Jammu and Kashmir Bank Ltd Management Discussions

Global Economic Outlook

The global economy remained resilient during 2025 despite persistent geopolitical tensions, evolving trade dynamics and tighter financial conditions. However, the economic outlook for 2026 has become increasingly uncertain amid the escalation of conflicts in the Middle East, rising trade policy fragmentation, elevated public debt levels and heightened volatility in global financial markets. These developments have increased downside risks to growth while creating renewed inflationary pressures through disruptions in energy markets and global supply chains.

According to the International Monetary Fund (IMF), global economic growth is expected to moderate in 2026 before recovering gradually in 2027. Although geopolitical developments continue to weigh on economic activity, resilient labour markets, easing financial conditions in several advanced economies, robust domestic demand across emerging market economies and the rapid adoption of artificial intelligence (AI) are expected to provide support to global growth. The accelerated deployment of AI across industries, coupled with sustained investments in digital infrastructure, automation and clean energy, is expected to improve productivity and create new avenues for long-term economic expansion.

The World Bank has similarly observed that global growth remains constrained by subdued productivity, elevated sovereign debt, demographic challenges in several advanced economies and continuing geopolitical uncertainties. While inflation moderated across many economies during 2025, renewed increases in energy prices and supply chain disruptions have created fresh upside risks. Consequently, central banks are expected to maintain a cautious and data- dependent monetary policy stance to preserve price stability while supporting economic growth.

Global trade continues to face headwinds arising from protectionist measures, supply chain realignments and increasing geoeconomic fragmentation. At the same time, climate-related risks, cyber threats and technological disruptions have emerged as important structural challenges influencing global economic prospects.

Despite these uncertainties, the medium-term outlook remains favourable underpinned by technological innovation, digital transformation, infrastructure investment, energy transition and continued structural reforms. Strengthened international cooperation, enhanced energy security and sustained investments in productivity-enhancing technologies will remain critical for supporting resilient, balanced and sustainable global growth.

Domestic Economic Outlook

India continued to demonstrate remarkable macroeconomic resilience during FY 2025-26, maintaining its position as the worlds fastest-growing major economy despite an increasingly challenging global environment. Strong domestic demand, sustained public investment, prudent macroeconomic management and a resilient financial system enabled the economy to navigate external headwinds while maintaining broad-based growth.

According to the provisional estimates released by the National Statistical Office (NSO) under the revised base year series (2022-23), Indias real Gross Domestic Product (GDP) grew by 7.7% during FY 2025-26, compared with 7.1% in the previous year. Growth was supported by robust private consumption, continued government capital expenditure, improving investment activity and sustained momentum across the manufacturing and services sectors. Healthy corporate balance sheets, improving capacity utilisation and stable financial conditions further reinforced economic activity.

The external environment, however, has become more challenging with renewed geopolitical tensions, elevated crude oil prices, volatility in global financial markets and continuing uncertainty surrounding global trade policies. Reflecting these developments, the Reserve Bank of India (RBI), in its June 2026 Monetary Policy Statement, moderated its real GDP growth projection for FY 2026-27 while noting that Indias macroeconomic fundamentals continue to remain strong. The banking system remains well-capitalised, corporate leverage has moderated, tax collections continue to exhibit resilience and the digital payments ecosystem has expanded significantly, providing a strong foundation for sustained economic growth.

Inflationary pressures eased considerably during FY 2025-26 owing to moderation in food prices and improved domestic supply conditions. Nevertheless, renewed increases in global energy and commodity prices arising from geopolitical developments have introduced fresh upside risks to inflation. The inflation outlook will therefore continue to depend upon developments in crude oil prices, weather conditions, food supply management and global supply chain stability.

Indias medium-term growth prospects remain favourable, supported by rising domestic consumption, continued infrastructure development, digital transformation, expanding manufacturing capabilities, improving ease of doing business and sustained structural reforms. Government initiatives aimed at strengthening physical and digital infrastructure, promoting domestic manufacturing, encouraging renewable energy, expanding financial inclusion and improving logistics efficiency are expected to enhance productivity and reinforce long-term economic competitiveness.

The banking sector is expected to play a central role in supporting this growth trajectory through increased credit intermediation, mobilisation of household savings and financing investments across infrastructure, manufacturing, agriculture, MSMEs, housing and emerging sectors of the economy. While external uncertainties may continue to create short-term challenges, Indias sound macroeconomic fundamentals, prudent policy framework and resilient financial system position the economy favourably to sustain strong, inclusive and sustainable growth over the medium term.

Jammu & Kashmir Economic Outlook

The economy of the Union Territory of Jammu & Kashmir continued to demonstrate resilience during FY 2025-26, supported by sustained public investment, improving infrastructure, expanding private sector participation and progressive policy interventions. Continued focus on connectivity, tourism, agriculture, industrial development and digital infrastructure has strengthened the regions growth prospects and created new opportunities for investment and employment.

According to the Budget Estimates for FY 2026-27, the Gross State Domestic Product (GSDP) of the Union Territory, at current prices, is projected to reach approximately H3.16 lakh crore, reflecting healthy nominal growth over the previous year. The Governments continued emphasis on capital expenditure, road and rail connectivity, power infrastructure, urban development and ease of doing business is expected to further improve the investment climate and support long-term economic expansion.

The economy of Jammu & Kashmir continues to be primarily service-oriented, with tourism, trade, financial services and public administration contributing significantly to economic output. Agriculture and allied activities remain critical to rural livelihoods, while horticulture, livestock, handicrafts, handloom and emerging manufacturing activities continue to provide substantial employment and income generation across the Union Territory.

