Naya Kashmir requires naya search for J&K Bank CEO

Over 19 months after the reorganisation of Jammu and Kashmir, the erstwhile state’s largest business enterprise and only listed firm — the 83-year-old J&K Bank — has not been able to win regulatory approval for the appointment of a new managing director and chief executive officer.

The development marks a hiatus in the Centre’s efforts to clean up the institution, beginning with the sacking of the incumbent chairman in June 2019 amidst police cases over instances of alleged corruption.

The impact of leadership challenges at a bank has a direct bearing not only on shareholders, but retail depositors as well. In J&K Bank’s case, analysts have expressed concerns that the lender has been inefficient in managing its overall asset portfolio.

Gross and net non-performing assets (NPA) stood at 8.71% (Rs 6,196 crore) and 2.5%, respectively, for the third quarter ended December 2020. Concerns on bad assets remain on account of the pandemic-induced slowdown.

The bank recorded a net profit of nearly Rs 66 crore in the third quarter ending December 2020 (Q3,FY21), as compared to Rs 49.64 crore during the same period last year. What is pertinent to note is that the bank booked a profit of nearly Rs 139 crore on the sale of securities from the held-to-maturity (HTM) category during the quarter, which contributed immensely to boosting the bottom-line.

The share price is currently well below the Rs 45 level it had touched in the aftermath of the revocation of article 370 and nowhere close to the peak of over Rs 186 in May, 2014.

The candidate selected by the board for MD and CEO has not won the approval of the Reserve Bank of India (RBI) for nearly 10 months. While the RBI’s reasons for not approving the board nominee are not in the public domain, the saga underlines governance issues that plague the institution since 2018.

J&K Bank is no ordinary financial institution. It is the only bank in India where the major shareholder is a union territory (earlier state) government.

It plays the role of a universal bank in the union territories of Jammu & Kashmir and Ladakh and acts as a specialised bank elsewhere in the country. Not only is it the banker of the two union territories, it is the RBI’s agent for banking business and also collects central taxes in the two UTs. With a deposit base of Rs 1,03,804 crore, the bank had a CASA ratio of 54.44% as of December, 2020. The bank has 956 branches and operates nearly 1382 ATM’s across the country. It enjoys a market share of over 60% of banking loans and deposits in the two union territories.

Apart from the symbolism of enjoying a special status that included exemption from the right to information and central vigilance oversight, it is the only bank in India, which while having 68% ownership of the state is classified as a private sector entity (a 2018 move to reclassify it as a public sector financial undertaking was scrapped after protests).

The pride and emotion that people of Jammu and Kashmir attach with the bank is evident from the fact that the move to change its character was opposed both in the Kashmir valley, as well as Jammu province, regions that are otherwise on opposite ends of the autonomy debate.

The seeds of the current imbroglio were sown in June 2018, when the state government removed Chairman Parvez Ahmad and appointed an interim replacement from within the ranks for a three-month tenure. The bank was also brought under the provisions of the J&K Right to Information Act, 2009 and adopted the guidelines of the Central Vigilance Commission. Interestingly, another proposal – to merge it with the much larger State Bank of India was shelved.

Meanwhile, RK Chhibber, the current chairman and MD, is on a six-month extension from October 10 last year.

This saga has confounded investors and public shareholders alike.

With Prime Minister Narendra Modi recently launching a broadside against babudom, it is time that the leadership issues at J&K Bank are sorted out and eminent professionals hired to lead the institution.

A plethora of experienced talent is available and the board must take urgent steps to search and select a good CEO as a first step. The selection committee must also comprise experts from banking and not be staffed entirely with government bureaucrats. A revamp of the board with an eye on inducting seasoned banking and fintech experts would also be a logical move to secure its future.

Partisan considerations, including pandering to regional chauvinistic tendencies, must be eschewed and the institution should be helmed by the best. There are many professionals who are available and would be keen to participate, provided the hiring process is open, transparent and focused on merit.

Only then, would the promises of a Naya Kashmir hold true.

(The writer is a senior journalist and public policy commentator. Views expressed are personal. His Twitter handle is @szarabi)