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Jammu and Kashmir Bank Ltd.

BSE: 532209 Sector: Financials
NSE: J&KBANK ISIN Code: INE168A01041
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VOLUME 330796
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P/E 9.83
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OPEN 47.00
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VOLUME 330796
52-Week high 63.00
52-Week low 35.05
P/E 9.83
Mkt Cap.(Rs cr) 2,737
Buy Price 49.85
Buy Qty 1600.00
Sell Price 50.00
Sell Qty 426.00

Jammu and Kashmir Bank Ltd. (J&KBANK) - Director Report

Company director report

To the Members

Your Board of Directors has pleasure in presenting the 79th Annual Report ofyour Bank together with the audited Balance Sheet Profit and Loss Account and the reporton business and operations for the year ended 31st March 2017.

Performance at a Glance

• The aggregate business of the bank stood at Rs 112279.20 Crore at the end of thefinancial year 2016-17.

• The total deposits of the Bank grew by Rs 3072.84 Crore from Rs 69390.25 Croreas on 31st March 2016 to Rs 72463.09 Crore as on 31st March 2017 a growth of4.43 percent. CASA deposits of the bank at Rs 37460.16 Crore constituted 51.70 percent oftotal deposits of the bank.

• Cost of deposits for current FY stood at 5.87 percent.

• The net advances of the Bank stood at Rs 49816.11 Crore as on 31st March 2017.

• Yield on advances for the current FY stood at 10.02 percent.

• Priority sector advances (Gross) stood at Rs 15317.24 Crore as on 31st March2017.

• The bank effected cumulative cash recovery up-gradation of NPA’s andtechnical write-off of Rs 1647.02 Crore during FY 2016-17.

• Investment portfolio of the bank stood at Rs 21290.89 Crore as on 31st March2017.

Insurance Business

The bank earned an income of Rs 32.82 Crore from the Insurance Business. The bankmobilized business of Rs 210.46 Crore and Rs 145.89 Crore during the year in life andnon-life insurance segments respectively.

Income Analysis

• The Interest income of the bank stood at Rs 6685.80 Crore in the year 2016-17.Interest expenses stood at Rs 4173.86 Crore for FY 2016-17. The Net Interest Income stoodat Rs 2511.94 Crore for FY 2016-17

• The Net Income from operations [Interest Spread plus Non-interest Income] stoodat Rs 3004.80 Crore in the financial year 2016-17.

• The Operating Expenses registered an increase of Rs 164.26 Crore during thefinancial year 2016-17 and stood at Rs 1710.46 Crore as compared to Rs 1546.20 Crore in2015-16.

• The Cost to Income ratio (Operating Expenses to Net Operating Income) stood at56.92 percent in the financial year 2016-17.

Gross Profit

The Gross Profit for the financial year 2016-17 stood at Rs 1294.34 Crore.

Provisions

The Provision for Loan Losses Standard Assets Taxation and others aggregated to Rs2926.63 Crore in the financial year 2016-17.

Net Profit/Loss

The bank registered a Net loss of Rs 1632.29 Crore for the financial year 2016-17.

Branch/ATM Network

During the financial year 2016-17 8 new branches were establishedthereby taking the number of branches to 865 as on 31-03-2017 spread over 20 states andone union territory. The area-wise breakup of the branch network (excluding extensioncounters/ mobile branches and Service branches) on the basis of census 2011 as at the endof FY 2016-17 is as under:

Area Branches
Metro 167
Urban 101
Semi-Urban 146
Rural 451
Total 865

During the financial year 2016-17 90 ATMs were commissioned thereby taking the numberof ATMs to 1096 as on 31.03.2017.

Net Worth and Capital Adequacy Ratio (CRAR)

• The Net Worth of the bank stood at Rs 5676.50 Crore on 31st March 2017.

• Capital Adequacy Ratio under Basel III stood at 10.80 percent as on March 2017.The tier I component of CRAR is 8.70 percent as on 31st March 2017. Book Value per Sharefor the financial year 2016-17 stood at Rs 116.80.

Advertising and Publicity

Promoting our brand image proactively we successfully positioned our brand image deepwithin the evolving public consciousness thereby enhancing our brand value during thefinancial year 2016-17. The bond of trust between stakeholders and the bank was furthercemented through effective and needful messaging at relevant junctures throughout thefinancial year.

The bank’s products services and facilities were successfully advertised acrossthe operational geographies. Besides it’s functioning and achievements wereeffectively communicated to the respective target audiences including customersshare-owners stakeholders and general public through customized and efficiently packagedmessages using relevant multi-media outlets across the country. Leveraging its presence inthe social-media universe the bank firmed up its online presence further to enhance itsbrand image using highly popular mediums of social connectivity platforms like Facebookand Twitter.

Subsidiary Company

As on March 31 2017 your Bank has one unlisted Subsidiary JKB Financial ServicesLimited (JKBFSL).Salient features of the financial statement of JKBFSL are attachedherewith as Annexure 5.

