jammu and kashmir bank ltd Management discussions

GLOBAL ECONOMIC OUTLOOK

At the onset of FY2023-24, the initial indications of a favorable economic transition, characterized by decreasing inflation and stable growth, have diminished due to persistent high inflation and recent turbulence in the financial sector. Despite efforts by central banks to raise interest rates and the decline in food and energy prices, underlying price pressures remain challenging, exacerbated by tight labor markets in several economies. The rapid increase in policy rates has led to side effects, exposing vulnerabilities in the banking sector and raising concerns about contagion in the broader financial sector, including nonbank financial institutions. Policymakers have responded with vigorous measures to stabilize the banking system, as outlined in the Global Financial Stability Report, but financial conditions continue to fluctuate in line with shifting sentiment.

Simultaneously, the major factors that shaped the global economy in FY2022-23 are expected to persist in the current year, albeit with varying intensities. High levels of debt limit the ability of fiscal policymakers to respond effectively to new challenges. Although commodity prices, which soared following Russias invasion of Ukraine, have moderated to some extent, the ongoing conflict and heightened geopolitical tensions persist. While infectious COVID-19 strains caused significant outbreaks last year, economies that were severely affected, particularly China, appear to be recovering, thereby alleviating some supply-chain disruptions. However, despite the positive impacts of lower food and energy prices and improved supply-chain functionality, risks remain predominantly on the downside due to increased uncertainty resulting from recent turmoil in the financial sector.

As per IMF report on global economic outlook, global growth is projected to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent. Advanced economies are expected to experience pronounced slowdown, with growth falling from 2.7 percent in 2022 to 1.3 percent in 2023. In an alternative scenario that considers further financial sector stress, global growth could decline to approximately 2.5 percent in 2023, marking the weakest expansion since the global downturn of 2001, barring the initial COVID-19 crisis in 2020 and during the global financial crisis in 2009—with advanced economies growth falling below 1 percent.

The mild economic outlook is a result of the stringent monetary policies necessary to combat inflation, the repercussions of recent financial instability, the ongoing conflict in Ukraine, and the increasing fragmentation of global economic relationships. Although global headline inflation is projected to decrease from 8.7 percent in 2022 to 7.0 percent in 2023 due to lower commodity prices, underlying or core inflation is expected to decline at a slower pace. In most cases, it is unlikely that inflation will return to target levels before 2025.

Furthermore, the fragmentation of the global economy into geopolitical blocs has the potential to generate substantial output losses. This fragmentation could affect foreign direct investment and lead to adverse conseguences for economic growth and stability.

Domestic Economic Outlook:

Indias recovery from the pandemic has been swift and the Indian economy continues to be resilient despite signs of moderation in growth. For 2023-24, India will continue to witness decent growth supported by robust domestic demand and increased capital investment. The government has significantly raised capital expenditure, thereby revitalizing the capital expenditure cycle and compensating for cautious private sector spending. Structural reforms like the Goods and Services Tax and the Insolvency and Bankruptcy Code have improved economic efficiency, transparency, financial discipline, and compliance. However, global growth is expected to slow, leading to lower trade growth and potential risks to Indias current account balance due to high commodity prices and plateauing export growth. The persistence of inflation may result in an extended tightening cycle and higher borrowing costs. Despite these challenges, the scenario of subdued global growth offers some advantages such as lower oil prices and a relatively better current account deficit for India, indicating that the overall external situation will remain manageable.

According to the Economic Survey 2022-23, India is projected to witness GDP growth ranging from 6.0 percent to 6.8 percent in the fiscal year 2023-24, depending on global economic and political developments. The baseline projection for real GDP growth in FY24 is 6.5 percent. The economy is expected to grow at 7 percent (in real terms) for the year ended March 2023, following an 8.7 percent growth in the previous financial year. The credit growth to the Micro, Small, and Medium Enterprises (MSME) sector has been remarkably high, averaging over 30.5 percent during January-November

2022. The central governments capital expenditure (CAPEX) has increased by 63.4 percent in the first eight months of EY23, contributing significantly to Indias economic growth. The Reserve Bank of India (RBI) projects headline inflation at 6.8 percent in EY23, which is beyond its target range. The return of migrant workers to construction activities has helped the housing market witness a significant decline in inventory overhang, reducing it from 42 months in the previous year to 33 months in Q3 of EY23. The growth surge in exports in EY22 and the first half of EY23 has stimulated a shift in the production processes from mild acceleration to cruise mode. Private consumption as a percentage of GDP reached 58.4 percent in Q2 of EY23, the highest among all the second guarters since 2013-14, supported by a rebound in contact-intensive services like trade, hotels, and transport. The World Trade Organization forecasts a lower growth rate for global trade, from 3.5 percent in 2022 to 1.0 percent in

2023.

J&K Economy

Jammu & Kashmir has always been projected as an unexplored economy loaded with huge potential across various sectors. However, never-seen-before relentless efforts in the last couple of years to tap the economic potential are proving a shot in the arm of economic development of the region.

