NPAs and JK Bank

Good banking system forms an important base for the healthy economy of a country or any political unit. In J&K, the state controlled JK bank, having a share of 51 percent, has grown steadily from a smaller financial unit to a powerful financial organization. It is now a well recognized bank not only in the country but also abroad. Though controlled indirectly by state government, it operates as per the RBI rules and regulations and other banking laws. The recent demonetization of currency has not only shaken the economy of the country but banks too had to face its   aftermath effects. The bank staff had to work over time to clear the huge rush. This was done mainly to increase the liquidity of the banks, which had dried up due to heavy stressed volume of NPAs. The economic and business activities were further worsened by the introduction of GST. The inflation and service tax has broken the back of consumers during last few months. The positive effects of these bold economic initiatives do not seem visible even today. But one thing which has remained unchanged is the status of non performing assets of all banks including JK bank. 

During this year the NPAs have accumulated more than it was anticipated. Over the years, the JK bank has not been able to show any remarkable increase in its total net profit because of slow economic growth and mainly due to non recovery of its bad loans.  The JK bank has become the favorite bank of  various sections of the people particularly the state government employees whether serving or retired, as they call it as a peoples bank. The employees deposit their hard earned  income in the JK bank  with the hope that it is safe and will give good returns. Actually it is for having major share of the government in the bank which gives depositors the sense of feeling of satisfaction that their money is safe and secure. But with the increasing volume of NPAs, the depositors have become little apprehensive about the safety of their money deposits which has made the bank vulnerable. It is true that it is not only JKB that is suffering from bad loans but the public sector banks(PSB) also which are stressed due to the increasing volume of NPAs and poor vigilance mechanism. Recently the parliamentary panel in its report has asked the government to take urgent remedial measures to reduce the volume of these stressed assets in the system and strengthen the vigilance mechanism. The panel has also reported that ‘having the vigilance mechanism in vogue, in the banking system, there are incidence of fraud relating to non-performing assets. It has also recommended the government to impress upon the RBI to monitor and follow up strict compliance of the relevant instructions with the banks on regular basis and also recommended to re-visit the existing vigilance mechanism and if need arises, the same be amended to provide the teeth to the existing vigilance mechanism’. We must remember that the USA experienced the worst kind of economic depression in recent times, mainly due to its weak banking and financial system existing that time. Therefore the banking system needs to be stable and strong to hold the economy well.

The vigilance mechanism in JKB is also weak that it could not punish an official if found guilty. Since the state government has 51% share in the bank, therefore there is need of its employees being dealt by the state vigilance organization, for falling under the definition of public servant. To make the system more transparent, it should be also mandatory on the part of its employees to file annual returns of their assets both mobile and immobile with the bank so that they don’t have any chance to accumulate the assets beyond their known sources of income, as is the requirement in case of the IAS and other employees of the central government. 

The JKB is administratively controlled by a board of directors. But most of the time, only those persons are appointed as its members who are having support of political party in power without considering the expertise and merits of the person. There should have been the economists of repute or persons having experience in banking or finance, with unblemished integrity to be appointed as the members of the board to guide and formulate its policy. We have some former RR senior IAS officers (the sons of soil) who have successfully headed the finance department in the J&K government and with vast experience who could head the board of directors to supervise and to have proper check and balance of  the working of the bank. The board needs to be made as apolitical entity with independent views.             

Though the bank has been digitized but there is still lot of scope for its improvement in its e-banking. We have seen many times that the ATMs of this bank are either found out of service or closed for want of cash.  Its recruitment has always come under the scanner. It has been often alleged that the recruitment of the bank is always influenced by the pressures of the persons having lineage with the political party in power. The recruitment of the bank could  be made through SSRB, if found feasible, so that these apprehensions are removed.

In the past there have been some doubts about its publication section not working properly but with the digitization, the work load of papers has decreased manifold. However the distribution of yearly calendars has become subject of criticism, mostly by its customers for being always ignored. There is no criteria fixed for its distribution which needs to be laid down to improve its credibility and make the bank, as customer friendly.   

The present Chairman seems to be energetic and therefore needs to take measure to retrieve the bad loan early as possible to improve the health of the bank and strengthen the credibility of its customers. He may also fulfill his commitment he has made long back in this regard, while taking over the chairmanship.

(Abdul Rashid Khan is a retired IGP hailing from Rawalpora Srinagar)

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