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Jammu and Kashmir Bank

BSE: 532209|NSE: J&KBANK|ISIN: INE168A01041|SECTOR: Banks - Private Sector
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Mar 15
Accounting Policy Year : Mar '16
1.  Basis of preparation of Financial Statements
 
 The accompanying financial statements are prepared on historical cost
 basis, except as otherwise stated, following the Going Concern
 concept and conform to the Generally Accepted Accounting Principles
 (GAAP) in India, applicable statutory provisions, regulatory norms
 prescribed by the Reserve Bank of India (RBI), applicable mandatory
 Accounting Standards (AS)/Guidance Notes/pronouncements issued by the
 Institute of Chartered Accountants of India (ICAI) and practices
 prevailing in the banking industry in India.
 
 2.  Use of Estimates
 
 The preparation of financial statements requires the management to make
 estimates and assumptions for considering the reported assets and
 liabilities (including contingent liabilities) as on the date of
 financial statements and the income and expenses for the reporting
 period. Management believes that the estimates used in the preparation
 of the financial statements are prudent and reasonable.
 
 3.  Transactions involving Foreign Exchange
 
 i. Monetary Assets and Liabilities as on balance sheet date have been
 translated using closing rate as at year-end announced by Foreign
 Exchange Dealers Association of India.
 
 ii. Exchange differences arising on settlement of monetary items have
 been recognized as income or as expense in the period in which they
 arise.
 
 iii. The premium or discount arising at the inception of a forward
 exchange contract, which is not intended for trading purpose, has been
 amortized as expense or income over the period of contract.
 
 4.  Investments
 
 i. Investments are classified into Held-to-Maturity,
 Available-for-Sale and Held-for-Trading categories, in accordance
 with the guidelines issued by Reserve Bank of India.
 
 ii.  Bank decides the category of each investment at the time of
 acquisition and classifies the same accordingly.
 
 iii. Held-to- Maturity category comprises securities acquired by the
 Bank with the intention to hold them up to maturity. Held-for-Trading
 category comprises securities acquired by the Bank with the intention
 of trading.  Available-for-Sale securities are those, which do not
 qualify for being classified in either of the above categories.
 
 iv. Investments classified as Held-to-Maturity (HTM) category are
 carried at acquisition cost unless it is more than the face/redemption
 value, in which case the premium is amortized over the period remaining
 to the maturity using straight line method.
 
 v. (a) The individual scrip''s in the Available-for-Sale category are
 marked to market at quarterly intervals. The net depreciation under
 each of six classifications under which investments are presented in
 the balance sheet is fully provided for, whereas the net appreciation
 under any of the aforesaid classifications is ignored.
 
 (b) The market value for the purpose of periodical valuation of
 investments, included in Available for Sale and Held for trading
 categories is based on the market price available from the
 trades/quotes on stock exchanges. Central/State Government securities,
 other approved securities, debentures and Bonds are valued as per the
 prices/YTM rates declared by FIMMDA.
 
 (c) Unquoted shares are valued at break-up value ascertained from the
 latest balance sheet (which should not be more than one year prior to
 the date of valuation) and in case the latest balance sheet is not
 available the same are valued at Rs.1/- per Company, as per RBI
 guidelines.
 
 (d) Security receipts (SRs) issued by Asset Reconstruction Companies
 (ARCs) are valued at cost or NAV, whichever is lower, declared
 periodically by the ARCs. Depreciation, if any, in individual SRs is
 fully provided for. Appreciation, if any, is ignored.
 
