Nov. 29, 2018

Recently in Jammu & Kashmir, the State Administrative Council under the chairmanship of Governor approved a proposal for treating Jammu and Kashmir Bank (J&K Bank) Ltd as a public-sector undertaking (PSU).

J&K Bank:

  • Background: It was incorporated in 1938 as a limited liability company to offer banking facilities in the state.

  • Legal Status: 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.

  • Supervision: RBI as the regulator supervises J&K Bank.

  • Ownership:
    • The state government holds a majority stake of 59.3% in J&K Bank. It is the only bank in India in which a state government holds a majority stake.

    • In all other public-sector banks, the majority stake is held by the Centre. As per the Banking Companies (Acquisition & Transfer of Undertakings) Act, the central government holding in public-sector banks cannot drop below 51%.

    • Thought the state government holds 59.3% in J&K Bank, it is not considered a public-sector bank due to unique status of J&K under Article 370 of the Constitution.

Recent Decision:

  • Recently in J&K, the State Administrative Council under the chairmanship of Governor approved a proposal for treating J&K Bank Ltd as a PSU.

  • Present status: The Finance department has been asked to issue directions to the bank to follow the decisions of the SAC. The bank is yet to receive these directions.

  • Impact of Recent Move:
    • Treating J&K Bank Ltd as a PSU means that from now on, it will hence be accountable to the state legislature, and the Finance Department will be required to place the bank’s annual report before the Assembly.

    • The provisions of the 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.

  • Legal hurdles:
    • According to Article 246 of the Seventh Schedule, banking as a subject comes under the Union list.

    • Also, J&K Bank comes under the regulatory purview and supervision of RBI.

    • Making it a PSU and bringing it under state legislature could be seen as being in contravention to these provisions.