Jammu and Kashmir Bank Ltd Management Discussions

Management Discussion & Analysis-2025

Global Economic Outlook

The global economy is facing substantial headwinds, emanating largely from an increase in trade tensions, heightened global policy uncertainty and ongoing geopolitical tensions. The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. The broader implications of these tariffs and the individual policy responses of different countries could result in prolonged instability, inefficient global supply chains, a slowdown in international trade and lower investment confidence, ultimately jeopardizing the prospects of global economic recovery.

Intensifying downside risks dominate the outlook, amid escalating trade tensions and financial market adjustments. Divergent and swiftly changing policy positions or deteriorating sentiment could lead to even tighter global financial conditions. Ratcheting up of the trade war and heightened trade policy uncertainty may further hinder both short-term and long-term growth prospects. Scaling back international cooperation could jeopardize progress towards a more resilient global economy.

In its Global Macro Outlook 2025-26 (May Update), Moodys observed that global growth is being hampered by heightened US policy shifts, trade frictions, and financial market volatility. It highlighted that investors and businesses are now recalibrating their global strategies in response to changing geopolitical dynamics-a trend likely to elevate costs and curb investment sentiment. Accordingly, global growth and trade projections have been revised downwards by multilateral agencies. World Bank has projected Growth at 2.3% in 2025, a significant downgrade from previous forecasts. As per IMF report on Global Economic Outlook, global economy is projected to grow at 2.8 percent in 2025.

Disinflationary path is expected to continue but at a slower pace with advanced economies likely to reach their targets earlier than emerging economies. Accordingly, many central banks have pivoted to an easing cycle, while remaining cautious of escalating trade tensions, lingering geopolitical uncertainties, global financial market volatility and climate change risks. Policymakers face the daunting task of suitably calibrating monetary and fiscal policies to support growth, while safeguarding financial and macroeconomic stability. Global cooperation is needed to restore a more stable global trade environment and scale up support for vulnerable countries, including those in fragile and conflict situations.

Domestic Economic Outlook

Amidst a challenging global economic environment, the Indian economy is poised to sustain its position as the fastest growing major economy during 2025-26, supported by pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the governments continued thrust on capital expenditure. As per the data released by National Statistical Office (NSO) of Ministry of Statistics and Programme Implementation (MOSPI), Indias GDP growth during FY2025-26 is estimated at 6.5% which is highest among major economies.

Going forward, economic activity is expected to continue to maintain the momentum in 2025-26.The sustained rural economic activity bodes well for rural demand, while continued expansion in services sector is expected to support the revival in urban demand. Investment activity is expected to improve in light of higher capacity utilization, improving balance sheets of financial and non-financial corporates, and governments capital expenditure push. Trade policy uncertainty continues to weigh on merchandise exports prospects, while the conclusion of free trade agreement (FTA) with the United Kingdom and progress with other countries is supportive of trade activity.

The Reserve Bank of India, in its June Monetary Policy Committee (MPC) meeting has projected the real GDP growth for 2025-26 at 6.5 per cent, The World Bank has pegged Indias economic growth projection at 6.3 per cent for the Financial Year 2025-26, stating that the country is projected to maintain the fastest growth rate among the worlds largest economies. The IMF projects Indias GDP to grow at 6.3% in 2025-26. S&P Global Ratings has lowered Indias GDP growth forecast for 2025-26 to 6.3% from 6.5%. Moodys Ratings lowered Indias GDP growth forecast for 2025 to 6.3%, down from its earlier projection of 6.5%, citing a rise in global policy uncertainty and intensifying trade restrictions. The agency identified geopolitical tensions and global macroeconomic shifts as significant contributors to this downward revision. Despite this, India is still expected to retain its position as the fastest-growing major economy. However, spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth.

The easing of supply chain pressures, softening of global commodity prices and higher agricultural production on the back of a likely above-normal south-west monsoon augur well for the inflation outlook in 2025-26. While food inflation outlook remains soft, core inflation is expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown. The inflation outlook for the year has been revised downwards by RBI from the earlier forecast of 4.0 per cent to 3.7 per cent.

J&K Economy

Jammu and Kashmirs economic trajectory is undergoing a significant transformation, driven by structural shifts, sectoral diversification, and an emphasis on resilience. According to the 2025 Economic Survey Report tabled in the Jammu & Kashmir Assembly, the size of J&K s economy is estimated at Rs.2.65 lakh crore and its real GSDP is estimated to be about Rs.1.45 lakh crore during 2024-25, J&Ks economy is estimated at 7.06% in FY2024-25. GDP for the year 2025-26 has been projected at Rs.2.88 lakh crore, with a growth of 9.5 % during FY2025-26 over the previous year, which signals a promising phase of development. The newly launched rail link connecting the Kashmir Valley with the rest of India is expected to be a game changer for the economy of Jammu and Kashmir by giving much needed boost to tourism and trade. The service is expected to enhance connectivity, streamline supply chains, and facilitate the movement of goods and passengers. It is expected to energise the local economy, with improved connectivity expected to eliminate logistical bottlenecks, reduce spoilage, and attract greater investment. Sustainable growth necessitates an alignment between policy frameworks and global economic trends, fostering technological adoption, and strengthening human capital to build a self-reliant and globally competitive economy.