Performance and Financial Position of JKBFSL

The operating income of the Company for the year ended 31st March 2017stands at Rs. 438.62 lacs. Other incomes of the company stood at Rs. 88.12 lacs. The Totalincome of the Company for the year ended 31st March 2017 stood at Rs. 526.75lacs. The net loss of the company for the financial year ended 31st March 2017stood at Rs. 48.37 Lacs increased its accumulated net loss to Rs. 360.34 lacs as on 31stMarch 2017.

Regional Rural Bank sponsored by J&K Bank:

J&K Grameen Bank

The J & K Grameen Bank has come into existence on 30th June 2009 withthe issuance of statutory notification by GoI MoF Department of Financial Services undersub-section (1) of section 23 (A) of the Regional Rural Banks Act 1976 vide F. No.1/4/2006-RRB providing for amalgamation of Kamraz Rural Bank and Jammu Rural Bank into asingle new Regional Rural Bank under the name of J & K Grameen Bank with its HeadOffice at Jammu and has commenced business effective from 01.07.2009.

Area of Operation:

The area of operation of the J&K Grameen Bank comprises of 13 districts of theState viz. Baramulla Bandipora Kupwara Jammu Kathua Rajouri Poonch Leh KargilSamba Kishtwar Ganderbal and Srinagar.

No. of Branches (as on 31-03-2017): 217
No. of Employees (as on 31-03-2017): 925

Capital Structure:

In terms of the RRBs Act 1976 the authorized capital of Regional Rural Banks was fixedat Rs.5.00 Crore (which stands amended to Rs. two thousand crore in terms of the RegionalRural Banks (Amendment) Act 2015 notified in the Gazette of India on 12-05-2015). Theissued and paid up capital of the J&K Grameen Bank is Rs.97.16 Crore fully subscribedby the

Central Government State Government and Sponsor Bank in the ratio of 50:15:35respectively. The details are tabulated hereunder:

1. Authorized Share Capital Rs.2000 Crore
2. Subscribed / Paid up Share Capital Rs.97.16 Crore
Central Government (50%) Rs.48.58 Crore
State Government (15%) Rs.14.57 Crore
Sponsor Bank (35%) Rs.34.01 Crore

Tier II perpetual bonds Out of total cost outlay of Rs. 23.34 Crores forimplementation of 100% CBS by JKGB 50% i.e. Rs. 11.67 crore has been shared by J&KBank (Sponsor Bank).

Date of issue: 04-12-2014

Performance of the Bank as on 31.03.2017 (Un-audited)

Business:

The total business of the bank as on 31st March 2017 stood at Rs. 4633.97crore against Rs.4171.37 crore as on 31st March 2016 thereby showing anincrease of Rs. 462.60 crore registering a growth of 11.09% during the year 2016-17.

Deposits:

The deposits of the bank have increased from Rs. 2833.84 crore to Rs.3230.42 crore(unaudited) during the year 2016-17 thereby registering a growth rate of 13.99%.

Advances:

The gross advances of the Bank as on 31st March 2017 stood at Rs.1403.55crore (unaudited) as against Rs.1337.53 Crore as on the corresponding date of the previousyear recording a growth of 4.94%

CD Ratio:

The C.D. Ratio of the bank has decreased by 3.75% from 47.20% as on 31stMarch 2016 to 43.45% as on March 31 2017

Priority Sector Advances:

The priority sector advances outstanding as on 31st March 2017 stood at Rs.1054.48 crore against 986.06 crore outstanding as on 31st March 2016registering a growth of 6.94% (Rs. 68.42 crore) on YoY basis.

The priority sector advances at Rs. 1054.48 crore as at the end of the FY 2015-16constitute 75% of total advances which is as per the prescribed benchmark of 75% forRRBs.

NPA Position:

The gross NPAs of the Bank as on 31.03.2017 stood at Rs.175.92 crore i.e. 12.53%(un-audited) of gross advances. The Net NPAs as on 31.03.2017 stood at Rs.110.54 crorewhich accounts for 8.26% (un-audited) of net advances.

Business per Employee:

The business per employee as on 31st March 2017 stood at Rs.5.01 croreagainst Rs.4.24 crore as on corresponding date of the previous year recording a growth of18.16%.

Business per Branch:

The business per branch as on 31st March 2017 stood as Rs. 21.35 croreagainst Rs.19.22 crore as on corresponding date of the previous year recording a growth of11.08%.

Profitability:

Against Net profit of Rs.2.80 crore recorded as at the end of the previous FY 2015-16there is a net Loss of Rs. 8.28 crore as on 31st March 2017.

Lead Bank Responsibility

a. Convener JKSLBC

The J&K Bank is the only Private Sector Bank in the country assigned with theresponsibility of convening State Level Bankers’ Committee meetings. The Bankcontinued to discharge its Lead Bank responsibility in 12 districts i. e SrinagarGanderbal Budgam Baramulla Bandipora Kupwara Anantnag Kulgam Pulwama ShopianPoonch and Rajouri out of 22 districts of J&K State satisfactorily. The other 10districts i. e Jammu Samba Kathua Udhampur Reasi Doda Ramban Kishtwar Leh andKargil are managed by State Bank of India.

