Monday, December 17, 2018
 
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J&K Bank’s “take-over”: Who is the gainer?
Straight Talk




K B Jandial



Just after a day of hastydissolution of J&K Legislative Assembly suspended five months ago, Governor Satya Pal Malik took yet another landmark decision. He converted J&K Bank Ltd in to a Public Sector Undertaking and brought it under the purview of RTI Act, CVC and J&K Legislature. He has almost touched hornets’ nest. The Governor administration is in for another round of ‘conflict’ with Kashmir’s mainstream political leaders across the spectrum, separatists, Traders bodies and banking veterans having sharply reacted to this otherwise very bold decision. As it happens always, this decision, critical in Kashmir, is appreciated in Jammu.


While Omar Abdullah called it a “disturbing development”, the BJP ally,Peoples’ Conference supremo Sajjad Lone termed it as “over- reaching government control” and advised the Governor administration “to get out of the way”. Mehbooba Mufti sought to rake up a bigger political issue by charging Governor Administration of “fiddling with the basic character of J&K’s special status”. Mirwaiz Umar Farooq too joined the fray by calling it a “grand ploy to cripple the Kashmiris on political as well the economic front” and urged the people “to forge unity on 2016 lines to fight the move”.



M Y Khan, who remained Chairman of the Bank for eight years and credited with putting the Bank on professional lines with ‘acquired’ autonomy, opposed the decision saying that “Even if there were issues, corrective measures could have been taken, but not such a drastic measure.” Another former Chairman of JKB and former Finance Minister, Haseeb Drabu described it as “thoughtless and regressive” decision which will have very negative impact on Bank’s functioning.



The Kashmir Economic Alliance (KEA), an amalgam of several traders’ bodies, has threatened an agitation against this decision if not rolled back. The Kashmir Chamber of Commerce and Industry too opposed the decision and said that J&K Bank cannot be treated as any other PSU as it is a public listed company and is also governed under Banking Laws. There is no such reaction from Jammu’s Trade bodies or any other organisation. The perception too is different in both the regions.


Is there much ado about nothing? The Government justified the decision by saying that with Govt holding majority shares of 60% J&K Bank, for all practical purposes, was a PSU and decision was “restating the obvious”. While administrative and recruitment matters of all Public Sector Banks of Govt of India are subject to laws relating to transparency and accountability why J&K Bank which is a Public Sector Bank of J&K Govt should not be subjected to these provisions for good corporate governance with transparency? So, is the concern being raised on this decision in Kashmir justified or it is politically motivated? Some do feel that every measure initiated to bring State Institutions in line with the changing national and international standards is always viewed in Kashmir as ‘Delhi’s conspiracy’ against Kashmir.



J&K Bank, an ‘old private sector’ bank, was established by the Maharaja Hari Singh on 1st October, 1938. The Bank came into being through the Memorandum initiated by the Finance and Development Minister on 19-06-1938 whose preamble reads as “In his keen anxiety to improve the economic condition of his subjects, His Highness the Maharaja Bahadur, from time to time, gave verbal instructions to the under-signed to expedite the consideration of the proposal to establish a State Bank in the State”.It received approval of His Highness on 30-6-1938. A prospectus was, accordingly, prepared which suggested incorporation of a Company in the name of "Jammu and Kashmir Bank Ltd" with its authorized capital of Rs 50.00 Lakhs, divided into Rs 2.00 Lakh shares of Rs 257each. The Maharaja had invited eminent investors to become the founding Directors and Promoters of the Bank. They were Major General Rai Bahadur Dewan Bishandas, Maharaja’s General TreasurerTej Ram, Advocate Abdul Hamid, a noted Merchant B.N. Pestonjee,retired Asstt.Supttof Police Anand Sarup, Pt, Sriniwas Magotra, and Abdul Aziz Mattoo, whotogether acquired major shareholdings.The Bank was incorporated as a Govt. company under the then J&K Companies Act of 1977(1920 AD). At the time of its incorporation the State Government had 92% shares.



J&K Bank was the first bank in the country to emerge as a state–owned bank which commenced its banking business on 4 July 1939. With repeal of State Companies Act of 1977 it was substituted by the Central Act- Indian Companies Act 1956 by means of J&K (Ext of Laws) Act, 1956, J&K Bank Ltd came to be incorporated and registered Central Act of 1956. In 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.




While Banking is Central subject, J&K Bank is the only State Govt owned Bank in India. Other Public Sector Banks are owned by the Central govt. It is a publicly listed entity functioning under the supervision of the Reserve Bank of India (RBI) which would continue even under the new avatar.



Ever since its inception, the State Govt always had a majority shareholding. From initial 92 % shareholdings these came down to 53 % a year ago which rose to 59.29 % at present after Mehbooba Govt pumped in an equity infusion of Rs 532 crore in to the Bank in January 2017 to maintain required level of credit adequacy and financing new asset growth. Drabu, then Finance Minister had told the Assembly that “this money shall be given with the strict conditionality of the Board of Directors establishing accountability at levels wherever there has been breach and taking panel actions.” He had shared his concern over the affairs of the Bank, saying that “there have same serious lapses in corporate governance and management failures over the last few years. As a promoter of the bank, we did make some efforts in the last two years to sort the issues of asset quality without impairing the autonomy of the bank.” He had said “The bank has declared NPA of Rs 6,000 crore. There is also a significant under provisioning of impaired assets. As a result of which the bank has had to declare a huge loss of Rs 600 crore for the quarter ended September 2016-17.