Five major sectors are contributing to the regions economy, which include agriculture and horticulture, tourism, handicrafts, industries and government jobs. The economy of the UT of J&K is predominately agriculture dependent and nearly 70% of population is directly or indirectly engaged in agricultural and allied occupations which is based on Small Land Holdings. The second sector is tourism, which varies but on average employs about a million people. The third is handicrafts and handlooms, or the artisanal sector, which provides employment to around 4.22 lakh artisans. The handicraft sector plays an important role in the states economic structure, and its high-quality craftsmanship, appealing designs, and functional utility have earned it international fame. Fourth is the industry sector, which is in its early stages of development. About 5 lakh people are employed by the government.

Agriculture remains a cornerstone of Jammu and Kashmirs economy, providing employment to a significant portion of the workforce and ensuring food security. The sector has witnessed substantial progress, particularly with the implementation of the Rs 5,013 crore Holistic Agriculture Development Program (HADP), which aims to modernize farming techniques, boost productivity, and diversify crop production. High-value horticulture produce, including apples, pears, walnuts, almonds etc, contribute significantly to the economy of the region & also present export opportunities. The region accounts for over 70% of Indias total apple production, making it a key contributor to agricultural revenues. The Economic Survey report 2025, has suggested that the Horticulture sector employs 35 lakh people directly or indirectly supporting about seven lakh families.

The tourism sector has also been playing a significant role in the regions economy as it makes an enormous contribution to the regions local economies through job creation and sustainable development. It is the largest service industry in the UT and is significantly contributing to the GSDP.

Banking Sector Outlook

FY2025 was an eventful year for the banking sector. The banking industry witnessed record profitability, declining bad loans, and bolstered capital positions, setting a robust foundation for future growth. This significant improvement underscored the sectors focused efforts in risk management and debt recovery. Sustained credit growth, increased digital adoption, and supportive government policies were instrumental in revitalizing the sector and fortifying its resilience.

With a keen focus on innovation, adaptive strategies, and prudent risk management, the Indian banking sector strives for a future characterized by sustained progress and resilience. Moodys has given stable outlook for Indias banking system, "backed by sound economic growth and strong bank fundamentals". Fitch ratings expects Indian Banks loan growth to rebound to 12%-13% in FY26 on accommodative monetary policy and easing funding conditions

Looking ahead, the outlook for the sector appears positive, supported by a conducive domestic macroeconomic environment that is likely to drive further growth in both credit and earnings. Easing liquidity conditions, decent GDP growth & declining inflation could positively influence lending and deposit activities. RBI in its latest Monetary Policy Report announced to cut Cash Reserve Ratio (CRR) by a huge 1%, in four equal tranches ending November 29, 2025, which will unlock Rs.2.5 lakh crore liquidity to the banking system for lending to productive sectors of the economy. The move is likely to strengthen liquidity in the banking system and improve credit flow to the economy. According to a report, cut in the CRR is expected to create room for additional credit growth of 1.4-1.5 per cent.

Going forward rising geopolitical tensions, global market volatility interest rates and a potential GDP slowdown poses some key challenges to Banking sector. Additionally, the increased reliance on technology exposes banks to heightened cybersecurity threats, urging stringent security measures.

The sectors resilient foundation-strengthened asset quality, robust capitalization, and record profitability-positions it favourably to navigate uncertainties. Indian banks are poised for increased loan growth, fuelled by record profitability, reduced provisions and improved liquidity due to reduction in CRR.

Banking Sector in J&K

Role of banks operating in J&K and Ladakh assumes extra significance as they play a crucial role to bail out the region from economic backwardness and bring in prosperity in all sectors of economy. The institutional structure of banking in J&K consists of several institutions, namely, commercial banks, regional rural banks and co-operative banks. Banks are meeting the financial requirements particularly of the unorganized sector and the self-employed in the micro and small business sectors. To meet the objective of financial inclusion, banks are deepening and broadening their network apart from diversifying domain of their activities and jurisdiction.

There has been notable improvement in the banking services with the increase in the bank branches over the years in J&K. The region has developed a robust banking network with 2197 branches as at the end of March 31, 2025, spread across its nook and corner. The banking sector consists of 37 banks and financial institutions, which includes 12 public sector banks, 11 private sector banks, 10 Cooperative banks, two regional rural banks, one State Financial Corporation and India Posts Payment bank.