Eive major sectors are contributing to the regions economy, which include agriculture and horticulture, tourism,

handicrafts, industries and government jobs.

The economy of the UT of J&K is predominately agriculture dependent and nearly 70% of population is directly or indirectly engaged in agricultural and allied occupations which is based on Small Land Holdings.The second sector is tourism, which varies but on average employs about a million people. The third is handicrafts, or the artisanal sector, which employs around 1 million people. The handicraft sector plays an important role in the states economic structure, and its high-guality craftsmanship, appealing designs, and functional utility have earned it international fame. Fourth is the industry sector, which is in its early stages of development. About 5 lakh people are employed by the government.

Overall, agriculture & horticulture in the primary sector, manufacturing & construction in the secondary sector and public administration in the tertiary sector are the largest contributors towards the Gross State Domestic Product (GSDP) with a contribution of 17%, 20% and 64% respectively.

Remarkably, the tourism sector has been playing a captains role in the regions economy as it makes an enormous contribution to the regions local economies through job creation and sustainable development. It is the largest service industry in the UT and is significantly contributing to the GSDP. It earns foreign exchange, provides widespread employment, and yields tax revenue. Here it is worth mentioning that pilgrimage tourism provides an extra boost to the regions economy.

As per Economic Survey report for J&K for 2022-23, some of the major highlights are below:

A. ECONOMY

• The GSDP of UT is expected to double by the year 2027-28 with special emphasis on Agriculture, Horticulture, Tourism, Industries and Service Sector.

• At Current Prices, GSDP of J&K is expected to record a growth of 15% which is at par with National level.

• GSDP of J&K is estimated to grow at 8 per cent as against 7 per cent at National level during 2022-23 at Constant Prices.

• J&K is actively contributing to the GDP (0.8 per cent) in proportion to its population (0.98 per cent).

• 51,004 units established under various Self- employment Schemes (SESs).

• 2.03 lakh young boys and girls employed in 51004 units established under various Self-employment Schemes (SESs) upto January, 2023.

• 70,000 youth provided with livelihood generation means, directly or indirectly, by taking various initiatives under Mission Youth (MUMKIN, TEJASWANI AND PARVAZ).

• 7999 (Branches/BCS/ATMs/IPPB) of Scheduled Commercial Banks, Co-Operative Banks and other financial institutions (SEC/IPPB) are in operation in J&K.

• 5582 villages with population less than 2000 have been covered by providing Banking service outlets.

• Credit-Deposit Ratio is 61.10% ending Dec, 2022. Credit flow in priority sector is higher in MSMEs with 45% followed by 44% in Agriculture.

• J&K has 27.18 lakh Bank Accounts (16.48 lakh (R) and 10.70 lakh (U)). RuPay Debit Cards issued to 67%.

• 42,354 cases sanctioned under PMEGP, NRLM, NULM, PMWMY etc.

• 9.41 lakh active Kissan Credit Cards (Crop 7.87 lacs & 1.54 AH&E) are active as on 31st Dec,2022,45,609 SHGs(Rs. 1209.99 crore), 1146 JLGs (Rs. 20.53 crore) brought under financial inclusion by way of providing credit-linked facility as on 31st Dec,2022.

B. CORE SECTOR

• High Density Plantation registered a growth of 591% during 2021-22 with coverage of 6090.91 Ha and Revenue earned from export of fresh/ dry fruits recorded a growth of 27.12% during 2021-22 valuing Rs. 6369.08 Cr.

• Horticulture sector contributes about 6-7% to the GSDP and is generating about 8.50 crore man- days annually. Eocused interventions has led to enhancement of area under Commercial Eloriculture which reached to 191.08 Ha.

• 29 Project Proposals costing Rs. 5012.74 crores, recommended by Dr. Mangla Rai Committee, are being executed in next 5 years for development of agriculture and allied sectors. These reforms will add about Rs. 28,000 Crore Annually and create jobs substantially

• 12.24 lakh farmer families provided Rs 6000/- (per family) through DBT during 2022-23 under PM- Kisan Samman Nidhi.

• 1.89 crores tourists arrived in J&K upto December 2022, which included 19,985 foreign tourists, 3.65 lakhs pilgrims of Shri Amarnath Ji shrine and 91.2 lakhs of Shri Mata Vaishno Devi. The highest ever arrival of tourists to Kashmir during 2022 was 27 lakhs as compared to previous highest of 13 lakhs in 2016. Home stays are being encouraged to accommodate more tourists and generate employment avenues

• 42 new Industrial Estates are being developed for which 48,301 kanals of additional land earmarked.

• 5327 online applications received for allotment of land to set up industrial units with proposed investment of Rs. 65,000 crores and employment potential of 3.12 lakh persons. 3379 applications approved with proposed investment of Rs. 34,294 crores and employment potential of 1.54 lakh persons.

• Private investment of Rs. 1539.87 crore grounded during the EY 2022-23 (ending Jan 2023), out of which 552 units having investment of Rs. 949.21 crore commenced productions/ operations.