The State Annual Credit Plan (ACP) for the FY 2016-17 was launched in time and itsimplementation was monitored on quarterly intervals in State Level Bankers’ Committeemeetings. During the FY 2016-17 Banks have extended a total credit of Rs.16802.34 Crorein favour of 553975 beneficiaries (both under Priority as well as Non-priority Sector)against annual target of Rs.27649.47 Crore for 1242750 beneficiaries under AnnualCredit Plan 2016-17 thereby registering achievement of 61% in financial terms and 45% inphysical terms. This includes Priority Sector credit of Rs.9331.49 Crore disbursed infavour of 355838 beneficiaries against the annual target of Rs.18267.84 Crore for939363 beneficiaries (constituting 51% achievement in financial terms and 38% inphysical terms) and Non-Priority Sector credit of Rs.7470.85 Crore disbursed in favour of198137 beneficiaries against annual target of Rs.9381.64 Crore for 303387beneficiaries (constituting achievement of 80% in financial and 65% in physical terms).

Out of the total Priority Sector credit of Rs.9331.49 Crore disbursed by all banks inthe State during FY 2016-17 upto 31st March 2017 J&K Bank alone hasdisbursed Rs.6260.38 Crore against the target of Rs.10151.38 Crore thereby achieving62% of its annual ACP target which accounts for a share of 67% of the total flow of creditto priority sector by all banks together in the State during FY 2016-17

During FY 2016-17 following meetings were conducted:

• Three J&K State Level Bankers Committee (SLBC) meetings viz. 101th102nd and 103rd were held on 30th May 2016 24th November2016 and 2nd March 2017 respectively.

• Two Special meetings of J&K SLBC to discuss implementation of the ReliefMeasures in the areas affected by Riots/ Disturbances in J&K State were held on 8thSeptember 2016 and 13th December 2016.

• A Special Meeting of J&K SLBC for Digital Banking was held on 21stDecember 2016.

• A meeting of Sub-Committee of Empowered Committee on MSMEs was held on 4thMay 2016.

• A meeting of the Sub-Group on Area Development Schemes in J&K State was heldon 31st August 2016.

• A meeting of Chairman & CEO J&K Bank with all Lead District Managers inJ&K State was held on 25th November 2016.

• A meeting of Steering Sub-Committee of J&K SLBC to monitor IT-enabledFinancial Inclusion FLCCs & Credit Plus Activities was held on 25thJanuary 2017.

• A meeting of the Sub-Committee of SLBC to approve Annual Credit Plan for FY2017-18 was held on 29th March 2017

b. Implementation of Financial Inclusion Plan (FIP)

• The target for providing Information & Communication Technology (ICT)-basedbanking services in the 795 and 5582 identified unbanked villages (having population over2000) in Phase-I and (villages with population below 2000) in phase II of FinancialInclusion Plan was accomplished successfully by providing coverage to all the identifiedvillages.

• The Roadmap for providing banking services through Branches/ BCs/ Other Modes inthe villages with population less than 2000 was initiated as per the regulatoryrequirements of RBI. Accordingly 5582 villages (having population below 2000) wereidentified and allocated to five Financial Inclusion participating banks viz. J&KBank (3271 villages) SBI (753 villages) Punjab National Bank (294 villages) J&KGrameen Bank (1026 villages) and EDB (238 villages) for providing banking service coveragewithin the scheduled timeline of August 14 2015. All the villages were covered throughvarious modes of banking as per the prescribed timeline.

• Roadmap for opening "Brick & Mortar" branches in the villages withpopulation more than 5000 where there is no branch of any Scheduled Commercial Bank wasformulated. J&K SLBC in coordination with concerned Lead District Managersidentified 104 villages out of the total 235 villages with population of more than 5000(as per Census 2011)in J&K without any branch of branch of Scheduled Commercial Bank.In terms of the directives from RBI the identified 104 villages were allocated among the8 major Scheduled Commercial Banks operating in J&K State (JK Bank – 48; SBI– 15; PNB – 11; HDFC Bank – 11; ICICI Bank – 5; Canara Bank – 5;UCO Bank – 5; Central Bank of India - 4 for opening the "Brick &Mortar" branches in the allocated villages by 31.03.2017. However as on 31.03.2017only three branches have been opened in the identified villages with 2 branches by J&KBank and 1 branch by SBI. Reserve Bank of India recently has extended the timeline bythree months i.e. the branches are now to be opened by 30.06.2017.

c. Responsibility of setting up of RSETIs in J&K State:

In terms of guidelines issued by Ministry of Rural Development Government of Indiasetting up the Rural Self Employment Training Institutes (RSETIs) in all the districts ofJ&K State was assigned by Lead Bank Department /J&K SLBC to two Banks viz.J&K Bank and SBI as per their Lead Bank responsibility. Accordingly J&K Bank hasset up 12 RSETIs in its allocated 12 lead districts of Srinagar Ganderbal BudgamBaramulla Bandipora Kupwara Anantnag Kulgam Pulwama Shopian Poonch and Rajouri.State Bank of India has also set up 9 RSETIs in its allocated 10 lead districts of JammuSamba Kathua Udhampur Reasi Doda Ramban Kishtwar and Leh.RSETI at Kargil has notbeen operationalized by SBI as yet. The Performance of RSETIs in conducting trainingprogrammes and the number of persons benefited through credit linkage is being reviewedregularly in quarterly SLBC meetings.