Agriculture remains an important pillar of the regional economy and is undergoing structural transformation through increased adoption of high-value horticulture, protected cultivation, organic farming, modern irrigation practices and technology-enabled farming. Government initiatives such as the Holistic Agriculture Development Programme (HADP) and the Jammu & Kashmir Competitiveness Improvement Project (JKCIP) are expected to enhance agricultural productivity, strengthen value chains, improve farmers incomes and promote sustainable agricultural practices.

Tourism continues to be one of the principal drivers of economic activity, generating substantial employment across hospitality, transport, handicrafts and allied services. Continued investments in tourism infrastructure, improved connectivity and growing domestic tourist arrivals are expected to sustain the sectors contribution to the regional economy.

The handicrafts and handloom sector remains an important source of employment and export earnings. International recognition of traditional crafts such as Kashmiri carpets, pashmina, papier-mache, walnut wood carving and embroidery continues to strengthen the sectors long-term prospects while preserving the Union Territorys rich cultural heritage.

According to the Economic Survey of Jammu & Kashmir, the Union Territory registered healthy growth during FY 202526, with broad-based contributions from the primary, secondary and tertiary sectors. The continued shift towards a services-led economy reflects improvements in urbanisation, infrastructure, financial inclusion and digital adoption while reinforcing opportunities for higher productivity and income growth.

Going forward, continued public investment, expanding digital connectivity, rising private investment, improved logistics infrastructure and policy support for entrepreneurship are expected to further accelerate economic activity. Government initiatives promoting MSMEs, start-ups, self-employment, agriculture, tourism and infrastructure development are likely to deepen financial intermediation and enhance credit demand across sectors.

For the banking industry, these structural developments present significant opportunities to expand credit penetration, strengthen financial inclusion, support priority sectors and deepen relationships across retail, agriculture, MSME and corporate segments. As the leading financial institution in the Union Territory, J&K Bank remains well positioned to support the regions economic transformation while contributing to inclusive and sustainable development.

Banking Industry Outlook

The Indian banking sector entered FY 2026-27 from a position of considerable strength, supported by robust capitalisation, improved asset quality, healthy profitability and strong regulatory oversight. Continued improvements in balance sheet quality, disciplined underwriting standards and sustained digital transformation have significantly enhanced the sectors resilience and its capacity to support Indias economic growth.

Credit demand remained healthy during FY 2025-26 across retail, agriculture, MSME and infrastructure segments, although moderation in economic activity and evolving global uncertainties are expected to temper credit growth during FY 2026-27. At the same time, the banking sector continues to witness structural changes in liability mobilisation, with increasing competition for deposits and a gradual shift in household financial savings towards capital market instruments, mutual funds, insurance and pension products. These developments are expected to keep funding costs elevated and place pressure on net interest margins across the industry.

The Reserve Bank of India has consistently emphasised the importance of maintaining prudent underwriting standards, adequate capital buffers, strong liquidity management and robust governance practices. Macro stress tests continue to indicate that the Indian banking system remains resilient and well positioned to absorb adverse economic shocks while maintaining regulatory capital comfortably above the prescribed minimum requirements.

Technology continues to reshape the banking landscape at an unprecedented pace. Artificial intelligence, advanced analytics, cloud computing, digital public infrastructure and open banking frameworks are transforming customer engagement, credit delivery, fraud detection and operational efficiency. At the same time, increased digitalisation has heightened cybersecurity risks, making cyber resilience, operational continuity and technology governance strategic priorities for banks.

The anticipated transition towards the Expected Credit Loss (ECL) framework, increasing emphasis on climate- related financial risks, evolving customer expectations and heightened regulatory focus on conduct, governance and operational resilience will continue to influence banks strategic priorities over the medium term.

Despite near-term challenges arising from geopolitical tensions, global financial market volatility and interest rate uncertainty, the long-term outlook for the Indian banking sector remains positive. Strong macroeconomic fundamentals, increasing formalisation of the economy, sustained infrastructure investment, expanding digital adoption and continued policy reforms are expected to support healthy credit growth and create significant opportunities across retail, MSME, agriculture, infrastructure and emerging sectors.

Against this backdrop, banks that successfully strengthen their liability franchise, leverage technology, enhance customer experience, diversify revenue streams, maintain prudent risk management practices and improve operational efficiency will be well positioned to deliver sustainable growth and create long-term value for stakeholders.

Banking Sector in Jammu & Kashmir

The banking sector continues to play a pivotal role in the socio-economic development of the Union Territory of Jammu & Kashmir by facilitating capital formation, promoting entrepreneurship, strengthening financial inclusion and supporting sustainable economic growth. Over the years, the banking ecosystem in the Union Territory has evolved considerably, supported by expansion of banking infrastructure, increasing digital adoption, policy initiatives and improved access to formal financial services.

The banking landscape comprises Public Sector Banks, Private Sector Banks, Regional Rural Banks, Cooperative Banks, Small Finance Banks and Payment Banks operating through an extensive network of branches, Business Correspondents (BCs), Customer Service Points (CSPs), Digital Banking Units (DBUs) and other alternate delivery channels. The continued expansion of banking touchpoints has significantly enhanced accessibility to banking services, particularly in rural and remote areas, thereby supporting the Governments financial inclusion agenda.

During FY 2025-26, banks operating in the Union Territory recorded healthy credit expansion across priority and nonpriority sectors, reflecting sustained economic activity and increasing demand for institutional finance. Credit deployment under agriculture, MSMEs, housing, tourism, trade and allied sectors continued to remain robust, while various Government-sponsored schemes further strengthened credit flow to self-employment and livelihood generation programmes.

