Jammu and Kashmir Bank

What is the issue?

In J&K, Governor Administration has cleared a proposal to treat J&K Bank as Public Sector Undertaking (PSU).

What change does the proposal make to the J&K Bank?

After the state assembly was dissolved recently, the State Administrative Council under Governor’s chairmanship approved a proposal for treating Jammu and Kashmir Bank (J&K Bank) Ltd as a public-sector undertaking.
If J&K bank becomes a PSU, it will be accountable to the state legislature.
The Finance Department of the J&K will be required to place the bank’s annual report before the Assembly.
Also J&K Right to Information Act, 2009, shall be applicable to the bank just like other state-owned undertakings.
It will have to follow guidelines of the Central Vigilance Commission.

What are the unique features of the bank?

It is the only bank in India in which a state government holds a majority stake.
In fact, akin to RBI for all other states and the Centre, J&K Bank was the lender of last resort in the state.
Though the state government holds 59.3% in J&K Bank, it is not considered a public-sector bank.
This unique status needs to be seen in the context of Article 370 of the Constitution, which gives special autonomous status to the state of Jammu & Kashmir.
J&K Bank is the largest employer among all state-promoted entities with a workforce of 9,190 in 2015-16.

Why was the decision taken?

As the state government holds a majority stake of 59.3% in J&K Bank a need was felt that it should have the character of a PSU.
As a PSU the bank should subject to general supervision and access for enhanced transparency in transaction of business to promote public trust.
Extension of the RTI Act and CVC guidelines is only aimed at promoting good governance and transparency in the functioning of the bank.
The purpose of the SAC decision is not to question the day-to-day activities of the bank management but a step towards strengthening better corporate governance.

What are the concerns regarding the move?

In existence even before Independence, the bank has been a part of J&K people’s lives for generations.
Once it becomes a PSU, there are concerns that it will be open to interference by the political executive on recruitment, lending, and loan settlement.
The timing of the move is also an issue as there is no elected government in place.
Also the decision was taken particularly a day after the Assembly was dissolved.

How does the J&K bank perform?

The bank’s bad loans had risen in the last few years, from Rs 2,746 crore (6% of total advances) in 2014-15 to Rs 6,232 crore (10%) as on December 31, 2017.
There were complaints that the bank was not responding to RBI queries on time, and its internal checks and balances had weakened.
RBI slapped a Rs 3-crore fine for non-compliance with its directions on Income Recognition and Asset Classification norms and Know Your Customer/ Anti-Money Laundering norms.

Quick Fact

J&K Bank

The bank was incorporated on October 1, 1938 as a limited liability company to offer banking facilities in the state.
The bank is licensed as an “old private-sector bank” under Section 22 of the Banking Regulation Act, 1949.
It is classified as a state government company; it is registered with Registrar of Companies, Jammu.

Source: Indian Express