Jammu and Kashmir Bank Ltd Management Discussions.

Economic Scenario at Global level in FY2019-20

The global economy expanded by 2.9% in 2019 vis-a-vis 3.6% in 2018 and 3.7% in 2017 respectively as per IMF reports. Global merchandise trade stalled in 2019 under the weight of persistent trade tensions, with trade receding towards the end of the year. Trade in the fourth quarter was down by 1.0% year-on-year and by 1.2% compared to the third quarter of 2019 leading to a 4.6% decline on an annualized basis. Trade tensions during 2019 affected business sentiments and resulted in intermittent spikes in ever volatile financial markets. Throughout the year, the strain in trade relationship between the US and China led to a serious setback to global industries, particularly technology industry. The trade dispute has led to downturn in global trade and dampened investment sentiments subjecting multinational corporations to reassess their global production strategies and prompting a reconfiguration of global value chains.

Investment activity in many major economies was thus weakened by the concurrent effects of a poor near-term business outlook and uncertainties surrounding the trade dispute. Despite weaker trade and investment activities, steady consumption demand provided some support to global growth. Firm consumer demand and timely policy actions during the initial period of FY2019-20, however, provided some support to global growth. Domestic demand in major economies was supported by resilient private consumption, underpinned by favourable labour market conditions with stable wage growth and lower unemployment rates. Expansionary fiscal policies in the US and most emerging market economies, e.g. India, also helped to cushion growth. As a result, advanced economies grew by 1.7% while as countries like India and China showed an estimated GDP growth at 3.7% and 6.1% respectively.

Global growth was also supported by broad-based monetary policy easing in an environment of low inflation. Major central banks turned more accommodative towards mid-2019 amid broad-based weakness in growth and the materialization of distinctive risks. After raising its Federal Funds Rate (FFR) nine times from 2015 to 2018, the US Federal Reserve reduced the FFR three times in 2019. Similarly, the European Central Bank reduced its deposit rate, and announced the resumption of quantitative easing. The prospect of weaker domestic growth conditions was also prevalent in emerging market economies, where policy rate reductions followed suit.

Against this uncertain global environment, global capital flows were volatile, primarily dominated by risk aversion during the year. Moreover, country specific risks such as the prolonged state of Brexit negotiations and political unrest in Hong Kong and Latin America, resulted in episodes of sharp capital flows and exchange rate movements, as uncertainty levels were elevated and investor sentiments were subdued. These amplified global risk aversion, which led to a sustained demand for safe haven assets such as the US dollar and gold, and safer financial asset classes, such as sovereign bonds, as well as capital flow reversals from emerging market economies. Indian Rupee (INR) depreciated to an 11 year low at 3.10% in FY2019-20.

Economic Scenario in India

The GDP growth in India in the FY2018-19 stood at 6.1% while it contracted to estimated less than 4.2% in the FY2019- 20 owing to the economic scenario at global level and slowdown of demand at local level. As per economic outlook report issued by RBI for FY2019-20, prior to the outbreak of COVID-19, the outlook for growth for 2020-21 was bright. Good crop harvest and increase in food prices during 201920 provided conducive conditions for reinforcement of rural demand. Simultaneously, the transmission of reductions in the policy rate to bank lending rates improved, with favorable implications for both consumption and investment demand. Besides, reduction in the goods and services tax (GST) rates, corporate tax rate cuts in September 2019 and measures to increase rural and infrastructure spending were directed at boosting domestic demand. However, COVID-19 pandemic has drastically altered this outlook and the global economy is expected to slump into recession in 2020. The sharp reduction in international crude oil prices, if sustained, could improve the countrys terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand.

Outbreak & Impact of COVID-19 Pandemic

The global health crisis sparked by the outbreak of the coronavirus is taking an extraordinarily heavy toll on the world economy in general and Indian economy in particular. COVID-19 pandemic pushed economies into lockdown, which though helped contain the virus and save lives across the globe, but also triggered the worst recession since the 2009 Great Depression. The measures taken to contain the spread of COVID-19, included travel restrictions, enforced business closures and restricted social activities. These measures, while being critical, are suppressing private sector activity, both in the domestic-oriented and tourism-related sectors, as well as in the manufacturing sector.

Over 75 percent of countries are now reopening at the same time as the pandemic is intensifying in many emerging market and developing economies. Several countries have started to recover. However, in the absence of a medical solution, the strength of the recovery is highly uncertain and the impact on sectors and countries uneven.

