Jammu and Kashmir Bank Ltd Management Discussions.

Although there was a strong growth in 2017 and early 2018, the second half of 2018 witnessed a slowdown in the growth rate, reflecting a confluence of factors affecting major economies. The growth rate in 2017 was close to 4 percent and after showing signs of improvement in the first half of

2018 by being at 3.8 percent, it dropped to 3.2 percent in the second half of the year. The main cause for slowing down of growth activity was due to increased trade tensions and tariff hikes between the United States and China, causing a decline and inbusiness confidence, higher policy uncertainty across many economies. There was more than expected loss of momentum in Euro area economy as consumer and business confidence weakened and the introduction of new emission standards caused a disruption in car production in Germany, investment dropped in Italy as sovereign spreads widened and external demand, especially from emerging Asia, softened. The economic activity of Japan was hurt by natural disasters. Trade tensions increasingly took a toll on business confidence worsening the financial market sentiment, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand. A more accommodative monetary policy stance by US Federal Reserve made the conditions easy for 2019 and markets became more optimistic about a US–China trade deal, but they remained slightly more restrictive than in the fall. On the other hand, many developed countries have grown close to their potential, while unemployment rates have dropped to historical lows. Among the developing economies, the East and South Asia regions remain on a relatively strong growth trajectory, amid robust domestic demand conditions. As per World Economic Situation and Prospects 2019,

Global growth is expected to remain at 3.0 per cent in 2019 and 2020, however, there are associated risks with the growth which could snowball and be an impediment for the development projects around the world and disrupt economic activity. These risks include an escalation of trade disputes, an abrupt tightening of global financial conditions, escalation of tensions between nations and intensifying climate risks. The International Monetary Fund (IMF) has provided a challenging outlook for many countries, with considerable uncertainties in the short term, especially as economy growth rates in advanced countries reach near their potential. IMF has forecast global growth to slow to 3.3% in 2019 from 3.6% in 2018 with a downside risk due to trade tensions and chaotic Brexit. China is forecast to grow 6.3% in 2019 and 6.1% in 2020.

On the domestic front, IMF has reduced Indias growth forecast for the next two years, citing softer recent growth and weaker global outlook, but expects the country to be the fastest growing major economy. It has slightly reduced the expectations and has projected Indias economy to grow at 7.3% this fiscal, the reduction being mainly on account of a softer underlying momentum. This is 20 basis points lower than January outlook and 10 basis points lower than Octobers forecast, though the growth is estimated to go up at 7.5 per cent during 2020-21. The World Bank also expects India to grow at 7.5 % in 2019-20 and 2020-21. According to domestic official estimates, Indian economy grew 7% in FY19, slowest in the last five years. IMF expects growth to recover in the current fiscal and the next. As per the IMF growth in the country is projected to pick up to 7.3% in 2019 and 7.5% in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy. The growth is expected to stabilize at just under 7.75%, based on continued implementation of structural reforms and easing of infrastructure bottlenecks.

Inflation is expected to remain below the Reserve Bank of Indias threshold of 4% in the current fiscal at 3.9% and marginally exceed at 4.2% next year. Current account deficit is seen at around 2.5% of GDP.

Outlook for Asia

Emerging Asia (excluding Japan), like 2017, grew by 6.2% in 2018. The realities underlying this stability, however, are more uneven and some countries experienced a slowdown. In China, economic growth slipped from 6.8% to 6.6% reflecting weaker foreign trade as well as weaker domestic demand. Industrialized Asia (South Korea, Hong Kong, Taiwan, Singapore and Malaysia) also decelerated. In contrast, Indias growth was at full throttle, surging from 6.7% in 2017 to 7.1% in 2018. Over the course of 2018, economic growth in China and the entire Asia region began to slow in the 2nd quarter, and weakened further in the 2nd half of the year. The recent slowdown in Chinas industrial output reflects declining exports, as well as a cooling real estate market and slowing automotive sector.

Global trade slowed during the year, due to weaker demand from the US and the eurozone, fluctuations in the global consumer electronics cycle, and, at the end of the year, the increase in US trade tariffs. Nonetheless, Emerging Asias foreign trade figures improved in the 3rd quarter following the launch of new hi-tech products and also due to the acceleration in shipments of goods to the United States in anticipation of higher trade tariffs. From November, the slowdown in foreign trade became obvious and confidence indicators have fallen sharply since then.