 (e) Investment in quoted Mutual Fund Units is valued as per Stock
 Exchange quotations. An investment in un- quoted Mutual Fund Units is
 valued on the basis of the latest re-purchase price declared by the
 Mutual Fund in respect of each particular scheme. In case of Funds with
 a lock-in period, where repurchase price/market quote is not available,
 Units are valued at NAV. If NAV is not available, then these are valued
 at cost, till the end of the lock-in period. Wherever the re-purchase
 price is not available the Units are valued at the NAV of the
 respective scheme.
 
 vi. The individual scrip in the held-for-trading category are marked
 to market at monthly intervals and the net depreciation under each of
 the six classifications under which investments are presented in the
 Balance Sheet is accounted for in the Profit and Loss account and
 appreciation is ignored.
 
 vii. The depreciation in value of investments where interest/principal
 is in arrears is not set-off against the appreciation in respect of
 other performing securities. Such investments including Non-performing
 Non-SLR investments are treated applying RBI prudential norms on NPA
 Classification and appropriate provisions are made as per RBI norms and
 no income on such investments is recognized.
 
 viii.  (a) Profit or Loss on sale of Government Securities is computed
 on the basis of weighted average cost of the respective security.
 
 (b) Profit or loss on sale of investments in any category is taken to
 the Profit and Loss account. In case of profit on sale of investments
 in Held-to-Maturity category, an equivalent amount of profit net of
 taxes is appropriated to the Capital Reserve Account, ix.  Interest
 accrued up to the date of acquisition of securities i.e. broken period
 interest is excluded from the acquisition cost and recognized as
 interest expense. Broken period interest received on Sale of securities
 is recognized as interest income.
 
 x. Brokerage paid on securities purchased is charged to revenue account
 except for equity investment operations the same is added to the cost
 of purchase of investment.
 
 xi.  Investments in J&K Grameen Bank/Sponsored Institutions have been
 accounted for on carrying cost basis.
 
 xii. Transfer of securities from one category to another is done at the
 least of the acquisition cost/book value/market value on the date of
 transfer.
 
 xiii.  Repurchase & Reverse repurchase transactions are accounted for
 in accordance with the extant RBI guidelines.
 
 xiv.  Bank is following settlement date accounting policy.
 
 In accordance with RBI circular No. IDMD 4135/11.08.43/2009-10 dated
 23-03-2010, the Bank has made changes in accounting for Repo/ Reverse
 Repo transactions (Other than transactions under the liquidity
 adjustment facility (LAF) with the RBI).  Accordingly the securities
 sold and purchased under Repo/Reverse Repo are accounted for as
 collateralized lending and borrowing transactions. However, securities
 are transferred as in case of normal outright sale/purchase
 transactions and such movement of security is reflected using
 Repo/Reverse Repo accounts and contra entries. The above entries are
 reversed on the date of maturity. Cost and revenue are accounted as
 interest expenditure/Income as the case may be. Balance in Repo account
 is classified under schedule 4 (Borrowing) and balance in Reverse Repo
 account is classified under schedule 7 (Balance with Banks & money at
 call & short notice).
 
 5.  Advances
 
 i) Classification of Advances and Provisions thereof have been made as
 per the Income Recognition and Asset Classification norms formulated by
 the RBI viz., Standard, Sub-Standard, Doubtful and Loss Assets and
 accordingly requisite provisions have been made thereof.
 
 ii) Advances are shown net of provisions required for NPA''s. Provisions
 for advances classified as Standard Assets is shown under Other
 Liabilities & Provisions.
 
 iii) Restructuring of Advances and provisioning thereof have been made
 as per RBI guidelines.
 
 6.  Fixed Assets
 
 a) Premises and other fixed assets are accounted for at historical
 cost.
 
 b) Premises include free hold as well as lease hold properties.
 
 c) Premises include capital work in progress.
 
 d) Depreciation is charged on straight line method as per provisions of
 Companies Act 2013 based on the useful life of the assets prescribed in
 Part C of the schedule II of the Companies Act 2013 as given hereunder.
 