The ongoing COVID-19 pandemic has significantly weakened global growth prospects, with the outlook heavily contingent on how countries across the world successfully contain the pandemic over the remainder of the year. Growth prospects for the regional economies, including India, are forecasted to be weak. Quarantine measures are expected to lead to poor consumption and investment activities, and shall result in negative growth in some countries.

The IMF has projected deeper recession in 2020 that is at least as bad as during the global financial crisis in 2009, and is projecting a slower recovery in 2021. As per latest IMF outlook report, Global GDP has been forecasted at -4.9%

in June 2020 from -3% in April 2020 with slowed recovery expected in 2021, much worse than during the 2008-09 financial crisis. Further, IMF has predicted contracted growth in Indias GDP by 4.5%. Moodys projected Indias economic growth for 2020-21 fiscal at 0 per cent, lower than 4.8 per cent estimated in 2019-20. Growth is expected to rebound to 6.6 per cent in 2021-22 fiscal.

Indias economic growth slumped to its lowest level in the current series at 3.1% in the March quarter as fresh data suggested the economy may be heading further down in the June quarter. Data released by the statistics department showed that during FY2019-20, GDP grew at 4.2% against 6.1% in the previous year as private consumption slowed down and investment demand contracted even before the pandemic hit the economy. To add to governments woes, Indias fiscal metrics worsened beyond governments estimates with fiscal deficit for FY2019-20 standing at 4.6% of GDP against finance ministrys estimate of 3.8% of GDP as per data released by the Controller General of Accounts. The March quarter GDP partially captures the impact of the coronavirus-induced lockdown, which may have predated the formal enforcement in the last week of March, obvious from the worsening of contraction in manufacturing output by 1.4% during the quarter, for the third time in a row. Agriculture and government spending are the only face savers growing at 5.9% and 10.1% during the March quarter. Construction sector, which is the second largest employer after agriculture, contracted for the second consecutive time in March quarter by 2.2%. With the ongoing lockdown and flight of migrant workers, construction activity could further shrink in the June quarter. While the fourth quarter GDP numbers were above estimates by most economists, National Statistical Office which released the data said the Covid-19 pandemic and consequent nationwide lockdown measures have impacted data collections and hence the estimates for March quarter will undergo further revision.

In line with the projected contraction in the advanced economies, subdued external demand conditions and disruptions in the global supply chain will further weigh on growth in the trade-dependent Asian region. As per RBI reports, economic activity other than agriculture, remained depressed in Q1:2020-21 in view of the extended lockdown. Even though the lockdown has been lifted under Unlock1.0 by May end with some restrictions, economic activity even in Q2 has remained subdued due to social distancing measures and the temporary shortage of labour. Recovery in economic activity is expected to begin in Q3 and gain momentum in Q4 as supply lines are gradually restored to normalcy and demand gradually revives. For the year as a whole, there is still heightened uncertainty about the duration of the pandemic and length of the period for which social distancing measures are likely to remain in place. Consequently, downside risks to domestic growth remain significant. On the other hand, upside impulses could be unleashed if the pandemic is contained and social distancing measures are phased out faster.

The epidemic started in China in January and has since tapered, with zero domestic cases by March, the only country wherein IMF has depicted a positive outlook of 1% in its latest Outlook Report. Globally, fiscal spending has been promptly increased, with funds primarily channeled towards containing COVID-19, supporting affected households against income and employment losses and providing liquidity support to firms.

Among the key measures that have been introduced by nations are direct cash assistance, job retention programmes, tax relief and public guarantees to facilitate access to financing. These measures are complemented by monetary policy responses of RBI to provide further liquidity support for households, businesses and the banking sector, as well as to ensure continued smooth provision of credit to the real economy. The unprecedented nature and scale of policy interventions across economies is expected to cushion the economic disruptions caused by COVID-19 and support a gradual recovery in real economic activity upon the successful containment of the pandemic.

Effective policies are essential to forestall the possibility of worse outcomes, and the necessary measures to reduce contagion and protect lives are an important investment in long-term human and economic health. Since the economic fallout is acute in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary and financial market measures to support affected households and businesses domestically. Internationally, strong multilateral cooperation is essential to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak health care systems. In line with the above, the Central Govt. announced a stimulus package of Rs.20 Lakh Crores under Atmanirbhar Bharat to be released in five tranches to give a boost to multiple sectors of economy which include MSMEs, Real Estate, Agriculture, Labor, Employment Generation etc.