The slowdown in China and Emerging Asia is expected to continue with an estimated average growth of 5.9% in 2019 (BNP Paribas forecasts). This rate, however, is still much higher than other world regions: the projected growth rate for Emerging Countries is 4.7% (Asia accounts for 72% of their growth). The continents downward trend reflects cyclical factors and external shocks.

Indias Outlook 2019-20

Indias economy likewise in 2017 has shown a promising growth for the year 2018, jumping from 6.7 percent in

2017 to 7.1 percent in the year 2018. IL&FS, Indias largest infrastructure company, defaulted on its debt of र 91000 crore, having cascading effect on benchmark indices and balance sheets of many companies and mutual funds.

Post IL&FS crisis, within a fortnight the whole commercial paper market dried, which till then was very vibrant. At 141, commercial paper (CP) issuances in September were lowest since June 2010, as per data compiled from PRIME Database. The number of issuances was way lower than an average of 630 issuances seen in the first eight months of 2018. This was the first month since August 2013 (174) when CP issuances were lower than 200, having an impact on NBFC borrowings. Hence RBI asked banks to lend more to NBFCs and banks were also asked to be co-originators of loans to know the type of risks they are getting into. Further RBI asked NBFCs to increase their percentage risk on their books from 10 to 20 percent. The banking landscape in India took a further turn by the merger of Bank of Baroda, Dena Bank and Vijaya Bank. The announcement of loan waivers for farmers, totalling 1.72 Lakh Crore, were made in the seven states that went for assembly elections in 2018 making a positive impact on banking industry as most of the farm loan NPAs were cleared.

As per IMF the Indian economy is projected to grow at 7.3 percent in 2019 and 7.5 per cent in 2020. As per the RBI, GDP growth in India for 2019-20 is projected at 7.2 per cent in the range of 6.8 - 7.1 per cent in first - 7.4 per cent in the second half with risks evenly balanced. As per the Economic Survey 2018-19, FY20 GDP growth rate is estimated at 7% in India which is around a growth of 7.5

% averaged by the country in the last five years. The survey has revealed signs of economic revival and challenges ahead. It showcased the health of various indicators like jobs, farm sector, manufacturing, services, education, etc. Not only have high growth rates been registered, but low inflation and fiscal deficit has also followed. The survey has revealed an improvement in the performance of the banking sector in 2018- 19. The Gross Non-Performing Advances (GNPA) ratio of SCBs decreased from 11.5% to 10.1% between March 2018 and December 2018. The Survey has suggested that MSMEs receive a 10-year sunset clause, that labour laws be deregulated and the sector be given priority in lending.

J&K Economy Survey

The states GSDP grew at a CAGR of 10.30 per cent, during

2011-12 to 2017-18. GSDP is expected to grow at 11.71 per cent by 2018-19 to reach 1.57 trillion (US$ 24.42 billion). As of January 2019, J&K had a total installed power generation capacity of 3,389.21 MW, comprising 1,795.33 MW under central utilities, 1,534.03 MW under state utilities and 59.85 MW under private utilities. The state government has an industrial policy that offers attractive incentives along with a single-window clearance mechanism. Land is allotted at concessional rates in industrial areas on lease for 90 years. The cost of setting up operations is comparatively lower than other states. The Skill Development Policy 2012-17 and the Sher-e-Kashmir Employment & Welfare Programme for the

Youth 2009 are the policies undertaken by the government to develop the skills of the indigenous people of the state and offers better employment opportunities.

The state has attracted Foreign Direct Investment (FDI) equity inflows worth US$ 6 million during the period April

2000 to December 2018, according to data released by Department of Industrial Policy and Promotion (DIPP). J&K has agro-climatic conditions best suited for horticulture and floriculture.Horticulture is the mainstay of the rural economy, providing employment to large number of local inhabitants. Apple production in the state reached 1.74 million metric tonnes in 2017-18.Total tourist arrivals to the state reached

14.32 million in 2017 out of which 14.24 million were domestic tourists and 79.77 thousand were foreign tourists.

