Chapter-II BANKING IN JAMMU AND KASHMIR

Transcription

1 Chapter-II BANKING IN JAMMU AND KASHMIR

2 2.1 INTRODUCTION One o f the major areas of the economy that has received renewed focus in the recent times has been the financial sector. And within the broad ambit o f it is the banking sector that has been the cynosure of academia and policy makers alike. W ith concerns about financial stability emerging to the forefront of policy challenges facing central banks worldwide, it is being increasingly realized that promoting healthy financial institutions, especially banks, is a crucial prerequisite towards this end. Not surprisingly, therefore, the banking sector in most emerging economies is passing through challenging yet exciting times and India is no exception to this rule. (Bhide et ah, 2001). Indian Banking system has several outstanding achievements to its credit, the most striking of which is its reach. An extensive banking network has been established in the last thirty years, and India s banking system is no longer confined to metropolitan cities and large towns. In fact, Indian banks are now spread out into the remote comers o f our country (urban and rural wise details about households availing banking services in India can be found in table No. 0.1 in Appendix B, Page No. 212 and the region-wise accessibility to banking services in India can be found in Table 0.2, in Appendix, Page No.213). In terms of the number of branches, India s banking system is one of the largest,

3 if not the largest, in the world today. And even a more significant achievement is the close association of India s banking system with India s development efforts. The diversification and the development of our economy and the acceleration o f the growth process are in no small measures due to the active role that banks have played in financial economic activities in the different sectors. (Jalan 2000). Roots of Banking system in ancient India can be traced more than 2000 years back while peeping into the historical background of Indian banking industry, three distinct phases become visible - 1. Early phase; 2. nationalization o f banks and upto 1991 prior to Banking sector reforms; 3. New phase of Indian banking with the advent of financial and banking sector reforms after Contrary to the popular belief, employees productivity has been rising in the nationalized banks over the period, as per studies conducted by economists. These banks also contributed to the generation o f employment. The growth of the banking sector after the nationalization was unprecedented anywhere in the world. It is particularly due to branch expansion to every nook and corner o f the country. While there was hardly any branch in the rural areas in 1969, more than 35,000 bank branches are operating there at present Banking Reforms > The reforms were introduced in June 1991 in the wake of balance of payment crises post Gulf war o f Also it had begun to be recognized that the system of controls with its heavy dependence on public sector and a highly protected inward oriented industrialization policy, could not deliver rapid growth in an increasingly competitive world environment and, therefore, these reforms were also provoked by globalization trends around the world almost the same time ( William andm ahar, 1998). 1 Bank Watch, 2004, (the inhouse Journal of the J&K Bank) 2 RBI Report, 1983

4 The recommendations o f the Narasimham Committee in 1992 provided the blue print for the first generation reform o f the financial system (Jalan,2000; Reddy, 1999) while these reforms were being implemented, the world economy also witnessed significant changes coinciding with the movement towards global integration o f financial services.3 The reforms have changed the face of Indian banking. New banks, new financial institutions, new instruments, new windows and along with it new challenges are being witnessed. The reforms in the financial sector and the consequent reforms in the Indian banking sector have led to setting up of new private sector banks on one hand and greater freedom to foreign sector banks on the other. Thus resulting in competitive environment for banking industry. This cut throat competition has forced the banks in India to take stock of the changes in the environment. The concept o f marketing o f bank services, which was unheard o f in the years gone by, has today assumed utmost importance. The banks are devising various innovative services to meet the diverse needs of their customers (Jalan, 2000). 2.2 BANKING SCENERIO IN JAMMU AND KASHMIR: HISTORICAL PERSPECTIVE Money lenders have been part o f Indian society since ancient times. Modern banking in India began some 200 years ago. First bank in India was established under the name and style o f Bank o f Calcutta in 1806 (a presidency bank). In 1840 Bombay Presidency Bank and in 1843 Madras Presidency Bank came into existence. In 1921, these three presidency banks were merged as imperial Bank of India. In 1955, Imperial Bank was merged as State Bank of India. Amid this scenario, traditional money lenders performed entire banking in the state of J&K and that too at exorbitant interest rates. At the same time some banks like Punjab National Bank, Grindlays Bank and Imperial Bank of India functioned in the state to a limited extent, but mainly the money lenders, better known as munimjis, conducted financial transactions in the entire state. During that period law did not permit banks to hold properties as mortgage against securing loans. In the backdrop o f this scenario, there 3 Narasimham Committee Report, 1998