d. Responsibility of setting up of FLCs in J&K State:

In terms of RBI guidelines target of setting of Financial Literacy Centres (FLCs) inall the districts of the state has been fully accomplished with J&K Bank having made12 FLCs operational in its 12 allocated lead districts and SBI having made 10 FLCsoperational in its 10 allocated lead districts. In addition PNB JKGB and EDB have alsoestablished 4 2 & 2 FLCs respectively in various districts of the state which takesthe total number of FLCs in J&K State to 30. The performance of FLCs in conducting theFinancial Literacy Camps as per the guidelines from RBI is being reviewed at variousforums including quarterly SLBC Meetings.

e. 100% coverage of farmers under KCC Scheme

The initiative of 100% coverage of farmers under KCC Scheme was launched in J&KState in terms of directives of GoI MoF. Its implementation is being vigorously pursuedwith all the stakeholders including banks Agriculture Department Lead District Managersetc. Against the total 9.81 lakh interested farm operating families under KCC Scheme inJ&K State various banks upto the end of March 2017 have sanctioned 1066275KCCs inJ&K State against which 945073 KCCs have been disbursed with credit amounting toRs.8992.15 Crore.

Board of Directors

Your Bank has Seven (07) Directors consisting of two (2) promoter Directors includingChairman & CEO Five Non Executive Directors including One RBI Nominee Director ason 31st March 2017.

Independent and Non-Independent

Non Independent Executive Director

Mr. Parvez Ahmed Non-Independent Executive Director has been serving as the Chairman& CEO of the Bank since October 6 2016 with the approval of Reserve Bank of India(RBI).

Non Independent Non Executive Directors

Mr. Navin Kumar Choudhary IAS Commissioner/Secretary to Govt. of J&K FinanceDepartment Mr. Abdul Majid Mir and Mr. Azhar- ul-Amin are the Non Independent NonExecutive Directors of the Bank.

Independent Non Executive Directors

In terms of the definition of ‘Independent Director’ as prescribed underRegulation 16(b) of the SEBI (Listing Obligations and Disclosure Requirements)Regulations 2015 and Section 149(6) of the Companies Act 2013 and based on thedeclarations/disclosures received from the Directors the following Non-ExecutiveDirectors are Independent Directors:-

1. Mr. Mohammad Maqbool Rather

2. Mr. Mohammad Ashraf Mir

Both the Independent Directors of the Bank have given their respective declarationsstating that they meet the criteria of Independence as laid down under the applicable lawsand in the opinion of the Board the independent directors meet the said criteria.

Reserve Bank Nominee Director

Mr. Yogesh Kumar Dayal General Manger Reserve Bank of India is the Nominee Directorof the Reserve Bank of India on the Board of the Bank.

Appointments/Resignations from the Board of Directors

a. Mr. Vikrant Kuthiala Mr. Dalip Kumar Kaul Mr. Khaver Alam Jeelani Directorsresigned from the Board of the Bank with effect from 29th June 2016 owing topersonal reasons.

b. Mr. J.P Sharma Director was recalled by RBI and Mr. Yogesh Kumar Dayal wasappointed in his place w.e.f 01.07.2016.

c. Mr. R.K. Gupta Director resigned from the Board of the Bank with effect from 31stJanuary 2017 owing to personal reasons.

Directors place on record their deep appreciation for the valuable services rendered byMr. J.P Sharma Mr. R.K. Gupta Mr. Vikrant Kuthiala Mr. Dalip Kumar Kaul and Mr. KhaverAlam Jeelani during their tenure as Directors of the Bank.

d. Mr. Mohammad Maqbool Rather and Mr. Mohammad Ashraf Mir were appointed as Directorsby the Board of Directors to fill the casual vacancies in the office of directors witheffect from 10.08.2016

Appointments/Resignations of the Key Managerial Personnel

Mr. Parvez Ahmed Chairman & CEO Mr. S. K. Bhat Chief Financial Officer and Mr.Mohammad Shafi Mir Company Secretary of the Bank are the Key Managerial Personnel. Mr.Mushtaq Ahmad on completion of his term ceased to be the Chairman & CEO of the Bankwith effect from 05.10.2016 and Mr. Parvez Ahmed was appointed as Chairman & CEO ofthe Bank with effect from 06.10.2016. Mr. S. K. Bhat and Mr. Mohammad Shafi Mir wereappointed as Chief Financial officer and Company Secretary by the Board of the Bank on 12thNovember 2016 and 22nd November 2016 respectively consequent upon change inthe assignments of Mr. Vagish Chander and Mr. Abdul Majid Bhat.

None of the Key Managerial Personnel has resigned during the year under review.