Digital banking adoption also witnessed sustained momentum, driven by increasing usage of Unified Payments Interface (UPI), mobile banking, internet banking, Aadhaar- enabled payment systems and digital merchant acceptance infrastructure. Growing digital adoption has improved transaction efficiency, expanded financial access and accelerated the transition towards a less-cash economy.

Going forward, continued investments in infrastructure, tourism, agriculture, MSMEs and digital public infrastructure are expected to create significant opportunities for the banking sector. Increasing financial awareness, expanding formalisation of the economy and sustained policy support are expected to deepen financial intermediation and support healthy growth in both deposits and advances across the Union Territory.

As the largest financial institution headquartered in the Union Territory, J&K Bank remains uniquely positioned to leverage its extensive distribution network, deep customer relationships, strong regional franchise and comprehensive product suite to support the regions economic aspirations while delivering sustainable value to all stakeholders.

J&K Bank - Business Strategy

J&K Banks business strategy is anchored on sustainable growth, prudent risk management, superior customer experience and technology-led transformation. The Bank continues to pursue a balanced business model that seeks to strengthen its liability franchise, accelerate quality credit growth, enhance operational efficiency and create long-term value for shareholders while fulfilling its developmental role in the Union Territories of Jammu & Kashmir and Ladakh.

Strengthening the Liability Franchise

In an increasingly competitive deposit environment, the Bank remains focused on strengthening its liability franchise through customer-centric products, relationship- based banking and digital acquisition strategies. Special emphasis is being placed on increasing the share of low- cost CASA deposits, expanding granular retail deposits and strengthening relationships with Government institutions, corporates, educational institutions and MSMEs.

The Bank also aims to leverage digital account opening, Video KYC, specialised deposit products and customised salary account offerings to broaden its customer base across both its home market and the Rest of India (RoI). Continuous product innovation, data-driven customer engagement and improved service delivery will remain key drivers of deposit mobilisation.

Accelerating Quality Credit Growth

The Bank continues to pursue a diversified credit growth strategy with emphasis on retail, agriculture, MSME and carefully selected corporate lending opportunities. The objective is to achieve sustainable growth while maintaining superior asset quality and optimising risk-adjusted returns.

Within the corporate segment, the Bank remains focused on lending to financially strong borrowers with sound credit profiles and investment-grade ratings while maintaining prudent sectoral and geographical diversification. Outside the Union Territories of Jammu & Kashmir and Ladakh, the Bank is expanding its retail lending franchise through strategic partnerships with housing finance companies, NBFCs, Direct Selling Agents (DSAs), builders and co-lending arrangements.

To enhance consistency in credit underwriting and customer experience, designated Large Corporate Branches have been entrusted with the appraisal and processing of high- value corporate credit proposals. This specialised approach is expected to improve credit quality, strengthen risk assessment and enable other branches to focus on retail and MSME business development.

Driving Digital Transformation

Technology continues to remain at the centre of the Banks transformation agenda. The Bank is investing in modernising its technology architecture, strengthening digital capabilities and delivering seamless omni-channel banking experiences.

The Bank offers a comprehensive suite of digital products and services through mobile banking, internet banking, UPI, debit and credit cards, POS terminals, QR-based merchant payments, online account opening, chatbot services, Digital Banking Units and other alternate delivery channels. Strategic collaborations with FinTech partners have further enhanced the Banks digital ecosystem across payments, merchant acquiring, credit cards, FASTag, Bharat Bill Payment System (BBPS) and value-added customer services.

The Bank also continues to automate internal processes, simplify customer journeys and leverage advanced analytics to improve operational efficiency, customer engagement and service delivery.

Enhancing Fee-Based Income

The Bank is placing greater emphasis on expanding noninterest income through cross-selling of financial products and services. Dedicated initiatives have been undertaken to strengthen distribution of insurance, investment and other third-party products through improved customer segmentation, structured sales processes, enhanced employee capability and technology-enabled monitoring.

Increasing product penetration across the existing customer base is expected to improve customer engagement while diversifying the Banks revenue streams and reducing dependence on interest income.

Treasury and Balance Sheet Management

Treasury operations continue to focus on prudent liquidity management, optimal deployment of surplus funds and effective management of interest rate and market risks. The Bank maintains a diversified investment portfolio in accordance with its Board-approved Investment Policy and applicable regulatory guidelines.

Active balance sheet management, disciplined Asset-Liability Management (ALM), regular stress testing and continuous monitoring of market conditions enable the Bank to optimise returns while maintaining adequate liquidity and capital buffers.

Customer-Centric Banking

Customer centricity remains integral to the Banks business philosophy. The Bank continues to strengthen customer engagement through simplified processes, faster service delivery, digital convenience and transparent grievance redressal mechanisms.

Branches are being progressively transformed into relationship-focused sales and service centres, supported by digital channels that provide customers with convenient, secure and personalised banking experiences. Regular customer feedback, structured service quality reviews and continuous process improvements remain central to enhancing customer satisfaction and strengthening longterm customer relationships.

Operational Excellence

The Bank continues to pursue operational excellence through business process re-engineering, workflow automation, centralised processing and technology-enabled decision-making. These initiatives are expected to improve productivity, reduce turnaround time, strengthen internal controls and deliver a superior customer experience while enhancing cost efficiency.

