J&K Bank profit decreased during 2013-18 period: CAG

Flagging corporate governance lapses at J&K Bank, a CAG report said that the lender’s profit declined from Rs 1,182.47 crore in FY2013 to Rs 202.72 crore in FY2018 due to increase in gross non-performing assets (NPAs).

The report tabled in Parliament on Wednesday stated that the bank had not complied with the SEBI Regulations and some of the provisions of Companies Act, 2013, relating to corporate governance. “Profit earned by the (J&K) Bank declined from Rs 1,182.47 crore during 2013-14 to Rs 202.72 crore in 2017-18, mainly due to increase in the Gross NPAs of the Bank from Rs 643.77 crore, as on 31 March 2013 to Rs 6,006.70 crore, as on 31 March 2018,” the report said. “Percentage of NPAs to Gross Advances also increased from 1.62 per cent at the end of March 2013 to 9.96 per cent at the end of March 2018. The Bank also suffered a loss of Rs 1,632.29 crore during 2016-17,” the report said. It said the bank’s credit control system and financial reporting system failed to identify NPAs in time.

“Although there had been 24.58 per cent growth in deposits during 2013-14 to 2017-18, annual growth of deposits of Bank during last four years ending March 2017 was far below overall National average of Scheduled Commercial Banks,” it said adding the Bank had recorded an increase of 51.30 per cent in advances during 2013-14 to 2017-18, annual growth fluctuated between (minus) 1.78 per cent and 18.28 per cent. The report said percentage of unsecured advances to total net advances had increased from 20.16 per cent at the end of March 2014 to 27.90 per cent at the end of March 2018.

The bank’s concentration risk for industry-wise exposure was on the higher side when compared to the average of overall banking industry. “Sanction/ release of credit facilities, without safeguarding the Bank’s interest through adequate security cover, proper credit appraisal, adherence to the pre or post-disbursement conditions of the sanctions and regular monitoring not only led to NPAs but also loss/non-recovery of Rs 197.98 crore, doubtful recovery of Rs 1,599.14 crore and excess payment of Rs 14.10 crore in test-checked cases,” the CAG said. It said the deficiencies were noticed in IT systems of the bank due to which it could not ensure technology-based solutions for some of its operations.

“Sanctioning of one-time settlement in deviation of bank’s recovery policy resulted in sacrificing a principal amount of Rs 17.97 crore in test-checked cases. The bank sold 10 NPAs to Asset Reconstruction Companies (ARCs) during the period 2014-2018 by sacrificing principal amount of Rs 671.10 crore and unapplied interest of Rs 504 crore. Sale of financial assets to ARC below the reserve price resulted in loss of Rs 21.89 crore,” the report said. It said the imprudent decision-making, non-invoking of guarantee and non-safeguarding of bank’s interest led to doubtful recovery or loss of Rs 180.43 crore in test-checked non-performing investments.

“Irregularities in recruitment of Relationship Executives and Banking Associates were noticed. The bank had spent 53.09 percent to 83.82 percent of Corporate Social Responsibility (CSR) budget during 2016-17 and 2017-18 on a single activity/project and had also incurred 49.33 per cent to 95.27 per cent under a single segment during 2015-16 to 2017-18, which was in violation of CSR policy,” it said. Further, the CAG said in contravention to Bank’s CSR policy and Companies Act 2013, an irregular expenditure of Rs 46.96 crore was incurred out of CSR fund.