Declaring J&K Bank a PSU unqualified disaster: Haseeb Drabu

‘It is thoughtless, regressive | Will have very negative impact on state’s prime institution | Unacceptable as decision taken by administration that is neither elected by people nor accountable to them’

Former finance minister and ex-chairman of J&K Bank HaseebDrabu on Saturday said the decision by Governor Satyapal Malik-led State Administrative Council declaring J&K Bank a Public State Undertaking (PSU) was “thoughtless and regressive” and added that it will have a “very negative impact” on the prime institution of the state and its functioning.

In an exclusive interview with Greater Kashmir Drabu who has been the former economic advisor to the government, said the bank has been “downgraded” and brought at par with other state-owned PSUs like State Financial Corporation, which have over the years turned into loss-making entities.


Q: What do you make of the decision to declare J&K Bank as a PSU?

A: J&K Bank is a publicly listed bank where the government of J&K has a majority shareholding. It is a government company. It is a very unique institution as no other state government owns a bank. Banking is a central subject so all government-owned banks are owned by the Union government. J&K Bank is an exception. Technically, it is an old generation private sector bank. Now it has been downgraded and put at par with any other state public sector undertaking like the J&K SRTC or J&K SFC or J&K TDC.

Q: What does it mean for the bank and the state?

A: It is a thoughtless decision which is very regressive. It will have a very negative impact on the bank and its functioning. There is no way that the state will be benefit from it. The state government will increase its control and that may be a positive for the Governor or his team. But it will be an unqualified disaster. The institutional autonomy of decision making will be impaired and all commercial decisions can be questioned for one reason or the other. It will also open up the bank to too many masters. Already it is supervised by the RBI, annually inspected by them, then the CAG audits it, it has its own internal auditors. Now, it will have the legislature and all the bodies of government interfering in its decision making.

Q The government today said that classifying the bank as PSU is “stating the obvious” as the state government is the owner?

A: This is not correct. It is not a PSU. It cannot be. The basic tenet of corporate governance is the separation of ownership and management. Owners are managers in PSUs. Their chairman and MDs are appointed by the government. The chairman and chief executive of J&K bank is appointed by the Reserve Bank of India, on recommendation of the board of directors.

Q: But bringing it under the ambit of RTI is seen as a good move to increase transparency in its functioning. Will it not?

A: Bringing it under RTI is a separate matter. It can be done without putting the bank under the PSU framework. I am all for transparency but it should not jeopardise commercial functioning of the bank. Central Information Commission has ruled out disclosure of information relating to bank accounts under the RTI Act saying that the agreements entered into by banks with its customers are matters of commercial confidence. Please understand that the bank holds such information concerning private persons in a relationship of trust. On administrative matters of the bank, bringing it under the ambit of RTI is not an issue. A case in point is the recent controversy about appointments in the J&K Bank. The reason why RTI is an issue is that it makes J&K bank as State. It is a legal conundrum. This means by implication it is an intrinsic part of the state government. Once it becomes a part of Government, every decision can be questioned and it is open to political interference and misuse. It is easy to say that if I am against RTI, I am against transparency and that I am scared of skeletons tumbling out. I wish it was so simple. I have run the bank for six years. Every commercial decision, on say a loan being sanctioned and its pricing, the rate of interest, will be questioned. Competitors and even political adversaries will file RTI queries and that will be the end of business of the bank. It is the thin edge of the wedge. There will be no end to it.

Q: What about other banks across India?

A: They are but in a limited sense. As I said, the commercial part is not. But they don’t have the complication of being State. J&K bank has. There have been many legal cases on this issue of J&K bank being State. What has made the decision adverse in the case of J&K Bank is that it has now been made accountable to the legislature. Not so long ago, when I was the finance minister, a veteran legislator was trying to raise the case of an NPA account settlement. The bank will have to submit its Annual Report to the legislature like all state PSUs. Commercial Banks, owned by the Government of India, don’t have to submit their Annual Reports to Parliament! Where is this coming from? What makes it unacceptable is that it is done by an administration that is neither elected by the people nor accountable to them. If tomorrow, the state legislature discusses the matter and decides to bring it under its own control, there can be a debate there. At the end a view will be taken. Here, it is a set of administrators in the SAC who take a view that has serious implications. That is also an issue. Such an issue is best decided by an elected and accountable government.

Q: During the last few years performance of the Bank has been questioned and it has been dogged by controversy of backdoor appointments?

A: Yes. There are a variety of reasons for that. One is that all banks have been going through a phase of poor performance. The quality of assets has been deteriorating as non-performing assets have been rising in almost all banks in the country. In the case of J&K Bank it has been compounded by the floods and later on by civil strife. Notwithstanding that the remedy is not to make it a PSU. It is to strengthen the corporate governance. Not to effectively take it over. If there is a management deficiency, address that. If there is governance failure address that too. What the Governor has done is to put in the framework of state PSUs. It is bizarre. The cure is worse than the disease. You don’t have to be a banker or a policy maker to understand this. Show me one state PSU that is doing well. Forget doing well. They are all on life support and a big drain on the state budget. The kind of adhocism and mismanagement that is prevalent in the state PSUs is legendary. And here we have an extremely successful institution and you are putting it in a framework of sickness. It is simply thoughtless. Do you know that there are dozens of PSUs in the state which haven’t finalised and audited their annual accounts for years and decades? Their boards don’t meet for months and years.

Q: As finance minister you gave the bank about Rs 500 crore? Isn’t J&K Bank a drain on the budget?

A: Of course not. That was given as capital. It is to meet the regulatory capital requirements of the bank; not to meet its losses. It is a profitable bank. International banking norms require the commercial banks to have a certain level of capital adequacy. The bank has grown in size and needs a certain level of capital adequacy. It was to beef up that. The union finance minister needs to provide Rs 70,000 to 90,000 crore to the banks it owns for their capital needs. Owning a bank is not only about receiving dividends, it is also providing capital. In the case of J&K Bank, the bank must have given dividends many times the capital it has got. It is by a long, long way the most profitable investment made by the state government ever.

Q: J&K Bank is the largest employer after the government. If there are irregularities in it, how should those be addressed?

A: You are right. It is the largest employer in the state outside the government, not after the government. If indeed there are irregularities, then the management is responsible and should be held accountable. A committee of the Board of bank should be set up, which is chaired by the promoter director on the board of the bank, the finance secretary. They should submit a report within a month and action should be taken by the government on that basis. If it is such a serious issue he can co-opt a vigilance expert.

Q: The bank was recently in the news for appointments. The Governor first announced and later retracted that recruitment list had been changed and those with political backing had been appointed?

A: I know. I tweeted on it. I asked the Governor to name the politicians who had got the list changed. It is not possible. The examinations are conducted by the Institute of Banking Personnel Selection, a Government of India undertaking. That list can’t be changed. They have a copy. If it had been done it would be a criminal offence. What he might have been referring to is ad hoc class IV employees. Let him get that examined. But he jumped the gun twice. First by announcing that there was a recruitment scam done by politicians and then ordering the chairman – he said it on record – absorb the dropees, those who had not qualified or who were below the cut off list. This is not done. He is not only the head of the state but also the head of government right now. While he backtracked on the recruitment issue, his order is also questionable. It is for the board to decide. He should not be giving directions to the board. Today, it is about a policy about recruitment, tomorrow it can be about giving loans. The SAC has a lot of administrative experience with it, they should know.

Q: So what should be done?

A: Do what GK has suggested in its editorial! Roll it back.

Q: How do you see the evolving political situation?

A: Let it evolve!