J&K Bank Accused of Hiding NPAs

3 comments Written on May 30th, 2014 by
Categories: Banks

imageA news article at GreaterKashmir has accused J&K Bank of “Evergreening” NPAs.

They have, it seems, not recognized potential defaults even though they are past the 90 day limit for interest/principal repayments, and in some cases, have further lent money to help them pay back their dues.

Among the three big loan accounts which, according to sources, are technically unsecured and non-performing assets include Rs 650 crore given to a Kolkatta-based company engaged in agro and ancillary business. The company’s accounts have been declared NPA by all other banks while the J&K Bank continues to show it as a standard loan. A bank outside J&K has filed a winding up petition against the company for non-payments of Rs 224 crore outstanding dues.

J&K Bank’s loan to this company, sources said, is unsecured and is a fit case for “forensic audit.” The bank has also treated it as “priority sector” to meet the regulatory requirements. “A few members of the Bank’s Board of Directors are making desperate efforts to give the company a Stand By Letter of Credit (SBLC), an
instrument recently banned by the RBI, to show it as a normal account,” sources said.

In another instance, a real estate company of Mumbai has taken Rs 400 crore from J&K Bank and the cheques which the bank has purchased from the firm have bounced more than once. Another Bangalore-based Communication Company, whose promoter has been arrested for fraud, still continues to be a standard asset in the books of the J&K Bank.

A Hyderabad-based company has defaulted on its interest payment. Pertinently, within three months of J&K Bank advancing Rs 100 crore, the company failed to meet the obligations of keeping the account standard. Surprisingly, the bank gave more money to it to service its debt obligations, sources said.

The Auditors while scrutinizing the loan accounts of borrowers outside J&K have found ‘shocking’ transactions in scores of such accounts, revealing the “clandestine” intent of the loan sanctioning and disbursing authorities.

Sources said such ‘technically unsecured and non-performing’ loan totals to around Rs 2500 crore.

This is quite serious, because (Source) after accounting for restructuring of Rs. 1,500 cr. and the existing Rs. 750 cr. Gross NPAs, the actual NPA situation may be quite high. The article calculates it at 4,000 cr. which is a huge 8.5% of their advances (of Rs. 47,000 cr.).

This is only marginally better than the United Bank of India case which currently has 10% of advances as NPAs.

The stock is down 19% at 1490.

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It’s had a good run since April, climbing more than 20%. All that, gone, in a single day.

The troubles of the banking system are slowly emerging. The RBI should be vigilant and force banks to write down assets immediately, and order immediate audits.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

3 comments “J&K Bank Accused of Hiding NPAs”

Rajan had announced that he would review bank conditions in Nov 2013. I don’t know what he has been doing since then. If he had been aggressive about improving bank fundamentals, just imagine how much better the prospects of a recovery would be, at this time, with the coincidental change in political leadership. I think he might have missed an opportunity to clean house at the end of the last year, because of his pussy-footing and fear over effects of QE taper, and unnecessary focus on the rupee. Now, instead, the RBI will come across as a spoilsport if it were to be a regulation hawk and it will not get the required consensus for much needed strict action, thus perpetuating the problem and delaying recovery.

I hope people understand now why all the hullaballoo over the rupee decline was completely unnecessary and unwarranted.

The same delay in controlling inflation is responsible for delaying recovery, although at least now, the consensus is there for inflation to be brought under control both with govt and monetary action.

Our culture needs to realize that when we have an economic problem, we need to resolve it quickly, even if it involves temporary company failures and job losses, so that we can recover quickly. We can’t let the problem fester around for years, with the irrational hope that the problem will go away by magic, all the while delaying the onset of the next growth cycle.

Alarming one. that to such a good bank which was reviewed by many analysts.

Am holding this stock with 60% up. Thought of selling it, but held back after seeing the response by bank management. The response does not answer the allegations properly instead they are boasting of proper audits. Looks like it is sell now.