Farooq Jan peels the gloss in the J&K State Bank’s “feel-good” announcements and does a post-mortem on how poorly all banks operating in J&K do in serving needs of entrepreneurs and businesses
(Mr. Farooq Jan, 39, was born in Naira, Pulwama. He completed his graduate and posr graduate studies in Sociology and Management Studies from the University of Kashmir. He has been working for the J&K State Water & Sanitation Mission as Consultant on human resource development (HRD). He is also a founder member of the J&K Democratic Party led by Ghulam Hassan Mir and hopes to contest the forthcoming state elections from the Rajpora constitutency in the Pulwama district.)
Financial institutions in J&K are lagging behind in supporting business
In spite of being in the vortex of an inextricable dispute between two giant nations, J&K indisputably has scope for high industrial development and a sturdy economic growth, given the fact that there is a strong resource base in terms of both men and material. However, the only grey area is the lack of an immediate and adequate amount of capital.
Thus a lot of credit absorptive capacity remains untapped and under utilized, particularly by virtue of an apathetic attitude displayed by our banking institutions. While customers of the banks operating in the State expect from these banks huge lending to traders and to existing and potential entrepreneurs, so that it could have a helpful impact on our business and over all economy; these banks are only showing interest in receiving deposits which they are getting at large pace. Though banks operating here are attaining high deposits but their credit ratio is quite dismal. Banks are showing disappointing attitude towards the development of trade and industry in our State.
According to various trade federations the banks in J&K are only infrequently cooperating with local customers in terms of lending money for entrepreneurship or promotion of productive activities. Various traders’ guilds have been sending reminders to the different banks to increase their CD ratios; regrettably these banks continue to show reluctance and inflexibility.
J&K is an average performing State as for as regulation of credit market is concerned. Banks operating here are on an expansion spree but sadly their focus is largely on getting deposits and as for as extending the advances is concerned they are resorting to negative tactics, doing everything to put off the trade and entrepreneurship instincts of our promising generation next. Ranging from exorbitant interest rates to stiff procedures regarding mortgages and guarantees everything is a morale damper.
During last month itself the banks have increased the Prime Lending Rate (PLR) by one percent. Now the best borrowers of the banks could borrow money at 14% interest. The interest rate is as high as 18% for those who do not qualify as best borrowers. Ironically it is the huge population of our unemployed youth who fall in this category. Consequently the enthusiasm, hope and dreams of our youth, coming out from various educational institutions/vocational colleges, to do something fruitful are often broken at the outset. Priority sector guidelines of RBI mandate banks to lend to those sectors that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture and tiny and small enterprises.
Domestic commercial banks are required to lend 40% of their Adjusted Net Bank Credit (ANBC) to the priority sector; even foreign banks are required to lend 32% of their Adjusted Net Bank Credit (ANBC) to the priority sector activities identified by RBI. In J&K commercial banks and other financial institutions blissfully remain insensitive to the requirements of priority sector particularly the agricultural sector and the weaker sections of society – the manifestation of State governments indifference towards an ever increasing crisis of unemployment- which even the State owned Jammu & Kashmir Bank finds difficult to come out of.
According to a RBI release of December 2007, at All India level the Credit Deposit ratio of all scheduled banks as on last December 2007 stood at 73.4%. At group level foreign banks have a CD ratio of 81.5%; scheduled commercial banks, 74.6%; State Bank of India group, 74.4%; nationalized banks, 72.0%; regional rural banks, 61.8%. As on December 31, 2006 the CD ratio of various banking groups in Kerala was as follows: Regional rural banks 121.66%; private banks 69.78%, State Bank of India group 69.18%; nationalized banks 69.18%; foreign banks 50.78%. Over all CD ratios of commercial banks stood at 70.07%, CD ratio in rural areas stood at 71.97%. As on December 31, 2007 the Credit Deposit ratio of banks in Tamil Nadu stood at 111.1%, followed by Chandigarah 106.6%.
Against this, in J&K State the over all Credit Deposit ratio of the banks stood as low as 47.38% on 31st March 2008. For the financial year 2007-2008 the banks operating in J&K have made advances of Rs.13513.29 crores, out of this amount only Rs.5680.64 crores (42.03%) has gone to priority sector. A meager 4.29% has gone to small enterprises sector, 7.72% to weaker sections of the society, agriculture sector has received 2.74%, micro credit 1.93% and education sector has received a negligible amount of 0.43%.
The performance of banks operating in our State in achieving the targets under six major Government sponsored schemes, i.e. SGSY, PMRY, JKSES, SJSRY, SC/ST/OBC and KVIB/C is quite depressing. At the end of March 2008 the banks have only disbursed Rs. 153.27 crore under these schemes, thereby falling short by 41% from the target.
Hence it is unambiguously evident from the above statistics that the financial institutions operating in our State are not working with enough degree of social responsibility and fidelity. Banks have to show more dedication and commitment to the growth of industry and commerce in our State. To kick-start a worthwhile economic development in J&K it is critical that all the banking groups and financial institutions shoulder due responsibility in reaching out to priority sectors with readily available advance schemes.
Banks have a significant role in generating employment opportunities in all sectors of our economy. Thus financial institutions operating in J&K must adhere to the policy of productive employment generation and alleviation of poverty. Behaving in a more responsible manner the financial institutions need to work on a comprehensive policy for industrial and economic growth in the State. Banks should come up with inputs that would not only put our economy on a growth trajectory but also help it to gain momentum and sustainability.
The banks operating in J&K shall provide credit to farmers, craftsmen, traders, transporters and particularly to our promising young entrepreneurs on simple and reasonable terms as for as interest rates, mortgage and guarantee procedures are concerned so that they could get appropriate and opportune assistance to establish their business activities in full and without unnecessary hiccups and delays. Apart from easing out the neck breaking interest rates all kinds of processing regarding advances shall be made smooth.
To infuse expediency in the processes and thus help the existing and the potential borrowers avail well-timed loans the procedures should be simplified and rationalized. Documentation that banks prescribe for getting a loan is cumbersome and costly. Banks do not compromise on any kind of documentation and ascribe these stringent measures as per RBI lending norms. Though the banks operating in J&K are using modern technology and all existing marketing techniques to lure more and more depositors they, however, are not doing enough to make use of technology to speed up the disbursement of timely and adequate capital advances in favour of our business community. It is a matter of immediate attention and needs to be redressed at the earliest. To set up income generating units under different schemes sponsorship from banks should be ensured at the earliest so that the beneficiaries could get the necessary credit from these banks for setting up their units well in time.
Above all the banks operating in J&K should take up immediate and effective measures to increase their Credit Deposit ratios, however, the focus should be on the development of priority sector activities.To work up their trustworthiness and goodwill the banks must show more commitment to the cause of socio-economic development of the State. The banks operating here should in no way adhere to the Sahukari principle of making money only. Instead they shall work enthusiastically towards the economic empowerment of the people of J&K. The banks shall work with a renewed and optimum degree of commitment to help our society in moving forward to achieve the goal of economic freedom and self-reliance.
The banking sector is already helping out other States of India in augmenting their economic growth; therefore, it should play a similar role in our State as well. Nevertheless, Government also needs to be proactive in lending programmes and creating a favourable environment for reaching out to the needy masses with, proper, adequate and timely financial support.