The Annual Credit Plan 2024-25 for UT of J&K, which was launched on 1st April,2024, envisaged a total credit target of Rs. 51,839.99 Crore for 16,66,432 beneficiaries. During FY 2024-25 banks operating in UT of J&K have disbursed total credit of Rs. 69,777.77 Crore in favour of 18,43,976 beneficiaries, registering an achievement of 135% in financial terms and 111% in physical terms. This includes disbursement of Rs.36,575.27 Crore in favour of 11,54,988 beneficiaries against the annual target of Rs. 39,765.21 Crore for 13,28,858 beneficiaries under Priority Sector and Rs. 33,202.50 Crore in favour of 6,88,988 beneficiaries against the annual target of Rs .12,074.77 Crore for 3,37,574 beneficiaries under NonPriority Sector thereby registering achievement of 92% and 275% in financial terms respectively.

J&K Bank -Business Strategy

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

Business Process Reengineering initiatives (BPR)

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

Focus on retail lending as well as corporate lending

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

Focus on digital channels

Banking industry is fast transforming from a system driven by conservative delivery channels to a system hugely supplemented by IT enabled alternate delivery channels. The digital vision of the Bank is to provide the facility of seamless digital payments to all its customers in a convenient, easy, affordable, quick & secure manner. The Bank offers various products and services through multiple digital channels to cater to the diverse preferences and needs of its customers. These channels include: Debit Card, Credit Card, Internet Banking, Mobile Banking, UPI, Phone Banking, Online Account Opening, Chatbot, social media, DBUs, and third party partnerships. The Bank has collaborated with various FinTech companies through partnerships or formal agreements for various facilities on its Credit Cards, POS services, FASTag, BBPS services, Loyalty Management, Direct Debit arrangements etc.

Risk Management

Bank has a well-defined and comprehensive risk management framework in place to strengthen its capacity to recognise and address risks. This framework is clearly based on systematic identification and understanding of different risks, disciplined risk assessment, measurement procedures, mitigation and continuous monitoring. Risk Management is an integral part of the Banks organizational structure and plays vital part in formulation of business strategy. It allows greater control in achieving an appropriate balance between acceptable risks and expected returns, while at the same time maintaining the sound financial position. The key components of the Banks Risk Management architecture rely on the risk governance structure, comprehensive processes and internal control mechanism based on approved policies and guidelines.

Liability Mobilization

Bank shall identify different segments of customers and provide them the facilities as per their requirement by introduction of new products & updation of existing products so as to synergize them with the Current market trends and demands. Technology shall be leveraged for launching of specific deposit products wherein online account opening, etc. shall be enabled to target customers preferring digital onboarding. Besides Corporate Salary Package launched by the Bank for employees of the corporates shall be aggressively promoted & renowned private firms/educational institutions will be pursued for onboarding under the Corporate Salary Package.

Liquidity Ris:

Bank has established a comprehensive and proactive liquidity risk management framework to ensure uninterrupted fulfilment of financial obligations, even under stressed market conditions. This framework emphasizes rigorous monitoring of daily cash flows, careful assessment of funding sources and timely forecasting of liquidity requirements. The Bank regularly conducts stress testing across a range of adverse scenarios to evaluate the adequacy of available liquidity buffers. The bank has a well-defined Contingency Funding Plan (CFP) which ensures a bank has adequate sources of liquidity in place to fund normal operations under various contingent liquidity event scenarios. Bank carefully manages and matches the maturities of their assets and liabilities to avoid sudden imbalances in cash flows. These measures enable the bank to mitigate liquidity risk by ensuring that the funds are available as and when needed to meet the financial obligations.

Business Contingency Plan (BCP)

Bank as a part of its Risk Management initiative has established and implemented a BCP framework complying to the requirements of the ISO22301 standard, enabling it to proactively identify any disruptive events which may affect the activities that support the provision of its products and services and thereby put in place arrangements to mitigate the impact of such events. It aims at providing a framework for setting business continuity objectives which includes commitment to satisfy applicable requirements and continual improvement of the management system.

As per the requirements of the ISO 22301, Bank has put in place BCP policy, Business Continuity plan and Business Continuity Management System Scope Document. The main objectives are to minimize financial loss to the institution, continue to serve customers and financial market participants, and mitigate the negative effects of disruptions which can impact the institutions strategic plans, reputation, operations, liquidity, credit quality, market position, and ability to remain in compliance with applicable laws and regulations.

Cyber Security

In todays digital age, the banking industry faces unprecedented cybersecurity challenges. The banking industry faces unprecedented cybersecurity challenges arising from rapid technological advancements. The Bank remains firmly committed to safeguarding customers financial assets, ensuring the integrity of its banking systems, and preserving its reputation by establishing a robust and dynamic cybersecurity framework. To address the risks associated with emerging technologies such as cloud computing, mobile banking, encrypted services, and social media, the Bank is implementing comprehensive systems, policies, governance structures, and response mechanisms.

These measures are designed to effectively identify, prevent, and mitigate cyber threats. The Bank actively coordinates with national and sectoral cybersecurity advisory centres, regulatory bodies, and peer banks to ensure timely sharing of information on existing and potential threats. This collaborative approach enhances situational awareness and supports proactive, preventive, and protective action.