5 was no significant improvement in the standard of living o f the common people in the state of J&K. To overcome the crisis, the then Maharaja o f State, Maharaja Hari Singh conceived the idea o f establishing a state bank to come out of the economic backwardness. W ith the effort of many eminent traders, manufacturers, local money lender etc. the task of establishing the bank was accomplished and the first board of directors was appointed by the State Government in 1938.Precisely, the outcome o f the effort of Sir Sorabji N. Pochkanwala (the then Managing Director of the Central Bank of India) resulted in the establishment of Jammu and Kashmir Bank Ltd on October 1, Finally, the certificate of commencement of business saw the light of the day on July 4, The Maharaja laid the foundation stone of the branch building at Residency Road, Srinagar, on the same day.4 While moving to its new heights of glory, after receiving the partition shock, the bank recorded an increase in fixed deposits and at the same time recovered Rs lakh against the advances it had made in lieu of the mortgage of immovable properties earlier.5 Again in 1965, the Banks deposits dipped to the Indo Pak war. In 1971, the bank was included in the second scheme o f the RBI Act It had its first full time Chairman following social control measures in banks in the country. The bank was declared an A class bank in The management of the bank laid emphasis on customer relationship and considerable emphasis was laid on the neglected sector of the economy. With overall performance o f the bank being exceptional, RBi issued a license to the bank to deal in all types of foreign exchange businesses. In the year 1984, the bank created a customer service cell with an objective to address customer complaints.7 The year 1989 was a historic year for the bank, as it completed its 50 years of existence. The bank created history on December 8, 1995, when at the request o f the Union Bank of India, it took over its branch at Khaltsi in Ladakh with all its liabilities. 4 J&K Bank Archive, Corporate Headquarters 5 J&K Bank Annual Report, Annual Report, J&K Bank Circular Number JKB/CO/PDA-1198 dated 1st April, 1984.

6 This was for the first time in the history of Indian Banking industry that a private sector bank took over the branch of a public sector bank.8 Thereafter, 1996 onwards the bank is on a spree to reinvest itself in terms of financial achievements, technology adaptation, human resource management, etc. The secret of banks success is a near monopoly in its home state combined with aggressive expansion elsewhere in the country. That mix has lead to dramatic growth rate and even a tie-up with American Insurance giant Metlife (through Metlife s Press releases referred to its partners as J&K Bank, an acronym that leaves out the worrying mention o f Kashmir (Slater 2003). (Some additional information regarding the organization can be found in Appendix B, Page No , ) Bank s Growth Scenario The most important aspect of growth is its stability. Over the last fifty years or so, the Indian economy in general and service sector in particular, has passed through the phases of high growth with high volatility, now it is witnessing growth with stability. Stable growth is much more desirable than growth with instability. This is especially so far as the impact o f growth on poverty and unemployment. At the state level, which provides the operative economic context for the functioning of J&K Bank, in the new strategy, the growth performance has been more than exceptional. The Gross State Domestic Product (GSDP) which is the total income o f the economy has seen a sharp turnaround in the last three years. In terms of the composition of GSDP, share o f primary, secondary and tertiary sector in GSDP is around 30%, 17% and 53% respectively.9 There is little doubt that tertiary sector i.e. the services sector is fast growing. The major driver of the economic growth in the state is pubic expenditure, especially public capital expenditure. In the last 3 years the state government has spent Rs.35,000 crores of which about one third has been capital expenditure or in other words investments.10 A number o f benefits accrue to the J&K Bank from this. First of course, Annual Report, , Management Discussion and Analysis 9 Annual Report of the Bank, Economic Survey,

