The Less Credit-Worthy Banks

8 mins read

Fayaz Rasool. 

Photo: Xuhaib Maqbool
Photo: Xuhaib Maqbool

The performance of all major banks in disbursement of the credit has been dismal in view of the rising nonperforming assets (NPAs). The credit disbursal rate has been low even in priority sector areas despite the government directions to improve on this.

As per the government statistics upto 31 March 2016, banks have extended a total credit of Rs 15,753 crore in  favour of 4,87,736 beneficiaries which is significantly lesser than the annual target of Rs 23,605 crore for 10,57,906 beneficiaries under annual credit plan 2015-16. The credit disbursal percentage has been 67.   Even the lending has been less in the priority sector and the  credit disbursal has been of Rs 8,754 crore in favour of 305308 beneficiaries against the annual target of Rs 14,804 crore for 8,16,524 beneficiaries. The non priority sector credit has been of Rs 6,998 crore disbursed in favour of 182428 beneficiaries against the annual target of Rs 8800 crore for 2,41,382 beneficiaries.

In comparison to the achievement of financial and physical targets during financial year 2014-15 achievement during 2015-16 has remained considerably low.  The low credit disbursal has been even as the state government had taken a serious note of the matter. Earlier in a meeting of the different banks in December last year, Chief Secretary, B R Sharma, had taken a serious note over the issue. The meeting noted that the aggregate deposits of banking sector have increased to Rs.81,895 crore but by December 2015 banks disbursed Rs.10,800 crore constituting only 46 percent of the target. Expressing concern over the low level of achievements under credit disbursement in the state, Chief Secretary noted that a study had been undertaken by RBI for enhancing the flow of credit in the state substantially during the next two years and stressed upon all the stakeholders the need to address this issue with dedication.  He also emphasised on comparing the achievements of banks in the state with the national bench- marks. Highlighting that there are a number of banks that have zero achievements in the State, the Chief Secretary stressed on a focused and a thorough analysis into the working of such banks in the State to improve their performance.

The less credit disbursal has been even as the banking sector has seen a rapid progress over the years including in Jammu and Kashmir. On 31 December 1995 there were only 21 banks with a network of 853 branches operating in the state whereas 20 years down the line the number of banks has increased to 46 with a branch network of 1960.

The low credit disbursal has been mainly due to the increase in the non performing assets.  Against the gross NPA of Rs 2,021 crore in the state as on December 31, 2015, the amount of three major banks, including the J&K Bank, SBI and PNB is to the tune of Rs.670 crore, Rs 153 crore and Rs.175 crore, respectively. The Jammu and Kashmir Bank constitutes 37 percent of the total branch network of all banks in the state but its share in advances outstanding is 62 percent. It has largest share of Rs.26,094 crore in aggregate outstanding credit of banking sector of Rs 42,348 crore in the state. The share of SBI in aggregate outstanding credit of banking sector is 16 percent, that of  PNB is 4.05 percent, of JKGB is 3.16%, of HDFC Bank is 3.17% and that of Ellaquai Dehati Bank is 1.18%.

 Bank Wise Performance

The Jammu and Kashmir Bank contributes 63 percent of total credit disbursed to priority sector by all the banks in the state during the 2015-16 financial years. But despite that it has fallen short of the targets. The J&K Bank has achieved 72 percent of the annual credit plan (ACP) targets under agriculture sector by 31 March 2016. The SBI, PNB, Jammu Kashmir Grameen Bank and Elaqui Dehati Bank have achieved 38 percent, 28 percent, 40 percent, and 53 percent respectively of their respective ACP targets during the financial year 2015-16.  The percentage of UCO bank has been 3 percent, JK State Cooperative Bank at 6 percent, Punjab and Sind Bank at 11 percent. Under the micro and small enterprises sector, the poor performing banks have been UCO Bank at 5 percent, Central Bank of India at 11 percent, Anantnag Central Cooperative Bank at 7 percent and Punjab & Sind Bank at 19 percent. The performance of the banks in the education sector has particularly remained dismal as none of the banks have been able to achieve the ACP targets. None of the banks has performed well in the housing sector as well. The RBI has taken serious note of the low credit disbursal in the housing sector, stressing that performance of the banks has been low in the housing and education sectors as the financial institutions are comfortable in providing retail personal loans, which carry a very high interest rate, whereas the housing loans, which comes under priority sector, have to be disbursed at comparatively cheaper rate.  RBI has asked the bankers to change their business model and focus more on granting housing loans under various housing finance schemes instead of retail or personal loans. Unlike housing loans the consumption loans are sanctioned by the banks within 24 hours without any hassles, whereas for availing housing Loans the customers are required to acquire revenue extracts of their land and other documents, which is a very difficult and cumbersome process for the customers. The consumers are facing difficulties while obtaining revenue records from the Patwaries particularly under the circumstances when in most of the urban areas the field book containing details of land does not exist at all.  As a result the customers prefer taking consumption loans or personal loans on comparatively higher rates than getting into the trouble of acquiring revenue extracts and records. Government has assured the banks that difficulties can be overcome once the digitization of the land records takes place in the state and the process of acquiring revenue extracts of land becomes trouble-free and user-friendly.