Sustainability and Long-Term Value Creation

The Bank remains committed to creating sustainable value through balanced growth, prudent governance, responsible lending and disciplined capital allocation. Continued investments in technology, people, risk management and customer experience are expected to strengthen the Banks competitive positioning while enabling it to respond effectively to the evolving banking landscape.

Going forward, the Bank will continue to leverage its trusted brand, strong regional franchise, robust capital position and diversified business model to deliver sustainable and profitable growth while contributing meaningfully to the economic development of the Union Territories of Jammu & Kashmir and Ladakh.

J&K Bank Financial Performance w.r.t Operational performance

During the fiscal 2025-26, the total income was recorded at H14,085.04 Crore compared to H13,666.22 Crore for the FY 2024-25 in line with the interest rate scenario, reflecting an increase of 3.06%. Interest income stood at H13,145.19 Crore for the FY 2025-26 as against H12,535.86 Crore for the previous FY recording a YoY increase of 4.86%. The non-interest income was H939.85 Crore for the FY 202526 as against H1,130.36 Crore for the previous FY. Interest expended increased to H7,269.42 Crore in the fiscal 2025-26 from H6,742.04 Crore in the previous fiscal, recording a YoY increase of 7.82%.

The Banks operating expenses stood at H3,829.13 Crore for FY 2025-26 as compared to H3,994.39 Crore for FY 2024-25. Operating Profit stood at H2986.49 Crore for FY 2025-26 as compared to H2,929.79 Crore for FY 2024-25, growth of 1.94% YoY.

NPA Coverage Ratio of the Bank stood at 90.33% as on March 31, 2026 as compared to 90.28% as on March 31, 2025. Gross NPA Ratio stood at 2.50% as on March 31, 2026 as compared to 3.37% as on March 31, 2025. Net NPA Ratio stood at 0.64% as on March 31, 2026 as compared to 0.79% as on March 31, 2025. The Bank posted a Net Profit of H2,363.47 Crore for the financial year ended Mar, 2026 as compared to Net Profit of H2,082.46 Crore during the financial year ended Mar, 2025. The aggregate business of the bank stood at H2,90,334.72 Crore at the end of the financial year 2025-26.

The Bank recorded deposit growth of 11.30% and net advances growth of 17.70% during the Financial Year 2025-26.

Cost of deposits has decreased to 4.70% for FY 2025-26 from 4.75% for FY 2024-25, while, CASA stood at 45.65% for FY 2025-26.

Segment-wise and Product-wise performance of the Bank

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

Deposits	Amount (in Cr.)	Net Advances	Amount (in Cr.)
Demand	17,392.09	Cash Credits, Overdrafts & Demand Loans	33,231.13
Savings	58,086.23	Bills Purchased & discounted	168.86
Term	89,875.68	Term Loans	89,241.02
Total	1,65,354.00	Total	1,22,641.01

• The total deposits of the Bank grew by 16,784.54 Crore from 1,48,569.46 Crore as on 31^st March, 2025 to 1,65,354.00 Crore as on 31^st March, 2026, a growth of 11.30 percent. CASA deposits of the Bank at 75,478.32 Crore constituted 45.65 percent of total deposits of the Bank.

• Average deposits* stood at 1,48,707.90 Crore during FY 2025-26, compared to H1,35,499.71 Crore during FY 2024-25 recording a growth rate of 9.75%

• During the year, Gross Credit increased from 1,06,985.49 Crore (FY 2024-25) to 1,24,980.72 Crore (FY 2025-26), registering a growth of 16.82%.

• Average gross advances* increased by 9,529.10 Crore at H1,08,128.56 Crore during FY 2025-26 compared to H98,599.46 Crore during FY 2024-25. The average yield on advances was 8.98 % for the current fiscal against 9.56% during the previous fiscal.

*Average advances/deposits taken as fortnightly average.

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

Opportunities and Threats:

The Indian banking sector enters FY2026-27 from a position of considerable strength, supported by healthy capitalisation, improved asset quality, resilient profitability and a stable regulatory environment. While heightened geopolitical uncertainties, evolving global trade dynamics and competitive pressures on deposits present near-term challenges, Indias strong macroeconomic fundamentals, sustained public investment and expanding digital economy continue to provide significant opportunities for long-term growth.

Indias medium-term growth outlook remains among the strongest globally, driven by robust domestic consumption, increasing infrastructure investment, favourable demographics, accelerating digital adoption and continued policy reforms. These structural strengths are expected to support sustained credit demand across retail, MSME, agriculture, infrastructure and corporate sectors while expanding opportunities for financial inclusion and formalisation of the economy.

The banking industry is also witnessing structural transformation driven by rapid advances in digital technologies, artificial intelligence, cloud computing, data analytics and digital public infrastructure. These developments are redefining customer expectations and enabling banks to deliver faster, more personalised and cost- effective financial services. Institutions that successfully leverage technology while maintaining prudent risk management and strong governance standards are expected to strengthen their competitive positioning.

However, on the deposit-credit front, RBI has observed that while the banking system remains adequately capitalised and liquid, the divergence between credit and deposit growth warrants close monitoring. A persistently high incremental Credit-Deposit ratio may constrain banks ability to sustain higher credit growth unless supported by stronger liability mobilisation. Traditionally, households relied on banks to park their savings. However, recent trends show a shift towards capital markets and other financial intermediaries, including mutual funds, insurance, and pension products. Although bank deposits remain a dominant component of household financial assets, their share is gradually declining. To bridge the credit-deposit gap, banks are increasingly depending on market borrowings such as CDs and short-term funds. This trend heightens banks sensitivity to interest rate volatility and introduces added liquidity risk. Besides, the continued migration of funds from low-cost CASA deposits to higher-yielding instruments is expected to keep cost of deposits on a higher side, keeping net interest margins (NIMs) under pressure. Banks must therefore enhance their deposit mobilisation strategies, recalibrate asset-liability management, and improve credit pricing and risk assessment practices to safeguard systemic integrity.