The state Budget 2019-20 gives an opportunity for Banks to grow by giving a big push to tangible developmental initiatives with 30469 crore earmarked for building public and social infrastructure in addition to 3631 crore already provided under Languishing Projects Programme. Investment in infrastructure is the growth driver for economy and has a cascading impact on all sectors including employment generation and socio-economic development. half of 2019-20 and 7.3

Industry Structure and Developments

Indian Banks are classified into commercial banks and Cooperative banks. Commercial banks comprise: (1) Schedule

Commercial Banks (SCBs) and non-scheduled commercial banks. SCBs are further classified into private, public, foreign banks and Regional Rural Banks (RRBs) and (2) Co-operative banks which include urban and rural Co-operative banks. Public-sector banks control more than 70% of the banking system assets, thereby leaving a comparatively smaller share for its private peers.

Indian banking industry has witnessed the roll out of innovative banking models like payments and small finance banks. RBIs innovative measures may go a long way in helping the restructuring of the domestic banking industry. The banking industry has undergone numerous changes over the past few years to be at par with international banking norms and standards. While the Indian banks motive has shifted from social banking to profit banking, dependence on ledgers, documents, cheques and slips has been replaced by electronic initiatives or cashless banking in recent years. Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) increased to 988.74 billion (US$ 14.27 billion) and 355.4 million accounts were opened in India. In May 2018, Government of India provided 6 trillion (US$ 93.1 billion) loans to 120 million beneficiaries under Mudra scheme through the banking sector.

The NPA situation in the Indian banking system has been stabilizing as can be seen in the current financial year. There has been an improvement in growth in credit and deposits.

However, net profits continue to remain under pressure.

Banks in India are increasingly focusing on adopting integrated approach to risk management. They have already embraced the international banking supervision accord of Basel, and majority of the banks have already met capital requirements of Basel III.

Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the growth of the sector. In September 2018, Department of Financial Services (DFS), Ministry of Finance and National Informatics Centre

(NIC) launched Jan Dhan Darshak as a part of financial inclusion initiative. It is a mobile app to help people locate financial services in India.

During the FY 2018-19, Reserve Bank of India (RBI) set up Public Credit Registry (PCR) an extensive database of credit information which is accessible to all stakeholders. The Insolvency and Bankruptcy Code (Amendment) Ordinance,

2017 Bill was passed and is further expected to strengthen the banking sector in future.

Banking Sector Outlook 2019

The new resolution framework with the Insolvency and Bankruptcy Code (IBC) and RBIs regulatory framework has been a game changer. Under this revised framework, banks were given 180 days to resolve defaulting accounts of over

2,000 crore. If banks failed to implement a resolution plan within the timeline, they were required to take the company to National Company Law Tribunal (NCLT) for insolvency proceedings within 15 days of the end of the 180-day period.

The framework endeavours to create an environment in which maximum value can be realized from troubled assets, bolstered by the early identification of incipient stress. The shift of power in favour of creditors in the IBC framework will facilitate speedier and impartial resolution process and help in improving the credit repayment culture. The framework provides a market-driven, time-bound process for insolvency resolution of a corporate debtor, thereby helping financial institutions to clean up their balance sheets. Most importantly, it is aiding a paradigm shift in the extant credit culture and discipline.

The digital payments revolution has triggered massive changes in the way credit is disbursed in India. Debit cards have radically replaced credit cards as the preferred payment mode in India, after demonetization. Debit cards has touched a share of 87.14 per cent of the total card spending during the last FY.

Opportunities and Threats

For banks in India, 2019 could be a pivotal year in accelerating the transformation into a more strategically focused, technologically advanced and operationally agile industry, so that they may remain dominant in a rapidly evolving ecosystem. Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth. RBIs revised framework is expected to result in transparency, credibility and efficiency of the banking sector.

With a view to motivate banks for timely recognition of stressed assets, RBI obtains weekly information on delinquent accounts. Further, for speedy resolution of the stressed assets, banks have been directed to work out a resolution plans on default of the asset, and has set stringent timelines from default of an account for referring it to the Insolvency and Bankruptcy Code (IBC) process. All these factors suggest that Indias banking sector is also poised for robust growth as the rapidly growing businesses would turn to banks for their credit needs.

The banking sector is laying greater emphasis on providing improved services to their clients and also upgrading their technological infrastructure, in order to enhance the customers overall experience as well as give banks a competitive edge. Also, the advancements in technology have brought the mobile and internet banking services to the fore.

However, this transformation is not going to be easy as most banks have to bear multiple challenges and diverse regulations, legacy systems, new models and technologies, competitors and ever rising expectations of customers.

Banking sector is facing challenges in several areas.

• The slowdown of the economy in the last few years leading to a rise in bad loans or non-performing assets

(NPAs) remains among one of the biggest threats to the banking sector in India. Because of this problem, the return on equity for banks is still under stress.