As per records against the annual target of Rs 127 crore for 8,884 beneficiaries for all banks operating in the state, the achievement on 31 March, 2016 under three major government sponsored schemes of the National Rural Livelihood Mission (NRLM), Prime Ministers Employment Guarantee Programme (PMEGP) and SC/ST/OBC loans is of the order of Rs.107 crore spread over 6,201 beneficiaries in all the three regions of the state thereby registering an achievement of 85 percent of the target in financial and 70 percent in physical terms, against achievement of 73 percent in financial and 45 percent in physical terms. Under NRLM against a target of Rs.31.77 crore for 4,379 beneficiaries, banks have disbursed an amount of Rs.21.51 crore to 3759 beneficiaries which works out the achievement of 68% in financial and 86% in physical terms. Around 3828 cases were sponsored to banks up to 31 st March, 2016, against the annual target of 4,379 cases, out of which 3687cases were sanctioned, 127 cases were rejected and 14 cases are pending for sanction with banks.  Under PMEGP scheme against the annual target of Rs 76.76 crore for 1,760 beneficiaries, banks have disbursed an amount of Rs.82 crore to 2015 beneficiaries’ upto 31st March, 2016 for setting up of employment generating units thereby achieving 107% and 114% of target in financial and physical terms respectively. Around 3,361 cases were sponsored to banks upto 31st March, 2016, against the annual target of 1,760 cases, out of which 1950 cases were sanctioned, 1028 cases were rejected and 383 cases are pending for sanction with banks.  Under SC/ST/OBC schemes banks have disbursed an amount of Rs 3.71 crore to 427 beneficiaries’ upto the end of March, 2016 against annual target of Rs 18.56 crore for 2,745 beneficiaries thereby registering an achievement of 20% and 16% in financial and physical terms respectively.  Against physical target of 2,745 cases, 1178 cases were sponsored to banks upto 31st March, 2016, out of which 586 cases were sanctioned, 420 cases were rejected and 172 cases are pending with the banks.

 Region Wise Performance

The banks have disbursed an amount of Rs 63 crore to 3,438 beneficiaries upto 31st March, 2016 under three major government sponsored schemes of NRLM, PMEGP and SC/ST/OBC loan category against annual target of Rs.75 crore for 6,453 beneficiaries, thereby achieving 84 of the target in financial terms and 53 in physical terms against achievement of 54 in financial and 29 in physical terms during the corresponding period of the previous financial year 2014-15 in Kashmir region. In Jammu region the banks have disbursed an amount of Rs 40 core in favour of 2636 beneficiaries upto 31st March, 2016 under three major government sponsored schemes against annual target of Rs 42 crore to 2080 beneficiaries, which accounts for 94 percent and 127 percent achievement in financial and physical terms respectively, against achievement of 107 in financial and 82% in physical terms during the corresponding period of the previous financial year (2014-15) in Jammu region. In Ladakh region banks have disbursed an amount of Rs 4.22 crore in favour of 127 beneficiaries’ upto 31st March, 2016 against annual target of Rs 8.79 crore for 351 beneficiaries, which works out to be 48 %.

Branch Targets

The banks have not been able to maintain the targets to open new branches to reach out to the different areas. Against the target of opening 240 branches in the state the banks have opened only 18 branches, which include 13 branches opened by J&K Bank, 2 branches opened by PNB, 2 branches by Syndicate Bank and 1 branch opened by ICICI Bank. The position was not considered encouraging by the government. State government has taken severe note of this observing that even the J&K Bank has opened only 13 branches against the target of 136 branches. A senior official of the J and K bank noted in a recent meeting that “ opening of more branches is presently under process and the bank has already conducted surveys and also acquired premises at various places.’’ He noted that the opening of new branches has been delayed “due to connectivity issues.’’ Government has asked the banks to ensure that their branch expansion plans submitted by them are implemented in letter and spirit.  However there are hindrances in that which have come to the notice of the government.  Many of the banks are not able to find the space and even the commercial banks are operating their branches in residential areas in the buildings which are not meant for commercial activities.  The Municipal Bodies and Development Authorities are struggling to enforce the Master plan and other related rules in major cities in Jammu and Kashmir as in the areas like that of Gandhinagar, Trikuta Nagar, Jammu and Karan Nagar, Srinagar, most of the buildings housing bank branches are illegal. Government has written to the bank heads of all the banks operating in the state and stressed upon them to observe due diligence while opening branches and desist from opening them in residential areas to ensure de-congestion in these areas as well as the violation of master plan. The banks have been asked to shift branches from the buildings which are violating Master Plan or buildings which do not have completion certificates from competent authority.

Banking Targets And Legal Hassles

The banks operating here are facing legal hassles to recover the money from the people due to which their NPAs have increased multi-fold. In view of the ‘special position’ the assets that could be taken over by the banks can’t be sold to any outsider. According to officials the issue that confronts the state relates to the transfer of property act as the J&K state has its own Transfer of Property Act under which the assets taken over by the banks cannot be disposed off to the persons other than the state subjects. They however added that the government is working on various options, either to have the state’s own SARFAESI Act or to change the transfer of property act to take care of the disposal of assets to be taken over by the banks. The banks have been asked to meet the targets. The Reserve Bank of India (RBI) has asked the banks to focus on increasing the credit deposit ratio and sought that the target of 50%, 55% and 60% should be achieved during the three financial years of 2015-16, 2016-17 and 2017-18, respectively. The RBI has strictly asked the banks that they should “give due importance to monitoring credit disbursals under ACP the CD Ratio should be given priority and it should be ensured that C.D. Ratio of 60% is achieved by the end of FY 2017-18.’’

The story first appeared in print edition of June 15.

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