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Jammu and Kashmir Bank

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Directors Report Year End : Mar '17    Mar 16

To the Members,

The Board of Directors has pleasure in presenting the 79th Annual Report of your Bank, together with the audited Balance Sheet, Profit and Loss Account and the report on business and operations for the year ended 31st March, 2017.

Performance at a Glance

- The aggregate business of the bank stood at Rs.112279.20 Crore at the end of the financial year 2016-17.

- The total deposits of the Bank grew by Rs. 3072.84 Crore from Rs. 69390.25 Crore as on 31st March, 2016 to Rs.72463.09 Crore as on 31st March, 2017, a growth of 4.43 percent. CASA deposits of the bank at Rs. 37460.16 Crore constituted

51.70 percent of total deposits of the bank.

- Cost of deposits for current FY stood at 5.87 percent.

- The net advances of the Bank stood at Rs. 49816.11 Crore as on 31st March, 2017.

- Yield on advances for the current FY stood at 10.02 percent.

- Priority sector advances (Gross) stood at Rs. 15317.24 Crore as on 31st March, 2017.

- The bank effected cumulative cash recovery, up-gradation of NPA’s and technical write-off of Rs. 1647.02 Crore during FY 2016-17.

- Investment portfolio of the bank stood at Rs. 21290.89 Crore as on 31st March, 2017.

Insurance Business

The bank earned an income of Rs. 32.82 Crore from the Insurance Business. The bank mobilized business of Rs. 210.46 Crore and Rs. 145.89 Crore during the year in life and non-life insurance segments respectively.

Income Analysis

- The Interest income of the bank stood at Rs. 6685.80 Crore in the year 2016-17. Interest expenses stood at Rs. 4173.86 Crore for FY 2016-17. The Net Interest Income stood at Rs.2511.94 Crore for FY 2016-17

- The Net Income from operations [Interest Spread plus Non-interest Income] stood at Rs. 3004.80 Crore in the financial year 2016-17.

- The Operating Expenses registered an increase of Rs.164.26 Crore during the financial year 2016-17 and stood at Rs. 1710.46 Crore as compared to Rs.1546.20 Crore in 2015-16.

- The Cost to Income ratio (Operating Expenses to Net Operating Income) stood at 56.92 percent in the financial year 2016-17.

Gross Profit

The Gross Profit for the financial year 2016-17 stood at Rs.1294.34 Crore.

Provisions

The Provision for Loan Losses, Standard Assets, Taxation and others aggregated to Rs. 2926.63 Crore in the financial year 2016-17.

Net Profit/Loss

The bank registered a Net loss of Rs. 1632.29 Crore for the financial year 2016-17.

Branch/ATM Network

During the financial year 2016-17, 8 new branches were established, thereby taking the number of branches to 865 as on 31-03-2017, spread over 20 states and one union territory. The area-wise breakup of the branch network (excluding extension counters/ mobile branches and Service branches) on the basis of census 2011 as at the end of FY 2016-17 is as under:

Area Branches

Metro 167

Urban 101

Semi-Urban 146

Rural 451

Total 865

During the financial year 2016-17, 90 ATMs were commissioned thereby taking the number of ATMs to 1096 as on 31.03.2017.

Net Worth and Capital Adequacy Ratio (CRAR)

- The Net Worth of the bank stood at Rs. 5676.50 Crore on 31st March 2017.

- Capital Adequacy Ratio under Basel III stood at 10.80 percent as on March, 2017. The tier I component of CRAR is 8.70 percent as on 31st March 2017. Book Value per Share for the financial year 2016-17 stood at Rs. 116.80.

Advertising and Publicity

Promoting our brand image proactively, we successfully positioned our brand image deep within the evolving public consciousness thereby enhancing our brand value during the financial year 2016-17. The bond of trust between stakeholders and the bank was further cemented through effective and needful messaging at relevant junctures throughout the financial year.

The bank''s products, services and facilities were successfully advertised across the operational geographies. Besides it''s functioning and achievements were effectively communicated to the respective target audiences including customers, share-owners, stakeholders and general public through customized and efficiently packaged messages using relevant multi-media outlets across the country. Leveraging its presence in the social-media universe, the bank firmed up its online presence further to enhance its brand image using highly popular mediums of social connectivity platforms like Face book and Twitter.

