To
The Members of
Jammu & Kashmir Bank Limited,
Report on Audit of the Standalone Financial Statements
Qualified Opinion
1. We have audited the accompanying standalone financial statements of
Jammu & Kashmir Bank Limited (the Bank), which comprise the Balance Sheet as at 31st
March 2023, the Statement of Profit and Loss and the Statement of Cash Flows for the year
then ended, and notes to the financial statements including a summary of significant
accounting policies and other explanatory information. In which are included the Returns
of 47 branches/offices audited by us and 972 branches audited by Statutory Branch Auditors
for the year ended on that date. The Branches/offices audited by us and those audited by
other auditors have been selected by the Comptroller & Auditor General of India in
accordance with the guidelines issued to the Bank by the Reserve Bank of India.
In our opinion and to the best of our information and according to the
explanations given to us, except for the effects of the matter described in the Basis for
Qualified Opinion in section of our report, the aforesaid standalone financial statements
give the information required by the Banking Regulation Act, 1949 as well as the Companies
Act, 2013 (the Act) in the manner so required for banking Companies and are in
conformity with accounting principles generally accepted in India and give a true and fair
view of the state of affairs of the Bank as at 31st March 2023, and its profit and its
cash flows for the year ended on that date.
Basis for Qualified Opinion
2. We draw attention to the matter described below, the possible
effects of undetected misstatements on the financial statements due to the inability to
obtain sufficient and appropriate audit evidence which is material but, not pervasive
either individually or in aggregate.
a) Refer to Note No. 15 of Schedule 18 of the financial statements
regarding the allotment of 7 Crore Equity Shares aggregating Rs. 274.75 Crore for Rs.
39.25 per share (at a face value of Rs. 1) to 9834 employees by the Bank on 21st March
2023 under the J&K Bank Employee Stock Purchase Scheme, 2023 (JKBESPS 2023).
The Compensation Committee of the Board approved the ESPS issue open
date as 15th March 2023 and the issue close date as 21st March 2023. During the process of
issue of certificate for listing purpose, we came across from the sample data of
employees(who have applied for issue) that the employees availed their existing/ freshly
enhanced facilities of general- purpose cash credit limit and personal loan accounts and
transferred amounts from such loan accounts to their saving bank accounts from where the
amount
for share issue was debited/ ( money was given). These transfers from
credit facility to saving bank account were made during the period of opening of ESPS or
just before that to allotment of shares under ESPS. This use of credit facility is not in
line with RBI Directions. It has also been noticed that Allotment was made on 21.03.2023
and payment was realized on
22.03.2023 and 23.03.2023. Further to substantiate the facts, we
requested the management to provide us the information regarding the number of shares
allotted to employees where amount was transferred from general purpose Cash Credit Limits
and Personal Loan Accounts of the employees to saving bank accounts during the period of
opening to allotment of ESPS but management vide its letters dated
25.04.2023 & 02.05.2023 submitted that "The funds have been
purely debited from the saving accounts of the respective employees under their
mandate". We also escalated the issue to Audit Committee Board on17.04.2023 vide our
detailed queries along with supporting documents but a reply from ACB is still awaited.
Based on the documents & information provided to us by the
management, it seems that there is violation of:
• Clause 21 of J&K Bank Employee Stock Purchase Scheme, 2023
(JKBESPS 2023) as there was a restriction that the Eligible Employee under the scheme
shall not be entitled to any loan facility specifically for the purchase of Shares of the
Bank under the Scheme;
• Para No. 2.3.1.7 of RBI Master Circular- Loans and Advances -
Statutory and Other Restrictions (RBI/2015-16 /95 DBR.No.Dir.BC.10/13.03.00/2015- 16)
dated July 1, 2015 which strictly prohibited the Banks to extend advances to their
employees to purchase their own banks shares;
• Section 39(1) & 42 of the Companies Act, 2013 as the
allotment of the shares shall be made after receipt of funds under the said scheme in a
separate Bank Account. However, the shares have been allotted on 21st March 2023 and
payment was realised on
22.03.2023 and 23.03.2023 i.e. before receipt of the entire fund in the
ESPS Scheme Account of the Bank;
b) Refer to Note no. 4.4 of Schedule 18 of the previous years
financial statement i.e. of the FY 2021-22, the Bank has allotted 5,17,62,954 equity
shares aggregating for Rs 28.97 per share (at a face value of Rs. 1), aggregating Rs.