• The increasing popularity of FinTech companies is disrupting the way traditional banking has been done. This creates a big challenge for traditional banks because they have to adjust quickly to the changes – not just in technology, but also in operations, culture, and other facets of the industry.

• Regulatory requirements continue to increase, and banks spend a large part of their discretionary budget on being compliant, and on building systems and processes to keep up with the escalating requirement.

These challenges continue to escalate, so traditional banks need to constantly evaluate and improve their operations in order to keep up with the fast pace of change in the banking and financial industry today.

• Consolidation is taking place between PSU banks or even non-performing PSU banks are merging with private sector banks changing the banking landscape & banking ownership in the country.

• The increased competition among banks by way of new emerging banks, payment banks for achieving total financial inclusion, is one of the key reasons which will put pressure on the bottom line of banking stocks.

• Employee turnover in banks has increased over the years depleting them of older, experienced employees resulting in a virtual vacuum at the management levels.

Segment-wise and Product-wise performance

The segment wise and product wise performance both in the

Deposits and Credit is furnished below:-

Deposits

Amount

Advances

Amount

in Cr.

in Cr.

Demand

11362.38

Cash Credits, Overdrafts & Demand Loans

22462.42

Savings

34080.25

Bills Purchased & discounted

1070.63

Term

44196.27

Term Loans

42738.46

Total

89638.90

Total

66271.51

 

The total deposits of the Bank increased to र 89638.90 crore as on March 31, 2019 from र 80006.50 crore as on March 31, 2018 recording an annual growth of 12%. CASA ratio stood at 50.70% as on March 31, 2019 in aggregate deposits. Out of र 89638.90 Crore, deposits of र 78758.53 Cr came from J&K State while as deposits of र 10880.37 Cr belonged to outside J&K State. The contribution of deposits in J&K State & outside J&K State stood at 88% & 12% respectively. Average deposits stood at र 84822.70 Cr during 2018-19, compared to र 76234.80 Cr during 2017-18 recording a growth rate of 11.26%. Cost of Deposits for the financial year ended March 31, 2019 at 4.90% compared to 5.01 % recorded for the last financial year. (Average Deposits have been calculated on YOY i.e, Opening deposits & Closing deposits for the Year). During the year under report, Gross credit increased from र 60298.28 Cr (FY 2017-18) to र 69372.22 Cr (FY2018-

19), registering a growth of 15.05%. Out of र 69372.22 Cr, advances worth र 39015.19 Cr. were contributed by J&K State while as advances of र 30357.03 came from outside J&K State. The outstanding credit in J&K State & outside J&K State stood at 56% & 44% respectively. The average advances were higher by र 8227.70 Cr to reach र 61592.13 Cr at the end of the fiscal 2018-19 fromर 53364.43 Cr at the end of previous fiscal. (Average Advances have been calculated as average of Net Advances on YOY i.e, Opening Net Advances & Closing Net Advances for the Year) The average yield on advances was 9.05% for the fiscal 2018-19 against 8.77% during the previous fiscal. Spread was at 3.55% for FY2018-19 compared to 3.49% during the fiscal . 2017-18

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

The Bank has launched a bouquet of new products during the year such as Gold Loan Scheme, Merchant Overdraft scheme and deploying Direct Selling Agents (DSA) in ROI (Rest of India) for housing loans.

For instance, the J&K banks Gold Loan scheme has been specifically designed to cater to all sectors of the society particular women wherein it will not only meet the emergent cash requirements across but also lead to empowerment of women through a discounted rate of interest. In this regard already, a specialized business unit has been set-up, exclusively for women, in the heart of Srinagar.

Similarly, Merchant Overdraft Scheme has been devised keeping in mind immediate cash requirements wherein a hassle free overdraft facility is created against the Point of Sale (POS) receivables without any security.

Likewise, to further consolidate the housing sector in Rest of India (ROI), an historic decision was made wherein Direct Selling Agents have been engaged for pitching of housing loan products in rest of India and subsequently generating sales. The success of these products hinges on a sharp and effective communication strategy across a multitude of media and marketing platforms. This will disseminate information to target audience for ensuring smooth delivery of these services in a precise, timely and a specialized manner. Also, the emergence of new technology based platforms will also help in augmenting the success of these products and their marketing thereof which will go a long way in strengthening the emotional equity of the Bank with the masses. Besides the structure of these schemes and marketing techniques is premised on rapid feedback mechanism approach which will further help in improving systems, procedures and products.