Additionally, the increased reliance on technology exposes banks to heightened cybersecurity threats, urging stringent security measures. The RBIs Financial Stability Report flags AI-enabled cyber threats as the leading perceived risk over the next 12 months, with India experiencing a relatively high volume of cyberattacks compared to other emerging market economies. The rise of cyber threats poses a significant risk to the security of financial transactions, demanding robust cybersecurity measures. Another area of concern is the increasing number of digital frauds which not only entail financial losses but also pose substantial reputational and operational risks. Strengthening customer onboarding protocols, real-time transaction monitoring, and suspicious activity detection systems is essential to mitigate these risks and preserve public confidence.

Besides, uncertainties arising from geopolitical tensions, volatility in crude oil prices, evolving global trade dynamics pose some key challenges to Banking sector. The West Asia war has disrupted the key supply chains, raising risks for Indias trade and energy supplies which may adversely impact banking sectors credit growth and potentially increase slippages in various sectors.

Opportunities, nonetheless, remain abundant. Technological innovations offer significant potential to elevate customer service, expand financial inclusion, and enhance internal efficiencies. Collaborations with FinTechs, deployment of AI and machine learning in credit underwriting and risk management, and digitization of backend processes can collectively redefine the future of banking.

Going forward, banks that successfully strengthen their liability franchise, leverage technology to deepen customer relationships, maintain disciplined credit underwriting and diversify revenue streams will be better positioned to deliver sustainable and profitable growth while continuing to support Indias economic development.

Risks & Concerns

Banking is inherently exposed to a wide spectrum of risks arising from macroeconomic developments, financial market conditions, technological evolution, regulatory changes and customer behaviour. Effective identification, measurement, monitoring and mitigation of these risks remain fundamental to preserving financial stability, protecting stakeholder interests and supporting sustainable business growth.

The Bank has established a comprehensive Enterprise Risk Management Framework that integrates risk management into strategic planning, business decision-making and day- to-day operations. The framework is supported by clearly defined governance structures, Board-approved policies, risk appetite statements, internal controls and independent oversight mechanisms.

Macroeconomic and Geopolitical Risks

The global economic environment continues to be characterised by elevated uncertainty arising from geopolitical conflicts, trade fragmentation, volatile commodity prices and financial market fluctuations. Escalation of geopolitical tensions, particularly in energy- producing regions, could adversely impact inflation, interest rates, exchange rate stability and global economic growth, thereby affecting domestic credit demand and asset quality.

Credit Risk

Credit risk remains the most significant risk faced by the Bank. The Bank continues to adopt prudent underwriting standards, comprehensive due diligence processes, sectoral exposure limits, risk-based pricing and continuous portfolio monitoring to maintain the quality of its loan portfolio. Diversification across geographies, industries and borrower segments further strengthens portfolio resilience.

Market and Interest Rate Risk

Fluctuations in interest rates, foreign exchange markets and investment yields may affect the Banks earnings and investment portfolio. The Bank actively manages market risk through robust Asset Liability Management (ALM), duration management, investment limits, stress testing and continuous monitoring of market exposures.

Liquidity Risk

The increasing shift of household financial savings towards capital markets and other investment avenues has intensified competition for deposits across the banking sector. While the Bank continues to maintain comfortable liquidity buffers and diversified funding sources, sustained liability mobilisation and prudent liquidity management remain strategic priorities.

Operational Risk

Rapid digitisation of banking services has significantly enhanced operational efficiency while simultaneously increasing operational complexities. The Bank continuously strengthens internal controls, process automation, business continuity arrangements and operational risk monitoring to minimise disruptions arising from process failures, human errors or external events.

Cyber Security and Technology Risk

Technology has become central to modern banking operations. Alongside increased digital adoption, cyber threats have grown in sophistication and frequency. The Bank continues to strengthen its cyber resilience through advanced security architecture, multi-layered monitoring systems, security operations centres, periodic vulnerability assessments, penetration testing, cyber awareness programmes and continuous enhancement of information security controls.

The Bank also collaborates closely with regulatory authorities, industry forums and specialised cybersecurity agencies to strengthen threat intelligence, incident response capabilities and cyber preparedness.

Climate and ESG Risks

Climate-related risks are increasingly influencing financial markets and banking operations. Physical risks arising from extreme weather events, as well as transition risks associated with the movement towards a low-carbon economy, have the potential to affect borrowers, asset values and business continuity. The Bank continues to integrate environmental, social and governance considerations into its business strategy and risk management framework in line with evolving regulatory expectations.

Regulatory Risk

The banking sector continues to witness significant regulatory developments relating to digital banking, consumer protection, cyber resilience, governance standards, provisioning norms and implementation of the Expected Credit Loss (ECL) framework. The Bank remains committed to maintaining full regulatory compliance while proactively strengthening governance processes and internal capabilities.

Strategic Risk

The evolving competitive landscape, emergence of fintech companies, changing customer preferences and rapid technological advancements require continuous innovation and strategic agility. The Bank regularly reviews its business strategy, capital allocation, product portfolio and operating model to respond effectively to changing market dynamics while preserving long-term shareholder value.