149,95,72,777.38. We have not issued any certificate for the purpose of listing during the
financial year 2021-22 so if any similar set of transactions were occurred, we can not
comment on those transactions.
c) The possible impact of such misstatement referred to in Points a
& b above are as follows If the Regulating Authority declare this issue as illegal
& irregular allotment of shares in violation of various statutory provisions
aforementioned,:
(1) Refer to Note No. 1 of the financial statement, the Paid-up Share
capital of the Bank is Rs. 103,14,79,861/- which includes Share Capital of Rs.
12,17,62,954/- raised through the ESPS Scheme at a face value of Rs. 1 each (i.e. Rs.
5,17,62,954/- of FY 202122 & Rs. 7,00,00,000/- of FY 2022-23). the Share Capital will
be overstated by Rs. 12,17,62,954/- i.e. 11.80% of the total paid- up share capital of the
bank.
(2) Refer to Note No.2 .of the financial statement, the Share premium
balance under the head Reserve & Surplus in the Balance Sheet is Rs. 218.41 Crore
which includes Share Premium on the said allotted ESPS shares of Rs. 412,53,09,823/- (i.e.
Rs. 144,78,09,823 of FY 2021-22 & Rs. 267,75,00,000/- of FY 2022-23). the Share
Premium is overstated by Rs. 412,53,09,823/- i.e. 18.22% of the total share
premium/securities premium of the bank.
(3) Refer to Note No. 1 of Schedule 18 of the financial statement
regarding the composition of Regulatory Capital, the Capital Adequacy ratio (Common Equity
Tier I & Capital conservation buffer), the financial ratios/prudent limits concerning
net worth/capital funds have been adjusted due to observations made above at Sno. 1 and 2
in regard to such overstated Share capital 7-00 crores , Share Premium 331.31 crore due to
prohibited advances to the employees for the purchase of shares.
(4) Refer to Note No.9 of the financial statement regarding Advances, a
factual position of the Loan and Advances availed by the employees for the purchase of
shares is not properly & separately disclosed. In the absence of complete information
provided by the management, we are unable to quantify.
We conducted our audit in accordance with the Standards on Auditing
(SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities
under those Standards are further described in the Auditors Responsibilities for the
Audit of the standalone Financial Statements section of our report. We are independent of
the Bank in accordance with the Code of Ethics issued by the Institute of Chartered
Accountants of India together with the ethical requirements that are relevant to our audit
of the financial statements
under the provisions of the Act and the Rules thereunder, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the
Code of Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Information Other than the Standalone Financial
Statements and Auditors Report Thereon
3. The Banks Board of Directors is responsible for the other
information. The other information comprises the Corporate Governance Report, but does not
include the standalone financial statements and our auditors report thereon
Our opinion on the standalone financial statements does not cover the
other information and we do not express any form of assurance or conclusion thereon.
In connection with our audit of the standalone financial statements,
our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the standalone financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of Management and Those Charged with
Governance for the Standalone Financial Statements
4. The Banks Board of Directors is responsible for the matters stated
in section 134(5) of the Companies Act, 2013 with respect to the preparation of these
standalone financial statements that give a true and fair view of the financial position,
financial performance and cash flows of the Bank in accordance with the accounting
principles generally accepted in India, including the Accounting Standards specified under
section 133 of the Act, and provisions of Section 29 of the Banking Regulation Act, 1949
and circulars and guidelines issued by the Reserve Bank of India (RBI) from time to
time. This responsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding of the assets of the Bank and
for preventing and detecting frauds and other irregularities; selection and application of
appropriate accounting policies; making judgments and estimates that are reasonable and
prudent; and design, implementation and maintenance of adequate internal financial
controls, that were operating effectively for ensuring the accuracy and completeness of
the accounting records, relevant to the preparation and presentation of the standalone
financial statements that give a true and fair view and are free from material
misstatement, whether due to fraud or error.
