J&K Bank’s profit declined by 500% in five years: CAG Report

SRINAGAR — Released on last Wednesday, the Comptroller and Auditor General report has revealed that the profit level of Jammu and Kashmir Bank has declined to 500 percent over last five years.

The report has exposed the failures of the Bank to maintain the position of one of the leading banks of the country, mainly due to mismanagement and forwarding of unsecured advances to various business houses, most of which are said to be from outside the State.

CAG in its report has said, “Profit earned by the bank declined from Rs 1,182.47 crore during 2013-14 to Rs 202.72 crore in 2017-18, mainly due to increase in the gross Non-Performing Assets (NPAs) of the bank from Rs 643.77 crore, as on 31 March 2013 to Rs 6,006.70 crore, as on 31 March 2018. Percentage of NPAs to Gross Advances also increased from 1.62 per cent at the end of March 2013 to 9.96 per cent at the end of March 2018. The bank also suffered a loss of Rs 1,632.29 crore during 2016-17.”

“The bank’s credit control system and financial reporting system failed to identify NPAs in time. Although there had been 24.58 per cent growth in deposits during 2013-14 to 2017-18, annual growth of deposits of the bank during last four years ending March 2017 was far below overall national average of Scheduled Commercial Banks.”

“The Bank had recorded an increase of 51.30 per cent in advances during 2013-14 to 2017-18, annual growth fluctuated between (-) 1.78 per cent and 18.28 percent.”

”Percentage of unsecured advances to total net advances had increased from 20.16 per cent at the end of March 2014 to 27.90 per cent at the end of March 2018.”

“The bank concentration risk for industry-wise exposure was on higher side when compared to average of overall banking industry.”

“Sanction/release of credit facilities, without safeguarding the bank’s interest through adequate security cover, proper credit appraisal, adherence to the pre or post-disbursement conditions of the sanctions, regular monitoring, etc not only led to NPAs but also loss/non-recovery of Rs 197.98 crore, doubtful recovery of Rs 1,599.14 crore and excess payment of Rs 14.10 crore in test-checked cases.”

“Deficiencies were noticed in Information Technology systems of the bank due to which it could not ensure technology-based solutions for some of its operations. Sanctioning of one-time settlement in deviation of bank’s recovery policy resulted in sacrificing of principal amount of Rs 17.97 crore in test-checked cases.”

“The bank sold 10 NPAs to Asset Reconstruction Companies (ARCs) during the period 2014-2018 by sacrificing principal amount of Rs 671.10 crore and unapplied interest of Rs 504 crore. Sale of financial asset to ARC below the reserve price resulted in loss of Rs 21.89 crore.”

“Imprudent decision-making, non-invoking of guarantee and non-safeguarding of bank’s interest led to doubtful recovery/loss of Rs 180.43 crore in test-checked Non-Performing Investment.”

“The bank had spent 53.09 per cent to 83.82 per cent of Corporate Social Responsibility (CSR) budget during 2016-17 and 2017-18 on a single activity/project and had also incurred 49.33 per cent to 95.27 per cent under a single segment during 2015-16 to 2017-18, which was in violation of CSR policy. Further, in contravention to CSR policy and Companies Act 2013, an irregular expenditure of Rs 46.96 crore was incurred out of CSR fund.”

As per the report, it has come to fore that from increase in Non-performing Assets (NPAs) to drop in profits, Comptroller and Auditor General (CAG) has exposed the dark underbelly of Jammu and Kashmir Bank in its newly released report.

The report has revealed that the bank had not complied with the Securities and Exchange Board of India (SEBI) regulations.

It has disclosed that the profit earned by the bank from 2013-2018 declined by more than 500 percent. “The profit earned by the bank declined from Rs 1,182.47 crore in 2013-14 to 202.72 crore in 2017-18,” the report said.

The CAG audit report held the increasing NPA of the bank responsible for low profit in five years. The report said the bank’s credit control system and financial reporting system even failed to identify the increasing NPAs on time.

“This is mainly due to an increase in the Gross Non-Performing Assets (NPAs) of the bank from Rs 643.77 crore, as on 31 March 2013 to Rs 6,006.70 crore as on 31 March 2018. The percentage of NPAs to gross advances also increased from 1.62 percent at the end of March 2013 to 9.96 percent at the end of March 2018. The Bank also suffered a loss of Rs 1,632.29 crore during 2016-17,” the report said.

The report has highlighted the bank inefficiency to recover outstanding during these five years. “Sanction/release of credit facilities, without safeguarding the bank’s interest through adequate security cover, proper credit appraisal, adherence to the pre or post-disbursement conditions of the sanctions, regular monitoring, etc. not only led to NPAs but also loss/non-recovery of Rs 197.98 crore, doubtful recovery of Rs 1,599.14 crore and excess payment of Rs 14.10 crore in test-checked cases,” the report highlighted.

Further to this, the audit report noticed deficiencies in Information Technology systems of the Bank “due to which it could not ensure technology based solutions for some of its operations.”

The CAG report has also highlighted the irregularities in the recruitment of Relationship Executives and Banking Associates during the period. “Irregularities in recruitment of Relationship Executives and Banking Associates were noticed,” the report said.

“The Bank prepared district-wise merit list of 3,107 candidates. The fact that the recruitment would be district-wise was not mentioned in the advertisement notification. Bank’s recruitment policy did not specify preparation of merit list on a district-wise basis and the decision was taken by the Chairman without the approval of the BODs,” the CAG audit said.

According to the audit report, the bank’s concentration risk for industry-wise exposure was on the higher side when compared to the average of the overall banking industry.

“The annual growth of deposits of the bank during the last four years ending March 2017 was far below overall National average of Scheduled commercial banks,” report said.