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The Comptroller and Auditor General of India (CAG) has pulled up the Jammu & Kashmir Bank for incurring a wasteful expenditure of Rs 5.28 crore by hiring hotel Broadway in Srinagar, which was not used at all for its operations.
In its report tabled in the Parliament on Tuesday, the CAG said that the Bank entered into a lease agreement with the M/S Broadway Enterprises Private Limited (firm) in December 2017 and March 2019 for hiring of space in Hotel Broadway for the opening of High Net worth Individual (HNI) Branch and housing its International Banking Division (IBD), respectively, at a monthly rent of Rs 150 per square feet.
It hired the space for housing its International Banking Division (IBD) citing space constraints at the existing premises at Air Cargo Complex, Srinagar. The Bank also placed a work order at a cost of Rs two crore for development of the hired premises in February 2019.
According to the CAG report, the Bank, however, in January 2020 decided to de-hire the premises due to a host of reasons. “The Bank, however, decided (January 2020) to de-hire the premises on the ground that shifting of IBD would not translate into phenomenal growth of foreign exchange business as the forex business in Srinagar was limited. Further, the yearly rental outflow was considered very high vis-à-vis the business opportunities in the opening of HNI branch due to prevailing situation in Kashmir region,” the report states.
“By the time the Bank de-hired (June 2020) premises, it had incurred expenditure of Rs 3.78 crore towards rent and Rs 2.43 crore on the development of the premises. Out of Rs 2.43 crore, an amount of Rs 1.47 crore was spent on civil interior, furniture items that 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,” it further states.
The CAG has questioned why the Bank hired space in the hotel despite the fact that it had hired already premises for the opening of it at Barzulla, Srinagar and was 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.
“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,” the report further states.
In its reply, the management of the Jammu & Kashmir Bank stated in March 2022, 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,” the CAG pointed out.