Horticulture was the main reference. The bank suggested that as it advances enough of credit to the apple growers during every summer, they harvest the crop, sell it and adjust their accounts in winter. By the end of financial years when RBI comes probing, there is nothing much that is advanced to this sector. So the punishment! RBI disagreed but waived a liability of around Rs 1000 crore from the default that had accumulated over the years.
As Drabu took over the reigns of J&K Bank, he revived the 2004 plan. Apparently, it was a plain business decision that could have also satisfied J&K special status within the federal structure. It was rejected again.
In 2012-13, the banking sector in the state created a record of sorts by lending Rs 1758.63 crore to agriculture sector. Despite being unprecedented, it is still short by 3.66% to reach the mandatory 18% level. The cumulative credit off take to the sector in last ten years is only Rs 5402.21 crore of which Rs 3375 crore is still outstanding. Of this Rs 2480 crore is the share of J&K Bank.
If the banks will not resort to innovative methods – as was done by the J&K Bank by launching an apple product, the agriculture sector in the state will never be able to absorb 14% of the overall banking credit. J&K agriculture is by and large a stagnant sector in the overall scheme of things primarily because the landholding size is lowest and does not make a business sense. With most of the state, especially Ladakh and parts of Jammu being single-crop areas, the credit appetite will always be low. However, the horticulture has the capacity to absorb lot of credit both in pre-harvest and the post-harvest phases. J&K Bank’s quantum jump on agriculture credit is the best way out. In just one year the bank disbursed Rs 363.58 crore to 17336 apple growers taking the overall expense to Rs. 900 cr. It believes there is still scope for Rs. 6500 crores .
Industry is key area. In last 10 years, it was at the top of the priority sector lending and the entire banking sector has advanced Rs 7071.86 crore to the sector of which more than Rs 7380 crore is still outstanding. Banks were gracious by advancing Rs 1725.33 crore to the sector in 2012-13. But it is again the state owned J&K Bank that solely has Rs 4475 crore in this sector which is more than 60% of the total advances the banking sector has made.
It is the same story in all the priority sector areas in J&K state. Housing sector is always in credit appetite because more and more people want to own houses. Safe and long term investments, the banks advanced Rs 4302 crore in last six years to this sector. The overall outstanding under this sector is Rs 1883 crore including Rs 910 crore that the banks pushed into this sector in 2012-13. The larger reality is that J&K Bank alone has an outstanding of Rs 1257 crore in this sector indicating that it has a share of 66.75%.
Education loan is something that is building lives across India. Banks in J&K are rarely meeting the target. In the last financial year, they had set a target of offering Rs 208 crore to 6447 candidates but they ended disbursing only Rs 78.65 crore to just 4556 students which is barley one third of the target achievement. In last six years, the entire banking sector has advanced Rs 371.04 crore under educational loans and the net outstanding by the end of March 2013 under this head was Rs 256.87 crore. Interestingly, Rs 129 crore which is nearly half of the entire outstanding is from J&K Bank alone.
Advances to weaker sections at slightly lower rates of interest are part of the priority sector lending. Of Rs 3218.59 crore that is outstanding at the end of March 2013, Rs 2259 crore belongs to J&K Bank.
Banks have been coming with lame reasons for not performing better. Even RBI governor D Subbarao stated that not many good investment proposals are coming to the banks. He was actually re-asserting an earlier claim by bankers that J&K lacks credit absorption capacity. The second justification he offered was the lack of adequate legal safeguards that would build bank’s confidence in reducing their NPAs.