In preparing the standalone financial statements, management is
responsible for assessing the Banks ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Bank or to
cease operations, or has no realistic alternative but to do so.
Auditors Responsibilities for the audit of the Financial
Statements
5. Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditors report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with SAs will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
As part of an audit in accordance with SAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit.
We also:
• Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in the circumstances. Under
section 143(3) (i) of the Companies Act, 2013, we are also responsible for expressing our
opinion on whether the Bank has adequate internal financial controls system in place and
the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of managements use of the going
concern basis of accounting and, based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on the
Banks ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditors report to the related
disclosures in the financial statements or, if such disclosures are inadequate, to modify
our opinion. Our conclusions are based on the audit evidence obtained up to the date of
our auditors report. However, future events or conditions may cause the Bank to cease to
continue as a going concern.
• Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial statements
represent the
underlying transactions and events in a manner that achieves fair
presentation.
Materiality is the magnitude of the misstatements in the standalone
financial statements that, individually or aggregate, makes it probable that the economic
decisions of a reasonably knowledgeable user of the financial statements may be
influenced. We consider quantitative materiality and qualitative factors in (i) planning
of the scope of our audit work and evaluating the results of our work; and (ii) to
evaluate the effect of any identified misstatement in the financial statements.
We communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our
audit.
We also provide those charged with governance with a statement that we
have complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we
determine those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We describe
these matters in our auditors report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such
communication.
Other Matters
6. We did not audit the financial statements / information of 972
branches and processing centres included in the standalone financial statements of the
Bank whose financial statements / financial information reflect total assets of Rs
66031.33 crores as at 31st March 2023 and total revenue of Rs. 6503. for the year ended on
that date, as considered in the standalone financial statements. These branches and
processing centers cover 91.03 % of advances, 93.51 % of deposits and 93.84 % of
Nonperforming assets as at 31st March 2023 and 64.31 % of revenue for the year ended 31st
March 2023. The financial statements / information of these branches have been audited by
the branch auditors whose reports have been furnished to us, and our opinion in so far as
it relates to the amounts and disclosures included in respect of branches, is based solely
on the report of such branch auditors.
7. The annual financial results include the results for the quarter
ended 31st March 2023 being the balancing figure between the audited figures in respect of
the full financial year and the published unaudited year to date figures up to the third
quarter of the current financial year which were subjected to limited review by us.
Our opinion is not modified in respect of this matter.
Report on Other Legal and Regulatory Requirements
8. The Balance Sheet and the Profit and Loss Account have been drawn up
in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 and
Section 133 of the Companies Act, 2013 .
9. The Comptroller and Auditor General of India has issued directions
indicating the areas to be examined in terms of sub-section (5) of section 143 of the
Companies Act, 2013, the compliance of which is set out in "Annexure-A" to this
Report.
10. As required by sub-section (3) of section 30 of the Banking
Regulation Act, 1949, we report that:
(a) we have obtained all the information and explanations except for
the matter described in the Basis for Qualified Opinion which, to the best of our
knowledge and belief, were necessary for the purpose of our audit and have found them to
be satisfactory;
(b) the transactions of the Bank except for the matter described in the
Basis for Qualified Opinion, which have come to our notice, have been within the powers of
the Bank;
(c) the returns received from the offices; and branches of the Bank
have been found adequate for the purposes of our audit;
(d) the profit and loss account shows a true balance [of profit or
loss] for the year then ended.
