A dispute between Jammu & Kashmir Bank (J&K Bank) and its majority shareholder, the government of J&K, over a demand of Rs 111 crore raised by the state government, has apparently led to the return of the Reserve Bank of India (RBI) nominee on the bank’s board a few weeks ago.
The state government had objected to the rates at which the bank had charged commission on government business and pension disbursement and sought a refund of Rs 80.04 crore and an interest of Rs 31.14 crore. The bank disputed this and maintained that the charges were in line with RBI’s instructions and its agreement with the state government.
J&K Bank Chairman Haseeb Drabu, when contacted, said he would respond by Monday to the email query sent by Business Standard.
An RBI spokesperson refused to assign any reason for the appointment of the nominee on the bank’s board.
According to auditing sources, the dispute is likely to have prompted the RBI move to safeguard the interest of the bank and its depositors. The dispute, along with the bank’s inability to produce some ‘action taken’ reports on suggestions made in the course of previous annual audits, could have triggered the move, they said.
“RBI appoints nominees on private sector banks’ boards when it has some concerns. Apart from transparency, there could be other reasons for such a move, such as those related to compliance, risk management, corporate governance or KYC (know-your-customer) norms,” said a banking expert.
The RBI move came three years after the regulator withdrew its nominees from all old private banks, including J&K Bank.
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RBI installed Arnab Roy, its regional director in Jammu, on the bank’s board last month. The Banking Regulation Act, 1949, empowers RBI to make such appointments in the interest of banking policy, public or depositors.
J&K Bank is categorised as a private bank even though its 53 per cent stake is held by the state government.
The dispute related to the commission charged from the state government for handling government business and for pension disbursement transactions from April 1, 2005, to August 20, 2008. The bank’s net profit was Rs 360 crore in 2007-08.
Earlier, RBI used to appoint its serving officials as directors on the boards of all public sector banks and some old private banks. Later, it decided to appoint retired officials on the boards of most public sector banks to distance itself from the functioning of these banks’ boards. It also started withdrawing its nominees from the boards of well-managed old private banks.
In September 2007, RBI had appointed two nominees on the board of Bank of Rajasthan too. The directors, Shekhar Bhatnagar and A Madhavan, are still on the bank’s board.