Going forward, the Bank will continue to strengthen its enterprise-wide risk management capabilities through enhanced data analytics, technology-enabled risk monitoring, robust governance practices and a strong risk culture. These initiatives are expected to further reinforce the Banks resilience and support sustainable, risk-adjusted growth over the medium to long-term.

Internal Control Systems and Their Adequacy

The Bank has established a comprehensive internal control framework commensurate with the size, scale and complexity of its operations. The framework is designed to safeguard assets, ensure the integrity and reliability of financial reporting, strengthen regulatory compliance, enhance operational efficiency and support effective risk management across the organisation.

The internal control architecture operates on the principles of accountability, segregation of duties, maker-checker controls, risk-based supervision and continuous monitoring. The framework is supported by Board-approved policies, well-defined operating procedures, technology-enabled control mechanisms and an independent assurance function. Internal controls are continuously reviewed and strengthened to address evolving regulatory requirements, emerging business risks and technological developments.

The Bank follows the internationally recognised Three Lines of Defence model. Business units constitute the first line of defence and are responsible for managing risks within their respective operations. Independent control functions, including Risk Management, Compliance and Information Security, form the second line of defence by establishing policies, monitoring compliance and providing oversight. The Internal Audit function serves as the third line of defence by independently evaluating the effectiveness of governance, risk management and internal control processes.

Oversight of the internal control framework rests with the Board of Directors through its Audit Committee, which periodically reviews the adequacy and effectiveness of internal controls, internal audit findings, regulatory inspection reports, compliance status and corrective action taken by the management. The Committee also monitors the implementation of recommendations arising from statutory audits, Reserve Bank of India inspections and other external assurance engagements.

Technology continues to play an increasingly important role in strengthening the Banks control environment. Automated workflows, system-driven controls, centralised processing, real-time monitoring, exception reporting and data analytics have significantly enhanced operational efficiency while reducing manual intervention and operational risk. Continuous investments in information security, cyber resilience and process automation further reinforce the effectiveness of the Banks internal control framework.

The Bank remains committed to continuously strengthening its governance and internal control environment in line with evolving regulatory expectations, technological advancements and international best practices.

Internal Audit Framework

The Internal Audit function provides independent and objective assurance on the adequacy and effectiveness of governance processes, internal controls and risk management practices across the Bank.

The Internal Audit function is independent of business operations and is headed by the Head of Internal Audit, who reports functionally to the Audit Committee of the Board, thereby ensuring organisational independence and objectivity. Audit observations, significant control deficiencies and management responses are regularly reviewed by the Audit Committee to ensure timely implementation of corrective actions.

The Bank has adopted a comprehensive risk-based audit approach whereby audit coverage, scope and frequency are determined based on the inherent risk profile of business units, operational complexity, business volumes, regulatory requirements and previous audit findings. This approach enables optimal utilisation of audit resources while ensuring greater focus on high-risk areas.

The Internal Audit framework encompasses all business verticals, operational units, centralised processing centres, treasury operations, information technology systems and critical support functions. In addition to evaluating compliance with internal policies and regulatory guidelines, the audits assess the adequacy of internal controls, operational efficiency, risk management practices and governance standards.

Technology-enabled audit tools, data analytics and continuous monitoring techniques are increasingly being deployed to enhance audit effectiveness, improve early identification of emerging risks and strengthen the overall assurance framework.

Risk-Based Internal Audit

Risk-Based Internal Audit (RBIA) continues to be the cornerstone of the Banks assurance framework. The audit methodology aligns with the Reserve Bank of Indias Risk- Based Internal Audit framework and focuses on evaluating key business risks, internal controls and governance processes rather than merely verifying transactions.

Branches and operational units are assigned risk ratings based on a comprehensive assessment of business volumes, asset quality, operational risk, regulatory compliance, fraud vulnerability, previous audit observations and other risk parameters. The frequency and scope of subsequent audits are determined on the basis of these risk assessments, ensuring that audit resources remain focused on areas presenting higher residual risk.

The RBIA framework provides valuable insights into emerging risks, identifies opportunities for process improvements and supports continuous strengthening of the Banks risk governance framework.

Specialised Audit Mechanisms

To provide comprehensive assurance across specialised business functions, the Bank has instituted a multi-layered audit framework comprising specialised audits tailored to different risk domains.

Concurrent Audit provides continuous independent oversight of transactions at identified branches and operational units, enabling early detection of irregularities, strengthening compliance and reducing operational risk.

Credit Audit evaluates the quality of credit appraisal, sanctioning processes, documentation, post-disbursement monitoring and portfolio management for identified credit exposures. The audit provides an independent assessment of credit risk and facilitates timely identification of emerging stress in borrowal accounts.

Information Systems Audit independently evaluates information technology governance, cybersecurity controls, application security, infrastructure resilience, access management and business continuity arrangements. Risk- based Information Systems Audits are conducted across critical applications, technology infrastructure and selected third-party service providers.

Legal Audit examines the enforceability of security documents, compliance with legal requirements and the adequacy of documentation supporting credit exposures, thereby strengthening the Banks legal risk management framework.

Stock Audit supports effective monitoring of working capital advances by independently verifying the quality, quantity and valuation of primary security, assessing end-use of funds and identifying early warning signals of financial stress.

Foreign Exchange Audit evaluates compliance with applicable foreign exchange regulations, internal policies and operational controls governing international banking transactions.

Management Audit provides an independent assessment of organisational effectiveness, governance practices, internal processes and utilisation of resources across business and functional verticals, thereby supporting continuous improvement in institutional performance.