The Bank continues to promote cyber awareness by organizing regular employee training programs and conducting customer-facing security literacy campaigns through electronic and social media channels. These initiatives are aimed at equipping all stakeholders with the knowledge and vigilance required to navigate the digital landscape safely.

Succession Planning

The Bank recognizes the importance of the process to Succession Planning to ensure continuity in the smooth functioning of the organization. The Bank has put in place a policy on Succession Planning for the Board as well as the Senior Management. The policy formalizes a long term and Short term succession plan for a prudent transition process, capable of finding and preparing successors. The Succession planning process involves the identification of Competency requirements of critical roles and leadership positions, assessment of potential candidates and development of required competency through planned development and learning initiatives.

Customer Centricity

The Bank observes customer centricity through service excellence, integrity and transparency, and a comprehensive range of innovative products and services responsive to customer needs to ensure customer satisfaction for retaining existing customers and attracting new customers. For facilitating hassle free escalation of grievances & service requests, Bank has notified various communication channels in the public domain which include on-line grievance portal on website, mPay and eBanking channels where the customer complaints/Service Requests are processed and disposed- off within defined TAT and response/ reply is sent to the complainant/ customer through Portal/ Email/SMS. Root cause analysis of complaints is performed so as to plug the gaps, if any, and avoid recurrence of complaints on similar grounds. The Bank also conducts Customer Advisory Forum (CAF) meetings at all Branches at monthly intervals. These meetings help us obtain first hand feedback about our products and services and in turn facilitate necessary changes/ improvements as per customer expectations.

Economizing Service delivery

It has been the endeavour of Bank to leverage technology for providing convenient digital services to our customers.

Adoption of latest banking technologies not only facilitates better customer experience & ensures customer relationship management but also plays an important role in reduction in cost of operations. Bank has introduced End to End Automation of Phone-Pe Loan to MOU Employees without any manual intervention through Straight through Processing (STP) platform. Bank recently upgraded its mobile banking application J&K Bank mPay Delight Plus which enables customers to view their account, scan QR, transfer funds, open fixed/recurring deposit accounts, apply for loans, pay utility bills, manage credit cards etc. The Bank also undertook deployment of UPI QR Code in mission mode, leading to good presence of our UPI QR Code at merchant locations, particularly in J&K and Ladakh. Besides Bank is expected to widen the ambit of centralization & automation of loan processing by including Housing Loan, SME, Agri, Corporate Loans and Forex & Trade Finance to reduce TaT, increase employee productivity and enrich customer experience. Online Account Opening Facility of the Bank along with Video KYC enables the prospective customers to open a Bank Account 24x7 at their convenience and comfort without any geographical barriers within country and without the need for visiting a Bank Branch.

New Products & Services on the anvil

Review of existing asset/liability products & introduction of fresh products is an ongoing process. This activity is being undertaken by the bank in line with business objectives with due consideration to competitive landscape, micro and macro-economic factors, target customers, socio-economic obligation and likewise. It remains an endeavour on the part of the bank to come up with competitive and customer friendly offerings so as to evade competition and make available innovative product offerings to our customers. Banks Product Development and Approval Policy provides for involvement of multiple functionaries in the product development and approval process, so that the best new offering can be created with due consideration to regulatory and legal aspects, competitive factors, customer demographics, geographical factors etc. Technology shall be leveraged for launching of some deposit products wherein online account opening, etc. shall be enabled to target customers preferring digital onboarding.

Governance Initiatives

Various governance initiatives undertaken taken by the Bank during financial year 2024-25 include the following:

a) Result oriented Performance evaluation of the Directors of the Bank by the Board and committees of the Board.

b) Conduct of customised training / capacity building programmes for the Directors of the Bank in the reputed institutes of learning with a view to enrich the members of the Board.

c) Strengthening of Board Independence and Board Diversity.

d) Increased effective and meaningful stakeholder arrangement.

e) Formulation and review of various policies aimed at reaffirming and re-aligning of Corporate Governance structure of the Bank.

ESG initiatives

Bank, one of Indias oldest Private sector banks, operating in an ecologically fragile region of Jammu Kashmir and Ladakh, is cognizant of its responsibility in steering the Union Territories and the nation towards sustainable development. Environment, Social & Governance (ESG) has become an area of heightened focus and has changed banks outlook towards its business as it aims to align its ESG approach with its strategic goals. Bank has thus adopted "Environment, Social and Governance (ESG) Policy", which seeks to adopt sustainable business practices that ensure accomplishment of Banks long term strategies and have a positive impact on the environment and society. The ESG policy outlines the approach taken to manage Banks Business, environmental and social performance in an integrated manner and help ensure that industry accepted standards and best practices are applied when identifying, assessing and monitoring environmental, social and governance risks with respect to the Banks business operations.

