J&K Bank emerges major lending source in state
The Chief Minister, Omar Abdullah, on Saturday described unemployment as a bigger concern than gun.  He said a recent survey had revealed that there are more than five lakh unemployed youth in the state. Omar reiterated that it was not possible for the state government to provide jobs to all the unemployed youth. “If everyone will wait to get a government job then the problem of unemployment will never end. There is no country in this world and no state in this country where the problem of unemployment is solved through government jobs. We will try to accommodate as many people as we can but youth have to look for other opportunities as well,” Omar said.
So the low level of employment opportunities is a dominant and vocal concern in our state. The statement of the chief minister endorses the government’s failure to fight out the menace of unemployment as the jobs created are nowhere matching the burgeoning number of unemployed youth. When we talk of other opportunities, it means self employment ventures and here too the self employment schemes tailored by the government have failed to lure youth following the red-tape, nepotism and favouritism observed while extending benefits of these schemes to the aspirants.
The state continues to struggle for establishing a sound private sector. Private sector, which has the capacity to lend a major support by creating employment opportunities to the unemployed youth, is almost non-existent here. A critical requirement for the development of the private sector is availability of finance. This aspect too has been a concern which otherwise could have encouraged private sector to mark an impression in the State. Most of the financial institutions, particularly the nationalized banks operating in the state continue to adopt low level of credit delivery to various sectors of economy.
Notably, the role of banks in economic development is important. This is done by mobilizing deposits and credit disbursement to business sectors. As on March 2001, 819 bank branches had disbursed credit of Rs.3874 crore. The deposits stood at Rs.10105 crore. While as 1252 branches as on March 2010 have outstanding loan book of Rs.17117.66 crores and a deposit base of Rs.38,239.84 crores. The credit deposit (CD) ratio  of all banks operating in the state as on March 2010 stood at 44.76 per cent, which is much lower than the credit deposit ratio of over 70 per cent at all India level.
It is worth mentioning that credit deposit ratio of 60% is the benchmark prescribed by the Reserve Bank of India for the banks. Here the banks have failed to meet the credit requirements in J&K State. If we have a look at other states, the credit disbursement of banks has been pivotal in generating employment and other profitable economic activities. In Tamil Nadu, the banks have been maintaining a CDR of over 100% and Maharashtra 96.55%. J&K state is at the 19th spot as far as CDR is concerned.
Comparative analysis of bank credit in the state reveals startling facts. As against the benchmark of 60 percent, the credit-deposit (CD) ratio of all banks operating here stood at just 44.76 as on March 31, 2010 which has gone down by almost one percent when compared to March 2009. Total advances of all banks stood at Rs.17117.66 crore against total deposits of Rs.38239.84 crore.
Notably, J&K Bank has the largest share of Rs.12,173.65 crore comprising 71 per cent in the aggregate outstanding credit of banking sector  in the state as on March 2010. The State Bank of India has just contributed Rs1,439.17 crores comprising 8 per cent and Punjab National Bank has contributed just Rs.823.78 crore comprising just 5 per cent of the outstanding credit at the end of March 2010. SBI has a deposit base of Rs.5773.68 crore, while as PNB has a deposit base of Rs.2496.50 crore and their CD ratio is just 24.93 per cent and 33 per cent respectively.
Even as HDFC bank has increased its deposit base of Rs.310.64 crore as on March 2009 to Rs.326.29 crore at the end of March 2010, it’s loaning in the state has gone down from Rs.107.24 crore as on March 2009 to Rs.102.99 crore as on March 2010, thus registered a CD ratio of just 31.56 per cent. Similarly other private banks like Axis bank, and ICICI bank  have registered low level loaning and recorded a CD ratio of just 17.58 per cent and 29.04 per cent respectively.
Notably, The Loan Book of J&K Bank as on March 31, 2010 stood at Rs 23057 crore, which constitutes more than 50 per cent of lending (Rs.12173.65 crore) in J&K state. Out of a Deposit base of Rs 37237 crore as on March 2010, J&K Bank has Rs. 23,090.69 crore deposits from J&K state.
The focus on J&K has been one of the major factors which has contributed to the consolidation phase of the bank and earning a whopping profit of over Rs.500 crore in the last financial year. Dr Haseeb Drabu, Chairman and Chief Executive of the J&K Bank stated that for the last 5 years, the approach of the bank was mainly inward looking. “We focused on consolidation by changing the composition of advances like we increased our credit deployment in J&K exponentially from Rs. 1200 crore to Rs. 12000 crores.”
As such on normative basis the potential for credit deployment in the state is more than double of what it is today. We can sum up that it is poor level of financial development and intermediation of the State and the resultant credit under-servicing. A full-fledged financial policy is long due which can guide to put the credit starvation and deprivation of the State to an end.
Meanwhile, it is also the need of the hour is to help the banks to reconstruct their bad assets. In this connection, Rangarajan committee on development of Jammu and Kashmir has recommended establishing of an Asset Reconstruction Company (ARC), which will take over these non-performing assets and refurnish the balance sheets of the financial institutions. The ARC will take over the bad assets of the state level financial institutions. This step will go a long way to clean up their balance sheets and restore their viability to finance fresh projects or ventures. In addition to this, banks, particularly the nationalized banks operating here too have to improve their lending so that economic opportunities available in the state are not left unexplored for want of finances.

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Lastupdate on : Sun, 23 May 2010 21:30:00 Makkah time
Lastupdate on : Sun, 23 May 2010 18:30:00 GMT
Lastupdate on : Mon, 24 May 2010 00:00:00 IST