• 387 Minor Mineral Blocks e-auctioned during the Year, 2020-21. Till date the Department of Geology and Mining granted 208 Mining Leases of Minor Mineral Blocks including 08 PSUs.

• The presences of Lithium deposits in District Reasi will certainly boost the investment in electrochemical sector, thereby enhancing scope in establishment of industries and employment opportunities.

C. SOCIAL DEVELOPMENT

• 2100 seats added in Medical Education in last couple of years which includes 600 MBBS seats and 250 DNB seats. 2966 Health and Wellness Center (HWCs) operationalized.

• Projects/works (more than Rs. 7000 Crores) taken

in hand which includes 02 New AIIMS, 07 New Government Medical Colleges, 15 Nursing Colleges, 02 State Cancer Institutes, 02 Bone & Joint Hospitals besides 140 PMDP projects.

• 55 colleges already granted NAAC accreditation, 30 colleges are in the process of starting research activities by establishing research hubs and 50 colleges have been identified to start skill courses of level-4 of NSQF. 05 autonomous degree colleges are being upgraded to the level of MERUs (Multidisciplinary Education and Research Universities) Deemed University.

• 1.14 lakh Houses under PMAY (G), 40171 IHHLs and, 694 Community Sanitary Complexes constructed.

• PM SVANidhi scheme - 14804 street vendors provided financial assistance of Rs. 26.64 Crore with interest subvention of Rs. 0.41 Crore for earning dignified livelihood.

• 4911 youth trained and 2760 placed under Himayat/ Deen Dayal Upadhaya Grameen Kaushalya Yojana. 11,316 (70,576 cumulative) SHGs formed under NRLM and UMEED. 55,426 SHGs provided revolving fund up to January 2023.

• 10.46 lakh (Old Age, Widows and Physically Challenged Persons across J&K) beneficiaries covered under Pensionary benefits and achieved saturation.

• 1.03 lakh eligible beneficiaries were provided Rs. 150 Cr through DBT during 2021-22 under "LADLI BETI".

• 4.39 lakhs students provided Pre & Post matric, Merit cum Means & Minority Scholarship and 23,590 students provided Scheduled Caste Scholarships during 2021- 22.

• 24 new ST hostels are being constructed/ established besides 08 transit accommodations are also being constructed for nomadic population. A Tribal Research Institute is coming up at Khimber- Harwan (Srinagar).

• Comprehensive Elood Management Plan Phase-ll of River Jhelum amounting to Rs. 1684.60 cr is under execution.

• To fill the developmental gaps in the Border Areas, a new Scheme "Samridh Seema Yojna" (SSY) launched with an allocation of Rs 50.00 crores during 2022-23.

D. INFRASTRUCTURE DEVELOPMENT

• Hydel-power generation capacity is being doubled (6647 MWs) by 2026 and tripled (9931 MWs) by 2030 from present 3633.21 MWs.

• Installed capacity of 36.4 MW rooftop solar energy being scaled upto 300 MW in a couple of years.

• 32,479 solar street lights installed and 30,186 solar home lights distributed to people living in far flung areas. 500 irrigation pump sets energized with solar power and another 4500 targeted in the next two years.

• 200 MW Grid-tied Rooftop solar energy plants under the "Jammu Solar City Mission" and 20 MW Grid Connected Rooftop Solar Power Plants will be installed on Residential Buildings across UT of J&K.

• 5000 solar pumps installed and commissioned under PM KUSUM.

• Work on 4-laning of Jammu-Srinagar National Highway in progress and likely to be completed by June 2024, travel time shall be reduced by 5 hours.

• Jammu-Udhampur-Srinagar-Baramulla Rail link likely to be completed by August 2023.

• Expansion of Jammu and Srinagar Airports under progress. 7 new helipads became functional.

• 18 ropeway projects identified - works on two ropeway projects is expected to start shortly.

• J&K emerged as flag bearer in implementation of Flagship schemes across the country. Most of the schemes saturated.

• 143 projects completed and work on 122 projects in progress under Smart City Mission Jammu/ Srinagar.

As per above report, the significant developments witnessed in the previous year and anticipated in the coming years present substantial business opportunities for the bank. J&K Bank plays a crucial role in facilitating various financial activities, ensuring comprehensive coverage and support in the realm of finances.

Banking Sector Outlook

Indias banking sector is well-capitalized and highly regulated, boasting superior financial and economic conditions compared to other countries worldwide. Credit, market, and liguidity risk assessments indicate that Indian banks demonstrate resilience and have successfully weathered the global economic downturn. The introduction of innovative banking models such as payments and small finance banks has recently transformed the Indian banking industry.