Number of Meetings of the Board

During the year under review Twelve Board Meetings were held in due compliance withstatutory provisions on the following dates:

21.04.2016 24.05.2016 29-6-2016 10.08.2016 20-09-2016 06.10.2016 12.11.201615.12.2016 04.02.2017 03.03.2017 04.03.2017 20.03.2017

Participation of directors in board Meetings is provided in the Statement on CorporateGovernance annexed to this report

Committees of the Board

The Bank has following Committees of the Board:

• Management Committee

• Audit Committee

• Monitoring of Large Value Frauds/Frauds Review/Willful Defaulters ClassificationReview Committee

• Stakeholders Relationship Committee

• Information Technology Strategy Committee

• Corporate Social Responsibility Committee

• Integrated Risk Management Committee

• Customer Service Committee

• Nomination Committee

• Nomination and Remuneration Committee

• Legal Committee

• Human Resource Development Committee

The compositions powers roles terms of reference etc. of relevant committees aregiven in detail in the statement on Corporate Governance annexed to this report.

Corporate Social Responsibility Policy

As a responsible institution J&K Bank is committed to Corporate SocialResponsibility (CSR). The Bank has in place Board approved Policy on Corporate SocialResponsibility. With an aim to instill a sense of relief and protection among the mostvulnerable sections of society the Corporate Social Responsibility (CSR) policy of thebank identifies key responsibility areas and seeks to assimilate the CSR ideals into itsempowerment mission for optimizing its social performance. The CSR policy is available onthe website of the Bank. (http://www.jkbank.net).

The Bank retained its comprehensive focus on activities for the larger communitywelfare through CSR initiatives concentrating on people’s health educationenvironment and society at large. The statutory disclosures with respect to the CSRCommittee and an Annual Report on CSR Activities forms part of this Report as Annexure 1.

Performance Evaluation of the Board

The Nomination & Remuneration Committee and the Board of Directors at theirmeetings held on 16th May 2015 had laid down the criteria for performance evaluation ofDirectors Chairman & CEO Board level Committees and Board as a whole and also theevaluation process for the same.

The performance of the members of the Board the Board level Committees and the Boardwere evaluated at the meetings of the Committee of Independent Directors and the Board ofDirectors held on 30th June 2016 and 29th June 2016 respectively.

Process of Performance Evaluation

The Companies Act 2013 and Regulation 17(10) of the SEBI (Listing Obligations andDisclosure Requirements) Regulations 2015 stipulates the performance evaluation of theDirectors including Chairperson Board and its Committees. Considering the saidprovisions the Bank has devised the process and the criteria for the performanceevaluation which has been recommended by the Nomination & Remuneration Committee andapproved by the Board at their meetings held on May 16 2015

The process for performance evaluation is as under:

• Committee of Independent Directors evaluates the performance of Non-IndependentDirectors including Chairman of the Bank and the Board as a whole

• The Board evaluates the performance of the Independent Directors and Board levelCommittees of the Board.

• Based on the recommendation of Independent Directors in their report Boardtakes the appropriate action wherever required.

The criteria for performance evaluation are as under:

Performance Evaluation of Non-Executive Directors MD & CEO and Chairman

Attendance at the meetings; Participation and contribution; Responsibility towardsstakeholders; Contribution in Strategic Planning; Compliance and Governance; Participationand Updation of Knowledge.

Performance Evaluation of Board

Composition and Diversity; Committees of the Board; Board & Committee meetings;Cohesiveness of Board decisions; Board Procedure; Performance Culture; Discussions atBoard Meetings; Understanding of the business of the Bank; Understanding the role andeffectiveness; Foresight to avoid crisis and effectiveness in crisis management;Understanding of the regulatory environment; Strategy and Growth; Risk Management andFinancial Controls; Quality of Decision making and Board’s Communication systems.

Performance of the Board Level Committees

Composition and Balance of skill sets; Frequency and duration; Interaction with theBoard.

Corporate Governance

The Bank has established a tradition of exemplary practices in corporate governance. Itencompasses not only regulatory and legal requirements but also several voluntarypractices aimed at high level business ethics effective supervision and enhancement ofstakeholder volume. Several matters have been voluntary included in the statement oncorporate governance annexed to this report besides certificate from the CentralStatutory Auditors regarding compliance of conditions of Corporate Governance asstipulated by the SEBI (Listing Obligations & Disclosure Requirement) Regulations2015.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review is presented ina separate section forming part of this Report.

Whistle Blower Policy and Vigil Mechanism

The Bank has implemented a Whistle Blower Policy pursuant to which Whistle Blowers canraise concerns relating to reportable matters (as defined in the policy) such as breach ofJ&K Bank Code of Conduct fraud bribery corruption employee misconduct illegalityhealth & safety environmental issues and wastage/misappropriation of banksfunds/assets etc. Further the mechanism adopted by the Bank encourages the WhistleBlower to report genuine concerns or grievances and provides for adequate safeguardsagainst victimization of Whistle Blower who avail of such mechanism and also provides fordirect access to Chairman of the Audit Committee in exceptional cases. The details of theWhistle Blower Policy are available on the website of the Bank (www.jkbank. net)

Risk Management

Bank has a comprehensive and a well-defined Risk management framework in place. The keycomponents of the Bank’s Risk Management architecture rely on the risk governancestructure comprehensive processes and internal control mechanism based on approvedpolicies and guidelines. The Bank’s Risk Management framework focuses on the keyareas of Risk such as Credit Market Operational Risk and Liquidity Risk; quantificationof these risks wherever possible for effective and continuous monitoring and control.

