in the state. Since banks are playing a pivotal role in development of economies and societal infrastructure, J&K will have to improve its ranking in credit absorption by slightly being innovative and without reinventing the wheel.

During his latest, second in four months, visit of the RBI governor, the issue of impaired assets of the banking sector was raked up. In an overall exposure of Rs 37807 crore, the overall stressed assets are only Rs 1838 crore. For an economy grappling with conflict and still trying to compete with the rest of the world, even a rupee costs.

J&K’s economist finance minister Dr Haseeb Drabu has been consistently insisting that the bogey of impaired assets is being raked up more for political reasons rather than economic. But the issue still requires some solution especially at a time when the state government says it is not in a position to adopt the SARFEASI law because it is in conflict with the state’s exclusivity in the Indian federation. The state government is already committed that it would bring in its own SARFEASI law this season.

In this situation, Drabu’s option of elevating the status of the State’s wholly owned financial corporation (SFC) is a viable option. His argument is that it is the only state entity that by law is mandated to take over the assets in case of a default. Even the J&K Bank has to go through the long judicial process to stake claim for the collaterals, unlike SFC. This corporation can actually takeover the bad assets from other financial institutions and recover the investment for a fee.

But before repacking SFC as the Asset Reconstruction Corporation (ARC) before the banking sector, it is important to revive the corporation. Going by the speech that Drabu made in the SFC AGM last week, the corporation has its net worth less than Rs 27 crore which means it has already eroded its credibility. Though the state government has infused fresh capital of Rs 90 crore into the corporation, it has not helped it to get revived.

The idea of helping SFC to become the new happening place in state’s financial market is impressive but before that the corporation must rediscover and reinvent itself. It needs a complete reorganization and it has to come out of the category of PSUs which evolved as the dumping grounds for political beings. The corporation must squeeze its physical spread, trim its human resource and finally professionalize its core competence. Then only can it be offered as a way out for banks from their moribund assets.

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