Urges shift towards sustainable practices that support local businesses, economic growth
SRINAGAR: The Federation of Chambers of Industries Kashmir (FCIK) has expressed concerns about J&K Bank’s long-term financial health and operational stability, primarily due to its heavy reliance on “non-core” income sources. This dependence raises questions about the bank’s sustainability in a rapidly evolving economic landscape.
During a recent meeting at the FCIK headquarters, the Advisory Committee and senior members analyzed J&K Bank’s quarterly and half-yearly financial statements, which were released yesterday. Members voiced disappointment that the report’s overly positive tone overshadowed potential challenges, advocating for a more balanced assessment that acknowledges both strengths and weaknesses.
The meeting highlighted that J&K Bank’s significant reliance on non-core income creates vulnerabilities, as a decline in these one-off income sources could jeopardize future profitability. Members pointed out that while non-core income includes trading and investment gains, a substantial portion of J&K Bank’s revenue in this area derives from settling Non-Performing Assets (NPAs), raising concerns about long-term sustainability despite temporary financial boosts.
“The discussion revealed that much of the bank’s profit growth is linked to non-core activities, which underscores weaknesses in its core operations, particularly in lending and interest income. This trend is viewed as troubling. Additionally, members criticized an unnecessary reduction in the Provisioning Coverage Ratio (PCR), which has artificially inflated the bank’s profits and warrants further scrutiny,” the FCIK said, adding, “Concerns were also raised about the reported decrease in the Capital Adequacy Ratio (CAR) to 14.88%, especially given that this figure may have been manipulated by excluding profits from the past six months, potentially leading to further declines.”
Members emphasized that a focus on NPA recoveries alone might obscure deeper issues in credit risk management. They urged the bank to improve its lending practices to avoid future NPAs rather than relying solely on recoveries for profitability. While acknowledging the decrease in Gross and Net NPA ratios as commendable, the members noted the need for the report to address the underlying factors contributing to these improvements. A lack of transparency regarding the risk management practices that led to this success raises concerns about future performance.
FCIK members also lamented the report’s failure to provide context regarding the broader economic environment and industry trends, which are essential for evaluating the bank’s performance relative to its mandate and peers. They noted that parking funds with agencies like NABARD at rates lower than the cost of funds does not enhance the bank’s ability to advance loans.
The Chamber urged J&K Bank’s management to better support local enterprises by providing adequate funding and assistance during challenging times. Members stressed that the bank’s role should extend beyond profit-making to fostering an environment conducive to industrial growth and development. They called for a more supportive approach during periods of distress, advocating for flexible financial solutions rather than a harsh methodology toward struggling enterprises affected by external factors.
“J&K Bank should invest in its communities and address challenges thoughtfully to foster sustainable growth and build long-term client relationships, ultimately enhancing the bank’s true profitability,” stated FCIK members.