The Bank’s Risk management processes are guided by well-defined policiesappropriate for various risk categories independent risk oversight and periodicmonitoring through the sub-committees of the Board. The Board sets the overall riskappetite and philosophy for the Bank. The Committee of Directors the Integrated RiskManagement Committee of the Board which is a sub-committee of the Board reviews variousaspects of Risk arising from the businesses of the Bank. Three Executive/ Seniormanagement committees; Credit Risk Management Committee (CRMC) Operational RiskManagement Committee (ORMC) and Market Risk Management Committee (MRMC) operate within thebroad Risk Management framework of the Bank.

The Bank has put in place policies relating to management of Pillar I and Pillar IIrisks. Risk management is administered by Executive/ Senior management committees throughIntegrated Risk Management Department (IRMD). IRMD has three dedicated divisions forCredit risk Operational risk and Market risk management. Business Continuity plan andInformation Security plan also forms part of Risk Management functions in the Bank.Treasury activities are separately monitored by mid office which reports to IRMD. TheBank has formulated a comprehensive Stress Testing Policy to measure the impact of adversestress scenarios on the adequacy of capital. The stress scenarios are idiosyncraticmarket wide and a combination of both.

Business Responsibility Report

In terms of Regulation 34(2)(f) of the Listing Regulations top 500 Listed Entitiesbased on their market capitalization as on 31st March every year are requiredto submit their Business Responsibility Report(BRR) as a part of the Annual Report. TheBank’s Business Responsibility Report describing the initiatives taken by the Bankfrom an environmental Social and governance perspective has been hosted on the website ofthe Bank www.jkbank.net. Any member interested in obtaining a copy of the BRR may writeto the Company Secretary of the Bank at its Registered Office: Corporate Headquarters M.A. Road Srinagar.

Loans Guarantees or Investment in Securities

Pursuant to section 186(11) of the Companies Act 2013 loans made guarantees given orsecurities provided or acquisition of shares by a Banking company in the ordinary courseof its business are exempted from disclosure in the Annual Report.

Contracts or Arrangements with related parties

Considering the nature of the Industry in which the Bank operates transactions withrelated parties of the Bank are in the ordinary course of business and are also atarm’s length basis. There was no materially significant related party transactionentered by the Bank with promoters Directors Key managerial personnel or other personswhich may have a potential conflict with the interests of the Bank. The policy on RelatedParty Transactions and dealing with related parties as approved by the Audit Committee andthe Board of Directors is uploaded on the website of the Bank and the link for the same is(http://jkbank.net/others/common/ policy.php)

Statement of related party transactions under sub section (1) of section 188 of theCompanies Act 2013 is attached herewith as

Annexure 6.

Consolidated Financial Statements

Pursuant to Section 129 of the Companies Act 2013 the Bank has prepared ConsolidatedFinancial Statements of the Bank and also of its Subsidiary JKBFSL in the same form andmanner as that of the Bank which shall be laid before the ensuing 79th Annual GeneralMeeting of the Bank along with laying of the Banks Financial Statements under sub-section(20) of Section 129 i.e. Standalone Financial Statements of the Bank. Further pursuant tothe provisions of Accounting Standard (AS) 21 Consolidated Financial Statements notifiedunder section 133 of the Companies Act 2013 read together with Rule 7 of the Companies(Accounts) Rules 2014 issued by the Ministry of Corporate Affairs the ConsolidatedFinancial Statements of the Bank along with its subsidiary for the year ended March 312017 form part of this Annual Report.

Auditors

Statutory Auditors

The Central Statutory and Branch auditors of the Bank are appointed by the Comptroller& Auditor General of India (C&AG) pursuant to Section 139(5) of the Companies Act2013. The Bank had three (3) Central Statutory auditors appointed by the C&AG of Indiafor the year under review as under:

1. Dhar Tiku & Co Chartered Accountants Srinagar

2. Arora Vohra & Co Chartered Accountants Jammu

3. Dhram Raj & Co. Chartered Accountants Jammu

Secretarial Auditors

Pursuant to Section 204 of the Companies Act 2013 your Bank has appointed M/s DSMR& Associates Practicing Company Secretaries Hyderabad as its Secretarial Auditors toconduct the secretarial Audit of the Bank for the FY 2016-17. The Bank provided allassistance and facilities to the Secretarial Auditor for conducting their audit.