Collectively, these specialised audits strengthen the Banks internal assurance framework, enhance governance standards and contribute to prudent risk management and operational resilience.

Continuous Improvement

The Bank remains committed to continuously enhancing its assurance framework through greater adoption of data analytics, artificial intelligence-enabled audit techniques, automation of audit processes and continuous risk monitoring. The evolving audit framework supports early identification of emerging risks, strengthens governance standards and reinforces stakeholder confidence while contributing to the Banks long-term resilience and sustainable growth.

Human Resources and Industrial Relations

The Bank recognises that its human capital is a critical enabler of sustainable growth, operational excellence and customercentric transformation. In an increasingly technology-driven and competitive banking environment, developing a future- ready workforce with the right skills, capabilities and mindset remains a key strategic priority.

The Bank continues to focus on building a culture of continuous learning, innovation, accountability and service excellence. Employees are encouraged to enhance their professional capabilities through structured learning programmes, specialised certifications, leadership development initiatives and exposure to emerging areas of banking.

The Banks human resource strategy is aligned with its broader business objectives and focuses on optimising workforce productivity, strengthening leadership capabilities, nurturing specialised talent and ensuring effective succession planning across critical roles.

During FY 2025-26, the Bank continued to strengthen employee productivity and operational efficiency. Business per Employee and Net Profit per Employee stood at J23.64 crore and J19.47 lakh, respectively, compared with J20.18 crore and J16.65 lakh during the previous financial year, reflecting improved workforce effectiveness and profitability.

The Bank maintains harmonious industrial relations with employees and their representative bodies through continuous engagement, transparent communication and collaborative resolution of employee-related matters. The Bank remains committed to fostering an inclusive, ethical and performance-oriented work environment.

Learning and Development

In a rapidly evolving banking landscape characterised by digital transformation, changing regulatory expectations and increasing customer sophistication, continuous capability enhancement has become essential.

The Bank has established a comprehensive learning and development framework aimed at strengthening functional expertise, leadership capabilities, risk awareness and technology orientation among employees. Training programmes are designed to support business priorities and equip employees with the skills required for future banking challenges.

During FY 2025-26, approximately 5,500 employees participated in various training programmes covering functional, technical and managerial domains.

• Major areas of training included:

• Banking operations and branch management.

• Credit appraisal, monitoring and risk management.

• Compliance, KYC/AML and regulatory requirements.

• Treasury and financial markets.

• Information security and cyber awareness.

• Digital banking and emerging technologies.

• Leadership and managerial effectiveness.

The Banks Staff Training Colleges at Srinagar and Jammu continue to play a significant role in delivering structured learning interventions. In addition, employees participate in programmes conducted by reputed external institutions to gain exposure to industry best practices and contemporary developments in banking.

The Bank continues to collaborate with premier institutions including:

• National Institute of Bank Management (NIBM)

• Indian Institute of Banking & Finance (IIBF)

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

• State Bank Institute of Leadership

• State Bank Academy

• Indian Institute of Management Jammu

• ASSOCHAM

These collaborations enable employees to enhance domain expertise, leadership capabilities and professional competencies.

Capacity Building and Professional Certifications

The Bank continues to encourage employees to acquire specialised qualifications and professional certifications aligned with evolving banking requirements.

In line with regulatory emphasis on specialised capabilities, employees are encouraged to pursue certifications in critical areas such as:

• Credit risk management.

• Treasury management.

• Compliance and regulatory functions.

• Risk management.

• International trade finance.

• Audit and accounting.

• Information technology and cybersecurity.

• Anti-money laundering.

The Bank provides support for eligible professional certifications and specialised learning programmes to create a strong pool of domain specialists across critical banking functions.

During FY 2025-26, the Bank conducted specialised training- cum-certification programmes aimed at developing internal expertise in key areas including credit, treasury, foreign exchange, risk management, audit and accounting.

These initiatives are expected to strengthen institutional capability, improve decision-making quality and support the Banks long-term strategic objectives.

Digital Learning Ecosystem - e-Pathshala

The Bank continues to strengthen its digital learning ecosystem through e-Pathshala, its Learning Management System (LMS), which provides employees with anytime, anywhere access to structured learning resources.

The platform enables continuous knowledge enhancement through self-paced learning modules, assessments and regulatory updates. During FY 2025-26, additional learning content was introduced in areas including:

• Information security.

• Risk management.

• Treasury operations.

The digital learning platform has significantly enhanced accessibility, flexibility and scalability of employee development initiatives.

Leadership Development and Succession Planning

The Bank recognises effective succession planning as an important component of organisational resilience and leadership continuity.

A structured succession planning framework has been established for critical leadership positions and specialised roles. The framework focuses on identifying competency requirements, assessing internal talent pools and developing future leaders through targeted learning and exposure opportunities.

The Bank continues to invest in leadership development programmes aimed at strengthening strategic thinking, managerial effectiveness and the ability to navigate emerging challenges in the banking sector.

Manpower Planning and Workforce Optimisation

Manpower planning remains a strategic function aimed at ensuring the availability of the right talent, in the right roles, at the right time.

The Bank has undertaken a comprehensive manpower assessment exercise through professional consultants to evaluate workforce requirements, productivity parameters, role alignment and future capability needs.

The assessment takes into consideration:

• Changing business models.

• Increasing digitisation and automation.

• Evolving customer expectations.

• Outsourcing opportunities.

• Future skill requirements.

• Succession planning needs.

The recommendations arising from this exercise are expected to guide workforce optimisation initiatives over the medium term, enabling the Bank to enhance operational efficiency while ensuring availability of specialised capabilities.