Outlook for trade in 2021

The impact of COVID-19 pandemic on global as well as local economies inevitably has invited comparisons to the global financial crisis of 2008-09. These crises are similar in certain respects but very different in others. As in 2008-09, governments all over the world have again intervened with monetary and fiscal policy measures to counter the downturn and provide temporary income support to businesses and households. But restrictions on movement and implementation of social distancing to slow the spread of the disease means that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis. Whole sectors of national economies have remained shut since March 2020, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing and opening in phases. Under these circumstances, forecasting requires strong assumptions about the progress of the disease and a greater reliance on estimated rather than reported data.

Under the optimistic scenario, the recovery will be strong enough to bring trade close to its pre-pandemic trend, while the pessimistic scenario only envisages a partial recovery during the FY20-21 and full recovery in FY21-22. Given the level of uncertainties, it is worth emphasizing that the initial trajectory does not necessarily determine the subsequent recovery. For example, one could see a sharp decline in 2020 trade volumes along the lines of the pessimistic scenario, but an equally dramatic rebound, bringing trade much closer to the line of the optimistic scenario by 2021 or 2022. A strong rebound is unlikely as the outbreak seems prolonged and uncertainty becomes pervasive, households and business are likely to spend more cautiously.

Services may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments. Services are not included in the WTOs merchandise trade forecast, but most trade in goods would be impossible without them (e.g. transport). Unlike goods, there are no inventories of services to be drawn down today and restocked at a later stage. As a result, declines in services during the pandemic may be lost forever. Services are also interconnected, with air transport enabling an ecosystem of other cultural, sporting and recreational activities. However, some services may benefit from the crisis. This is true of information technology services, demand for which has boomed as companies try to enable employees to work from home.

The impact of the COVID-19 outbreak on international trade is not yet visible in most trade data but some timely and leading indicators may already yield clues about the extent of the slowdown and how it compares to earlier crises. Indices of new export orders derived from Purchasing Managers Indices (PMIs) are particularly useful in this regard.

As per Asian Development Bank outlook latest report, contraction in the global economy in the second quarter of 2020 will be very sharp. Containment policies to stem the COVID-19 outbreak are inhibiting economic activity in many economies. The global recovery will be protracted, not V-shaped, as normalization will be hampered by continued social distancing, possible outbreak recurrences, a very weak external environment, and disrupted supply chains. In aggregate, the major advanced economies are expected to contract by 5.8% in 2020 before growth resumes at 4.1% in 2021.

With the impact of COVID-19 on India becoming clearer, the economic outlook is grim. After the introduction of lockdowns in late March, economic activity in whole of South Asia including India stalled. While the pandemic continues to spread throughout the region, containment measures have started to ease, and economic activity has resumed since late May. The Govt. and RBI have applied significant fiscal and monetary support to fight the pandemic and cushion its adverse impact. However, the partial and slow reopening of economies as infections continue to rise makes for a difficult growth environment. Recovery is expected to be slow. Growth in Indian GDP slowed to 3.1% in the last quarter of fiscal year 2019-20, its slowest since early 2003. Economic growth slowed to 4.2% for the FY2019-20 as both exports and investment started to contract. High-frequency indicators such as purchasing managers indexes fell to all-time lows in April, reflecting the bleak outlook. Migrant workers have gone home to their villages after losing their jobs in the cities and will be slow to return even after containment measures are relaxed. GDP is expected to contract by 4.0% in FY2020- 21 before rebounding by 5.0% in FY2021-22.

J&K Economic Survey

Last year on August 05, 2019, erstwhile J&K State was bifurcated into two Union Territories viz. Jammu & Kashmir and Ladakh. J&K and Ladakh have been pre-dominantly global tourist destinations, with vast scope existing for adventure, pilgrimage, spiritual and health tourism. The economy is primarily service based with a 56 per cent share. Other two major sectors constituting the state economy are industry at 27.8 per cent and agriculture at 16 per cent. The tourism sector plays an important role in the economies of UT of J&K and Ladakh. The sector has huge potential for employment generation, even for unskilled manpower. Tourism also caters to the allied sectors like handicrafts, handlooms and transport. Despite the unique and rich culture and heritage assets of the UTs, the tourism sector accounts for only around 6.98% of the GDP. As per IBEF reports, total exports from Jammu and Kashmir stood at US$ 196.43 million during 2018-19 while as during 2019-20 (up to December 2019), exports from the UT stood at US$ 146.57 million.

