On November 22, the State Administrative Council of Jammu and Kashmir, which is currently under governor’s rule, approved a proposal to make Jammu and Kashmir Bank Limited a public sector undertaking that is accountable to the state legislature. On Tuesday, after days of sustained protests from various quarters in the state, Governor Satya Pal Malik appeared to have reconsidered the decision.
“No changes are being made here or contemplated,” Malik said a statement titled “Governor’s Assurance”. The statement went on to say that “in view of the concerns expressed, and to give comfort to employees, the government will re-examine the issue of accountability to legislature”.
According to Tassaduq Madni, president of the All India Jammu and Kashmir Bank Officers Federation, the decision came after the employees union met the governor. “That PSU order stands withdrawn,” he said. “The bank will be known as an old private sector bank as it was prior to this SAC [State Administrative Council] decision. Secondly, as the decision to make the bank accountable to state legislature is concerned, that has been kept in abeyance. They are revisiting that decision.”
Over the past week and a half, mainstream politicians, separatist leaders, trade and industry bodies as well as employees of the J&K Bank had risen in protest against the order. But what makes the bank a flashpoint for public and political protests?
‘The autonomy question’
In the Kashmir Valley, the sudden decision had fuelled speculation that this was another attempt by Delhi to erode the state’s financial and fiscal autonomy. And the J&K Bank occupies a unique position in the state.
Incorporated in 1938, the institution is listed as an “old private-sector bank” under the Banking Regulation Act of 1949. It is also registered as a “government company” with the Registrar of Companies, Jammu. The state government has a shareholding of 59.3% in the bank. This makes it the only bank in India where the major shareholder is the state government. In all other public-sector banks, it is the Central government that holds majority stake. Besides being the state’s only listed company, over 60% loans and deposits in the state are controlled by the J&K Bank.
“J&K Bank is the premier financial institution of the state,” former state finance minister and National Conference leader Abdul Rahim Rather told Scroll.in. “Right from 1938, the bank has made an immense contribution to the economy of the state. [That] It was functioning smoothly was due to less government interference.”
It was not just the Valley that was up in arms against the decision. Last week, the Jammu Chamber of Commerce and Industry issued a statement protesting the move. “J&K Bank is the pride of the people of the state that not only is the backbone of the economy, helping the jobless, financing the entrepreneurs but also as a part of corporate social responsibility, helping all those in the need of hour, the flood relief given in crores to the government of Kerala is a glaring recent example,” it said. “The chamber took a serious view of the attempts being made to politicise the autonomy of J&K Bank which belongs to the people of the state.”
The bank’s employees took to the streets, fearing the institution could be co-opted into a larger public sector enterprise that would compromise its autonomy. “We feel it’s a step towards the merger of J&K Bank with a bigger bank,” said Madni. “Merging a private bank with a public-sector bank is like getting sky on to earth. But merging a public-sector undertaking with another state-owned enterprise is very easy. Like we have seen recently, mergers are taking place.”
Traders’ bodies in the Valley went further, questioning whether it was the governor’s remit to make such decisions. “What forced the governor to take a decision never ever taken in 80 years of the bank’s history?” asked Mohammad Yaseen Khan, chairman of the Kashmir Economic Alliance. “On whose behalf? It’s a fact that government has 59% stake in the bank, but did they consult the rest 41% before taking the decision of converting it into a PSU? If a PSU fails, it will also drown the money of public. Who’s responsible in such a scenario?”
Khan added, “Decisions like these come under the purview of an elected government, not bureaucrats.”
Banker to government?
The role of the bank has triggered anxieties about autonomy before. Until 2011, it was the sole banker to the government and the lender of the last resort, much like the Reserve Bank of India with the Centre and other states. Under the coalition government led by Omar Abdullah and his National Conference at the time, the Reserve Bank got the mandate to carry out general banking business, although the J&K Bank became its agent in the state. “That was a reform,” protested Rather, who was finance minister at the time. The move curbed financial indiscipline on the part of the state government.