Subsidiary Company

As on March 31, 2017, your Bank has one unlisted Subsidiary, JKB Financial Services Limited (JKBFSL).Salient features of the financial statement of JKBFSL are attached herewith as Annexure 5.

Performance and Financial Position of JKBFSL

The operating income of the Company for the year ended 31st March, 2017 stands at Rs. 438.62 lacs. Other incomes of the company stood at Rs. 88.12 lacs. The Total income of the Company for the year ended 31st March, 2017 stood at Rs. 526.75 lacs. The net loss of the company for the financial year ended 31st March, 2017 stood at Rs. 48.37 Lacs, increased its accumulated net loss to Rs. 360.34 lacs as on 31st March, 2017.

Regional Rural Bank sponsored by J&K Bank:

J&K Grameen Bank

The J & K Grameen Bank has come into existence on 30th June 2009 with the issuance of statutory notification by GoI, MoF, Department of Financial Services under sub-section (1) of section 23 (A) of the Regional Rural Banks Act, 1976 vide F. No. 1/4/2006-RRB providing for amalgamation of Kamraz Rural Bank and Jammu Rural Bank into a single new Regional Rural Bank under the name of J & K Grameen Bank with its Head Office at Jammu and has commenced business effective from 01.07.2009.

Area of Operation:

The area of operation of the J&K Grameen Bank comprises of 13 districts of the State viz. Baramulla, Bandipora, Kupwara, Jammu, Kathua, Rajouri, Poonch, Leh, Kargil, Samba, Kishtwar, Ganderbal and Srinagar.

No. of Branches (as on 31-03-2017): 217

No. of Employees (as on 31-03-2017): 925

Capital Structure:

In terms of the RRBs Act 1976, the authorized capital of Regional Rural Banks was fixed at Rs.5.00 Crore (which stands amended to Rs. two thousand crore in terms of the Regional Rural Banks (Amendment) Act, 2015 notified in the Gazette of India on 12-05-2015). The issued and paid up capital of the J&K Grameen Bank is Rs.97.16 Crore fully subscribed by the

Central Government, State Government and Sponsor Bank in the ratio of 50:15:35 respectively. The details are tabulated hereunder:

1.

Authorized Share Capital

Rs.2000 Crore

2.

Subscribed / Paid up Share Capital

Rs.97.16 Crore

Central Government (50%)

Rs.48.58 Crore

State Government (15%)

Rs.14.57 Crore

Sponsor Bank (35%)

Rs.34.01 Crore

Tier II perpetual bonds Out of total cost outlay of Rs. 23.34 Crores for implementation of 100% CBS by JKGB, 50% i.e., Rs. 11.67 crore has been shared by J&K Bank (Sponsor Bank).

Date of issue: 04-12-2014

Performance of the Bank as on 31.03.2017 (Un-audited)

Business:

The total business of the bank as on 31st March 2017 stood at Rs. 4633.97 crore against Rs.4171.37 crore as on 31st March 2016, thereby showing an increase of Rs. 462.60 crore registering a growth of 11.09% during the year 2016-17.

Deposits:

The deposits of the bank have increased from Rs. 2833.84 crore to Rs.3230.42 crore (unaudited) during the year 2016-17 thereby registering a growth rate of 13.99%.

Advances:

The gross advances of the Bank as on 31st March 2017 stood at Rs.1403.55 crore (unaudited) as against Rs.1337.53 Crore as on the corresponding date of the previous year recording a growth of 4.94%

CD Ratio:

The C.D. Ratio of the bank has decreased by 3.75% from 47.20% as on 31st March 2016 to 43.45% as on March 31, 2017 Priority Sector Advances:

The priority sector advances outstanding as on 31st March 2017 stood at Rs. 1054.48 crore against 986.06 crore outstanding as on 31st March 2016, registering a growth of 6.94% (Rs. 68.42 crore) on YoY basis.

The priority sector advances at Rs. 1054.48 crore as at the end of the FY 2015-16 constitute 75% of total advances, which is as per the prescribed benchmark of 75% for RRBs.