In recent years, India has made significant efforts to expand the reach of its banking sector through initiatives like the Pradhan Mantri Jan Dhan Yojana and Post payment banks. These initiatives, combined with major reforms in the banking sector including digital payments, neo-banking, the rise of Indian NBECs (Non-Banking Einancial Companies), and fintech, have greatly improved financial inclusion in India and have played a pivotal role in stimulating the credit cycle. The digital payments system in India has seen remarkable progress, with Indias Immediate Payment Service (IMPS) being the only system ranked at level five in the Easter Payments Innovation Index (EPII) among 25 countries. Additionally, Indias Unified Payments Interface (UPI) has revolutionized real-time payments and aimed to expand its global presence.

Eor EY2023-24, Indias banking sector outlook shall experience robust growth, driven by enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector.According to India Ratings & Research (Ind-Ra), credit growth has reflected a double-digit growth in EY2022-23 and this momentum is expected to continue in EY24.

The advent of technology has brought mobile and internet banking services to the forefront, compelling the banking sector to prioritize improved customer services and technology infrastructure upgrades to enhance the overall customer experience and maintain a competitive edge.

Moreover, India has witnessed a surge in EinTech and micro financing activities. Digital lending in India reached USD 75 billion in EY18 and is projected to reach USD 1 trillion by EY23, driven by a significant increase in digital disbursements. It is anticipated that Indias EinTech market will reach Rs. 6.2 trillion (USD 83.48 billion) by 2025.

Banking sector in J&K

The role of banks operating in Jammu and Kashmir (J&K) and Ladakh is of utmost importance as they play a crucial role in uplifting the region from economic backwardness and driving prosperity across all sectors of the economy.

Over time, the region Jammu & Kashmir including Ladakh has established a strong banking network with 2205 branches as of March 31, 2023, spread across its entire geography.

An overview of the advances and deposits position of the banks as of March 31,2023 reveals interesting and distinctive behavioral patterns. Collectively, the banks have extended loans amounting to the tune of ?13261.97 Cr. during the year. The deposit base stands at ?167984.47 Crores with a growth of 6.5%. The credit-deposit (CD) ratio is reported at 60%.

J&K Bank -Business Strategy

Based on the economic outlook, the principal goal of the Bank over the 5-year business strategy is to build a strong balance sheet reflecting growth, better asset guality, good prospects of maximization of returns and better capital structure. During the period, bank shall focus on the following:

Reputation, brand recognition and goodwill.

The bank intends to continue to capitalize and build on the strong market presence, brand image in the UTs of Jammu and Kashmir & Ladakh. The bank has a unigue competitive position within Jammu and Kashmir limiting the vulnerability to certain competitive pressures that typically afflict commercial banks, such as deposit pricing pressures, customer attrition etc.

Business Process Reengineering initiatives (BPR)

Bank has continuously endeavored to align its operations with contemporary business environment and adapt latest technologies and standards with regards to various business aspects. In this direction, bank shall undertake initiatives under BPR to streamline the processes and banking operations by way of adoption of best in class technologies and standards.

Sustain profitable growth and value creation

Bank has put in place comprehensive corporate governance policy delineating standard practices in corporate governance in line with regulatory guidelines.

High standards of compliance culture

Bank intends to strengthen the existing systems and processes in the Bank commensurate with the size and operations of the Bank to monitor and ensure compliance with applicable laws, rules, regulations and guidelines. Besides, bank is also following fair practice code for lending.

Focus on retail lending as well as corporate lending

The risk associated with corporate lending outside the UTs of J&K and Ladakh has been mitigated by shifting the focus to AAA rated PSUs and high rated corporate borrowers (small & mid segment) and retail lending with targets being allocated for corporate sector in alignment with the risk profile and risk appetite of the Bank. Bank is also strategizing to build retail portfolio outside the UTs of J&K and Ladakh through engagement of DSAs, tie-ups with builders, tie-ups with housing finance companies etc.

To focus on Low-cost retail deposit base and high CASA deposit ratio.

The CASA ratio of the bank is at 54.09% at the end of FY 2023 and is one of the best in the industry. Bank ranks 4th in industry in respect of CASA ratio. In order to maintain the higher CASA ratio, the bank shall focus on acguiring higher CASA ratio. The improved CASA base of the bank is expected to positively impact the Net Interest Margin (NIM) and Cost of deposits (CoD).

Organizational Structure

In current highly competitive environment organizational structuring has become dynamic exercise in order to re align the structure with regard to various internal and external variables. Bank has currently 14 verticals created for better follow up/functioning and better productivity. Bank has initiated various measures to attain greater efficiency and productivity in operations. Bank has currently four layer structure comprising of Branches, Cluster Offices, Zonal Offices & Corporate Headguarters. Review of organizational structure in line with internal and external business variables is an ongoing process. The recent initiatives taken in respect of organizational restructuring includes placement of General Managers across divisions for better management, monitoring & follow-up of business, management of NPAs etc., opening of new clusters, creation of Marketing teams in each zone for new business opportunities and creations of Large Credit Units (LCU)/Branches to handle large credits.

