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Why Governor Shall Balance His Decision On JK Bank

Why Governor Shall Balance His Decision On JK Bank


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Tasneem Kabir                                               Balance Balance Balance Balance 

The Legitimate Desk: The atmospheric hubbub in J&K is resonant of protests, by your average consumer, the trader and the employee alike, courtesy the recent announcement made by the Governor Satya pal Malik headed State Administrative Council to declare Jammu & Kashmir Bank as a Public Sector Undertaking (PSU).

This November 22 statement has invited outrage by the key representatives of the three most relevant mainstream parties, viz. Mehbooba Mufti, Omar Abdullah and Sajjad Lone, who have called it an assault on the bank’s autonomy.


The political battleground that has taken shape leads to wonder, as to why would the Governor make such a drastic proposal, and why throngs of people would protest. Factually, we must realize that J&K Bank is based on private sector banking and financial services company, with the state owning almost 59% of the shares.

Interestingly enough, it became the first bank in the country to emerge as a state–owned bank. The Jammu and Kashmir Bank was founded on 1 October, 1938 under the patent issued by the Maharaja of Jammu and Kashmir, Maharaja Hari Singh.

The Maharaja had invited eminent investors to become the founding directors and shareholders of the bank. The bank was established as a semi-State Bank with participation in capital by State and the public under the control of State Government.

In year 1971, the bank had acquired the status of a scheduled bank and was declared as an “A” Class bank by the Reserve Bank of India in 1976.

Following the extension of Central laws to the state of Jammu & Kashmir, the bank was defined as a government company as per the provisions of Indian Companies act 1956. Ever since J&K Bank has remained an autonomous financial institution as a result of which it has the distinction of being the most profitable institution of the state.


However, it isn’t all rainbows and sunshine for this institution, as a few decades earlier, like all other institutions in the state, J&K Bank, owing to its robust financial health, invited the attention fraudsters and habitual defaulters.

It is purported that for last two decades, political intervention on all fronts had led to a cancerous growth within the institution. If not controlled well in time, this menace will not only malign the image of this glorious institution, but make vain the efforts put in by its workers. All this is mere speculation of course, but people are still raising eyebrows at the Bank’s swelling non-performing assets (NPAs).

Whatever the facts, only the Bank authorities are in the know, because till now the Bank does not come under the ambit of RTI (Right to Information) Act. Perhaps, it is these matters that the Governor aims to tackle: the rising NPAs as well as the lack of transparency.


That is only the Governor’s side of the narrative, though. Why the people are raising hue and cry demands attention to steer the dialectic. The foremost idea running through the people’s minds is that they fear government control would turn the bank into an entity like any other state PSUs, most of which are running losses due to alleged political and bureaucratic interferences.

What’s more, employees claim that the bank had been doing well, but soon after the infamous announcement, stock prices started plummeting.

Next comes the debate over the implementation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act of 2002 (also known as the Sarfaesi Act), which allows banks to auction mortgaged properties to ANYONE.

Contrastingly, under the special status assured to Jammu and Kashmir, land ownership is restricted to those defined as permanent residents of the state. In 2016, the Act was extended to the state by the Supreme Court, although it was stipulated that mortgaged property could be sold to state subject holders only.

Yet, fears that the legislation would tamper with special provisions ensuring state autonomy did not abate, for the Centre happens to be a major role player in PSUs, and their stance towards the special status is neutral, at best.

Moreover, public outrage also stems from the fact that such a socially relevant and impactful decision has been undertaken not by a popularly elected government, but by bureaucrats who aren’t answerable to the citizens.


Now that both sides of the argument have been addressed, what stems as a consequence is the larger debate whether we need more PSUs at all. It’s crystal clear that, post the unearthing of massive amounts of hidden bad debts and the latest scams in nationalized banks (PNB and the like), that something has gone very wrong in the working of PSUs.

While some of the private banks have seen multiple bad debts as well, the numbers pale in comparison to the NPAs of public sector banks. Take the State Finance Corporation of J&K (a PSU), for instance. It has had a negative net worth for years because of mounting losses and NPAs. All efforts of recapitalisation have gone in vain and political interference has resulted in a situation where almost 90 of its 160 employees are Class IV employees, as recalled by an ex-official.

We ought to realise that Indian capitalism is now strong enough to do without PSU banks. These banks have become the weak underbelly of Indian banking, a risk to the entire system.

Thanks to technology, the cost of financial inclusion has come down drastically and a host of small banks, payment banks and companies, telecom companies and micro-finance institutions can easily do the job. The RBI can ensure that private sector banks work on targets that are socially imperative.


Clearly, the model proposed by the government for treating J&K Bank as a PSU is a flawed model bound to fail, bearing in mind the fact that of the twenty one PSUs in Kashmir, seventeen are loss-reporting. What’s more, the issue of transparency, which is pertinent without doubt, can be resolved without bringing in the mess that comes with government control of the bank.

As a matter of fact, Central Vigilance Commission guidelines do not apply to J&K Bank, for it is charted for banks where more than 50% equity comes from the Government of India, but said bank has majority State Government equity. This calls for corrective measures and reforms, not the dragging of the institution from one major equity owner to another, so we balance out the dynamic.

Balance Balance Balance Balance


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