Why J&K Bank with 59% govt stake is a private sector bank
On November 22, a day after Jammu and Kashmir governor Satya Pal Malik dissolved the Assembly, the State Administrative Council under Malik’s chairmanship approved a proposal to treat Jammu and Kashmir Bank (J&K Bank) Ltd as a public sector undertaking (PSU).
The move has drawn criticism from political parties in the state with PDP chief Mehbooba Mufti demanding an immediate rollback.
Mufti said, “The decision smacks of attempts to fiddle with the basic character of the state's special status.”
National Conference leader Omar Abdullah has called it a “disturbing development”.
J&K People’s Conference leader Sajad Lone has said “the best thing the government of the day can do is to get out of the way”.
Why is J&K Bank unique?
Established in 1938, it is the only bank in the country in which a state government holds a majority stake (59.3 per cent). In all PSU banks, the majority stake is held by the Centre. As per the Banking Companies (Acquisition & Transfer of Undertakings) Act, the central government holding in PSU banks must not ever be below 51 per cent.
While the state government holds a 59.3 per cent stake in the J&K Bank, it is not considered a PSU. The bank is licensed as an “old private-sector bank” under Section 22 of the Banking Regulation Act, 1949. It comes under the regulatory purview and subversion of the Reserve Bank of India (RBI).
In April 2011, the then Omar Abdullah government gave RBI the mandate to carry out general banking business of the state and be the sole agent for investment of state funds.
The uniqueness of J&K Bank’s status drives from Article 370 of the Constitution, which gives special autonomous status to the state of Jammu & Kashmir.
What does making J&K Bank a PSU mean?
Explaining the decision, a J&K government official told NDTV, “Being the major shareholder, the government felt that the bank should have a character of a PSU which is subject to general supervision and access for enhanced transparency in the transaction of its business to promote public trust.”
The bank will now be accountable to the state legislature. It would imply that the Finance Department will be required to place the bank’s annual report before the Assembly.
The bank will now have to follow the guidelines of the Central Vigilance Commission and provisions of the Right to Information Act, shall be applicable to the bank just like other state-owned undertakings.
While the bank is yet to receive directions to the effect, the problem with implementing the move lies in the fact that banking as a subject falls under the Union list. Changing the character of the J&K Bank would be akin to empowering the state to have powers over banking.
Interestingly, a board meeting was called only on November 26, three days after the decision was taken, to discuss the move. The board will reportedly meet again in December to discuss the issue since no consensus was reached in the November meeting.
It is also reported that the board was not kept in the loop to discuss the issue.
It will be interesting to see how the governor’s decision is implemented and to what level the local parties oppose the move.