Turning Savings into Investment: Kashmir’s Economic Challenge

The latest banking figures from Jammu and Kashmir tells an encouraging story. Deposits reached approximately ₹2.16 lakh crore by March 2026, while advances stood at around ₹1.32 lakh crore. The overall credit-deposit ratio was about 61.15 per cent.

That represents considerable progress from the period when I served as president of the Kashmir Chamber of Commerce and Industry from 2006 to 2009. At the time, inadequate institutional credit was one of the business community’s persistent concerns.

But the improvement raises a larger question: Can Kashmir now convert more of its substantial financial savings into productive investment?

I believe it can. But that requires us to move beyond simply asking banks to lend more.

During my KCC&I years, Kashmir was emerging from prolonged economic disruption. Productive assets had been damaged, businesses had closed, and non-performing loans had accumulated. Banks were understandably cautious. But that caution itself became an impediment to economic recovery.

The Economic Revival of Kashmir document prepared by KCC&I and submitted to then Chief Minister Omar Abdullah devoted considerable attention to banking. Banks themselves acknowledged a mismatch between what entrepreneurs required and what financial institutions were prepared to provide.

We argued that the credit-deposit ratio should reach at least 60 per cent.

Today, it has crossed that threshold. This should be acknowledged as progress. But India's overall credit-deposit ratio is above 80 per cent, showing there remains considerable scope for expansion.

The objective, however, should not be an arbitrary numerical target.

A higher ratio achieved through consumption loans, speculative activity or unviable projects will not revive Kashmir's economy. What Kashmir needs is productive credit that creates enterprises, employment, industrial capacity and value addition.

Credit should strengthen horticulture, food processing, cold chains, handicrafts, tourism, renewable energy, logistics, technology, manufacturing and exports.

The relevant question is therefore not how much more banks can lend, but how much productive capacity each additional rupee of credit can create.

The possibilities are already visible.

Some districts have credit-deposit ratios close to or above 100 per cent. Shopian's ratio is above 120 per cent, while Kupwara, Pulwama and Budgam also record high levels.

This demonstrates that banks can lend substantially when viable economic activity generates demand.

Horticulture provides perhaps the clearest example. Kashmir's apple economy creates financing requirements across a complete chain: orchards, agricultural inputs, procurement, grading, storage, transportation, packaging, processing and marketing.

The same principle applies elsewhere.

Pashmina and handicrafts connect artisans with raw-material suppliers, manufacturers, traders and exporters. Food processing links farmers with collection centres, processors, packaging businesses and distributors. Tourism links hotels with transport operators, travel companies and local services.

Instead of looking at each borrower in isolation, banks should increasingly finance entire economic value chains.

Use Available Guarantees

One frustration during our KCC&I years was that mechanisms designed to facilitate lending were often inadequately used.

Credit guarantees were a prime example. Our economic revival document recorded that the Government of India's Credit Guarantee Scheme was not being adequately accepted or operationalised by banks, despite its potential for unemployed youth and small entrepreneurs.

The credit-guarantee system is considerably stronger today. Under the Credit Guarantee Scheme for Micro and Small Enterprises, eligible credit can receive guarantee cover without traditional collateral or third-party guarantees, subject to the applicable framework.

This should change the conversation between banks and entrepreneurs.

When an otherwise viable small business is denied finance because it lacks collateral, we should ask whether the available guaranteed mechanism was explored.

There is also a two-way financial-literacy problem.

Entrepreneurs often do not know which schemes apply to them, how guarantees work, how to prepare bankable project reports, how to calculate repayment capacity or how working-capital, term and export finance differ.

But bankers must also understand and actively use the instruments available to them.

A government scheme sitting in a file or a bank manual creates no economic activity. Utilisation is what matters.

Kashmir must also look at enterprises that already exist.

Years of disruption have left behind industrial sheds, machinery, skilled workers, brands and business networks that may have become financially distressed without necessarily becoming economically unviable.

During our KCC&I tenure, we proposed mechanisms for rehabilitating such enterprises through debt restructuring, fresh finance and one-time settlements.

The principle remains relevant.

If an industrial unit has been declared sick but is fundamentally viable, the bank holding the original debt should explore a one-time settlement. A fresh project report can then determine whether the existing bank or another institution can refinance its revival, including the introduction of new technology where necessary.

Reviving a viable enterprise may be considerably cheaper and faster than creating an entirely new one.

J&K Bank's Special Role

J&K Bank occupies a distinctive position because of its historical relationship with Kashmir and its substantial share of local deposits.