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

During the fiscal 2024-25, the total income was recorded at Rs.13672.67 Crore compared to Rs. 12037.85 Crore for the FY 2023- 24 in line with the interest rate scenario, reflecting an increase of 13.58%. Interest income stood at Rs. 12535.86 Crore for the FY 2024-25 as against Rs. 11212.37 Crore for the previous FY recording a YoY increase of 11.80%. The non-interest income was Rs. 1136.81 Crore for the FY 202425 as against Rs. 825.48 Crore for the previous FY. Interest expended increased to Rs. 6742.04 Crore in the fiscal 2024-25 from Rs. 6008.68 Crore in the previous fiscal, recording a YoY increase of 12.21%.

The Banks operating expenses stood at Rs. 4000.84 Crore for FY 2024-25 as compared to Rs. 3752.29 Crore for FY 202324. Operating Profit stood at Rs. 2929.79 Crore for FY 202425 as compared to Rs 2276.88 Crore for FY 2023-24, growth of 28.68% YoY.

NPA Coverage Ratio of the Bank stood at 90.28% as on March 31, 2025 as compared to 91.58% as on March 31, 2024. Gross NPA Ratio stood at 3.37% as on March 31, 2025 as compared to 4.08% as on March 31, 2024. Net NPA Ratio stood at 0.79% as on March 31, 2024 and March 31, 2025.

The Bank posted a Net Profit of Rs. 2,082.46 Crore for the financial year ended Mar, 2025 as compared to Net Profit of Rs. 1,767.27 Crore during the financial year ended Mar, 2024.

The aggregate business of the bank stood at Rs. 252768.18 Crore at the end of the financial year 2024-25.

The Bank recorded deposit growth of 10.23% and net advances growth of 11.13% during the current year.

Cost of deposits has increased to 4.75 % for FY 2024-25 from 4.57% for FY 2023-24, while, CASA stood at 47.01% for FY 2024- 25.

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	16239.66	Cash Credits, Overdrafts & Demand Loans	31,570.88
Savings	53603.75	Bills Purchased & discounted	181.18
Term	78726.04	Term Loans	72,446.66
Total	148569.46	Total	1,04,198.72

• Total deposits of the Bank grew by Rs. 13793.14 Crore from Rs. 134776.32 Crore as on March 31, 2024 to Rs. 148569.46 Crore as on March 31, 2025, a growth of 10.23% percent. CASA deposits of the Bank at Rs. 69,843.42 Crore constituted 47.01% percent of total deposits of the Bank.

• Average deposits stood at Rs.135499.71 Crore during FY 2024-25, compared to Rs. 1,24,464.97 Crore during FY 2023-24 recording a growth rate of 8.87%

• During the year, Gross Credit increased from Rs. 96,981.86 Crore (FY 2023-24) to Rs. 106985.49 Crore (FY 2024-25), registering a growth of 10.31%.

• Average advances increased by Rs.8354.77 Crore at Rs.98599.46 Crore during FY 2024-25 compared to Rs. 90,244.68 Crore during FY 2023-24.The average yield on advances was 9.56 % for the current fiscal against 9.54% during the previous fiscal.

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

Opportunities and Threats

The banking sector serves as a vital pillar for Indias economic development. Amidst robust macroeconomic fundamentals, favorable demographics, and rapid digitalization, Indias financial ecosystem is poised for transformative growth. Further, macro stress tests done by the Reserve Bank reveal that the banking sector will continue to remain resilient even under stress scenarios. These dynamics, coupled with structural shifts in savings behavior, technological evolution, and regulatory initiatives, are reshaping how banks and financial institutions operate and navigate risks.

Indias financial landscape is undergoing a profound transformation. Advancements in technologies, expanding digital infrastructure, and evolving consumer behavior have significantly altered traditional banking operations. The rise in smartphone usage, deeper internet penetration, and reoriented digital payment systems have enabled institutions to extend services to previously unserved and underserved segments. These demand-side shifts-such as rising customer expectations for seamless, digital-first experiences-combined with supply-side enablers like regulatory support and FinTech innovation, have created new avenues for growth and efficiency. However, the proliferation of alternative business models and technology-enabled platforms also introduces complexity. Institutions are required to adapt to rapid change while safeguarding consumer trust and complying with evolving regulatory frameworks. This dual mandate creates a challenging environment that demands strategic agility and technological resilience.

On the deposit-credit front, a growing divergence between loan growth and deposit mobilization has emerged as a key structural concern. While some gap between the two is expected, the current mismatch-where credit growth significantly outpaces deposit inflows-could lead to potential liquidity constraints. 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.

The continued migration of funds from low-cost CASA (Current Account and Savings Account) deposits to higher- yielding instruments also affects interest margins and financial stability. Banks must therefore enhance their deposit mobilization strategies, recalibrate asset-liability management, and improve credit pricing and risk assessment practices to safeguard systemic integrity.

