RBI’s Move To Takeover J&K Bank Sparks Row24 January 2011
New Delhi: At a time when focus has either been on BJP’s ‘Tiranga Yatra’ or interlocutors, the Reserve Bank of India (RBI) taking over banking responsibilities of Jammu and Kashmir government, is set to muddy water further in the politically fragile state. Last week, the RBI signed an agreement with the state government taking over responsibilities from the Jammu and Kashmir Bank to provide overdraft facilities. The arrangement, unique to Jammu and Kashmir, was helpful in the wake of delay in the allocation of funds from New Delhi. “Under the agreement, which shall be effective from April1, 2010, the RBI shall carry on the general banking business of the Government of Jammu and Kashmir and act as the sole agent for investment of the government’s funds,” the RBI release said. Opposition Peoples Democratic Party (PDP) and moderate faction of Hurriyat Conference have sharply reacted at the development. While PDP has described it the most lethal nail in the coffin of state’s autonomy, Hurriyat Conference led by Mirwaiz Umar Farooq has said the ruling National Conference (NC)’s double face has been exposed. “Those wearing the mask of proponents of autonomy have surrendered financial autonomy to New Delhi,” a Hurriyat statement said, adding they were consulting experts before creating a mass awareness and political movement on the issue. In a statement, PDP President Mehbooba Mufti described the decision as removing the last fig leaf of autonomy. “The decision is an enslaving mechanism and an attempt to sell state’s resources,” she said. “J&K Bank is not only a flagship financial institution but also represneted the ability of our professionals to script a great success story under tiring conditions,” she told TEHELKA on phone She said new arrangement would be a fist step towards liquidation of the prestigious Bank. Blaming squarely the Omar Abdullah government, she said the RBI statement has clarified that the decision was taken at the request of the state government. Noted economist Professor Nissar also said it was an attempt to usurp a unique system available to Jammu and Kashmir only. “It used to provide comfortable position to the state to get overdraft from J&K bank and to bridge the mismatches on account of funds, as it takes time for the state to receive funding from New Delhi,” he added. Mushtaq Ahmad, Chairman and Chief Executive Officer of Jammu and Kashmir Bank, said his bank was acting as an agent of RBI to conduct general banking business of the state government and for other related matters. But he was still unaware of the bank’s role in the new arrangement. “As of now we haven’t received any formal communication from the state government,” he said. J&K government continues to be the main stakeholder with 53 per cent equity holding. Attempting to allay fears of its stakeholders and customers, a J&K Bank statement said the new arrangement would not affect the health of the Bank. “With business portfolio of over Rs 66000 crore now and best banking practices in vogue in all its affairs, repayments of loans and adjustments of accounts is a normal and routine affair and does not cause any issue on viability and stability of the bank,” the bank said, adding that the bank expected a growth of 20 per cent by the end of current financial year. A former bank official said the new arrangement would plunge the state into a financial indiscipline. He said the old arrangement was a win-win position for both the government as well as for the bank. While the government had readily available finances, the bank would earn from the parked funds deposited by the government. He said even the decision should have come in phases and much before that government should have enforces strict financial discipline. “Now the state has asked the RBI an amount of Rs 2,300 crores. They have given Rs 1,000 in first instance, asking the state to avail the remaining Rs 1,300 crores from markets. It means that the state has to move big financial institutions and raise the amount. But here the problem is of lawlessness and non-functional institutions. So how can you make it possible when you are not able to generate your own resources and impose financial discipline?” Expert on economic issues, Arjimand Hussain Talib linked the step with the repeated dilution of the special status of Jammu and Kashmir. However, a spokesman of state government maintained that the new financial arrangement would save the government from the J&K Bank overdraft debt. “In that process, the state shall save on an average over Rs 250 crores which is a huge sum for meeting the other development expenditure which otherwise would go to the J&K Bank as interest payment on overdraft borrowing,” he said. Naeem Akhtar, a former senior bureaucrat and the PDP spokesman, feared that with state government moving to the RBI, the fate of J&K Bank may be similar to other such banks like Travancore Bank, etc.