The Bank has embarked on a digital transformation journey to promote its digital products besides upgrading the existing products to the best standards to keep up with the latest technological innovations in the banking industry. As a part of digital transformation, extensive thrust has been made to on-board new as well as existing customers of the bank on various digital channels. The percentage of digital transactions has reached 54.18% for quarter ending March 31, 2019. The Bank was rated among the Top 3 Banks in the country for achieving Digital Transaction targets for the ‘Digital India Campaign. The Bank also launched Premium variants of Credit Cards (Platinum and World), Multi-Currency Forex Cards and BHIM Aadhaar app.

J&K Bank – Financial Performance with respect to operational performance and Prospects

During thefiscal2018-19, the total income was recorded at र 8488.19 Cr compared to र 7116.71 Cr for the previous FY, showing a growth of 19%. Interest income improved to

र 7675.56 Cr for the FY2018-19 as against र 6621.40 Cr for the previous FY recording a YoY growth of 16%. The Non-interest income was at र 812.63 Cr for the year ended 31.03.2019 as against र 495.31 Cr for the year ended 31.03.2018. Interest expended increased to र 4291.63 Cr in the fiscal 2018-19 from step and र 3750.61 Cr in the earlier fiscal 2017-18 recording a YoY increase of 14%. Of the total interest expenditure, interest on deposits grew by 11% to र 4019.10 Cr from र 3612.35 Cr during the previous fiscal.

The Banks operating expenses of र 2478.66 Cr for FY 2018-19 compared to र 1984.23 cr for FY 2017-18. Operating Profit stood at र 1717.90 Cr for FY 2018-19 compared to र 1381.87 cr for FY 2017-18 growing at 24% YoY. After a loss making FY 2016-17, continuing with profitability for the 8th straight quarter, Bank registered a net profit of र 464.88 Cr for the FY 2018-19. Net NPA ratio of the bank improved further to

4.89 pc as on March 31, 2019. The total business of the bank reached र 155910.41 Cr registering an increase of र 18991.16 Cr over the business a year ago. In line with the Banks focus about consolidation and strengthening of the Banks Balance

Sheet, the emphasis during the last financial year was on arresting the slippage of advances, recovery of NPAs and consolidating the NPA coverage ratio. The strategy of instilling transparency and faith in the system adopted by the new regime continued in the current year. The Provision Coverage Ratio of the Bank has been maintained at 64.30 pc as on March 31, 2019 from the previous of 65.83 pc as on March 31, 2018. The Standard Loan Book and

Investment Book of the Bank now is mostly high rated and the woes of asset quality issues in this portfolio are assumed to be pass. The Bank recorded deposit growth of 12% and gross advances growth of 15% during the year.

Continuing with proper liability management and non-rollover of high-cost bulk deposits kept the CASA ratio of the Bank at 50.70 pc as on March 31, 2019 from 50.89 pc a year ago. The

Bank is operating with a better than industry-average NIM of 3.84 pc which has improved from 3.65 pc a year ago. A YoY credit growth of 16 pc is indicative of growth momentum setting in. Efforts of Impaired Assets Portfolio Management vertical has brought about a substantial improvement in reduction/recovery of bad loans to the tune of र 2749.95 Cr during the FY19. The Bank has shown a strong resilience with a focused approach in NPA Management and earnings growth by expansion of credit in J&K State.

Banks superior franchise in its home state as evidenced by its dominant market share of over 60 pc in loans and deposits continues and is expected to be reinforced further with adoption of a plan based strategy of outgrowing the market. The state contributes 56.24 pc of the loan portfolio, 87.86 pc of overall deposits and 93 pc of CASA deposits of the Bank. Especially in the digital space, banks share of digital transactions have increased to 60% besides the digital acquisition of personal loans through banks Phone Pe

Loan channel.

The transformation journey undertaken by the Bank by bringing in best consultation and revamping the organizational structure across full spectrum coupled with business expansion strategy will significantly reflect in the performance of the Bank in coming times. The investment shall indigital infrastructure has been a significant fetch good returns. The endeavour of the bank is to be future ready as a modern, efficient, customer focused, digitally driven profitable institution. Moreover, the initiatives undertaken by bank since 2017 are expected to yield rich dividends and the bank has envisaged a targeted profit of र 2000 Crore by 2022.