7 being the sole banker to the government of Jammu and Kashmir, this money flows through the network of the bank, thereby increasing the float. Second and more important is, that the ancillary demands generated by these investments translate into credit growth, for which J&K Bank is best positioned to capitalize on Product M ix of the bank The biggest change in the financial sector in the 1990 s has been the production of finance. Banking is now about services and solutions. J&K Bank provides a range of traditional commercial banking products and services to India s leading corporations and growth oriented middle market businesses. The key commercial banking products and services to corporate customers include (i) credit products and structural finance (ii) Cash management (iii) Trade and Commodity Finance; and (iv) Investment Banking. A slew of new products is being developed which are in line with the credit requirements and business structure o f the state. The possibility of introducing commodity features and options for the major commodities of J&K - apples, walnut and saffron - is being explored. The Bank through its operations is focusing on Banking, insurance and asset management. J&K bank branches are acting as nodal points for selling and cross selling the products o f all the three activities.11 Moreover the Bank has always endeavoured to provide better quality service to the customers with a wider choice of products and services. Constant value addition is being made to various ranges o f products and services to maintain a balance between relationship and convenience banking. * Reaching masses through micro finance programs Poverty is an age old and world wide phenomenon. It affects the quality of life o f the people in the society in one form or the other. The state of Jammu and Kashmir is having a huge percentage o f population living below poverty line. The unemployment/underemployment, under developed agricultural and horticulture sectors, unbalanced development with huge regional imbalances, illiteracy, shortage of capital, lack of entrepreneurship, etc. are some of the major causes of poverty in the state Annual Report, Economic Survey of Govt, of J&K,

8 Since poverty cannot be eradicated by relief and subsidies, it needs to be removed through creation o f productive employment opportunities, development of basic infrastructure and other social conditions. Productive employment generates growth, create assets and thus improves the economic conditions o f the poor who get engaged in such pursuit. At the same time, growth through productive employment creates a multiplier effect for bringing about a change in the economic scene. In this backdrop, the J&K bank has been playing a significant role for upliftment o f poor and raise the living standards of masses and ameliorate their socio-economic conditions to achieve balanced economic growth with social justice in the state of Jammu and Kashmir. The bank has been reaching to those people who have certain entitlements in the form o f productive assets, education and skills, the possession o f which otherwise can generate incomes to buy the food requirements above the subsistence level. Since poverty originates in villages, the bank has taken various initiatives to contain it there so that its overflow to towns and cities in the form o f migrations, which in turn gives birth to a number o f social evils and malign the social structure is checked.13 From the employment generation point of view, the bank has emerged as a single largest agency in generation o f employment, both direct and indirect in the state.14 The bank thereby reducing unemployment employs a large number o f people. It also helps the Government in implementation o f number o f schemes meant for the upliftment of economically/socially deprived people and also makes credit available ti educated unemployed to set up their own units/entrepreneurship through a well planned and well defined system. A number of Bank s poverty eradication programme are rural centric. The programme covers areas of agriculture, horticulture, village and cottage industries, fisheries, tourism, handicrafts, transport and other allied industries on one hand and promotion o f health sanitation, communication and education on the other. The bank has been showing continuous commitment towards priority sector lending. The bank s priority sector lending covers the following dimensions: 13 E-newsletter, Corporate Communication Department of the Bank 14 State Bankers Committee Report, Annexures A to F and Various Annual Reports of the Bank.

9 Identifying those sectors of the economy and sections o f the society that are crucial for the development of the nation but have been hither-to-neglected. Thus the entire rural sector and certain economic activities, which have the potential o f providing self-employment to the people with modest means in urban sector, became the thrust area of the credit policy o f the bank and were accorded priority for credit deployment; The Bank extends credit facilities to the target groups with liberalized terms and conditions including rate of interest, norms o f margin and security, reduced documentation, repayment' system etc. The Bank advances a certain portion o f its net bank credit to the priority sector in direct form i.e., to the target groups proper as well as in an indirect form i.e., for the ultimate benefit o f the target group through some organizations. The bank integrates credit with non-credit inputs needed for the development in a planned manner.15 The bank has been organizing micro finance awareness camps throughout the state and created awareness about various credit products among the ignorant farmers during the camp. To ensure balanced economic growth of all the sectors of economy help farmers particularly the marginal farmers to raise finance, the bank disbursed Rs. 127 million under Kissan Credit Card scheme upto the end o f March To encourage the development o f entrepreneurs in the J&K State, the Bank recently donated Rs lakh * 17 to the J&K Entrepreneurship Development Institute, Srinagar. The bank has also taken a lead in encouraging women entrepreneur in the state. In this connection the bank launched women s financial empowerment initiative on 8th of March For the first time, the bank also instituted an award for the best women entrepreneur of the year. Remarkably, the bank s women financial empowerment initiative has taken special care o f widows and marginalized women entrepreneurs. Under its differential rate o f interest (DRI) scheme, the bank is extending loan facilities 15 Corporate Communication Department, Communique dated 9 March. 16 SLBC Report, SLBC Report, Entrepreneur Development Institute (EDI) Circular dated 7 Nov., 2007