Focus on digital channels

Banking industry is fast transforming from a system driven by conservative delivery channels to a system hugely supplemented by IT enabled alternate delivery channels

J&K Bank - Financial Performance with respect to Operational Performance

During the fiscal 2022-23, the total income was recorded at Rs. 10,111.92 Crore compared to Rs. 8,757.49 Crore for the previous FY2021-22 in line with the interest rate scenario and showing a increase of 15.47%. Interest income stood at Rs.9,355.11 Crore for the FY 2022-23 as against Rs. 8,013.48 Crore for the previous FY recording a YoY increase of 16.74%. The non-interest income was at Rs. 756.81 Crore for the year ended 31.03.2023 as against Rs.744.01 Crore for the year ended 31.03.2022. Interest expended increased to Rs. 4,609.83 Crore in the fiscal 2022-23 from Rs. 4,102.25 Crore in the previous fiscal 2021-22 recording a YoY increase of 12.37%.

The Banks operating expenses stood at Rs. 3,643.60 Crore for FY 2022-23 as compared to Rs. 3,592.78 Crore for FY

2021- 22. Operating Profit stood at Rs. 1,858.49 Crore for FY

2022- 23 as compared to Rs 1,062.46 Crore for FY 2021-22, growth of 74.92% YoY.

NPA Coverage Ratio of the Bank stood at 86.20% as on March 31, 2023 as compared to 84.26% as on March 31, 2022. Gross NPA Ratio stood at 6.04% as on March 31, 2023 as compared to 8.67% as on March 31, 2022. Net NPA Ratio has reduced from 2.49 % as on March 31, 2022 to 1.62% on March 31,2023.

The Bank posted a Net Profit of Rs.1,197.38 Crore for the financial year ended Mar, 2023 as compared to Net Profit of

Rs. 501.56 Crore during the financial year ended Mar, 2022.

The aggregate business of the bank stood at Rs. 2,04,323.19 Crore at the end of the financial year 2022-23.

The Bank recorded deposit growth of 6.39% and advances growth of 16.88% during the year.

Cost of deposits has increased to 3.79% for FY 2022-23 from 3.65% for FY 2021-22, while, CASA stood at 54.10% for FY 2022-23. The loan-book of UTs of J&K and Ladakh have witnessed 18% growth thereby re-orienting the lending composition of the bank with J&K and Ladakh getting 72% of total advances of the Bank.

Segment-wise and Product-wise performance of the Bank

The segment wise and product wise performance both in the Deposits and Credit is furnished below:-

Deposits	Amount (in Cr.)	Advances	Amount (in Cr.)
Demand	13993.23	Cash Credits, Overdrafts & Demand Loans	25229.83
Savings	52024.75	Bills Purchased & discounted	212.32
Term	56019.76	Term Loans	56843.3
Total	122037.74	Total	82285.45

• The total deposits of the Bank grew by Rs. 7327.36 Crore from Rs. 1,14,710.38 Crore as on March 31, 2022 to Rs.1,22,037.74 Crore as on March 31, 2023, a growth of 6.39% percent. CASA deposits of the bank at Rs.66017.98 Crore constituted 54.10% percent of total deposits of the Bank.

• Average deposits stood at Rs.114743.60 Crore during FY 2022-23, compared to Rs.107001.83 Crore during FY 2021-22 recording a growth rate of 7.24%. Cost of Deposits for the financial year ended March 31, 2023 stood at 3.79% compared to 3.65% recorded for the last financial year.

• During the year, Gross Credit increased from Rs.75,242.46 Crore (FY 2021-22) to Rs. 86,155.64 Crore (FY 2022-23), registering a growth of 14.50%.

• Average advances increased by Rs. 6212.53 Crore at Rs.78498.99 Crore during FY 2022-23 compared to Rs.72286.46 Crore during FY 2021-22.The average yield on advances was 8.91% for the current fiscal against 8.32% during the previous fiscal.

The Bank has the following business segments viz. Treasury, Corporate/wholesale banking, Retail banking and other banking operations. The segment-wise results of the Bank are furnished elsewhere in the report.

Opportunities and Threats

The banking sector plays a pivotal role in fostering the overall economic growth of a country. Banks are instrumental in driving the development and progress of the nation. In the past

decade, the government has implemented several measures to enhance access to credit, such as industry-friendly policies, entrepreneurship-driven schemes and initiatives, etc. These efforts have resulted in improved availability of credit, facilitating economic growth. Opportunities and threats for the Indian banking sector have been influenced by several factors and the specific economic and regulatory environment.

Going ahead, one of the challenges for banks is to survive the rapid digital disruptions. Banks cannot compete with the evolving technology and the scalability which these fin- techs are bringing-in. Banks need to put in place Business Intelligence and Research Development through data scientists to create an ecosystem which is data-driven to arrive at various decision making models providing a competitive advantage to the Banks. Banks need to put in place Business Intelligence and Research Development through data scientists to create an ecosystem which is data- driven to arrive at various decision making models providing a competitive advantage to the Banks.