The initiative of Global Investors Summit 2020 intended to invite investments to the newly formed UT of Jammu & Kashmir took a backseat due to the outbreak of pandemic COVID-19. The summit was aimed to exhibit investment opportunities in sectors including tourism, film tourism, horticulture and post-harvest management, agro and food processing, mulberry production for silk, health and pharmaceuticals, manufacturing, IT/ ITes, renewable energy, infrastructure and real estate, handloom and handicraft, and education.

Such initiatives by the Government provides an opportunity towards the upliftment of local economy and shall have a cascading effect on all sectors including employment generation and socio-economic development.

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.

In FY 2019-20, Banking sector witnessed various developments which included amalgamation of 10 Public Sector Banks into 4, aimed at making these stronger and bigger to meet banking needs of the economy.

COVID-19 related lockdowns and social distancing since Q4 of the FY2020 severely impacted the economies globally. The GDP growth for FY20 slowed down to 3.1% from 6.1% in FY19. Both investment activity and private consumption suffered precipitous decline. Going forward, the economic scenario is marked with uncertainty, while the Government, and the Regulator have come up with slew of measures to meet the emerging challenges of the economy.

Indian Banking Industry

As per the statistics released by RBI, aggregate deposits in Banks have shown a growth of 9.5% while as last year the growth was recorded at 10%. The decrease in the overall growth from the last year is due to the slowdown faced by the economy and public consumption on goods & merchandise. However, during the last quarter, this growth has been aided by measures taken by RBI which included release of CRR of 1% taking it to 3% from the previous mandatory ratio of 4%.During the FY2019-20, credit offtake was at 6.4% down by 1% from the corresponding year of FY2018-19 where the growth was recorded at 7.4%.

The outbreak of pandemic and its impact on global economy as a whole is likely to bring many challenges for the Banking Industry. RBI, in its monetary policy, has taken a number of initiatives to reduce the impact of the pandemic on the Banking Sector which include an initial moratorium of 3 months since March 2020 with further extension of 3 months upto August 2020. This led to revision in IRAC framework and banks were advised to provide extra for the stressed assets. As the economic activity was put to a halt during the Ist quarter of FY2020-21, the path to recovery is a challenge for businesses which shall impact and add to the stress portfolio of Banks. But every cloud has a silver lining, the pandemic has enforced everyone to put in extra efforts and has given boost to the businesses with a need to expand their capacities. By now most banks are in full business continuity mode and the immediate challenges for Banks are of protecting the staff from infection while providing much needed services to the customers.

While the global community had been expecting a challenging entry into the new decade, few would have anticipated the nature and degree of the shocks seen in recent weeks. In light of these developments, the Bank will be adjusting a number of priorities for the year ahead - sharpening focus in certain areas, and reducing the emphasis on other areas which can wait for a more suitable time. In the current environment, this will involve weighing in on strategies to help households and businesses weather the economic shocks of COVID-19 and transition towards a stable recovery.

The outlook on banking business and the economy will be dependent on the time frame by which the virus is completely eliminated and normalcy is fully restored. The recently released fiscal stimulus package, its priorities and funding strategy will decide how banks will respond in the post-COVID scenario. Banks will also have to revisit their risk management framework, internal models of risk assessment and capital planning and business procedures to better adapt to new operating environment.

Opportunities and Threats

Banking sector, like many other sectors, faces unprecedented uncertainty due to COVID-19. COVID-19 pandemic has picked gaps and general lack of agility in the banking systems when faced with an emergency situation. Since banking services are classified under the essential services list, the crisis mounted immense pressure on the banks to ensure business-as-usual. During the course, the banks faced operational and technical challenges. Alongside the challenges confronting the banking sector to counter the crisis, some opportunities also emerged on the scene to make the systems and procedures more vibrant. For example, there is an opportunity to adopt cutting edge banking technologies and blaze the digital transformation trail. It is an opportunity for banks to focus on a complete transition by digitization of all their functions, processes and systems. The banks and financial institutions have an opportunity now to look at collaboration with the new entrants and fintechs. Such necessity-driven partnerships will drive innovation and jointly reap the benefits of the large customer base of the banks and the new technologies of the fintechs.