On the technology front, Cybersecurity has emerged as a critical domain as digital channels dominate service delivery. Indias digital payments ecosystem, particularly the Unified Payments Interface (UPI), has seen exponential growth and is projected to account for 90% of total retail digital transactions by FY27. While this expansion underlines the success of digital adoption, it also elevates the risk of cyber threats. Globally, financial institutions face an upsurge in cyber attacks, necessitating continuous investment in robust cybersecurity architecture and incident response frameworks. 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. Many of these stem from social engineering tactics targeting customers, but an alarming trend is the misuse of mule accounts for laundering illicit funds. These frauds 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.

In the current business environment, outsourcing has become a strategic necessity for banks to remain cost-effective and agile. However, third-party arrangements must be governed by rigorous oversight and due diligence. Banks must institute strong governance mechanisms to monitor vendor performance, data security, and service continuity to ensure that outsourcing does not become a vulnerability.

The banking ecosystem is also contending with regulatory complexities. Changes in compliance requirements- ranging from capital adequacy norms to evolving disclosure standards-necessitate constant organizational alignment.

This shifting landscape can strain operational bandwidth and profitability. Banks must, therefore, establish dynamic compliance functions equipped with modern tools and skilled personnel to remain compliant while maintaining operational efficiency.

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.

Banks and financial institutions are strategically placed to steer Indias next wave of economic advancement. With strong capital buffers, improved asset quality, and healthy profitability metrics, Banks are well-equipped to support the expanding needs of the economy. The emphasis, however, must be on balanced growth-leveraging innovation while maintaining strong governance, sound risk management, and regulatory compliance.

While the Indian banking sector is positioned at the cusp of significant growth, it must navigate a complex landscape of emerging risks and competitive pressures. Success will depend on the industrys ability to harness technology, address liquidity imbalances, fortify cybersecurity, manage operational risks, and adapt to regulatory demands.

Risks & Concerns

Risk is an integral part of banking business. Bank has exerted focused efforts in building a robust, and sustainable risk governance framework and to create risk awareness culture across all tiers of the organizations hierarchy and is continuing to do so. Risk Management underscores the fact that the survival of an organization depends heavily on its capabilities to be proactive and prepare for the change rather than just be reactive for the change. The objective of risk management is not to prohibit or prevent risk taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose and clear understanding so that it can be measured and mitigated.

Bank has a well-defined and comprehensive Risk Management framework in place to strengthen our capacity to recognize and address risks. This framework is clearly based on systematic identification and understanding of different risks, disciplined risk assessment, measurement procedures, mitigation and continuous monitoring. Risk Management is an integral part of the Banks organizational structure and plays vital part in formulation of business strategy. It allows greater control in achieving an appropriate balance between acceptable risks and expected returns, while at the same time maintaining the sound financial position. The Bank has also put in place a Risk Appetite Framework (RAF) that articulates the risk appetite and drills down the same into a limit framework for various risk categories. The Risk Appetite applies to J&K Bank at an enterprise level, branches, offices and other departments.

The key components of the Banks Risk Management architecture rely on the risk governance structure, comprehensive processes and internal control mechanism based on approved policies and guidelines. The risk management policies and procedures established are updated on continuous basis in compliance with RBI guidelines and benchmarked to the best practices. Bank has an independent Risk Management Vertical headed by the Chief Risk Officer, who reports to IRMC of Board and monitors the development and implementation of methodologies for risk identification, assessment, measurement, monitoring and mitigation for all risks. The Board of Directors with its Committee- Integrated Risk Management Committee (IRMC) 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) and stress testing. The Senior Management Committees - Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC) and Market Risk Management Committee (MRMC) for credit risk, operational risk and market risk operate within the broad risk management framework of the Bank to assess and minimize these risks. Information security and business continuity plan also forms part of risk management function in the Bank. Treasury activities are separately monitored by mid office which reports to Risk Management Vertical. The Bank has Stress Testing Policy to measure impact of adverse stress scenarios on the adequacy of capital.

