FCIK Slams J&K Bank’s “Exploitative Practices,” Seeks Probe Into Excessive Collateral Demands
Srinagar, 10-12-2024: The Federation of Chambers of Industries Kashmir (FCIK) has raised serious concerns over what it described as “unethical” and “illegal” practices by J&K Bank, urging a thorough investigation into the institution’s approach toward collateral securities and loan recovery procedures. In a statement released today, the FCIK highlighted alleged discriminatory practices by the bank, including excessive demands for collateral and extreme measures such as the publication of e-auction notices targeting properties pledged by borrowers, including residential homes. These practices, according to the FCIK, have created an environment of uncertainty and distress for local businesses, particularly small and medium enterprises (MSMEs) and women entrepreneurs.
The FCIK emphasized that collateral securities, often imposed on borrowers as an additional safeguard, typically include personal or ancestral assets beyond the primary security like factory premises, plant and machinery, and stock. While such requirements are a standard practice in banking to secure loans, the Chamber alleged that J&K Bank’s excessive collateral demands often exceed reasonable limits, with some cases involving securities multiple times the loan amount. This, they stated, is not only exploitative but also in clear violation of regulatory norms.
The loans in question, the Chamber explained, are essential for the functioning of enterprises, covering critical aspects such as construction, procurement of machinery, and purchasing raw materials. Retail trade loans are used for stocking goods for sale, while agricultural loans cater to the cultivation of crops. These are lifelines for businesses, and any disruption in servicing these loans can have cascading effects on local economic activities.
However, the FCIK accused the bank of adopting a harsh and unilateral approach in cases of defaults, often without considering the genuine challenges faced by borrowers. They alleged that under the pretext of adhering to standard operating procedures (SOPs), J&K Bank declares accounts as Non-Performing Assets (NPAs) after just three months of non-repayment. This immediate classification, according to FCIK President Shahid Kamili, is followed by notices issued under the SARFAESI Act, demanding full repayment of the loan with interest.
Kamili criticized the bank for failing to engage with borrowers to understand the reasons for defaults, which he said are often caused by unforeseen business challenges. He also pointed out that this practice disregards mandatory guidelines issued by the Reserve Bank of India (RBI) and the Government of India (GOI), which require banks to explore all avenues for resolution before escalating to extreme recovery measures.
The Chamber further noted that the publication of daily e-auction notices in newspapers is a testament to the exploitative practices employed by the bank. These auctions, they claimed, disproportionately affect small businesses and individuals who have already pledged significant assets as collateral. FCIK argued that such practices undermine trust in the banking system and erode the confidence of local entrepreneurs, many of whom are already grappling with financial instability.
The FCIK also highlighted the bank’s failure to fully implement national collateral-free schemes aimed at empowering local businesses. These schemes, designed to provide credit access without demanding excessive securities, have been inadequately promoted and executed by the bank, the Chamber alleged. This failure, they said, has further marginalized MSMEs and women entrepreneurs, who rely heavily on such initiatives for financial support.
In light of these issues, the FCIK has urged the government to intervene and conduct a thorough review of J&K Bank’s policies and practices. They called for immediate action to scrutinize the excessive collateral demands, investigate violations of regulatory norms, and ensure that the bank adheres to the spirit of national schemes meant to support small businesses. The Chamber emphasized the need for a more empathetic and supportive banking approach that aligns with the economic aspirations of the region.
The FCIK’s statement underscores the growing frustration among local businesses over what they perceive as a lack of accountability and fairness in the banking sector. They reiterated their commitment to advocating for policies that promote equitable financial practices and foster economic growth in Jammu and Kashmir. As the region continues to navigate its developmental challenges, the FCIK’s demands for transparency and reform in the banking sector resonate as a call for urgent and meaningful action.