COVID-19 induced lockdowns has decreased productivity and have already started to take a toll on the financials of the

corporate sector. Supply chain disruptions, manufacturing hindrances and crippled health systems need a hefty public fund/stimulus to continue operations smoothly. Income from tourism, entertainment sectors among many others has already crippled the economic situation. Factors like these are all adding up to strain the global economy which might also have its repercussions in the year ahead. All this COVID-19 induced mess translates into a huge burden on the banks and financial institutions which among other things will witness deterioration in their asset quality.

Notably, the government and the Reserve Bank of India have announced measures to support segments of the economy reeling from the impact of the lockdown The set of measures rolled out by the Reserve Bank of India since April 17, 2020 build on its earlier announcements, and the cumulative effect is likely to improve the effectiveness of the monetary stimulus of more than 10% of gross domestic product (GDP) it has injected into the economy.

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

During the fiscal 2019-20, the total income was recorded at Rs.8992.21 Cr compared to Rs. 8488.19 Cr for the previous FY, showing a growth of 6%. Interest income improved to Rs.8446.29 Cr for the FY2019-20 as against Rs. 7675.56 Cr for the previous FY recording a YoY growth of 10%. Noninterest income was at Rs.545.92 Cr for the year ended 31.03.2020 as against Rs. 812.63 Cr for the year ended 31.03.2019. Interest expended increased to Rs.4739.62 Cr in the fiscal 2019-20 from Rs. 4291.63 Cr in the earlier fiscal 2018-19 recording a YoY increase of 10%.

The Banks operating expenses stood at Rs.2727.54 Cr for FY 2019-20 as compared to Rs. 2478.66 Cr for FY 2018-19. Operating Profit stood at Rs. 1525.05 Cr for FY 2019-20 as compared to Rs 1717.90 cr for FY 2018-19 declining at 11% YoY owing to decrease in non-interest income.

Taking cognizance of the continued pressure on asset quality due to impact of COVID-19, the bank increased NPA Coverage ratio to 78.59% from 64.30%, leading to a Net loss of Rs.1139.41 Crores, while bringing down net NPAs considerably from 4.89% to 3.48%.

The aggregate business of the bank stood at Rs. 162187.30 Crores at the end of the financial year 2019-20.

The Bank recorded deposit growth of 9% and gross advances growth of 1% during the year.

Cost of deposits have marginally increased to 4.96% from 4.90%, however, CASA has shown an improvement to 53.66%. The loan-book of UTs of J&K and Ladakh have witnessed 13% growth thereby re-orienting the lending composition of the bank with J&K and Ladakh getting 63% 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 (Rs. in Crores) Advances Amount (Rs. in Cr.)
Demand 12373.84 Cash Credits, Overdrafts & Demand Loans 21451.74
Savings 40095.48 Bills Purchased & discounted 451.94
Term 45318.90 Term Loans 42495.39
Total 97788.23 Total 64399.07

• The total deposits of the Bank grew by Rs.8149.34 Crores from Rs.89638.90 Crores as on March 31, 2019 to Rs.97788.23 Crores as on March 31, 2020, a growth of 9% percent. CASA deposits of the bank at Rs.52469.32 Crores constituted 53.66% percent of total deposits of the Bank.

• Average deposits stood at Rs. 93713.56 Crores during 2019-20, compared to Rs.84822.70 Cr during 2018-19 recording a growth rate of 10.48 %. Cost of Deposits for the financial year ended Mar, 2020 at 4.96% compared to 4.90% recorded for the last financial year.

• During the year, Gross Credit increased from Rs. 69372.22 Crores (FY 2018-19) to Rs.69927.24 Crores (FY2019-20), registering a growth of 1%. The average advances was higher by Rs. 3743.16 Crores at Rs. 65335.29 Crores for the fiscal 2019-20 from Rs. 61592.13 Crores of previous fiscal.

• The average yield on advances was 9.48 % for the fiscal 2019-20 against 9.05 % 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.

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 (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 this report in Directors Report and Corporate Functions Report.

Internal Control and Systems Adequacy

A strong internal control system, including an independent and effective internal audit function, is part of sound corporate governance. Internal control is the systems, policies, procedures, and processes effected by the Board of directors and management personnel to safeguard banks assets, limit or control risks, and achieve banks objectives.

