A unique tumble in Jammu & Kashmir Bank’s stock market shares has generated a political controversy with Opposition People’s Democratic Party (PDP) accusing the Omar Abdullah-led coalition Government of compromising the premier financial institution of the State by appointing wrong persons on the board of directors and the management after conceding its autonomy from RBI three years ago.

Alleging that the political leadership of the Government has lost its credibility, the PDP sought clarification from the State’s Finance Secretary on ‘bungles’ in the bank and threatened to approach the RBI for instituting a special audit to reach the truth.The controversy erupted after Jammu & Kashmir Bank plummeted 18.54 % on BSE, a fall of Rs341.65 following a report that the bank deliberately concealed non-performing and stressed assets to the tune of Rs2,500 crore in its loan book.

The stock settled at Rs1,501.35 after hitting a high of Rs1,845 and a low of Rs1,472.25 during the day. This is 14 days after the embattled State’s lone listed company’s shares with a face value of Rs10 hit a record high of Rs1,995 on May 16.The Jammu & Kashmir Government owns 52 per cent of the bank’s share, which boasts 786 branches across India with a higher credibility amongst its customer base.

The J&K Bank rejected the report saying it has recorded growth even in 2008 to 2013 when the whole industry was experiencing earning volatility. “Our restructured asset portfolio graph is witnessing a downward trend. Currently it hovers around Rs1,500 crore which is quite normal as per industry standards,” a spokesman of the Bank said.   The mid-cap company has an equity capital of Rs48.48 crore.

The prominent local daily reported that the bank has not classified and declared three loans amounting to Rs1,100 crore as non-performing assets (NPA) in its latest balance sheet even as the loans were NPA by regulatory and prudential norms.The report observed that the Audit Committee has not objected to this “fraudulent balance sheet management” pointing towards their complicity.

An amount of Rs650 crore has been lent to a Kolkata-based company engaged in agro and ancillary business, which has been declared NPA by all other banks even as one of them has filed a winding up petition against it for non-payments of Rs224 crore outstanding dues.The other borrower of Rs400 crore is a Mumbai-based real estate company. Even as its cheques purchased by J&K Bank have bounced more than once, the loan was not shown as NPA as per the norms. The third borrower is a Bangalore-based Communication Company, whose promoter has been arrested for fraud.

Interestingly, the bank launched a massive advertising campaign recently to showcase its growth. The latest balance sheet put the Bank’s profits at Rs1,182 crore.The Omar Abdullah-led coalition Government brought about drastic changes in the functioning of the Bank and allowed RBI more access to its management. This evoked criticism from the Opposition, which described it as infringement to the Bank’s autonomy.

The J&K Bank has recorded massive growth after the eruption of militancy in Kashmir in early 1990s, primarily because most of the nationalised banks either wound up or restricted their operations. The customer base shifted to the local bank affecting its massive growth.

In August 2010, Omar Abdullah Government asked Bank’s then Chairman Dr Haseeb Drabu to quit for unspecified reasons and brought in a retired banker Mushtaq Ahmad to head the premier company.The Bank clarified that while declaring any advance as stressed, restructured or NPA, laid down processes and procedures are followed which are quite robust and in accord with prescribed regulations and industry best practices.

“We have been consistently prudent when it comes to deal with stressed/non performing loans. like in Kingfisher case, when big banks struggled to recover their loan from the grounded Airlines, we got back 90% of our loan”, a spokesman said.The PDP spokesman Naeem Akhtar alleged that within the State the bank loans were very stingily sanctioned while big loans outside the State were obviously given to those who don’t even deserve them.

“While millions of youth in the state are struggling to set up small businesses and denied loans, the Bank with resource base in the state has apparently been made a handmaiden of vested interests outside the state which could benefit a few in position of power at the cost of a national asset of the state”, Akhtar observed. The PDP highlightred the bank’s affairs during the recent poll campaign and described its

Interestingly, in the same newspaper on Friday, Haseeb Drabu in an edit-page article blames Omar Abdullah for giving biggest blow to article 370 and autonomy of J&K by “moving the J&K Government’s overdraft facility from the J&K Bank to the RBI in 2011.“From April 1, 2011 J&K Bank’s role as the lender of last resort was fully and completely given to the RBI. The RBI, which had limited jurisdiction, is now carrying on the general banking business of the Government of Jammu and Kashmir and act as the sole agent for investment of Government’s funds”, he wrote.

Drabu, who is known for his proximity to PDP, has highlighted the issue when the controversial debate on efficacy of Srtcile 370 is raging following remarks by MoS PMO Dr Jitendra Singh.