Excelsior Correspondent
Srinagar, Oct 26: The Federation of Chambers of Industries Kashmir (FCIK) today raised concerns 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.
In a statement issued here, the Federation expressed doubts about the bank’s long-term sustainability in a rapidly evolving economic environment.
The remarks followed a meeting of its Advisory Committee and senior members, convened to analyze J&K Bank’s quarterly and half-yearly financial statements released yesterday.
Members, the statement noted, expressed regret that the report’s predominantly positive language obscured potential challenges, suggesting that “a balanced approach acknowledging both strengths and weaknesses would have offered a more realistic perspective.”
The meeting observed that the bank’s heavy reliance on non-core income highlights a vulnerability, as any reduction in this one-off income source could jeopardize future profitability.
“While non-core income includes sources like trading and investment gains, a large portion 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,” members noted.
The meeting highlighted that a significant portion of the bank’s profit growth is tied to non-core activities, which, it stated, simultaneously exposes weaknesses in its core operations, particularly in lending and interest income-a troubling trend.
The members further noted that unnecessary reduction in the Provisioning Coverage Ratio (PCR) has artificially increased the bank’s profits, which warrants attention.
“The reported decrease in the Capital Adequacy Ratio (CAR) to 14.88% is concerning, especially as the bank has excluded profits from the past six months, which could lead to an even further decline,” they observed.
The members, FCIK said, also cautioned that focusing on NPA recoveries alone might reveal 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, members remarked that the report should have discussed the underlying factors behind these improvements.
“The lack of transparency about the risk management practices contributing to this success raises concerns about future performance; it is essential to analyze recoveries from loans secured by collateral separately from those based only on ratings to uncover any hidden challenges,” FCIK stated.
“J&K Bank should invest in its communities and thoughtfully address challenges to foster sustainable growth and build long-term client relationships, ultimately enhancing the bank’s true profitability,” FCIK members stated.
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