Peace Dividend: In 5 years banks drop their exposure in J&K by 13%
An area that is visibly unable to cash the ‘peace dividend’ is the banking sector which is exhibiting a new fall in their advances across J&K.
Against deposits of Rs 55143 crore at the end of March 2012, the cumulative loan book stands at Rs 18948 crore. It makes a credit deposit ratio of 34.36 per cent which is a net fall by 1.21 per cent in one year.
“It is flight of capital,” Chief Minister Omar Abdullah told a bankers’ conference here. “Question are being asked and we are unable to explain.” Finance Minister Abdul Rahim Rather asked banks to show the same growth in advances as they are showing in the deposits. “How can we explain? Last year was peaceful and still you did not work as the society expected.”
But restrictive and conservative exposure is the new banking norm in the state. For the first time, it started appreciating in 2004 when the CD ratio jumped to 34.96 from 31.49 per cent. The sector peaked in its exposure when by March 2008 it had advanced 41.92 per cent of their deposit in the state.
As the land row triggered a crisis in 2008 summer, followed by Shopian rapes in 2009 and the massive unrest in 2010, banks gave up the pace they had barely picked up. The CD ratio fell to 45.85 per cent in March 2009 and to 44.76 per cent in March 2010 and eventually tumbled to 35.57 per cent in March 2011. Now it is at 34.36.
There are three distinct features of the banking operations in the state as far as their cumulative credit to the state goes. Firstly, of the Rs 18949 crore credit, more than Rs 11133 crore (58.75%) is the priority sector lending.
Secondly, it is only one bank – the state owned J&K Bank, that has Rs 12692 crore (nearly 67%) share in the overall credit basket of all the banks.
Thirdly, the banks across J&K have created housing a focus area within the priority lending. In 2011-12, for instance, when the banks overall credit off in priority sector was Rs 3880 crore, housing alone got Rs 1151 crore.
“You can not create a priority area within the priority sector,” Omar Abdullah told banks. “If you set the target for different areas, you should stick to that.” Rather said that the state government is not against improved investments in housing sector. “But we need to make sure that this you are not doing at the cost of other area falling in the priority sector,” he asserted.
Unlike J&K Bank that has the long arm of the law always in its support to manage its bad assets, the non-performing nationalized banks are desperate to see the Securitization act being implemented in the state. Right now the banking sector has cumulative bad assets at Rs 915.75 crore, up substantially from Rs 794.66 crore in March 2011.
While chief minister wanted banks not to make NPA as the barometer of their performance in J&K, Finance Minister was sensitive towards their problems. “J&K has very tough land laws and these have always remained very sensitive,” Rather said. “After lot of litigation on the issue, we have finally found a way out and it would require certain small amendments in some laws and then it will be made operation in the state.”