By amending Article 370 (the provision that gave Jammu and Kashmir its autonomy), the Central Government will now be able to take control of the affairs in the state.
A Times of India report citing sources said that the Ministry of Finance is looking at options to strengthen the lender.
Earlier, the 81-year old lender had been running as a private sector bank. J&K Bank functioned as a universal bank within the state and a specialised bank in the rest of the country. Within Jammu & Kashmir it had powers similar to that of RBI wherein it acted as the RBI's agent for banking businesses of the Central Government, besides collecting central taxes.
In November last year, the State Administrative approved the proposal to be treated as a public sector bank and also brought it under the purview of the Right to Information (RTI) and CVC guidelines. The state government currently holds close to 60 percent stake in J&K Bank. After the amendment to Article 370 becomes effective, (that is if the Bill cleared in both the houses of Parliament and signed by the President), the state of Jammu & Kashmir will become a Union Territory. This will mean that the state's stake will be moved to the Centre.
Recently, the bank was involved in allegations of corruption and not being lax in dealing with loans that were used to fund terrorist activities. J&K Bank's chairman Parvez Ahemed Negroo was removed after President's rule was imposed in the state over allegations of irregularities.
This week, former Chief Minister Mehbooba Mufti was issued a notice by Anti-Corruption Bureau (ACB) of Jammu and Kashmir seeking clarification on her role in key appointments on recommendations of few ministers.
Shares of J&K Bank were trading 10 percent higher in afternoon trade at Rs 37.45 apiece.