FCIK slams J&K Bank for failing to meet Priority Sector Lending obligations

Srinagar, Nov 6: The Federation of Chambers of Industries Kashmir (FCIK) has raised serious concerns over J&K Bank’s persistent failure to meet its Priority Sector Lending (PSL) obligations, a shortfall that is significantly hampering economic growth, job creation, and entrepreneurship development in the region.

In a statement issued by FCIK, the apex industrial chamber expressed regret over the bank’s inability to fulfill the mandatory requirement of allocating 40 percent of its total advances to PSL, which covers vital sectors such as agriculture, MSMEs, education, housing for the underprivileged, social infrastructure, renewable energy, and exports. These sectors are crucial for driving employment and reducing poverty, particularly in underdeveloped regions like Jammu and Kashmir.

FCIK disclosed that, as of September 30, 2024, J&K Bank’s PSL shortfall has reached an alarming Rs 8,372 crore which could have been better utilized to support local businesses and stimulate much-needed economic activity in the region.

Regretting the missed opportunities, the Chamber pointed out that the bank has been penalized by the RBI to park the entire shortfall of Rs 8,372 crore—nearly 9% of its total advances—in the Rural Infrastructure Development Fund (RIDF), leading to a substantial financial loss.

“While these funds earn a meager interest rate of 2.5% to 2.75% from RIDF, the bank is obligated to pay its depositors a return of 7% to 8% on their investments,” stated FCIK, further noting that the earnings are even lower than the bank’s average cost of deposits, which stands at 4.4%.

FCIK also highlighted that the bank’s growth in advances which increased by a modest Rs 690 crore was insufficient to provide the much-needed boost to the region’s struggling economy.

Emphasising the need for urgent corrective action, the Chamber has urged the J&K government both in the capacity of the representative of the people and the bank’s majority shareholder to intervene and ensure that critical sectors received the funding they urgently require.

“The government must also address the insensitive approach of the bank’s management and board, as their continued neglect of priority sector lending is not merely a financial oversight but a direct blow to the economic future of Jammu and Kashmir,” FCIK observed, highlighting the far-reaching consequences of this credit shortfall.

The Chamber regretted that the MSMEs, agriculture and other key sectors have been unable to access the capital necessary for growth, leading to the closure of small businesses, layoffs, and a deepening economic crisis.

FCIK also noted that a significant portion of the PSL funds could have been used to revive and restructure loans for MSMEs, had the bank adhered to the directives from the Union government and RBI before classifying their accounts as Non-Performing Assets (NPAs). Despite the Supreme Court’s ruling in August 2024 deeming these directives mandatory, the bank has continued to ignore them, further intensifying their ‘name and shame policy’ against micro, small and medium enterprises.

The chamber further noted that aspiring entrepreneurs face an even bleaker outlook, as many are unable to secure loans for their innovative ideas. The bank insists on collateral and personal guarantees, despite these entrepreneurs being entitled to funding under government-backed schemes designed to support emerging small businesses.

Drawing attention to the bank’s recent financial practices, FCIK has called for a comprehensive review of its operational strategies as the data and details in possession of the chamber pointed out discrepancies in the bank’s financial results, particularly the questionable adjustments made to present a more favourable profit outlook.

FCIK has urged immediate action to address the bank’s failure to meet its PSL obligations, ensure compliance with government and RBI directives, and reassess its financial practices and strategies to safeguard the economic future of Jammu and Kashmir, the statement said.