By Mohammad Lateef
“Founded on the principles of private initiative, entrepreneurship and self-employment, underpinned by the values of democracy, equality and solidarity, the co-operative movement can help pave the way to a more just and inclusive economic order.” Kofi Annan
A just and inclusive economic order is a cherished goal of any modern welfare society because what is growth and development if it does not percolate to weakest and the most vulnerable strata of the society? Worldwide, cooperative credit structure was established to achieve this goal of inclusivity and upliftment. In the state of J & K, this type of credit mechanism is headed by State Cooperative Bank.
Established in 1917 as a district co-operative bank for Srinagar and Ladakh and afterwards designated as an Apex cooperative bank, J & K State Cooperative Bank, since its inception, has played a significant role in the establishment and growth of credit structure and formal banking channels in the state especially in Kashmir and Ladakh divisions.
The bank suffered several setbacks which include devastating fires destroying all most all the records of the bank, disruption in the activities of member credit societies, dependence on nominated board of directors, members of which were senior government functionaries who could not devote much time to development of the bank as they were engrossed in the work at their respective government offices.
In 2012, an elected board of directors was constituted after a gap of 30 years. This was a milestone in the path to progress of the bank as well as in reinventing and reinvigorating cooperative movement. The bank now had directors who were seasoned cooperators and understood the significance and relevance of the cooperative credit structure. After 4 decades, annual general meetings of the member societies was held in 2013 and is being held every year since then. Delegates from almost all member societies participate in the meetings. Delegates deliberate upon and scrutinize each and every decision of the board of management. Through AGMs the decision making and policy framing has become member driven, thus, upholding the vitality and essence of cooperativism.
Under the leadership of the chairman, Mr. M.S. Dar who happens to be a senior and successful cooperator, the board took steps as a result of which the bank not only survived but emerged as a vibrant, viable and self- reliant financial entity. In order to achieve operational efficiency and market relevance, the bank embarked on a path of aggressive business strategizing and modernization of its products and procedures. For this, the board took three important initiatives: i) technology adoption ii) network expansion iii) improvement in vital financial parameters.
First, the bank, with the help of NABARD, migrated to CBS platform thus, making anywhere banking possible for its customers. The bank also introduced services like electronic transfers, card based transactions, DBT facility , etc. This helped the bank to remodel its business operations on the lines of commercial banks.
In the past, the bank did not need to open branches everywhere. The purpose was served through member credit societies. However, in 90s, the working of credit societies was badly hit. This severely affected the operations of the bank particularly in far flung areas. The board of management decided to regain its connect with rural populace through branch network expansion. In past two decades, the bank had added only 4 branches while as in the past six years the bank opened 13 branches. The bank now has 4 branches in Leh, 3 in Kargil, 4 in Ganderbal, 10 in Srinagar and 16 branches in Budgam district. The bank has set a target to take the number of branches to 50 by 2020. It is exploring the options to open at least one branch in every district of the state. To bolster its expansion programme and diversify its banking channels, bank also established a network of ATMs, PoS. The bank is also introducing mobile ATM vans with the help of NABARD and is in the process to introduce net banking, mobile banking, installation of micro ATMs, cash recyclers and so on.
When the elected board was constituted, the business and health indicators of the bank were at a worrisome level. CRAR, which is a primary indicator of the health of any bank, was just 5.38%. The Bank was required to raise its CRAR as per RBI norms. A CRAR below 7% means a bank can not lend anymore. However, the chairman-a visionary cooperator, impressed upon the member societies to infuse capital in the bank and as a result; today the CRAR stands at a satisfactory level of 11.58%.
Another area of concern was nonperforming assets. The Gross NPA of the bank stood at an alarming 23.31%. At such a level , the bank was sure to go out of operations. After rigorous and sustained efforts for six years, bank achieved what was beyond imagination. The Gross NPA was slashed to below 5%. The net NPA stands at below 2.5%. While most of the big banks are reeling under alarming increase in bad loans, State Cooperative Bank through micro-management of its loan book has not only drastically reduced its NPA, it has been successful in arresting any further slippage. During this period the business of the bank also rose by 67%.
The bank had not been lending to its full potential. This was negatively impacting all the vital ratios. Profitability was low and as such bank was finding it difficult to create requisite provisions and reserves. The bank decided to shift gears. A comprehensive credit policy was framed which includes segment and sector wise customization of products, aggressive door to door campaigns, competitive pricing and diversification in product portfolio. An added stress was laid on credit flow to entrepreneurial and agricultural activities. The efforts yielded results. The CD ratio-ratio of loan to deposits- which was a mere 18 %, was raised to 36% within six years. The bank aims to increase its CD ratio to 50% by 2020.
Aggressive and consistent efforts for the past six years have helped the bank to reach to a stage where it is becoming a major player in its area of operations. The two pronged approach-following in letter and spirit the principles of cooperative movement and remodeling its business and approach on the lines of commercial banks-has helped the bank to become an instrument of socio-economic change in rural areas on one hand and on the other hand bank has emerged as a viable and profitable entity. For the first time since its inception, the bank was in a position to declare dividends to its share holders. Today J and K State cooperative Bank is the only licensed cooperative bank in the state. Unlike other cooperative banks, it has maintained its sustainability without the need for any capital infusion from the government.
The present board of management under the guidance of its Chairman, Mr. M. S. Dar from day one has aspired to get the bank listed as scheduled bank by RBI. The bank has successfully optimized its ratios to the levels where it has become eligible for such a status. It is expected that by 2019 the bank will be granted the scheduled status. Once granted, it will throw open various opportunities for the Bank. The bank will be able to take advantage of the various schemes available only to the scheduled banks. Most importantly, it will be able to seek concessional refinance from NABARD and pass on the benefits to its customers especially in rural areas.
The author is MD of the Jammu and Kashmir Cooperative Bank. He can be reached at: email@example.com