11. Further, as required by section 143(3) of the Act, we report that:
a) we have sought and except for the matter described in the Basis for
Qualified Opinion obtained all the information and explanations which to the best of our
knowledge and belief were necessary for the purpose of our audit;
b) except for the matter described in the Basis for Qualified Opinion,
in our opinion, proper books of account as required by law have been kept by the Bank so
far as it appears from our examination of those books and proper returns adequate for the
purposes of our audit have been received from branches not visited by us;
c) the reports on the accounts of the branch offices of the bank
audited under section 143(8) of the Act by branch auditors of the Bank have been sent to
us and have been properly dealt with by us in preparing this report;
d) the Balance Sheet, the Statement of Profit and Loss and the
Statement of Cash Flows dealt with in this report are in agreement with the books of
account and with the returns received from the branches not visited by us
e) except for the matter described in the Basis for Qualified Opinion
in our opinion, the aforesaid standalone financial statements comply with the Accounting
Standards specified under Section 133 of the Act, to the extent they are not inconsistent
with the accounting policies prescribed by RBI;
f) As per Notification No. GSR 463(E) sated
05.06.2015 Section 164(2) of Companies Act, 2013 is not applicable to
Jammu & Kashmir Bank Limited being a Government Company.
g) with respect to the adequacy of the internal financial controls over
financial reporting of the Bank and the operating effectiveness of such controls, refer to
our separate Report in "Annexure B";
h) as per the Notification No.GSR 463(E) dated
05.06.2015 Section 197 of Companies Act, 2013 is not applicable to The
Jammu & Kashmir Bank Limited, being a Government Company;
i) with respect to the other matters to be included in the Auditors
Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in
our opinion and to the best of our information and according to the explanations given to
us:
i. the Bank has disclosed the impact of pending litigations on its
financial position in its financial statements - Refer Schedule 12., to the financial
statements;
ii. the Bank has made Nil provision, as required under the applicable
law or accounting standards, for material foreseeable losses, if any, on long term
contracts including derivative contracts -
iii. There has been no delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Bank;
iv. (a) The management has represented that, to the best of its
knowledge and belief, other than as disclosed in the notes to the accounts, no funds have
been advanced or loaned or invested (either from borrowed funds or share premium or any
other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies),
including foreign entities ("Intermediaries"), with the understanding, whether
recorded in writing or otherwise, that the Intermediary shall, whether, directly or
indirectly lend or invest in other persons or entities identified in any manner whatsoever
by or on behalf of the company ("Ultimate Beneficiaries") or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(b) The management has represented,
that, to the best of its knowledge and belief, other than as disclosed
in the notes to the accounts, no funds have been received by the Bank from any person(s)
or entity(ies), including foreign entities ("Funding Parties"), with the
understanding, whether recorded in writing or otherwise, that the Bank shall, whether,
directly or indirectly, lend or invest in other persons or entities identified in any
manner whatsoever by or on behalf of the Funding Party ("Ultimate
Beneficiaries") or provide any guarantee, security or the like on behalf of the
Ultimate Beneficiaries; and
(c) Based on such audit procedures that were considered reasonable and
appropriate by us in the circumstances, nothing
has come to our notice that has caused us to believe that the
representations under sub clause (a) and (b) contain any material misstatement.
v. The Bank has not declared or paid any dividend during the year
2022-23.
vi. The Bank has used such accounting software for maintaining its
books of account which has a feature of recording audit trail (edit log) facility and the
same has been operated throughout the year for all transactions recorded in the software
and the audit trail feature has not been tampered with and the audit trail has been
preserved by the company as per the statutory requirements for record retention. (This
Clause is applicable from the financial 2023-2024).
Annexure-A to Para 14 of independent auditors report of even date on
the standalone Financial Results of Jammu &
Kashmir Bank Limited.