Secretarial Audit Report

The report of Secretarial Auditor for the FY 2016-17 is annexed to this report asAnnexure 2. The Bank’s reply to the comments of secretarial Auditor are furnished asunder.

a. Delayed submission of Form No. MGT 14 MGT 10 & AOC 4
Bank’s Response The delay in submission of the forms was due to technical problems arising in transmission of data to the Ministry of Corporate Affairs and time involved in mandatory procedural aspects before the submission of Forms.
b. Non submission of Form AOC I relating to financial details of subsidiary company and Form AOC 2 relating to Related Party Disclosure.
Bank’s Response Though the information has been provided in the Directors Report the same has not been provided as required in the prescribed format. However information in the prescribed Forms has been included in the Annual Report of the Bank for the year 2016-17.
c. Improper balance of independent Directors.
d. Not appointed Woman Director.
e. Non independent Directors acting as Chairman of Audit Committee and Nomination & Remuneration Committee.
f. Specific policies for listed companies relating to preservation of Documents Determination of Materiality & Material subsidiary not framed by the Bank.
Bank’s Response The Bank is governed by the provisions of Banking Regulation Act 1949 and the provisions applicable to a Government Company apart from the provisions of the Companies Act 2013 and the SEBI (Listing Obligations and Disclosure Requirements) 2015. The Bank could not appoint requisite Independent Directors as the provisions relating to appointment of Independent Directors was not provided in the Articles of Association of the Bank. The Bank had to obtain the approvals of the Reserve Bank of India and the State Government for change in the composition of the Board to comply with the provisions of the Companies Act 2013 and Listing Regulations 2015.
The Bank is seeking necessary approvals from the Reserve Bank of India in this regard and the modifications in the Articles of Association providing enabling provisions relating to appointment of requisite number of Independent Directors have been proposed at the ensuing Annual General Meeting. After approval of the members at the ensuing Annual General Meeting the Composition of our Board of Directors and various Committees of the Board shall be aligned with the provisions of the Companies Act 2013 and SEBI (LODR) Regulations 2015
The required policies as specified under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 would be placed on the website of the Bank shortly after obtaining the approval of Board of Directors.

Employee Remuneration

A. PARTICULARS OF EMPLOYEES AS PER RULE 2 OF THE COMPANIES (APPOINTMENT ANDREMUNERATION OF MANAGERIAL PERSONNEL) RULES 2014 FOR THE YEAR ENDED 31st MARCH 2017 AREAS UNDER:

I. EMPLOYED THROUGHOUT THE FINANCIAL YEAR AND IN RECEIPT OF REMUNERATION AGGREGATINGRs. 6000000/- OR MORE PER ANNUM NIL

II. EMPLOYED FOR A PART OF THE FINANCIAL YEAR AND IN RECEIPT OF REMUNERATIONAGGREGATING Rs. 5 00000/- OR MORE PER MONTH

Sr.No. Name of the Employee Designation/ Nature of Duties Remuneration received per month Nature of Employment Qualification Experience In Years Date of Commencement of Employment Age of the Employee (Years) Last Employment held before joining the Company
(Rs. In lakhs)
1. Mr. Parvez Ahmed Chairman & Chief Executive Officer 5.50 In Whole time employment of the Bank Associate Company Secretary (ACS) 18 years 06-10-2016 53 J&K Bank Ltd.
2. Mr. Mushtaq Ahmad Chairman & Chief Executive Officer 5.50 In Whole time employment of the Bank B. A: CAIIB –I 43 years 06-10-2010 to 05- 10-2016 67 J&K Bank Ltd.

B. The ratio of the remuneration of each director to the median employee’sremuneration and other details in terms of sub section 12 of section 197 of the CompaniesAct 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of ManagerialPersonnel) Rules 2014 are forming part of this report as Annexure 3.

Statutory Disclosures

(1) The disclosures to be made under sub-section (3)(m) of Section 134 of the CompaniesAct 2013 read with Rule (8)(3) of the Companies (Accounts) Rules 2014 by your Bank areexplained as under:

A. Conservation of energy-

(i) The steps taken or impact on conservation of energy:

• The operation of the bank are not energy intensive however adequate measureshave been taken for reducing carbon footprint as mentioned below:

• Banks Data centre is hosted at a high energy efficient and environment friendlyData Centre at Noida.

• Bank has discontinued paper circulars/newsletters for internal communication forwhich a dedicated intranet site is maintained.

• To discontinue paper based regulatory and internal reporting Bank has placed anautomated MIS system.

• Bank uses energy star compliant computing and communication hardware.

• Web Page for Green Banking.

(ii) The steps taken by the company for utilizing alternate sources of energy.

Though the operations of the Bank are not energy intensive however Bank shall explorealternative sources of energy as and when necessity arises.

(i) The capital investment on energy conservation equipments.

INR 11.61 Crores. (On procuring energy star compliant servers and desktops).

B. Technology Absorption :-

(i) The efforts made towards technology absorption.

Technology absorption needs stable and conducive policy and governance framework. Assuch J&K Bank has adopted IT governance model for restructuring the IT organizationalstructure as per the recommendations of RBI.

Trainings are being conducted on regular basis to train the banks staff at gross rootlevel to make full use of the technology in order to reduce the operating costs and bringin efficiencies to business processes.