The Bank continues to adopt a balanced approach towards workforce management by leveraging technology, automation and process improvements while preserving the value of employee experience, institutional knowledge and customer relationships.

People-First Approach

Going forward, the Bank will continue to focus on building a future-ready workforce through continuous learning, leadership development, technology adoption and employee engagement.

By strengthening human capabilities alongside digital transformation, the Bank aims to create a workforce that is agile, innovative and equipped to deliver superior customer experience while supporting sustainable growth.

Corporate Governance Initiatives

The Bank believes that strong corporate governance is the foundation of sustainable growth, stakeholder confidence and long-term value creation. The Bank continues to strengthen its governance framework by ensuring transparency, accountability, ethical conduct and responsible decisionmaking across all levels of the organisation.

The governance framework of the Bank is guided by the principles of integrity, fairness, accountability and compliance with applicable statutory and regulatory requirements. The Board of Directors, supported by various Board Committees, provides strategic direction, oversees risk management, reviews business performance and ensures effective governance oversight.

During FY 2025-26, the Bank continued to enhance its governance architecture through various initiatives, including:

• Strengthening the effectiveness of Board and Board Committee oversight mechanisms.

• Conducting structured Board evaluation processes in accordance with applicable regulatory requirements.

• Organising customised learning and capacity-building programmes for Directors to enhance their understanding of emerging developments in banking, regulation and governance.

• Continuing efforts towards strengthening Board independence, diversity and effectiveness.

• Reviewing and updating policies and frameworks to ensure alignment with evolving regulatory expectations and industry best practices.

• Enhancing stakeholder engagement through transparent communication and responsible disclosure practices.

The Bank remains committed to maintaining the highest standards of corporate governance and ensuring that its growth objectives remain aligned with responsible banking principles and stakeholder expectations.

Environment, Social and Governance (ESG) Initiatives

The Bank recognises that sustainable banking requires balancing economic objectives with environmental responsibility, social inclusion and strong governance practices. Operating in the ecologically sensitive regions of Jammu & Kashmir and Ladakh, the Bank remains conscious of its responsibility towards sustainable development and inclusive growth.

The Bank has adopted an Environment, Social and Governance (ESG) Policy framework aimed at integrating sustainability considerations into its business strategy, operations and risk management processes.

The ESG approach of the Bank focuses on three broad pillars:

Environmental Responsibility

The Bank continues to promote environmentally responsible practices through increased adoption of digital banking channels, reduction in paper-based processes, energy- efficient operations and promotion of sustainable financing initiatives.

The Bank remains committed to supporting initiatives that contribute towards renewable energy, green financing and environmentally responsible economic development.

Social Responsibility and Financial Inclusion

Financial inclusion continues to remain central to the Banks social responsibility agenda. Through its extensive branch network, digital channels and business correspondents, the Bank continues to expand access to banking services across urban, rural and remote regions.

The Bank actively supports priority sectors including agriculture, MSMEs, education, housing, self-employment and livelihood generation, thereby contributing to inclusive economic growth.

The Bank also continues to undertake initiatives aimed at enhancing financial literacy, customer awareness and responsible banking practices.

Governance and Responsible Business Conduct

Strong governance remains integral to the Banks ESG philosophy. The Bank continues to strengthen ethical practices, regulatory compliance, risk management, cybersecurity, data protection and responsible customer engagement.

The Banks ESG framework seeks to integrate sustainability considerations into business decisions while ensuring longterm value creation for customers, shareholders, employees and the wider community.

Way Forward

The Bank enters FY 2026-27 with a strong balance sheet, improved asset quality, robust regional franchise and a clear strategic roadmap.

The operating environment is expected to remain dynamic, shaped by evolving interest rate cycles, global uncertainties, increasing competition and rapid technological transformation. However, Indias resilient economic fundamentals, continued infrastructure development and expanding digital ecosystem provide significant opportunities for banking growth.

For J&K Bank, the strategic priorities remain centred around:

• Strengthening the liability franchise.

• Expanding high-quality retail and MSME credit.

• Supporting agriculture and regional economic development.

• Enhancing digital banking capabilities.

• Growing fee-based businesses.

• Leveraging technology and analytics.

• Maintaining strong governance and risk discipline.

The Bank remains committed to delivering sustainable growth, improving stakeholder value and strengthening its position as a trusted financial institution.

Cautionary Statement

Certain statements contained in this Management Discussion and Analysis describing the Banks objectives, projections, expectations, estimates, plans or strategies may constitute forward-looking statements within the meaning of applicable securities laws and regulations.

Actual results may differ materially from those expressed or implied due to various factors, including changes in economic conditions, regulatory environment, interest rates, market conditions, geopolitical developments, competition, technology disruptions, customer behaviour, credit quality trends and other risks beyond the Banks control.

The Bank assumes no obligation to publicly update or revise any forward-looking statements based on subsequent developments, events or circumstances.

Readers are advised to exercise appropriate caution while interpreting such statements and rely upon the information contained in this Annual Report, together with other statutory disclosures made by the Bank from time to time.

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

Gross NPA Ratio reduced to 2.50% as on March 31, 2026 from 3.37% as on March 31, 2025, witnessing a decline of 25.81% on YOY basis owing to focused recovery efforts and prudent credit monitoring.

Details of any change in Return on Net worth as compared to the immediately previous financial year along with a detailed explanation thereof.

• The Return on Net Worth stood at 16.85% as of March 31, 2026 as compared to 17.37% as of March 31, 2025.