Over the year, Bank’s shares have nose-dived. In last one year its share value has fallen from Rs 85 to Rs. 42.60. On October 25 this year, the Bank’s share fell by 7.63 % when its share value plummeted to Rs. 38.75 in a single day.



However, there is absolutely no disputeon the Bank working under the control of the State Govt.During Omar Abdullah’s Rule, Hasib Drabu was asked to resign (for whatever reasons) and the then Finance Secretary Sudanshu Panday was made the Chairman of the Bank. The control of State Govt over the Bank was obvious. So, the Governor did what was already there as de facto.The State Information Commission after listing various facts in its functioning had on April 24, 2012 held J&K Bank as Public Authority. Instead of implementing the Full Bench judgment the Bank went in appeal in HC. This appeal could have been withdrawn and RTI implemented for transparency. Instead, the Govt now notifiedthe Bank as “Public Authority”.




The people of J&K are very much attached with J&K Bank: for Jammu, it being one of the landmark contributions of the last Dogra Ruler, Maharaja Hari Singh, and Kashmir being emotionally possessive of it being a symbol of the State’s entity (State Subject Institution) which accounts for 70 % total credit facilities extended to people of Kashmir by all Banks. Since it is not due to any special constitutional dispensation and regulated by national central bank (RBI) like all other Banks in the Country, it doesn’t constitute a symbol of State’s special status as claimed by Mehbooba. She cautioned further alienation of Kashmiris following this move.




The financial experts express serious concern over the ‘compromise’ on the functional autonomy which the Bank has managed to achieve despite having no statutory arrangement to this effect. This autonomy was ensured by the successive CMs beginning with Dr. Farooq Abdullah from the days of M Y Khan. But despite this functional autonomy, complaints had been coming on two fronts- recruitments and liberal credits to favoured ones. Recently exposed“irregularities and political interference” in recruitment and appointment of 582 unselected candidates on the orders of the Governor speak volumes of its ‘independent’ functioning. But this model of dispensing justice is also questionable as appointments were made without fulfilling prescribed procedure and approval. Governor can’t order appointments in such a manner. Can there be a waiting list of 582 persons in any organisation? And where were so many vacancies available for their adjustment?




With many past episodes of political interference in the Bank fresh in memory, how Governor’s decision to make the Bank a PSU under Govt control would insulate it against political interference? In fact, such interference has beeninstitutionalised, if not during Governor/ President Rule but when the State would come under Political dispensation.Being now a PSU, the Finance Deptt has become J&K Bank’s administrative Department. This would enhance “hunger” of politicians, especially every Finance Ministerand of hierarchy of concerned civil servants for extracting “dividends” for them and their friends, in terms of jobs, transfers and unsecured credit. (dil mange more). In fact, the Governor has made their job easy. It is yet to be seen how they would handle“transfer industry” in J&K Bank. There is everylikelihood of “politically suitability” taking precedence over“professional suitability” in matter of transfers and recruitment. No wonder gradually,the dividend disbursingnew ‘PSU’ may turn into red like majority of other 16 PSUs of the State. The “cure” appears to be graver than the disease.




Following guidelines of RBI and bringing the Bank under the purview of CVC are good for enforcing accountability. But the Bank needs to be brought under new laws and regulations like Fugitive Economic Offenders Act and amendedInsolvency and Bankruptcy Code to check increasing NPA and frauds.It should be made to recover bad credits and NPA and failure to do so within a stipulated period should follow criminal conspiracy charges as has been done by the Union Finance Ministry.



Making any organisation accountable to the Legislature is a part of our democracy and cannot be questioned. But institutions like J&K Bank should be kept away from Legislature to maintain itsfunctional independence and secrecy of commercial decisions. It may not be fair to attribute motive to the lawmakers for their criticism but knowing the type of debates and mudslinging taking place in Legislature, the Bank would now be cultivating these new set of stakeholders (lawmakers)that would lead to administrative and commercial compromises. Grilling the Bank officers for some deficiencies at Legislature’s Committee on Public Undertakings is different than the House as the officers get opportunity to dispel misgivings and put across their point of view better. Many feel that since the Bank is regulated by the RBI under Banking Regulation Act it was not desirable to make it accountable to the legislature.



If the Bank recruitment scandal was the real cause for ‘take-over’, the first thing the Governor was expected to do was to order high level probe into it and make the people responsible for “unfair” selection, accountable. But nothing of the sort happened and instead J&K Bank was made PSU. With State’s hands full of problems in Kashmir, was it necessary togive another political issue to Kashmir leadership to join hands and launch mass agitation against India, which Mirwaiz has hinted?





(The writer is former Secretary Information, health, transport, CAPD departments and a member of Public Service Commission, feedback: [email protected])




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