Internal Control and Systems Adequacy

To strengthen effective controls for compliance to systems & procedures and policy decisions on various operational aspects of day-to-day banking, the bank has well defined internal control measures in place which are commensurate to its size as also the complexity of operations. Audit Committee of Board provides directions / oversees the audit function of the bank including the statutory / external audit of the bank and inspections of RBI. It reviews the internal inspections / audit functions of the bank vis-a-vis systems, their quality and effectiveness in terms of follow up. In compliance to RBI guidelines, the Bank has already put in place Audit system to strengthen various measures for effective controls for compliance to systems & procedures and policy decisions on various operational aspects of day- to-day banking. Supervision, Control & Audit department, Corporate Headquarters examines, identifies and finalizes the Branches/ other Operational Offices for the purpose of various Audits from time to time. The vertical is headed by General Manager who is also the Head of Internal Audits (HIA) and has a vast experience of over 35 years in the banking industry. As per the approved Audit Policies, annual audit plans are devised for smooth conduct of various Audits like RBIA, Concurrent Audit, Credit Audit, Legal audit, Information Systems Audit, Stock Audit, etc. The Audits serve as one of the effective tools/modes of (i) early-warning system for detection of irregularities and lapses in daily operations of banks Branches; and (ii) checking recurrence of irregularities, infirmities and deficiencies in banking operations thereby facilitating their detection, diagnosis and initiating desired steps for their rectification, improvement of systems & procedures besides compliance to internal and regulatory guidelines and controlling risks/ preventing frauds. The S, C & Audit department also conducts investigations for various lapses/issues reported from various operative levels and external agencies/complaints. The external agencies include the complaints from customers as well as non-customers, State & Central government agencies, print media, CAG and RBI. In the light of the fast changing dynamics of todays banking environment and in tune with the extant guidelines the bank has adopted Risk Based Internal Audit, which includes, in addition to selective transaction testing, an evaluation of the risk management systems and control procedures prevailing in various areas of the banks operations. The implementation of risk-based internal audit means that greater emphasis is placed on the internal auditors role in mitigating risks. While focusing on effective risk management and controls, in addition to appropriate transaction testing, the risk-based internal audit not only offers suggestions for mitigating current risks but also anticipates areas of potential risks and plays an important role in protecting the bank from various risks. The Branches and other offices of the bank are also subjected to other audits viz Concurrent Audit, Risk based Information Systems Audit, Credit Audit, Legal Audit, Stock Audit, Forex Audit, Risk based Management Audit which form part of the internal control mechanism.

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

Risk Based Internal Audit (RBIA)

S, C and Audit department undertakes review of the operations of branches through Risk Based Internal Audit (RBIA), an adjunct to Risk Based Supervision, as per RBI directives. The Risk Based Internal Audit is conducted for all branches and various offices of the Bank covering the business operations. The said audit covers all active loan & deposit accounts along with other areas aspects of branch management/controls. As such, risk assessment of the branches is carried out by allotting risk weightage to audit areas/observations and based on the risk score calculated, risk rating is assigned to the branches on completion of audit. Accordingly, the frequency of next audits is determined based on the risk rating assigned to the branch in its previous audit.

Credit Audit

The Bank undertakes Credit Audit to review all large value standard borrowal accounts with credit exposure of Rs.5.00 crore & above and 15% sample of accounts with credit exposure of Rs.1.00 crore to less than Rs.5.00 crore are audited yearly on rotational basis so that all accounts are covered within at least 5 years. Credit Audit evaluates portfolio quality including audit of appraisals, sanction and follow-up process on an ongoing basis. The loan review mechanism under credit audit has been designed to provide feedback on effectiveness of credit sanction and identify early deterioration, if any, in eligible borrowal accounts.

Management Audit

Management Audit is a systematic examination of decisions and actions of the management. It involves the review of managerial aspects like organizational objective, policies, procedures, structure, control and system in order to check the efficiency or performance of activities. Management Audit focuses on results, evaluating the effectiveness and suitability of controls vis-a-vis underlying rules, procedures and methods. Management audit is conducted for all the verticals/ departments at Corporate Headquarters and various departments of Zonal offices by in-house auditors.

Foreign Exchange (Forex) Audit

Foreign Exchange business of the Bank being conducted across the country is exposed to a number of risks. Foreign currency prices are subject to change on account of monetary policies of the Reserve Bank and other domestic, international and overall global economic factors. It is an independent assurance to the management about the efficiency and efficacy of risk control measures to mitigate the inherent risks in business activities, evaluation of risk management systems and control procedures, identification of potential risks and suggesting measures for mitigation of risks.

Information Systems (IS) Audit

Information Systems Audit is a part of the overall audit process, which is one of the facilitators for good corporate governance. Information System (IS) audit is a systematic independent examination of the information systems and the environment to ascertain whether the objectives, set out to be met, have been achieved. IS Audit is the process of collecting and evaluating evidence to determine whether a computer system (information system) is safeguarding the assets, maintaining data integrity and operating effectively to achieve organizational goals. IS Audit in the bank is also risk based and is conducted for all branches, various offices/ departments and certain third party suppliers of the Bank covering the business operations. As such, risk assessment of the branches is carried out by allotting risk weightage to audit areas/observations and based on the risk score calculated, risk rating is assigned to the branches on completion of audit. Accordingly, the frequency of next audits is determined based on the risk rating assigned to the branch in its previous audit.

Concurrent Audit

Concurrent audit aims to shorten the interval between a transaction and its examination/monitoring by an independent person and involved in process and documentation of that transaction to ensure sound internal accounting control. The Bank has put in place concurrent audit system carried out round the year 24x7 at selected branches on an ongoing basis. Concurrent audit is an independent appraisal activity conceived as a systematic examination of all financial transactions at branches to ensure accuracy and compliance of internal systems and procedures as laid down by the bank. It aims at minimizing the incidence of serious errors and fraudulent manipulations as it is intended to be undertaken concurrently. The Bank has engaged Chartered Accountant Firms in addition to the experienced retired bank officers and in-service officers for conducting the said audit. Concurrent Auditors are placed at branches/offices to identify shortcomings/irregularities at a very early stage.