 7.  Employees Benefits
 
 i) Short-term employee benefits are charged to revenue in the year in
 which the related service is rendered, 
 
 ii) Long Term Employee Benefit
 
 iii) Defined Contribution Plan
 
 (a) Provident Fund: Provident Fund is a defined contribution scheme as
 the bank pays fixed contribution at pre-determined rates. The
 obligation of the Bank is limited to such fixed contribution .The
 contributions are charged to profit & loss A/C .The bank is paying
 matching contribution towards those employees who have not opted for
 the pension, 
 
 iv) Defined Benefit Plan
 
 (a) Gratuity: Gratuity liability is a defined obligation and is
 provided for on the basis of an actuarial valuation. The scheme is
 funded by the bank and is managed by a separate trust.
 
 (b) Pension: Pension liability is a defined benefit obligation and is
 provided for on the basis of an actuarial valuation. The scheme is
 funded by the bank and is managed by a separate trust.
 
 (c) Leave Salary: Leave salary is a defined benefit obligation and is
 provided for on the basis of an actuarial valuation determined on the
 basis of un-availed privilege leave of an employee at the time of
 leaving services of the company.
 
 8.  Income Recognition and Expenditure booking
 
 Income and expenditure is accounted for on accrual basis unless
 otherwise stated.
 
 a) Interest and other income on advances/ investments classified as Non
 Performing Advances/ investments are recognized to the extent realized
 in accordance with the guidelines issued by the Reserve Bank of India.
 
 b) The recovery in Non-Performing Assets has been first appropriated
 towards amount of principal and thereafter towards amount of interest.
 
 c) Interest on overdue term deposits is provided at Savings Bank Rate
 of Interest.
 
 d) Fee, commission (other than insurance commission & Government
 business), exchange, locker rent, insurance claims and dividend on
 shares and units in Mutual Fund are recognized on realization basis.
 
 e) Income from interest on income tax/ other tax refunds is accounted
 for on the basis of orders passed by the Competent Authorities.
 
 f) Unforeseen income/ expenses are accounted for in the year of
 receipt/ payment.
 
 g) Stationery issued to branches has been considered as consumed.
 
 9.  Credit Card reward Points
 
 The Bank has estimated the probable redemption of reward points by not
 using actuarial method but has made 100% provision for redemption
 against the loyalty points as on the reporting date.
 
 10.  Profit
 
 The net profit is disclosed in the profit and loss account after
 providing for: 
 
 i) Income Tax, wealth tax and Deferred Tax.
 
 ii) Standard Assets, Non Performing Advances/ Investments as per RBI
 guidelines.
 
 iii) Depreciation/ amortization on Investments.
 
 iv) Transfer to contingency fund.
 
 v) Other usual and necessary provisions.
 
 11.  Taxation
 
 Provision for tax is made for both current and deferred taxes in
 accordance with As-22 on Accounting for Taxes on Income.
 
 12.  Contingency Funds
 
 Contingency Funds have been grouped in the Balance Sheet under the head
 Other Liabilities and Provisions.
 
 1.  Reconciliation/adjustment of inter-bank/inter-branch transactions,
 branch suspense, Government Transactions, NOSTRO, System Suspense,
 Clearing, and Sundry Deposits is in progress on an ongoing basis. The
 impact, in the opinion of the management of the un-reconciled entries,
 if any, on the financial statements would not be material.
 
 2.  Tax paid in Advance/ Tax deducted at source includes amount
 adjusted by Income Tax Department in respect of various disputed
 demands. Based on the favorable appellate orders and interpretation of
 law, no further provision has been considered by the management in
 respect of the disputed demands.
 
