Omar Abdullah govt must take active role in shaping a fair OTS scheme for businesses: FCIK

22 December 2024

Srinagar: The Federation of Chambers of Industries Kashmir (FCIK) has called on the Omar Abdullah government to take an ‘active role’ in shaping a fair and non-discriminatory Special One-Time Settlement Scheme (SOTS), which is reportedly set to be launched by J&K Bank for Non-performing Assets (NPAs) in January 2025.

In a statement issued to Ziraat Times, the Chamber emphasized that the government, as the majority shareholder of the bank and the people’s representative, must intervene in the development and approval of the scheme.

The intervention is necessary to address the severe impact of nearly three thousand days of business disruptions, caused by decades of turmoil and various challenges including natural calamities, during which local businesses endured significant hardship and suffered a substantial erosion of capital, FCIK said.

FCIK informed that during the entire period of such interruptions, when the bank itself was unable to provide services, no interest waiver was granted to its customers in the region.

The Chamber reminded the government that, while other banks curtailed their services or withdrew from the valley entirely following the eruption of turmoil in 1989, J&K Bank maintained a monopoly, providing credit to borrowers under stringent terms.

FCIK highlighted the bank’s practices, including “imposing interest charges 4% to 5% higher than those of mainland banks”, justified by “market risk factors,” as well as demanding security far exceeding the loan amount, such as collateral and personal guarantees, from customers in the region.

The government must recognize that all borrowers in the region are siblings or relatives of depositors, who generate over 89% of the bank’s total deposits, providing the lowest cost of funds at 4.4% in the entire banking sector, FCIK further said.

The FCIK has also said that the SARFAESI Act was not applicable in Jammu and Kashmir until 2017, and that the mortgages provided to the bank were meant solely to ensure the security of the bank’s funds in the hands of borrowers. These were never intended to be exploited by the bank for a “name and shame” policy or, subsequently, for e-auctions accessible to anyone across the country, it further said.

FCIK insisted that the Special One-Time Settlement Scheme launched by the bank should really be “special” with a simple implementation mechanism, offering a uniform and non-discriminatory substantial reduction on the principal NPA balance in any case above 30% and a waiver of all unapplied interest across all segments of borrowers.

“Since all businesses, regardless of their size, have suffered due to circumstances beyond their control, the scheme should be extended to all customers in the Jammu and Kashmir region, without any restrictions on loan limits,” stated the Chamber, further adding that denying the benefits of the SOTS to any group of customers would amount to discrimination suggesting that borrowers with higher loan limits were unaffected by the negative business environment the scheme aims to address.

The Chamber emphasized that, due to the bank’s routine practice of demanding excessive collateral including ancestral homes to secure loans, such collateral should not be tied to the proposed SOTS. Doing so would unfairly penalize borrowers, whose properties were mortgaged under unethical conditions, thereby violating RBI guidelines and potentially depriving them of their rightful benefits, FCIK insisted.

Drawing the government’s attention to the repayment period in the SOTS, FCIK noted that the RBI has approved repayment schedules of up to two years, with nominal interest beyond six months, in several cases. It called for RBI approval for a tailored approach to the J&K region, considering its unique challenges and circumstances.

“The grant of an adequate time period is essential, as borrowers need sufficient time to arrange resources through the sale of their properties, a process that can be time-consuming,” stated the Chamber, adding that selling property for repayment is the only viable option for borrowers to resolve their debt.

FCIK further said that any One-Time Settlement (OTS) scheme will be ineffective if it lacks essential provisions such as simplicity, uniformity, and meaningful concessions. Without these key elements, the scheme will fail to provide the necessary relief to borrowers, undermining its purpose and leaving local businesses without the support they desperately need to recover from prolonged financial strain, the industrial chamber further noted.