Roll back state capture of J&K Bank
The decision of the State Administrative Council (SAC) to treat J&K Bank like a public sector undertaking (PSU) is a sure recipe for disaster. This is nothing but bureaucratic capture of the bank and institutionalising political intervention.
The simple question that the Governor should ask is why is every single PSU in the state loss making and on the verge of closure? If the framework of PSU, in which J&K Bank is being put, is better, why has not a single PSU grown in size and scale and been listed?
As against this, J&K Bank has an uninterrupted history of profits and dividends. It is, and has been, one of the most successful as well as profitable institutions of the state. It is the only state owned enterprise that has a large set of foreign institutional investors, domestic investors and local retail investors. In addition to having made financial investments in the bank, the people of the state have emotional equity in the Bank. This cannot be devalued or destroyed.
J&K Bank being a financial institution is subject to regulatory control by the Reserve Bank of India which controls all the other banks in the country. In addition to that, being a Government company it has been subject to oversight by the Comptroller and Auditor General of India.
And, of course, it has a board of directors as the apex corporate governance body. The board has representation from the state government, RBI, as well as professional independent directors. As against this, PSUs have no board to speak of. Almost every PSU has the same set of five people on the Board.
If the owner, i.e. the state government feels that there are issues of governance that have emerged in the bank, the best recourse is to strengthen the Board, but not to effectively supersede it. In the last 10 years or so, the state government has put relatives, affiliates and friends of the political class on the Board. This should be stopped by ensuring that Fit and Proper criteria stipulated for directors by the RBI is enforced in letter and spirit.
Bringing the bank under the state legislature is in complete contravention of the Banking Regulation Act 1949, applicable to J&K since 1956, under which commercial banks and banking is supervised and regulated. It can be questioned in a court of law.
To be sure, notwithstanding the fact that the state government is the majority shareholder in the J&K Bank, it is an old generation private sector bank. It is a public listed bank and what the SAC has done today can be challenged by other shareholders, especially the minority shareholders. The institutional investors will vote with their feet and sell their investments having a huge impact on the stock price.
The SAC must review the decision and roll it back at the earliest.