Banking sector suffered severely at the peak of turmoil. With J&K Bank in lead, the sector fought back, survived and created thousands of impressive success stories of hope, linkages, prosperity and resilience, reports R S Gull
1990 marked the beginning of terrible times in Kashmir’s recent history. Its impact had the same bumper crop cascading effect on all the economic sectors, although reversely.
Most of the 746 bank branches serving the state witnessed a new trend: improvement in deposits and fall in advances. Deposits witnessed a 12 percent jump – from Rs 1376.08 crore in March 1989 to Rs 1539.28 crore in March 1990. Advances nosedived from Rs 651.61 crore to Rs 489.30 crore – a 25 percent fall. CD ration fell from 47 percent to 32 percent and Srinagar was the worst hit which witnessed its CD ratio felling down from 81.45 percent to 37.82 percent – a net compromise by 46 percent.
“District Srinagar which ranked 29th in respect of bank advances ending March 1989 has fallen to 43rd place ending March 1990,” State’s Planning and Development Department noted in a June 1991 report. “There has been decline in advances perhaps because of uncertainty and instability of law and order in the state towards the second half of the year.”
In the subsequent year, the advances dropped further because survival was the main priority. Even the banks and the people manning them were part of this race. Some of them closed their shops and fled. In certain cases, the banks shifted out of Kashmir and the account holders took a long time to even withdraw their savings. Most of the branches squeezed to urban centers. After many decades when India was gradually coming out of the cocoon, J&K was witnessed cleansing of the infrastructure it had created. With advances restricted to Rs 450 crore, the slate was clean.
Initial few years were consumed by shock and bewilderment. Then the crisis converted itself into an opportunity. J&K Bank was around and gradually it seized the opportunity. It built the sector brick by brick and in leveled playing field new actors jumped in.
Insecurity had forced the business community to restrict their growth and invest in education of their next generation. By 1995, some of them had flown back from off-shore universities and started taking over the command of their family businesses. This breed of Western educated entrepreneurs was the first to decide that the market is craving for investment as opportunities were abound. They invested in a risky market and became pioneers of what is now termed as the new corporate of J&K.
Khyber, TCI, Kanwal, Saifco, and many other major brands across sectors existed earlier for many years but were seen prominently in the market only after 1990s. Since militancy-hit state required rebuilding, the banks were liberal in accommodating the funding part of the builders to do it quick and better. It helped many small contractors improve their bottom-line and bid for major projects.
“Banking sector acted like a constellation that created stars and I could claim to be one,” said an entrepreneur on the condition of staying anonymous. “But there are instances in which people with very modest backgrounds wrote the new rags to riches story.”
Market was so hungry for economic activities that the money class found the equity part too small to do anything, so debt became a major source of gradual economic turnaround. But debt has always remained risky especially for a place like Kashmir where life remained paralyzed for around 1850 days between 1990 and 2014.
In 1990, Kashmir remained closed for 198 days, in 1991 for 207 days, in 1992 for 148 days and in 1993 for 139 days. Entire summer of 2008 and 2010 were lost completely. Debt at prevailing rates does not make a point when this is the situation. But there were individuals who knew the worst risks fetch great assets. Banks which liberally lend the resources and the people who deployed these funds in a highly risky market are the only two actors of the new economy that J&K has – outside the public finance.
The government did encourage investment at least in Kashmir. Though there were not many sops, but former Prime Minister I K Gujral once flew to a FICCI meet in Srinagar in October 1997 offering insurance for investment. “The risk element will be shared by government of India,” Gujral assured investors on October 19. Though it never came, it helped improve the investor confidence.
With J&K Bank rebuilding the sector, at least in Kashmir and other militancy infested areas, the idea of getting the other stakeholders became a priority. Most of the branches in the countryside were closed. “At one point of time, we had 25 of our branches operating from safer places”, said an SBI officer, who retired recently. PNB that was doing slightly better than SBI, had closed and relocated its 14 branches. In panic, some of the banks like Andhra Bank, the State Bank of Patiala and Indian Bank ceased their operations, closed their branches and resumed work in Jammu, 300 KMs from here. Even the Reserve Bank of India (RBI) and the NABARD closed down their office here and started their operations from Jammu. The two major institutions are now permanently operated from Jammu. This did not even spear the JKB. Even though it took over as the leader of the sector, it also had many of branches operating far away from the place they were supposed to operate from.
In September 2001 when the then Finance Minister Yashwant Sinha took the meeting of the banks asking them to get back the shifted branches to their original places by December, a total of 24 branches were functioning from safe distant locations, some even 300 kms away at Jammu. Still some of the branches are operating from dislocated positions.
Apart from operating losses at the branch level, the situation prevented banks from complying with the regulatory requirements, especially the priority sector. Then, survival in the market and not the sectoral advances were the priority. But over the years it
into a corpus that became a huge crisis, especially for the J&K Bank. The regulator wanted to impose penalty but after many years that statutory requirement was waived off.
Soon after there were two major changes. The first was the industry related package that central government announced in 2000. It encouraged investment in the region and gave lot of concessions with an aim to help rebuild the sector and create more avenues for unemployment youth. Though still in vogue with some corrections, it led to nearly Rs 4000 crore investment but the news estates emerged in Jammu, apparently because its closeness to the rail and the mainland market. Quite a few units were set up in Kashmir.
Soon after Prime Minister Reconstruction Plan was announced that envisaged good investment in road and energy projects. Since it triggered some sort of credit appetite at the corporate level, various banks invested substantially in these projects and lured them to be more visible in the state. In fact some private banks, which did not operate from J&K state, invested in some of these projects first and later came to take care of the rest of the services that these investments generated.
With most of the banks back to business, the challenges have seemingly changed. All the banks are flush with funds but they are conservatively lending. In fact, all the PSU banks put together have lesser CD ratio if compared to local cooperative banks. At one point of time it was being argued that the state lacks absorption capacity. Then J&K Bank aggressively marketed itself and improved the capacity of the market. Its 52 percent loan-book exists in J&K alone.
The next argument was that the nationalized banks lack any share in the government business and they have no structural system in place to manage their bad assets. The debate on the twin issues is going on and there is some loud-thinking on both the issues at the policy making level in the state.
But the risk factor in J&K market is not completely obliterated. If it is not situation, it could be weather. September 2014 floods almost decimated the economy of Kashmir and parts of Jammu. The losses are estimated to be around one lakh crores rupees. The total recapitalization of the overall market through insurance claims and petty relief is yet to cross Rs 6000 crore. As the state government is awaiting a package from the central government to take care of its new challenges, the banks in coming days will have their chest full and lot many opportunities to invest.
While the change is a continuous process, what is obvious is that banking is changing J&K and getting it closer to the larger market within and offshore. Even Kashmir is changed. In 1990, the total loan portfolio of the banking sector was Rs 450 crore. Twenty-five years later, J&K Bank alone has invested Rs 2200 crore in Baglihar. In Srinagar, there are four entrepreneurs whose cumulative exposure from banking is Rs 590 crore.