 3.  Fixed Assets:
 
 a) Documentation formalities are pending in respect of two immovable
 properties held by the bank valued atRs.1.10 crores (previous year
 Rs.1.12 crores). Depreciation in respect of immovable properties valued
 at Rs.15.68 crores (previous year Rs.16.02 crores) bank holds agreement
 to sell along with the possession of the properties.
 
 b) Depreciation is provided on straight line method in accordance with
 the provisions of Companies Act 2013 based on the useful life of the
 assets prescribed in Part C of the Schedule II of the Companies Act
 2013. However the depreciation on computers (including ATMs) along with
 software forming integral part of the computers is computed at 33.33%
 on straight line method in terms of RBI guidelines issued vide letter
 no BP.1660/21.04.018/2001 dated 01.02.2001.
 
 c) In compliance to Accounting Standard (AS-26) the acquisition cost of
 computer software, not forming integral part of the computers and where
 it is probable that the future economic benefits that are contributable
 to this software will flow to bank, is being capitalized and
 depreciation is charged at the rate of 33.33% on straight line method
 in terms of RBI guidelines.
 
 d) Further useful life of mobile phones is continued to be 2 years and
 the depreciation is charged on straight line method as per provisions
 of Companies Act 2013 with no residual value.
 
 e) Depreciation on Banks property includes amortization in respect of
 leased properties amounting to Rs.0.14 Crores (previous year Rs.0.14
 Crores)
 
 Investments
 
 5.  The Bank has made no profit on sale of HTM category securities
 during the year, as such no appropriation was made (Previous Year,
 Rs.Nil) to Capital Reserve Account.
 
 6.  The Bank has Rs.70,00,000 as share capital (previous year
 Rs.70,00,000) and Rs.44,97,47,715 in share capital deposit account
 (previous year Rs.44,97,47,715) in its sponsored Regional Rural Bank
 (J&K Grameen Bank).
 
 7.  The total investment of the Bank in the Met-life India Insurance Co
 Pvt. Ltd stood at Rs.102.19 Crores as on 31.03.2016 (Previous year
 Rs.102.19 Crores). In compliance with RBI Letter No.
 DB0D.BP/-17099/21.4.141/ 2008-09 dated 9th Apri 2009, the investment
 stands transferred to AFS Category on October 1st, 2009. The valuation
 has been carried out at an average of two independent valuation reports
 obtained from Category I Merchant Bankers as per RBI guidelines & the
 consequent appreciation has been ignored in view of the Accounting
 Policy in respect of such investments.
 
 10.2 Sale and Transfers to/from Held to Maturity (HTM) Category
 
 a) Bank has not sold any HTM category securities during the year
 (previous year nil) as such no appropriation was made to Capital
 Reserve Account.
 
 b) With the approval of the Board of Directors, the Bank has shifted
 securities amounting to Rs.753.75 Cr (FV) on 08/06/2015 (Previous year
 Rs.370.00 Cr) at lower of book value or market value, scrip wise, from
 Held to Maturity (HTM) to Available for Sale (AFS) category in
 accordance with RBI guidelines.
 
 c) On the basis of special dispensation being allowed by the Reserve
 Bank of India vide its Circular No. DBOD.No.BP.
 BC.42/21.04.141/2014-15, dated 07/10/2014 & Circular
 No.DBR.No.BP.BC.65/21.04.141/2015-16, Dated 10/12/2015, the Bank
 undertook shifting of Govt. Securities having face value of Rs.650 Cr &
 825 Cr on 02/09/2015 & 01/01/2016 respectively from HTM to AFS
 Category.
 
 d) The value of sales and transfer of securities to/from HTM category
 (excluding the exempted transfer) did not exceed 5% of book value of
 the investment in HTM category at the beginning of the year.
 
 11.3 Disclosures on Risk exposures in derivatives
 
 a) Qualitative Disclosures
 
 The only derivatives traded by the Bank in the foreign exchange market
 are forward contracts. Forward contracts are being used to hedge /cover
 the exposure in foreign exchange arising out of Merchant transactions
 and trading positions.
 
 To cover the risks arising out of above derivatives, various limits
 like AGL, IGL and stop loss have been prescribed in the trading policy
 of the bank which are monitored through VaR.
 
 Outstanding forward exchange contracts held for trading are revalued at
 the exchange rates for appropriate maturity rates as announced by FEDAI
 at the year-end exchange rates and the resultant gain/ loss is taken to
 revenue.
Source :
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