In its latest report titled ‘Management of fixed assets by J&K Bank Limited’, the auditor and Comptroller General of India (CAG) has come down heavily on the bank for ‘wasteful expenditure’, which includes over Rs 7 crore for a premises that was never used.
The report reads, “The Bank received (April 2016) a request from M/s Broad Way Enterprises Private Limited (firm) offering space for hiring at its Hotel Broadway, MA Road, Srinagar. After negotiations, the firm agreed (26 July 2017) to rent out space on a monthly rent of Rs 150 per sq. ft.
“Thereafter, the Bank entered (December 2017) into a lease agreement with the firm for hiring of space measuring 5,181.47 sq. ft. for opening of High Net worth Individual (HNI) Branch. The Bank also entered (March 2019) into another lease agreement in the same premises for hiring of space measuring 4,978.68 sq.ft. on similar terms and conditions for housing its International Banking Division (IBD) citing space constraints at the existing premises at Air Cargo Complex, Srinagar.
“The Bank placed (February 2019) a work order1 at a cost of Rs two crore for development of the hired premises. The Bank, however, decided (January 2020) to de-hire the premises on the ground that shifting of IBD would not translate into the phenomenal growth of foreign exchange business as the forex business in Srinagar was limited.
“Further, the yearly rental outflow was considered very high vis-A-vis the business opportunities in opening of HNI branch due to prevailing situation in Kashmir region.
“By the time the Bank de-hired (June 2020) the premises, it had incurred expenditure of Rs 3.78 crore towards rent and Rs 2.43 crore on development of the premises.
“Out of Rs 2.43 crore, amount of Rs 1.47 crore was spent on civil interior, furniture items which either could not be dismantled or were dismantled with substantial/ major damages. The dismantlement work was carried out (August 2020) at a cost of Rs 2.99 lakh.
“In order to cater to HNI customers, the Bank decided (March 2017) to roll out a new premium delivery channel under the Brand “J&K Bank Premium Banking Services” in a phased manner beginning with one such Business Unit in every district headquarter. Accordingly, it decided (5 July, 2017) to open one HNI Branch at Barzulla, Srinagar after hiring of 3,000 sq. ft. of space.
“Though the Bank had already decided to open one HNI Branch in Barzulla, Srinagar, even then it hired another premises at Hotel Broadway, M.A. Road, Srinagar on a monthly rent of Rs 7.77 lakh for the same purpose.
“Moreover, the decision to open HNI branch and shift IBD at Hotel Broadway may be viewed in light of the fact that the Bank sanctioned (September 2016) a term loan of Rs 48.98 crore in favour of the lessor for renovation of existing hotel building and construction of new building and the term loan was eventually classified (January 2020) as Non-Performing Asset as the lessor could not service the account.
“Thus, the Bank Management, while hiring the space at Hotel Broadway, Srinagar at monthly rent of Rs 150 per sq. ft., ignored the fact that it had already hired premises for opening of premium branch at Barzulla, Srinagar and operating IBD at Air Cargo Complex, Srinagar having sufficient space at the monthly rate of Rs 75 per sq. ft. and Rs 85 per sq. ft., respectively.
“The Bank’s decision led to wasteful expenditure of Rs 5.28 crore as the hired premises at Hotel Broadway was not at all used for its operations.
“The Management stated (March 2022) in the year 2019, owing to sluggish market patterns and slow growth in overall banking sector, it decided to implement various measures to bring down the cost to income ratio and one of the measure was to vacate the premises in order to cut the costs on account of rental.
“However, the fact remains that the Bank hired the premises without taking cognizance of the fact that the decision to open HNI branch at Barzulla, Srinagar was already taken by the Management. Further, the limited business opportunity with regard to forex business in Srinagar was in the knowledge of the Bank as most of the customers were already dealing with it.”