J&K Bank Under Siege

At a time when the banking sector is heavily in focus for all the wrong reasons and a valiant effort is being made to cleanse it of all its wrong-doing over decades, every move is scrutinized with greater detail in a sector that is in the midst of a massive overhaul. The sector has seen it all – new regulations such as IBC, mergers, bailouts, scandals, scams, swindles; basically the whole lot, or so we thought. The latest to come our way from the stables of the beleaguered industry is a little known but hotly contested takeover by the government of Jammu and Kashmir Bank.

The state of Jammu and Kashmir is special in so many ways – from it being granted autonomous status by virtue of Article 370 of the Indian Constitution to being famous for its beautiful mountainous landscape and numerous shrines to being the only Indian state to have a Muslim majority, one thing is for certain; Jammu and Kashmir does it differently. Keeping in tune with this theme, the state’s premier institution and its only listed company; Jammu and Kashmir (J&K) Bank is indeed an example of this uniqueness. J&K Bank, incorporated in 1938 is the only bank in the country to be majority owned and controlled by the state government instead of the central government. 59.3% of this bank by virtue of its shareholding belongs to the government of the state of Jammu and Kashmir, in all public sector banks, it is the central government that holds a majority stake, as banking is a central subject. The Srinagar headquartered bank is classified as an “old private sector bank” even though the government owns a majority stake. The important implications of this structure is that financial control of J&K Bank lies within the authority of the state and the bank does not come under the auspices of the right to information act (RTI Act) and central vigilance commission (CVC), an apex body created to address governmental corruption.

On the fateful day of 22^nd November 2018 the State Administrative Council (SAC) under the chairmanship of Governor Satya Pal Malik approved an eyebrow-raising decision when it announced that J&K Bank Ltd. would be made into a public sector undertaking thereby becoming accountable to the state legislature and being brought under the purview of RTI Act and CVC. The announcement drew a tremendous amount of flak and kicked up a political storm with all major political parties from the valley including former Chief Minister Mehbooba Mufti’s People’s Democratic Party (PDP), National Conference (NC) and Peoples Conference (PC) voicing their discontentment. Further, The Kashmir Economic Alliance (KEA), a collection of trade unions in the valley has threatened a statewide agitation if the decision was not rolled back.

But what is the big deal in converting an organisation whose majority is already held by the government into a public sector unit and make them more accountable and transparent? If one ponders into the realm of the unsaid the answers are not very difficult to stumble upon. For a bank whose network comprises 924 computerised branches spread over 24 states across the country and controls over 60% loans and deposits in the state of Jammu and Kashmir, the bank is a treasure trove for any political party that is given the keys to its financial machinery. Extending questionable loans and advances is well within the realm of any political party. The bank is also not a stranger to accusations of lack of transparency in its operations with the latest being a controversy triggered by an appointment of 582 candidates believed to be politically motivated. In the light of these facts and to ensure that the bank is being managed under the supervision of the centre, just as all other PSUs are, it can perhaps be concluded that Governor Satya Pal Malik’s intention to bring the bank within the centre’s control is bona fide. But in the corridors of Indian politics things are seldom what they are projected to be.

The circumstances under which this decision was made is also a matter of contention. After BJP broke its alliance with PDP in Kashmir and Chief Minister Mehbooba Mufti resigned, President Ram Nath Kovind imposed Governor’s rule in the state on June 20^th 2018 for the eighth time in its history. Kashmir being Kashmir, the element of uniqueness is not far behind. In normal cases, in a situation where the state government collapses for lack of majority, President’s rule is imposed. In Kashmir, an additional layer is provided by virtue of its separate constitution. Therefore, Governor’s rule is imposed for a period of 6 months and only after this period of 6 months; the state is placed under President’s rule. It is within this 6 month window when the Governor, who is a BJP leader and is not answerable to the joint forces of the PDP and BJP, attempted to take control of the crown jewel of the state, J&K Bank. It is feared that once the bank becomes a PSU, there are concerns that it will be open to interference by centre on issues of recruitment, lending and loan settlement. Besides, the track records of PSU banks in the country is not desirable, with most of them being mismanaged and loss-making and are placed under various lending restrictions (PCA framework etc). Further, some were even of the opinion that the governor was beyond his authority in making such a decision, as usually, no major operational decision is taken under governor’s rule and the governor, in this case, was thought to be acting like the Chief Minister.

After prolonged protests from various quarters of the state including political parties, unions, separatist leaders, trade and industry bodies and employees, Governor Satya Pal Malik decided against this takeover and announced that “no changes are being made here or announced” and this decision would be kept on the back burner for now, to the relief of many concerned parties. Although for now this controversial decision was reversed, facts surrounding the incident still beget the question, what was the intention of this move and who would be the ultimate benefactor?