Risks and Concerns

Risk management is an integral part of the Banks organizational structure and business strategy. The Bank has a well chartered risk management policy for managing credit, operational and market risks and is 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 Board, Integrated Risk Management Committee of the

Board (IRMC), which is a sub-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, liquidity, operational & Pillar II risks that includes strategic risk and reputational risk, Internal Capital Adequacy Assessment Process (ICAAP), 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 of this Annual 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. Supervision, Control & Audit Vertical examines, identifies and finalizes the Business units / other Operational Offices for the purpose of various types of audit from time to time. 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 quality and effectiveness in terms of follow up. Supervision, Control & Audit Division, Corporate

Headquarters examines, identifies and finalizes the Business units/ 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 Audit like RBIA, Concurrent Audit, Credit Audit, Legal 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. The 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 business units; and (ii) checking recurrence of irregularities, infirmities 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 got 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 business units, 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 got 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 in that case ranging from issuance of caution / displeasure letters to termination and dismissal. In case it is deemed that further action is needed at disciplinary level / department for taking the issues to final conclusion, the case is referred to the Disciplinary Department, Corporate Headquarters for completion of disciplinary proceedings as per the extant rules of the bank.

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 transformed all policies related to HR as part of transformation journey with reputed consulting organization M/S Deloitte. The process of promotion was carried out across the board. A total of 3379 promotions were effected during the year under report, in order to meet the requirements of business growth, Branch network expansion, attrition and retirements. The process of recruitment of 250 Probationary Officers and 1200 Banking Associates has been initiated.

A comprehensive J&K Bank training policy has been drafted wherein recommendations of a reputed consulting firm have been incorporated. Based on the training policy a comprehensive training plan has also been prepared which shall be put into practice.

Business per employee in the Bank increased from र 11.99 Cr as on March 31, 2018 to र 12.37 Cr as on March 31, 2019. Net Profit per employee increased from र 1.77 lakh to र 3.69 lakh as on March 31, 2019. The pro-active humanistic approach undertaken by the Bank has yielded positive results and the Bank is showing progressive growth consistently with the collective efforts of management and employees. The industrial relations in the Bank have been very cordial and harmonious.

Capacity Building: Bank has been time and again encouraging staff to build up their knowledge and skills by taking initiatives to enlist courses for actual fee reimbursement in case of

Certification and Fee reimbursement & honorarium in case of Diplomas and MBA (B&F) on their successful Completion. Furthermore, RBIs Capacity Building Programme has been of value addition in adding more specialized courses to the existing kitty of permissible courses which have been enlisted in the years 2017 and 2018. A good number of officials of the

Bank have been enrolling for these courses and subsequently fee reimbursements are made in their favour after their successful completion of the course. Under its Capacity Building Initiative bank is in a process of further developing its Human Resource Pool. As a measure towards this initiative, bank has enlisted following courses for reimbursement of course fee and expenses on account of Travelling Allowance & training fee on successful completion of course, wherever applicable.

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.

Training:

In order to be relevant in the market, new procedures, techniques and technologies are developed and introduced in the organization from time to time, which constantly creates demand for sharpening of skill set & knowledge of existing human resource. Thus skill and knowledge development of the organizational employees attains pivotal importance and accordingly bank needs to train its staff regularly to upgrade and sharpen their skill set, develop their knowledge and instill among them the leadership qualities & sense of motivation, so that they perform their assigned job roles more efficiently vision & goals. To achieve the said objective both on the job and off the job trainings are imparted to the staff, services of various Institutes are being utilized for imparting training to the employees, besides Banks own Staff Training Colleges / Technology Training Colleges at Srinagar and Jammu cater to the sizeable training needs of the organization.

Besides the above, J&K Bank is a member of various external reputed Institutes / Colleges:

• National Institute of Banking Management (NIBM).

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

• The Associated Chambers of Commerce & Industry of India (ASSOCHAM)

• Indian Institute of Banking & Finance (IIBF).

• National Institute of Banking Studies & Corporate Management (NIBSCOM)

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 0.49% for the financial year ended Mar, 2019 compared to 0.25 % for the previous financial year.

Return on Average Net-Worth is 7.27% for the financial year ended March 31, 2019 compared to 3.42% for the previous financial year.

The changes are due to increase in Net Profit which has grown to र 464.88 crore for the financial year ended March 31, 2019 as compared to र 202.72 crore during the last financial year.