FINANCIAL CRISIS IN JK: Experts say shifting to RBI was a mistake

FINANCIAL CRISIS IN JK: Experts say shifting to RBI was a mistake

In 2011 then state government shifted its banking operations from JK Bank to Reserve Bank of India by signing an MoU to this extent.

As Jammu and Kashmir is in the midst of financial crisis with liabilities mounting to Rs 2200 crore, the financial experts and officials here blame the previous government saying shifting to RBI’s ways and means was a mistake. 

According to experts, the previous government’s decision “replacing J&K Bank by RBI as state’s banker is the main reason for the deteriorating financial health of Jammu and Kashmir.” 

In 2011 then state government shifted its banking operations from JK Bank to Reserve Bank of India by signing an MoU to this extent.

Earlier, the state-owned JK Bank was the banker of the state which provided cushion to the state government to borrow funds from it during exigencies.  

"But now the state government to borrow from the open market has to seek permission from RBI and give justification for any need," a senior finance department official on condition of anonymity said.  

He said that currently the state government was facing financial crisis.
“It requires at least Rs 2200 crore to clear the pending liabilities,” he said, adding that in such situations earlier, JK Bank would be approached for overdraft facility. 

"The overdraft facility was the best instrument available with the state government,” he said. 

Noted businessman and civil society activist Shakeel Qalandar said: "The decision of Omar-led government appointing RBI as banker of the state has adversely affected Jammu and Kashmir." 

"Financial experts had predicted the present financial crisis when state government signed MoU with RBI. Today, we are witnessing the treasuries are dry and even RBI is not allowing the state to borrow hugely from open market," Qalandar said. 

Qalandar who is former president Federation Chamber of Commerce and Industry Kashmir said the earlier mechanism was a win-win situation for both the state as well as the JK Bank. 

"Even interest rates were agreed upon mutually by both the parties. And as a result of this mutual understanding between the bank and government neither the development works used to get hampered nor the employees had to wait for release of salaries and other arrears," he said. 

To mention, former finance minister and senior PDP leader, Tariq Hamid Qarra recently stated, “We used to avail overdraft facility from Jammu and Kashmir Bank to meet our requirements. When National Conference took away this autonomous character of Jammu and Kashmir Bank, economists that time predicted it will create financial crisis in the state and same has happened. Now the state is in deep financial crisis and only New Delhi can bail it out,” he said.

Kara said that JK Bank was the backbone of the state’s economy but National Conference “bartered its autonomy.” 

To mention, J&K Governor NN Vohra has formally written to the Union Finance Minister Arun Jaitley on J&K’s “grave financial crisis”, seeking his intervention to tide over it, officials said.