Its improved profitability and balance-sheet strength are welcome. But this strength also allows it to take a larger developmental role without compromising banking discipline.

It can develop specialised expertise in horticulture infrastructure, artisan finance, exports, tourism, renewable energy, women and youth entrepreneurship, value-chain finance and the transition of successful micro-enterprises into larger businesses.

Other banks should compete vigorously in these sectors as well.

The government's job, meanwhile, is not to replace banks or direct politically motivated lending. Its role should be to reduce legitimate commercial risk through guarantees, infrastructure, reliable power, industrial estates, simpler approvals, project-development assistance, export support and transparent policies.

We frequently speak about Kashmir's enormous potential. But potential alone cannot be financed.

A bank needs a project.

That means feasibility studies, market analysis, cost estimates, cash-flow projections, management plans, financing structures and realistic repayment schedules.

Many aspiring entrepreneurs have good ideas but lack the professional assistance required to convert those ideas into proposals that banks or investors can evaluate.

This gap should be addressed institutionally.

SIDBI, MSME institutions, industry departments, banks and business organisations such as KCC&I should jointly create project-development facilities. District-level project banks could identify commercially viable opportunities based on each district's economic strengths.

A Kashmir Credit Mission should bring these institutions together with the Reserve Bank of India, NABARD, credit-guarantee institutions, ECGC and other stakeholders.

It should not become another committee producing minutes. It should have targets, timelines and accountability.

Bank Credit Not Enough

There is an even larger issue.

Kashmir cannot finance its economic transformation entirely through debt.

Large food-processing plants, technology businesses, tourism infrastructure, renewable-energy projects, logistics networks and manufacturing enterprises need patient equity capital as well as bank finance.

Kashmir has substantial household savings. Much of that wealth remains in deposits, gold, property and other relatively passive assets.

We need credible and properly regulated mechanisms that allow some of those savings to become equity in productive Kashmiri enterprises.

A professionally managed Kashmir-focused venture capital fund could be one such mechanism. It could invest in promising enterprises in horticulture, food processing, handicrafts, technology, healthcare, tourism, renewable energy, logistics and manufacturing.

Such a fund must be commercially managed and insulated from political interference. It should not distribute subsidised money. It should identify viable businesses, invest risk capital and participate in their growth.

Government could facilitate the ecosystem through seed funding, matching contributions and risk-sharing. Additional capital could come from institutional investors, Kashmiri business families and the diaspora.

In the longer term, successful local enterprises should also have greater access to public equity through appropriately regulated mechanisms linked to India's wider securities market.

The objective is not to encourage speculation. It is to create a transparent pathway through which promising enterprises can progress from bank loans to venture capital and eventually public equity.

That creates a very different economic cycle:

Savings flow into productive credit. Credit helps enterprises grow. Equity allows them to expand further. Successful businesses create wealth, and that wealth can then be reinvested.

Most importantly, local savers can become shareholders in the economic activity taking place around them.

This distinction matters.

Economic growth alone is insufficient if Kashmiris participate primarily as consumers, employees or borrowers while ownership of productive assets increasingly lies elsewhere.

The objective should be capital formation within Kashmir, not merely capital circulation through Kashmir.

That is why what begins as a Kashmir Credit Mission should eventually become a Kashmir Credit and Investment Mission, connecting banks, guarantee institutions, venture capital, private equity, diaspora investment, government agencies and business organisations.

New Ambition

Twenty years ago, we were asking banks to raise Kashmir's credit-deposit ratio to 60 per cent. Today, that threshold has been crossed.

The next ambition should be greater.

A phased movement towards a 75 to 80 per cent ratio may be possible over the medium term, provided additional lending remains productive and asset quality is carefully protected.

But even that number should not become the ultimate measure of success.

The real measure should be whether Kashmir moves from raw produce to value-added products, from micro-enterprises to scalable businesses, from trading to manufacturing, from isolated artisans to organised value chains, and from unemployment to entrepreneurship.

Above all, Kashmir must move from financial savings to productive capital.

The banking system today has greater resources and more sophisticated instruments than those available when we prepared the Economic Revival of Kashmir document during my KCC&I years.

Kashmir has savings. It has entrepreneurs, natural resources, horticultural strengths, globally recognised crafts, tourism potential and a young population.

The task is to connect these assets with capital at scale.

Kashmir's economic debate should therefore no longer end with the credit-deposit ratio.

The larger objective must be to ensure that a greater proportion of Kashmir's savings finances Kashmir's productive future.

That is how banking and investment can become instruments of genuine economic revival, and how Kashmiris can move from being merely borrowers to becoming owners of the assets and enterprises that create future wealth.