FCIK sounds alarm over J&K Bank’s financial exposure linked to non-core income

Srinagar, Oct 26: The Federation of Chambers of Industries Kashmir (FCIK) has raised alarm about the volatility of J&K Bank's long-term financial health and operational stability due to its heavy reliance on non-core income sources, raising concerns about the bank's long-term sustainability in a rapidly evolving economic environment.

According to a statement, a meeting of Advisory Committee and senior members of the apex industrial chamber was held at FCIK headquarters to analyze the quarterly and half yearly financial statements of J&K Bank made public yesterday.

Members expressed regret that the report's predominantly positive language obscured potential challenges, and suggested that a balanced approach acknowledging both strengths and weaknesses would have offered a more realistic perspective.

The meeting noted that the bank's heavy reliance on non-core income suggested vulnerability for the reason that reduction in this one-off income source could endanger future profitability.

“While non-core income includes sources like trading and investment gains, most of J&K Bank's revenue in this area comes from settling Non-Performing Assets (NPAs), raising concerns about long-term sustainability despite temporary boosts to its financial position.” observed members.

The meeting highlighted that a significant portion of the bank's profit growth is tied to non-core activities, which simultaneously reveals weaknesses in its core operations, particularly in lending and interest income which indeed was a concerning trend.

The members noted that an unnecessary reduction in the Provisioning Coverage Ratio (PCR) has further contributed to an artificial increase in the bank's profits which needs to be looked into. Furthermore, the reported decreased Capital Adequacy Ratio (CAR) at 14.88% projected concern, especially considering the bank's manipulation of this figure by excluding the profits from the past six months, which could lead to an even further decline.

The members observed that focusing on NPA recoveries alone could highlight deeper issues in credit risk management, making it crucial for 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 impressive, the members observed that the report should also have discussed the factors behind these improvements. The lack of transparency about the risk management practices that contributed to this success could raise concerns about future performance as it is crucial to analyze recoveries from loans secured with collateral separately from those based only on mere ratings to uncover any hidden challenges.

FCIK also regretted that the report lacked context regarding the broader economic environment and information about industry trends or economic challenges crucial to provide a clearer picture of the bank's performance in relation to its mandate and counterparts” observed FCIK members. They noted that parking funds with agencies like NABARD at rates lower than the cost of funds does not improve the bank's performance in advancing loans.

The Chamber has urged the management of J&K Bank to meet the needs of local enterprises by providing sufficient funding and support during critical times. Members emphasised that the bank’s role extended beyond profit-making to fostering an environment that promoted industrial growth and development.

They said that during the times of distress, the bank should offer guidance and flexible financial solutions instead of adopting a harsh approach and methodology toward struggling enterprises affected by external circumstances.

“J&K Bank should invest in its communities and thoughtfully address challenges to foster sustainable growth and build long-term client relationships, which will ultimately enhance the bank's true profitability,” stated FCIK members.