Still, many saw it as an erosion of the state’s fiscal autonomy. “We had a sort of internally self-sustainable mechanism by which J&K Bank extended overdrafts to the government,” said Ejaz Ayoub, a foreign exchange trader in Kashmir. “In 2011, that got diluted. Centre cannot tolerate anything which is special about Jammu and Kashmir, be it bank, Article 370, flag or financial system. It’s obvious if you want to control a place you can control it either militarily or financially.”
Then came 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 allowed banks to auction mortgaged properties to anyone. 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 subjects only. Yet, fears that the legislation would tamper with special provisions ensuring state autonomy did not abate.
Many in the Valley also feared that converting the bank into a public-sector undertaking would destroy what is currently a profit-making institution. “We all know the condition of PSUs,” said Rather. “Most of them are running in losses and some can’t even pay salaries to their employees.”
In January, the state government, then led by former chief minister Mehbooba Mufti, informed the Assembly that most public-sector undertakings in the state were making losses and efforts to revive 18 of them had not worked. According to the Jammu and Kashmir Economic Survey of 2017, there are 19 public-sector undertakings in the state, out of which seven received budgetary support from the government to meet their wage bills.
Nisar Ali, an economist and former member of the board of directors of the J&K Bank, was one of the few voices in the Valley who saw the “wisdom” of the governor’s decision to extend greater government control over the bank.
“It’s a fact that the bank has been performing poorly and the number of backdoor appointments has grown,” said Ali, who was also a board member of the state finance commission. But even he admitted that “the term PSU is problematic. That’s why there is a slight irritation from the public”. He added, “In my suggestion, it should have been called a semi-public sector enterprise where the government’s role will be confined to supervision and raising questions about the backdoor appointments. Not beyond.”
The turbulence in the banking sector across the country has affected the J&K Bank as well. Officials of the bank said the 2014 floods and the mass protests in 2016 compounded the bank’s problems. In the quarter that ended September 2016-2017, the bank declared a loss of Rs 600 crore. Last year, the state government, the bank’s biggest promoter, infused Rs 532 crore in capital to put it back on track. While the bank shows signs of regaining stability, its non-performing assets (loans on which the principal or interest payment is due for 90 days or more) touched Rs 6,000 crore in July.
The transparency question
In recent years, the bank has faced criticism over lack of transparency in its recruitments. In October, the governor triggered a row by alleging political interference in the appointment of 582 candidates in the bank. The antidote to this, Malik said, was to bring the bank under the Right to Information Act and subject to the guidelines of the Central Vigilance Commission. But, according to the “governor’s assurance” released on Tuesday, the bank is already under the purview of the Act since it is a government company. In the Valley, that proposition has been challenged.
With a net worth of Rs 6,161 crore at the end of March, the J&K Bank is one of the biggest employers in the state, with an estimated 14,000 employees. Many attribute the lack of transparency to technicalities associated with the ownership of the bank. “Nobody is averse to transparency,” said Madni. “But in order to apply RTI to J&K Bank, they have to declare the bank as a state, which is equal to defining the bank as a PSU. There are legal hiccups in that.”
Others say transparency can be ensured without putting the bank under government control. “As far as Central Vigilance Commission guidelines are concerned, they don’t apply to J&K Bank because CVC is for banks where you have more than 50% equity from the government of India,” explained Mohammad Yusuf Khan, who was chairman of the J&K Bank from 1996 to 2006. “We have state government equity. In case they found something wrong, corrective steps should have been taken. There are other ways of handling this situation.”
Finally, it might have been financial considerations that prompted the about turn. According to Khan, not just local but foreign shareholders too reacted adversely to the proposal to turn the bank into a public-sector undertaking. The bank had not been “doing great”, he said, but in the days after the announcement, stock prices had started plummeting.