Here are some potential opportunities and threats that the Bank may face for the FY2023-24:

1. Digital Transformation: The ongoing push for digitalization and the adoption of technology in banking provide ample opportunities for Indian banks to enhance customer experience, improve operational efficiency, and offer innovative digital services. The digital payments system in India has evolved the fastest amongst the countries. The opportunities and potential to grow digitally are virtually unlimited

2. Financial Inclusion: The governments continued focus on financial inclusion provides an opportunity for banks to expand their reach to the unbanked and under-banked segments of the population, especially in rural and remote areas

3. Credit Growth: With the revival of economic activities and the recovery from the COVID-19 pandemic, there may be increased demand for credit, creating opportunities for banks to expand their loan portfolios and support economic growth.

4. Infrastructure Financing: The Indian governments focus on infrastructure development and investment provides opportunities for banks to participate in financing large-scale infrastructure projects, such as transportation, energy, and urban development

Threats

1. Non-Performing Assets (NPAs): The banking sector in India continues to face challenges related to high levels of NPAs. Economic uncertainty or industry- specific challenges can impact asset guality and profitability, posing a threat to banks stability

2. Regulatory Changes: Freguent changes

in regulations, including capital adeguacy reguirements, lending norms, and compliance standards, can pose challenges for banks as they need to adapt and ensure compliance, potentially affecting their profitability and operation

3. Cybersecurity Risks: The increasing threat of cyberattacks and data breaches poses a significant

risk to Indian banks reputation, customer trust, and financial stability. Banks need to invest in robust cybersecurity measures to protect sensitive customer data and maintain trust

4. Competition from Neo-Banks: The rise of fintech companies and payments banks (neo-banks) in India present a competitive threat to traditional banks. These new players offer innovative and customercentric financial services, challenging traditional banks to adapt and differentiate themselves.

Banks, including our Bank are learning and participating in the digitizing of all aspects of banking. Every form of traditional banking is exploring digitization and significant headways have been made in payments, mobile banking, online banking, digital lending, e-KYC, remote customer servicing etc. Data security is, however a critical component in this revolution, and it is a key risk to manage. The financial regulators in India are working towards building a fundamentally strong system that can manage such risks and have been very successful at it.

Risks and Concerns

Risk management is an integral part of the Banks organizational structure and plays pivotal part in formulating business strategy. The Bank has a well-charted risk management policy for managing credit, operational and market risks based on accepting various risks, controlled risk assessment, measurement and monitoring of these risks. The Board sets the overall risk appetite and philosophy for the Bank.

The Integrated Risk Management Committee of the Board (IRMC), which is a committee of the Board, reviews various aspects of risk arising from the businesses of the Bank & frames, monitors and reviews the risk management framework. The Integrated Risk Management Committee (IRMC) of the Board reviews risk management policies of the Bank pertaining to credit, market, liguidity, operational & Pillar II risks that includes strategic risk and reputational risk, stress testing, Business continuity planning & information security. The Committee reviews implementation of Basel III, risk return profile of the Bank, compliance with RBI guidelines pertaining to credit, market, operational and residuary risks faced by the Bank, including actions taken by Asset Liability Management Committee (ALCO). The Chief Risk Officer (CRO) overseas the development and implementation of Banks risk management functions. Further details in this regard are available in Directors Report and Corporate Functions Report.

Internal Control and Systems Adequacy

To strengthen effective controls for compliance to systems & procedures and policy decisions on various operational aspects of day-to-day banking, the bank has well defined internal control measures in place which are commensurate to its size as also the complexity of operations.

Audit Committee of Board provide directions / oversees the audit function of the bank including the statutory / external audit of the bank and inspections of RBI. It reviews the internal inspections / audit functions of the bank - systems, its guality and effectiveness in terms of follow up. Supervision, Control & Audit Division, Corporate Headguarters examines, identifies and finalizes the Branches/ other Operational

Offices for the purpose of various Audits from time to time. As per the approved Audit Policies, this annual exercise is conducted every year so that there is smooth conduct of various Audits like RBIA, Concurrent Audit, Credit Audit, Legal audit, I.S Audit etc. In compliance to RBI guidelines, the Bank has already put in place Audit system to strengthen various measures for effective controls for compliance to systems & procedures and policy decisions on various operational aspects of day-to-day banking.

Audits serve as one of the effective tools/modes of (i) early- warning system for detection of irregularities and lapses in daily operations of banks branches; and (ii) checking recurrence of irregularities, infirmities and deficiencies in banking operations thereby facilitating their detection, diagnosis and initiating desired steps for their rectification, improvement of systems & procedures besides compliance to internal and regulatory guidelines and controlling risks/ preventing frauds. The S, C & Audit Division handles the staff accountability cases other than those having a vigilance angle. The staff accountability cases are investigated by the field level functionaries located at three S&C Divisions viz. S&C Kashmir, S&C Jammu and S&C Delhi.