An objective, independent review of Banks activities, internal controls, and management information systems to help the Board and management monitor and evaluate internal control adequacy and effectiveness is provided by the Internal Audit which acts as the third line of defense. Internal audit function provides vital assurance to a banks board of directors, senior management, and bank supervisors as to the quality of the banks internal control system. In doing so, the function helps reduce the risk of loss and reputational damage to the bank.

The Bank has a well-established internal control framework where under the Banks Board of directors has the ultimate responsibility for ensuring that senior management establishes and maintains an adequate, effective and efficient internal control system and, accordingly, supports the internal audit function in discharging its duties effectively. The Board and Audit Committee of the Board periodically review the effectiveness and efficiency of the internal control system based on information provided by the internal audit function. The management is responsible to identify and assess control risk caused by failure of internal control, if any, promptly reported by the Internal Audit and to implement strategies of identifying Risk, system to respond to risk and reduce the risk.

The Supervision, Control & Audit Vertical of the Bank which is responsible for evaluating the adequacy and effectiveness of all internal controls, governance processes is manned by appropriately qualified, competent and experienced personnel. Evaluating internal control involves identifying the internal control objectives relevant to the bank, department, business line, or product; reviewing pertinent policies, procedures, and documentation; discussing controls with appropriate levels of bank personnel; observing the control environment; testing transactions as appropriate; sharing findings, concerns, and recommendations with the Board of directors / Audit Committee and senior management; and determining that the bank has taken timely corrective action on noted deficiencies.

The objectives of internal audit are achieved by the vertical through various types of audits & inspections - periodical & ongoing - like Risk Based Internal Audit, Concurrent Audit, Management Audit, Information Systems Audit, Legal Audit, Snap Inspections, Revenue Audit, and special audits like Forex Audit, Audit of Currency Chests, etc. In addition to internal auditors, Bank also uses services of professionals like C.A firms for conducting various audits like Concurrent Audit,

Stock Audit and Forensic Audit. All the audits are conducted as per regulatory guidelines and the head of internal audit maintain adequate oversight and ensures that the use of external experts does not compromise the independence and objectivity of the internal audit function. Risk Based Internal Audit (RBIA) of all business units is conducted at periodical intervals ranging from 6 months to 18 months depending on their risk profile (level / grade) and direction (increasing / decreasing) and the audit is comprehensive covering all operational areas of the business units.

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, et al are subjected to Concurrent Audit. Core Banking Solution (CBS) and all other major information technology assets / applications are subjected to I.S Audit while as departments at controlling offices are covered under Management 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 HR as part of transformation journey.

In order to meet the requirements of business growth, Branch network expansion, attrition and retirements, the process of recruitment of 350 Probationary Officers and 1500 Banking Associates has been initiated for the next FY2020-21.

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 is being put into practice.

Business per employee in the Bank increased from Rs. 12.37 Cr as on March 31, 2019 to Rs. 12.85 Cr as on March 31, 2020. Net Loss per employee stood at Rs.9.03 Lakhs for FY ended March 31, 2020.

Capacity Building:

In order to encourage and groom its staff to acquire further knowledge and skill sets for disposal of assignments diligently and in a professional way, the Bank has been enlisting courses contemporary to banking landscape. 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 subsequent 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.

Training:

Human 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 techniques, procedures and technologies are introduced in the Organization. In line with organizational vision & goals and in order to develop leadership qualities and inculcate the sense of motivation and responsibility among its staff, besides, 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 /Technology Training Colleges at Srinagar and Jammu also cater to the sizeable training needs of the organization. In FY 2019-2020, as many as 2286 officials have been imparted training in different banking related fields.

Further, RBI has made it mandatory for Senior Management & Board Members to be "certified in IT & Cyber Security". In line with the regulatory direction, two Board Members and twenty eight Executive Presidents/ Presidents/ Vice Presidents from J&K 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:

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).

Confederation of Indian Industry (CII)

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 (1.10%) for the Financial Year ended 31st March, 2020 compared to 0.49% for the previous Financial Year.

• Return on Average Net-Worth is (19.96%) for the Financial Year ended 31st March, 2020 compared to 8.04% for the previous Financial Year.

• Net NPA Ratio is 3.48% for the Financial Year ended 31st March, 2020 compared to 4.89% for the previous Financial Year.