Directions/sub-directions of Comptroller and Auditor General of India
under Section 143(5) of Companies Act 2013
for the Financial Year 2022-2023
S. No. |
Directions/Sub
directions |
Auditors
comments including action taken wherever required |
Impact on
accounts and financial statements |
1 |
Whether
the company has system in place to process all the accounting transactions through IT
system? If yes, the implications of processing of accounting transactions outside IT
system on the integrity of the accounts along with the financial implication, if any may
be stated. |
As per
information and explanation given to us the bank has system in place to process all the
accounting transactions through IT. |
Nil |
2 |
Whether
there is any restructuring of an existing loan or cases of waiver/write off of
debts/loans/interest etc. made by a lender to the company due to the companys inability
to repay the loan? If yes, the financial impact may be stated. Whether such cases are
properly accounted for? (In case, lender is a Government company, then this direction is
also applicable for statutory auditor of lender company). |
Yes, the
restructuring of loan was done as per the provisions of the Reserve Bank of India and
Banks own Restructuring of loan Policy. |
Refer
Schedule 18 Note 4(b) and 4(g) |
3 |
Whether
funds (grants/subsidy etc.) received/receivable for specific schemes from Central/State
Government or its agencies were properly accounted for/ utilized as per its term and
conditions? List the cases of deviation. |
There are
no deviations. The loans received are utilized for the intended purpose. However, during
the FY 2022-23 grants/ subsidy received has been utilized in accordance with the
stipulated guidelines. |
Nil |
Annexure B to the independent auditors report of even date on the
standalone financial statements of Jammu &
Kashmir Bank Limited
(Referred to in paragraph 10(g) under Report on Other Legal and
Regulatory Requirements section of our report of
even date)
Report on the Internal Financial Controls over Financial Reporting
under Clause (i) of Sub-section 3 of Section 143 of
the Companies Act, 2013
1. We have audited the internal financial controls over financial
reporting of The Jammu & Kashmir Bank Limited (the Bank) as at 31 March 2023 in
conjunction with our audit of the standalone financial statements of the Bank for the year
ended on that date.
Managements Responsibility for Internal Financial
Controls over Financial Reporting
2. The Banks Board of Directors is responsible for establishing and
maintaining internal financial controls based on the internal control over financial
reporting criteria established by the Bank considering the essential components of
internal control stated in the Guidance Note on Audit of Internal Financial Controls Over
Financial Reporting (the Guidance Note) issued by the Institute of Chartered Accountants
of India (the ICAI)".] These responsibilities include the design, implementation
and maintenance of adequate internal financial controls that were operating effectively
for ensuring the orderly and efficient conduct of its business, including adherence to
Banks policies, the safeguarding of its assets, the prevention and detection of frauds
and errors, the accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information, as required under the Companies Act, 2013
(the Act).
Auditors Responsibility
3. Our responsibility is to express an opinion on the Banks internal
financial controls over financial reporting based on our audit. We conducted our audit in
accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial
Reporting (the Guidance Note) and the Standards on Auditing (the Standards), issued by
the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent
applicable to an audit of internal financial controls, both issued by the ICAI. Those
Standards and the Guidance Note require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether adequate internal
financial controls over financial reporting was established and maintained and if such
controls operated effectively in all material respects.
4. Our audit involves performing procedures to obtain audit evidence
about the adequacy of the internal financial controls system over financial reporting and
their
operating effectiveness. Our audit of internal financial controls over
financial reporting included obtaining an understanding of internal financial controls
over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the
assessed risk. The procedures selected depend on the auditors judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error.
5. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion on the Banks internal financial
controls system over financial reporting.
Meaning of Internal Financial Controls over Financial
Reporting
6. A banks internal financial controls over financial reporting
is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A banks internal financial controls over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the bank; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting
principles, and that receipts and expenditures of the bank are being
made only in accordance with authorizations of management and directors of the bank; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the banks assets that could have a material effect on
the financial statements.
Inherent Limitations of Internal Financial Controls over
Financial Reporting
7. Because of the inherent limitations of internal financial controls
over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may occur and not be
detected. Also, projections of any evaluation of the internal financial controls over
financial reporting
to future periods are subject to the risk that the internal financial
controls over financial reporting may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Opinion
8. In our opinion, the Bank has, in all material respects, an adequate
internal financial controls system over financial reporting and such internal financial
controls over financial reporting were operating effectively as at 31 March 2023, based on
the internal control over financial reporting criteria established by the Bank considering
the essential components of internal control stated in the Guidance Note issued by the
ICAI.
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