The cases are then analysed and put to hierarchy for referring to Disciplinary Department or for closure as the case may be. In the light of the fast changing dynamics of todays banking environment and in tune with the extant guidelines the bank has adopted Risk Based Internal Audit, which includes, in addition to selective transaction testing, an evaluation of the risk management systems and control procedures prevailing in various areas of the banks operations. The implementation of risk-based internal audit means that greater emphasis is placed on the internal auditors role in mitigating risks. While focusing on effective risk management and controls, in addition to appropriate transaction testing, the risk-based internal audit not only offers suggestions for mitigating current risks but also anticipates areas of potential risks and plays an important role in protecting the bank from various risks. The Branches and other offices of the bank are also subjected to other audits viz Concurrent Audit, IS Audit, Credit Audit, Legal Audit, Stock Audit, Forex Audit, Snap Inspection, Management Audit and Forensic Audit which form part of the internal control mechanism. These audits are effective tools/ modes of early-warning system for detection of irregularities and lapses in daily operations of banks branches, checking recurrence of irregularities, infirmities and deficiencies in banking operations.

Vigilance cases emanate from two sources i.e. external and internal sources. The external sources include the complaints from customers as well as non-customers, State & Central government agencies, print media, CAG and RBI. The internal sources consist of mainly inputs from inspections and audits (snap, concurrent, RBIA, information system (IS) audit, off-site surveillance reports etc.). On receipt of any communication from these sources, the fraud angle is investigated from the concerned S&C Division of the bank and further examined and analysed by the investigating officer at Vigilance Department who scrutinize its various aspects and propose suitable action depending on the severity of the findings ranging from issuance of caution / displeasure letters to termination and dismissal. In case it is deemed that further disciplinary action is needed the case is referred to the Disciplinary Department, Corporate Headguarters for completion of disciplinary proceedings as

per the extant rules of the bank.

Besides, keeping pace with rapid digitalization in your bank, technology-based audit system has been introduced for enhanced efficiency and effectiveness through system driven audits. The modules which uses technology for audit purpose are:-

1. Concurrent Audit

2. Risk based Internal Audit

3. Long Form Audit Report

4. Information Systems Audit

5. Credit Audit

All the critical operations of the Bank such as Treasury Operations, Centralized Processing Units, Data Centres, Contact Centre, Government Business Department, KYC/ AML Department, Terminal Benefits Department, Payments & Settlement Department, etc. are subjected to Concurrent Audit. Core Banking Solution (CBS) and all other major information technology assets / applications, besides concurrent audit, are also subjected to I.S Audit while as departments at controlling offices are covered under Management Audit.

Branch Audit

S&C and Audit Department undertakes review of the operations of Branches through Risk Based Internal Audit (RBIA), an adjunct to Risk Based Supervision, as per RBI directives. Your Bank has initiated a system driven process through a software eThic for conduting the audit of all Branches of the Bank covering the business operations.

Credit Audit

Your Bank undertakes Credit Audit to review large value standard borrowal accounts, evaluate portfolio guality including audit of appraisals, sanction and follow-up process on an ongoing basis. The loan review mechanism under credit audit has been designed to provide, inter alia, early warning signals in eligible borrowal accounts.

Management Audit

Management audit is an independent and systematic appraisal of how effectively and efficiently an organization is accomplishing its objectives and performing the management functions of planning, organizing, directing, coordinating and controlling. Management audit is a total audit system encompassing the entire gamut of management functions and tools including the internal audit/inspection functions.

Foreign Exchange (Forex) Audit

Foreign Exchange business of the Bank being conducted across the country borders is exposed to a number of risks. Foreign currency prices are subject to change on account of monetary policies of the Reserve Bank and by domestic, international and overall global economic factors. Since the Forex market is a 24-hour global market with numerous players involving vast sum of money, rates can move considerably on account of any overseas developments and expectation of any change in monetary flows triggering speculation. Moreover, Forex market is information technology driven and as such, decision-making has to be instantaneous

Information system audit

Information system audit is a part of the overall audit process, which is one of the facilitators for good corporate

governance. Information System (IS) auditing is a systematic independent examination of the information systems and the environment to ascertain whether the objectives, set out to be met, have been achieved. IS Audit is the process of collecting and evaluating evidence to determine whether a computer system (information system) is safeguarding the assets, maintaining data integrity and operating effectively to achieve organizational goals.

Concurrent Audit

Your Bank has put in place concurrent audit system carried out round the year at BUs on an ongoing basis. Concurrent audit is an independent appraisal activity conceived as a systematic examination of all financial transactions at a BUs to ensure accuracy and compliance of internal systems and procedures as laid down by the bank. It aims at minimizing the incidence of serious errors and fraudulent manipulations as it is intended to be undertaken concurrently. Your Bank has engaged Chartered Accountant Firms in addition to the retired experienced bank officers and regular officers for audits. Additionally, Concurrent Auditors are placed at Central Processing Centers to identify shortcomings in underwriting at a very early stage of the client relationship.