Legal Audit

Legal Audit in Bank covers scrutiny of the loan and security related documents of borrowers with credit exposure of Rs.5 crore and above. The legal audit is a control function, carried out by in-house team of internal auditors or through panel advocates to ensure that there are no shortcomings in the documents or creation of security in favour of your Bank. The purpose of Legal Audit is to identify the potential, present and prospective legal problems so that required steps are taken by the bank to safeguard its interests at right time. Legal Audit is a preventive strategy to ensure that the bank while taking securities against a particular loan has not been cheated in any manner whatsoever and the securities offered to, and accepted by the bank, do not suffer any defect related to due diligence, genuineness of the documents and laws relating to creation and enforcement of securities.

Stock Audit

Stock audit is one of the important tools of credit monitoring for the bank. Apart from ensuring safety of realizable security, it helps the bank to discipline the borrower or may act as a warning signal against probable future NPA. Accordingly, for monitoring and ensuring the end use of working capital finance, a system of periodical stock audit has been devised by the Bank, whereby the annual stock audit (including of book debts) is got conducted for all eligible accounts ( Rs.5 crore & above and accounts exhibiting high risk characteristics) as per the existing Stock Audit policy of the Bank. The main objectives of the stock audit are to help the bank to ensure proper end use of bank funds / monitor the funds flow, to determine the sufficiency of the primary security cover for working capital limits & to provide timely inputs about inclinations of malicious borrowers towards diversion of working capital funds and prevention of fraud events.

Human Resources and Industrial relations

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

Business per Employee and Net Profit per Employee were at Rs.20.18 crore and Rs.16.65 lakh respectively for the financial year ended March 31, 2025 compared to Rs.17.81 crore and Rs.13.75 lakh for the financial year ended March 31, 2024.

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, trainings (both on job as well as off job) are imparted to the staff for which services of various Institutes are being utilized.

Banks own Staff Training Colleges at Srinagar and Jammu also cater to the sizeable training needs of the organization. Offline/Online trainings are conducted both in-house as well as at external training institutes. In FY 2024-25, 5760 officials were imparted training in different banking related fields.

• The highest number of trainings were imparted in Credit function where 2153 employees were trained during the year.

• Leadership Development programmes in collaboration with top institutions was conducted for Senior Management of the Bank.

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 below mentioned institutions/ bodies and officers of the Bank regularly participate in the trainings, seminars and workshops organised by them.

i. National Institute of Banking Management (NIBM).

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

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

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

v. Confederation of Indian Industry (CII)

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 taken a step ahead and enlisted courses contemporary to banking landscape as per RBIs guidelines. The officials successfully completing these courses are being reimbursed actual course fee and honorarium in case of Diplomas and MBA (B&F). As many as Seven Diploma courses and Seven 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 Eleven courses have been enlisted in order to develop a resource pool in critical areas viz Risk, Forex, Treasury etc.

1. Certified Credit Professional Course

2. Certified Treasury Professional Course

3. Certified Banking Compliance Professional Course

4. Certified Examination in Risk in Financial Services

5. Diploma in IFRS (DipIFR- International Financial Reporting) by ACCA (Association of Chartered Certified Accountants)

6. The Chartered Financial Analyst Program

7. Certification Course in Foreign Exchange Operations

8. Certified Accounting and Audit Professional

9. Advanced Management Programme in Banking & Finance offered by IIBF (Indian Institute of Banking and Finance)

10. Certified Financial Planner Certification (under Fast Track pathway) offered by FPSB India (Indian Subsidiary of Financial Planning Standards Board Ltd, USA)

11. Anti-Money Laundering Specialist Course" offered by Global Compliance Institute (GCI)

During FY 2024-25, the Bank conducted Training cum Certification exclusively for the employees of the Bank to create a pool of certified resources in sensitive and critical Banking domains of Credit, Forex, Treasury, Risk Management and Audit & Accounting.

e-Pathshala

During FY 2024-25, the Banks e-Pathshala, a software application which is accessible over Internet through PCs & Laptops, in addition to already uploaded courses on Information Security, Information Security, KYC AML Certification, Risk Management, Treasury, International Trade Finance, Credit Monitoring & Credit, new advanced courses on Risk Management and Treasury were uploaded on the system and made available to the employees for enhancing their knowledge.

Manpower Planning

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

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

The man-power Planning is resorted to in a professional manner to ensure proper staffing that is placing the right person at the right position. In order to adopt industry best practices, the Bank hired the services of a consultant (KPMG) for conducting an organization wide manpower assessment in the FY2023- 24. The Bank shall implement the recommendations of the consultant over the period of next 3-5 years to support Banks various initiatives involving Succession planning, expansion etc. Based on the recommendations of the consultant, the Long term manpower planning shall be primarily driven by Technology maturity, outsourcing and automation of processes which shall be achieved in phased manner over the course of next 3 to 5 years.

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

Nil.