NPA Position:

The gross NPAs of the Bank as on 31.03.2017 stood at Rs.175.92 crore i.e. 12.53% (un-audited) of gross advances. The Net NPAs as on 31.03.2017 stood at Rs.110.54 crore which accounts for 8.26% (un-audited) of net advances.

Business per Employee:

The business per employee as on 31st March 2017 stood at Rs.5.01 crore against Rs.4.24 crore as on corresponding date of the previous year recording a growth of 18.16%.

Business per Branch:

The business per branch as on 31st March 2017 stood as Rs. 21.35 crore against Rs.19.22 crore as on corresponding date of the previous year recording a growth of 11.08%.

Profitability:

Against Net profit of Rs.2.80 crore recorded as at the end of the previous FY 2015-16, there is a net Loss of Rs. 8.28 crore as on 31st March 2017.

Lead Bank Responsibility

a. Convener JKSLBC

The J&K Bank is the only Private Sector Bank in the country assigned with the responsibility of convening State Level Bankers'' Committee meetings. The Bank continued to discharge its Lead Bank responsibility in 12 districts i. e Srinagar, Ganderbal, Budgam, Baramulla, Bandipora, Kupwara, Anantnag, Kulgam, Pulwama, Shopian, Poonch and Rajouri out of 22 districts of J&K State satisfactorily. The other 10 districts i. e Jammu, Samba, Kathua, Udhampur, Reasi, Doda, Ramban, Kishtwar, Leh and Kargil are managed by State Bank of India.

The State Annual Credit Plan (ACP) for the FY 2016-17 was launched in time and its implementation was monitored on quarterly intervals in State Level Bankers'' Committee meetings. During the FY 2016-17 Banks have extended a total credit of Rs.16,802.34 Crore in favour of 5,53,975 beneficiaries (both under Priority as well as Non-priority Sector) against annual target of Rs.27,649.47 Crore for 12,42,750 beneficiaries under Annual Credit Plan 2016-17, thereby registering achievement of 61% in financial terms and 45% in physical terms.

This includes Priority Sector credit of Rs.9,331.49 Crore disbursed in favour of 3,55,838 beneficiaries against the annual target of Rs.18,267.84 Crore for 9,39,363 beneficiaries (constituting 51% achievement in financial terms and 38% in physical terms) and Non-Priority Sector credit of Rs.7,470.85 Crore disbursed in favour of 1,98,137 beneficiaries against annual target of Rs.9,381.64 Crore for 3,03,387 beneficiaries (constituting achievement of 80% in financial and 65% in physical terms).

Out of the total Priority Sector credit of Rs.9,331.49 Crore disbursed by all banks in the State during FY 2016-17 upto 31st March 2017, J&K Bank alone has disbursed Rs.6,260.38 Crore against the target of Rs.10,151.38 Crore, thereby achieving 62% of its annual ACP target which accounts for a share of 67% of the total flow of credit to priority sector by all banks together in the State during FY 2016-17

During FY 2016-17, following meetings were conducted:

- Three J&K State Level Bankers Committee (SLBC) meetings, viz. 101th, 102nd and 103rd were held on 30th May, 2016, 24th November, 2016 and 2nd March, 2017 respectively.

- Two Special meetings of J&K SLBC to discuss implementation of the Relief Measures in the areas affected by Riots/ Disturbances in J&K State, were held on 8th September, 2016 and 13th December, 2016.

- A Special Meeting of J&K SLBC for Digital Banking was held on 21st December 2016.

- A meeting of Sub-Committee of Empowered Committee on MSMEs was held on 4th May, 2016.

- A meeting of the Sub-Group on Area Development Schemes in J&K State was held on 31st August, 2016.

- A meeting of Chairman & CEO, J&K Bank with all Lead District Managers in J&K State was held on 25th November, 2016.

- A meeting of Steering Sub-Committee of J&K SLBC to monitor IT-enabled Financial Inclusion, FLCCs, & Credit Plus Activities was held on 25th January, 2017.