Legal Audit

Legal Audit in your Bank covers scrutiny of the loan and security related documents of loan accounts with credit exposure of Rs.5 crore and above. The legal audit is a control function, carried out by in-house team of internal auditors or through panel advocates to ensure that there are no shortcomings in the documents or creation of security in favour of your Bank.

Management Audit

Management Audit covers identified departments controlling offices covering the strategy, processes, job roles and risk management are covered under the audit.

Human Resources and Industrial relations

Bank believes that its greatest assets are its people and training is an investment in long term people development for organizational excellence. Bank has updated all policies related to FIR as part of transformation journey.

In the top Management Cadre, 16 Assistant General Managers were promoted to the post of Deputy General Managers, 6 Deputy General Managers were promoted to the post of General Manger and in Senior Management cadre, 277 Senior Managers were promoted to the post of Chief Manager.

Business per Employee and Net Profit per Employee were at Rs 15.57 crore and Rs 9.06 lakh respectively for the financial year ended Mar, 2023 compared to Rs 13.87 crore and Rs 3.70 lakh pertaining to the financial year ended Mar, 2022.

Training:

Fluman Resource plays an important role in organizational development and its profitability. In order to keep the employees updated and relevant in the market, besides sharpening their skill set and knowledge, new technigues, procedures and technologies are introduced in the Organization. In line with organizational vision & goals and in order to develop leadership gualities and inculcate the sense of motivation and responsibility among its staff, trainings (both on job as well as off job) are imparted to the staff for which services of various Institutes are being utilized.

Banks own Staff Training Colleges at Srinagar and Jammu also cater to the sizeable training needs of the organization. In FY 2022-23, around 4000 officials have been imparted training in different banking related fields.

Offline trainings were conducted both in-house as well as officials were nominated for training programmes conducted by outside bank institutes.

Further, RBI has made it mandatory for Senior Management & Board Members to be "certified in IT & Cyber Security". In line with the regulatory direction, six Board Members and twelve Top executives from the Bank have been certified from the Institute for Development and Research in Banking Technology (IDRBT).

J&K Bank, apart from being among the four banks having stake in National Institute of Banking Studies & Corporate Management (NIBSCOM), is also an Associate Member of following reputed institutes:

i. National Institute of Banking Management (NIBM).

ii. Federation of Indian Chambers of Commerce & Industry of India (FICCI).

iii. The Associated Chambers of Commerce & Industry of India (ASSOCHAM)

iv. Indian Institute of Banking & Finance (IIBF).

v. Confederation of Indian Industry (CM)

Capacity Building:

In order to encourage and groom its staff to acguire further knowledge and skill sets for disposal of assignments diligently and in a professional way, the Bank has taken a step ahead and enlisted courses contemporary to banking landscape as per RBIs guidelines. The officials successfully completing these courses are being reimbursed actual course fee and honorarium in case of Diplomas and MBA (B&F). As many as seven Diploma courses and eight Certificate courses offered by IIBF, besides certification/re-certification courses in IT conducted by Cisco/Solaris/Oracle/Microsoft/Sun Java have been enlisted.

Under RBIs Capacity Building Programme, following seven courses have been enlisted in order to develop a resource pool in critical areas viz Risk, Forex, Treasury etc.

• Certified Credit Professional Course.

• Treasury Dealer Course.

• Risk in Financial Services.

• Diploma in IFRS by ACCA by KPMG.

• The Chartered Financial Analyst Programme offered by American Based CFA (USA).

• Financial Risk Management by GARP USA.

• Certification in Foreign Exchange

A good number of officials of the Bank have been enrolling for these courses and subseguent to completion of any of these courses, actual fee is reimbursed in favour of successful officials, besides travelling allowance and classroom/training fee is also borne by the Bank wherever applicable.

Manpower Planning

Manpower planning encompasses the process that identifies the number of employees that is reguired in terms of high guality and guantity, hence it is seen as an ongoing process of regular and structured planning.

FIR always takes into consideration the growth of the Bank by transforming the current manpower position into desired manpower position through planning and management to have the right employee at the right position to ensure effective utilization of manpower, thereby to achieve the long term objectives/targets.

The Man power Planning is resorted to in a professional manner to ensure proper staffing, that is placing the right person at the right position. In order to adopt industry best practices, the Bank hired the services of a consultant (KPMG) for conducting an organization wide manpower assessment in the Financial Year 2022-23.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous FY) in key financial ratios:-

• Return on Assets is 0.89% for the Financial Year ended 31st March, 2023 as compared to 0.42% for the previous Financial Year.

• Return on Average Net Worth is 15.23% for the Financial Year ended 31st March, 2023 as compared to 7.77% for the previous Financial Year.

• Gross NPA Ratio stood at 6.04% as on March 31, 2023 as compared to 8.67% as on March 31, 2022.

• Net NPA Ratio stood at 1.62% as on March 31, 2023 as compared to 2.49% as on March 31, 2022.

• Earnings per Share is Rs.12.43 for the Einancial Year ended 31st March, 2023 as compared to Rs.6.04 for the previous Einancial Year.