(ii) The benefits derived like product improvement cost reduction product developmentor import substitution.

Following technology initiatives taken by the bank have brought efficacy in theprocesses besides reduction in the effort and cost involved in handling such operations.

a. Mobile banking Application Upgrade

To provide user friendly and robust Mobile banking application mobile banking upgradewas initiated. The new mobile banking application was designed with enhanced featuresvis--vis IMPS and PDD bill payment and has been made live for public. As of nowfollowing functionalities are live:-

i. a)Balance Inquiry b)Statement c)Stop Cheque d) All Intra BankTransactions e) NEFT f) IMPS g) PDD Bill payment

b. Digital Transformation

Apart from several initiatives taken by the bank in its continued efforts to providebetter prompt and efficient services to the customers digital transformation was pushedat the highest level to enable customers use digital channels of the bank. These effortsresulted in a substantial growth in digital ecosystem of the bank with an overall 13%increase in digital transactions.

c. IT Security

The Bank has Information Security Policy which is approved by Board and reviewed eachyear to keep it updated as per latest trend and best practices. Bank has got ISO27001:2013 Certification for Data centre Operations Centre and DR Site.

(iii) In case of imported technology (imported during the last three years reckonedfrom the beginning of the financial year)

None.

(iv) Your Bank has not incurred any expenditure on Research and Development duringthe year under review.

(C) Foreign Exchange Earnings and Outgo

The Foreign Exchange earned in terms of actual inflows during the year and the ForeignExchange outgo during the year in terms of actual outflow.

During the year ended March 31st 2017 the Bank earned Rs. 76.93 Lacs andspent Rs. 60.50 Lacs in Foreign currency. This does not include Foreign Currency cashflows in derivatives and Foreign currency exchange transactions.

(2) No significant and material orders were passed by the regulators or courts ortribunals impacting the going concern status of the Bank’s operations in future.

(3) Number of cases filed if any and their disposal under Section 22 of the SexualHarassment of Women at Workplace (Prevention Prohibition and redressal) Act 2013.

Your Bank has Zero tolerance towards any action on the part of any executive/employeewhich may fall under the ambit of ‘Sexual Harassment’ at workplace and is fullycommitted to uphold and maintain the dignity of every women executive/ employee working inthe Bank. No such case was reported during the period under report.

(4) No Stock options were issued to the Director’s of your Bank

Extracts of Annual Return

Pursuant to sub-section 3(a) of Section 134 and sub-section (3) of Section 92 of theCompanies Act 2013 read with Rule 12 of the Companies (Management and Administration)Rules 2014 the extracts of the Annual Return as at March 31 2017 forms part of thisreport as Annexure 4.

Directors Responsibility Statement

The Board of Directors hereby confirms that:-

i. in the preparation of the annual accounts the applicable accounting standards hadbeen followed along with proper explanation relating to material departures;

ii. the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit and loss of the company for that period;

iii. the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;

iv. the directors had prepared the annual accounts on a going concern basis; and

v. the directors had laid down internal financial controls to be followed by thecompany and that such internal financial controls are adequate and were operatingeffectively.

Explanation.—"internal financial controls" means the policies andprocedures adopted by the company for ensuring the orderly and efficient conduct of itsbusiness including adherence to company’s policies the safeguarding of its assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and the timely preparation of reliable financial information;

vi. the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.

Adequacy of Internal Financial Controls related to Financial Statements

The Bank has adequate internal controls and processes in place with respect to itsfinancial statements which provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements. These controls andprocesses are driven through various policies procedures and certifications. Theprocesses and controls are reviewed periodically. The Bank has a mechanism of testing thecontrols at regular intervals for their design and operating effectiveness to ascertainthe reliability and authenticity of financial information.

CEO & CFO Certification

Certificate issued by Mr. Parvez Ahmed Chairman & CEO and Mr. Surender KishenBhat CFO of the Bank for the financial year under review was placed before the Board ofDirectors at its meeting held on 13th May 2017 in terms of Regulation 17(8)of the Listing Regulations.

Acknowledgement

The Directors thank the valued customers shareholders well wishers and correspondentsof the bank in India and abroad for their goodwill patronage and support. The Directorsacknowledge with gratitude the valuable and timely advice guidance and support receivedfrom Government of India Government of Jammu & Kashmir Reserve Bank of IndiaSecurities and Exchange Board of India (SEBI) Insurance Regulatory DevelopmentalAuthority (IRDA) NABARD SIDBI IBA FIMMDA FEDAI Stock Exchanges Ministry ofCorporate Affairs Registrar of Companies Comptroller & Auditor General of IndiaFinancial Institutions and the Central Statutory Auditors of the bank in the functioningof the bank. The Directors place on record their deep appreciation of the valuablecontribution of the members of the staff at all levels for the progress of the bank duringthe year and look forward to their continued cooperation in realization of the corporategoals in the years ahead.

For and on behalf of the Board of Directors
Place: Srinagar (J&K) Parvez Ahmed
Date: 22nd May 2017 Chairman & CEO