10 to this class of women.19 The bank also provided financial support o f Rs.2,40,000 as 40% share of expenditure for organizing five Entrepreneurship Development programmes in Jammu region Capital and Reserves The capital and reserves o f the Bank increased to Rs crore during the year from Rs crore of the previous years. The statutory and other Reserves increased to Rs crore from Rs crore of the previous years. Table 2.1: CAPITAL AND RESERVES Amount in Crores A r t r t.» *? ' Source: J& K B an k s Annual Report, Asset Classification Document 31/3/2007, AMID (Asset Monitoring Information Department, J&K Bank.) 20 Business Development and Financial Centre (BDFC), Jammu Communique dated 12 Jan, 2007

11 2.2.5 Deposits: Bank's aggregate deposits recorded an accretion of 8.50% to Rs crore at the end of financial year from the previous year figure ofrs crore. Table 2.2: DEPOSITS Amount in Crores 25000ft t644^ Aa4-6A Source: J& K B an k s Annual Report, Profitability: The bank posted a net profit of Rs crore for the financial year as against the previous year figure o f Rs crore. Table 2.3: NET PROFIT Amount in Crores 500f Source: J& K B an k s Annual Report,

12 The bank had made a net profit ofrs crore in as against Rs crore of The dip in the profits was in line with overall industry trend which witnessed diminishing yields in the securities portfolio held by banks and consequential booking of losses. The Bank could not remain insulated to the said affects of inflation and hardening of interest rates, which besides impacting the yields also, depreciated the investment portfolio. In order to insulate the securities portfolio from future market risk and to reduce the duration of its investments, Bank transferred securities o f Rs crore from AFS lo HTM category and also disposed off long duration securities, thereby booking depreciation / loss on investment portfolio aggregating Rs crore Income: The total income o f the Bank stood at Rs crore against the previous year figure of Rs crore. The interest income (crore) and other income (other than trading) showed perceptible increase Dividend: It has been recommended at 80% (Free of tax) by the Board of Directors for the year ended 31 March 2006 subject to the approval of the shareholders Assets: Credit Portfolio: The credit portfolio o f the bank recorded an appreciable growth during the year. The total > advances o f the bank increased to Rs crore against Rs crore o f the corresponding period of the previous year registering a growth of 25.75%. Besides the Bank also actively supported programmes for poverty alleviation, empowerment of women, upliftment of poor and downtrodden and eradication o f unemployment sponsored by the State and Central Govts.

13 Table 2.4: ADVANCES Amount in Crores Source: J& K B an k s Annual Report, Non-Performing Assets: The credit policy of the bank continued to focus on keeping the level of non-performing assets at minimal level and maintain best asset quality. Suitable measures were initiated to augment recovery and contain NP As. The net NPA was reduced to 0.92% against 1.41 % of the previous year, which is one of the lowest in the industry Coverage ratio works out to 63.64% as against 48% of the previous year Investment Portfolio:. It stood at Rs crore for the FY The repositioning o f the investment portfolio was completely in line with the strategic balance sheet management stance taken by the Bank to shield itself from the interest rate risk shocks in the light o f the hardening interest rate scenario. The yield on investment was 6.22% as compared to 7.38% for the previous year.

14 Table 2.5: INVESTMENTS Amount in Crores r r - ^ ^ a ,34--; 8000fj H Source: J& K B an k s Annual Report, Capital Adequacy Ratio The capital adequacy ratio stood at 12.14% for the year which is comfortably much above 9% the minimum stipulated by the RBI.