FCIK urges Govt to look into collateral practices of J&K Bank

10 December 2024

Srinagar: The Federation of Chambers of Industries Kashmir (FCIK) has urged the government to investigate “the unethical and illegal practices” by J&K Bank surrounding the excessive and discriminatory demands for collateral securities against loans granted to various sectors of the region’s economy.

In a statement to Ziraat Times, the valley’s apex industrial chamber expressed concern over “extreme actions” taken by the bank, including the publication of e-auction notices for properties, including residential houses, mortgaged by businessmen as collateral.

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The Chamber emphasized that collateral securities are an additional layer of protection imposed on borrowers, requiring them to pledge assets beyond the primary security, such as factory buildings, plant and machinery, and stock. It has long been a common practice for banks to demand personal or ancestral assets, including residential properties, as additional collateral to secure loans. This extra layer provides further protection in case of default, on top of the primary security tied to the loan.

According to FCIK, loans are typically used by enterprises for purposes such as building construction, procurement of plant and machinery, and purchase of raw materials. Similarly, retail trade loans are used for purchasing goods for sale, while agricultural loans are taken for crop cultivation.

However, FCIK pointed out that the bank, under the “pretext of adhering to so-called standard operating procedure (SOP)”, declares an account Non-Performing (NPA) after just three months of default in loan servicing.

“This is immediately followed by a notice under the draconian SARFAESI Act, demanding full repayment of the loan along with interest”, informed President FCIK Shahid Kamili , adding that the bank takes this step without attempting to understand the reasons for the default and without adhering to mandatory guidelines issued by the Government of India (GOI) and the Reserve Bank of India (RBI).

“Where would the enterprise find the full loan amount to repay in one go when it has already invested the money in the business?” he questioned adding that these SARFAESI notices are frequently followed by auction notices, often targeting the ancestral homes of borrowers, pledged as collaterals.

“In most of cases, the collateral demanded is excessive, sometimes several times the loan amount, violating regulatory norms which is evident from the e-auction notices published daily in newspapers”, Kamili added.

Citing an example of undue exploitation, FCIK highlighted the case of a woman entrepreneur running a dairy farm, who’s primary and collateral securities were seized to recover a loan of ₹26.49 lakh from J&K Bank, Qazigund. The notice, published in a leading daily in Srinagar on November 23rd, revealed that two residential houses, a garage-cum-godown, a cow shed, and land measuring 4 kanal and 3 marlas have been put up for auction at a reserved value of ₹75.32 lakh, almost three times the original loan amount.

This example underscores the exploitative nature of the bank’s practices. The collateral demanded far exceeds the loan amount, violating the Loan-to-Value (LTV) ratio set by the RBI. FCIK questions that how can the bank justify such disproportionate collateral demands, especially against a woman entrepreneur?

FCIK stated that these practices not only violate national banking regulations but also expose the bank’s exploitative approach toward local businesses, particularly MSMEs and women entrepreneurs.

“In stark contrast, the bank has extended substantial loans in recent years to external borrowers, including Non-Banking Financial Companies (NBFCs) primarily based in Maharashtra, often requiring minimal collateral or relying solely on credit ratings” informed FCIK, adding that disclosure of such loan details would be nothing short of shocking to both the government and society.

The Chamber has urged the Jammu and Kashmir government to intervene and scrutinize the excessive collateral demands, as well as the bank’s failure to implement national collateral-free schemes designed to support local businesses. This scrutiny is essential to ensure that the bank’s policies align with national guidelines and serve the best interests of the region’s economy. Additionally, the Chamber has urged the government to compel the bank to cease publishing such notices aimed at “naming and shaming” entrepreneurs in the public eye. In the meantime banks should be restricted from dislodging inmates from their houses in these severe winter conditions.