- A meeting of the Sub-Committee of SLBC to approve Annual Credit Plan for FY 2017-18 was held on 29th March, 2017

b. Implementation of Financial Inclusion Plan (FIP)

- The target for providing Information & Communication Technology (ICT)-based banking services in the 795 and 5582 identified unbanked villages (having population over 2000) in Phase-I and (villages with population below 2000) in phase II of Financial Inclusion Plan was accomplished successfully by providing coverage to all the identified villages.

- The Roadmap for providing banking services through Branches/ BCs/ Other Modes in the villages with population less than 2000 was initiated as per the regulatory requirements of RBI. Accordingly 5582 villages (having population below 2000) were identified and allocated to five Financial Inclusion participating banks, viz. J&K Bank (3271 villages), SBI (753 villages), Punjab National Bank (294 villages), J&K Grameen Bank (1026 villages) and EDB (238 villages) for providing banking service coverage within the scheduled timeline of August 14, 2015. All the villages were covered through various modes of banking as per the prescribed timeline.

- Roadmap for opening “Brick & Mortar” branches in the villages with population more than 5000 where there is no branch of any Scheduled Commercial Bank was formulated. J&K SLBC, in coordination with concerned Lead District Managers, identified 104 villages out of the total 235 villages with population of more than 5000 (as per Census 2011)in J&K, without any branch of branch of Scheduled Commercial Bank. In terms of the directives from RBI, the identified 104 villages were allocated among the 8 major Scheduled Commercial Banks operating in J&K State (JK Bank - 48; SBI - 15; PNB - 11; HDFC Bank - 11; ICICI Bank - 5; Canara Bank - 5; UCO Bank - 5; Central Bank of India - 4 for opening the “Brick & Mortar” branches in the allocated villages by 31.03.2017. However, as on 31.03.2017 only three branches have been opened in the identified villages with 2 branches by J&K Bank and 1 branch by SBI. Reserve Bank of India recently has extended the timeline by three months i.e. the branches are now to be opened by 30.06.2017.

c. Responsibility of setting up of RSETIs in J&K State:

In terms of guidelines issued by Ministry of Rural Development, Government of India, setting up the Rural Self Employment Training Institutes (RSETIs) in all the districts of J&K State was assigned by Lead Bank Department /J&K SLBC to two Banks, viz. J&K Bank and SBI as per their Lead Bank responsibility. Accordingly, J&K Bank has set up 12 RSETIs in its allocated 12 lead districts of Srinagar, Ganderbal, Budgam, Baramulla, Bandipora, Kupwara, Anantnag, Kulgam, Pulwama, Shopian, Poonch and Rajouri. State Bank of India has also set up 9 RSETIs in its allocated 10 lead districts of Jammu, Samba, Kathua, Udhampur, Reasi, Doda, Ramban, Kishtwar, and Leh.RSETI at Kargil has not been operationalized by SBI as yet. The Performance of RSETIs in conducting training programmes and the number of persons benefited through credit linkage is being reviewed regularly in quarterly SLBC meetings.

d. Responsibility of setting up of FLCs in J&K State:

In terms of RBI guidelines, target of setting of Financial Literacy Centres (FLCs) in all the districts of the state has been fully accomplished with J&K Bank having made 12 FLCs operational in its 12 allocated lead districts and SBI having made 10 FLCs operational in its 10 allocated lead districts. In addition, PNB, JKGB and EDB have also established 4, 2 & 2 FLCs respectively in various districts of the state which takes the total number of FLCs in J&K State to 30. The performance of FLCs in conducting the Financial Literacy Camps as per the guidelines from RBI is being reviewed at various forums including quarterly SLBC Meetings.

e. 100% coverage of farmers under KCC Scheme

The initiative of 100% coverage of farmers under KCC Scheme was launched in J&K State in terms of directives of GoI, MoF. Its implementation is being vigorously pursued with all the stakeholders including banks, Agriculture Department, Lead District Managers etc. Against the total 9.81 lakh interested farm operating families under KCC Scheme in J&K State various banks upto the end of March 2017 have sanctioned 10,66,275KCCs in J&K State against which 9,45,073 KCCs have been disbursed with credit amounting to Rs.8992.15 Crore.

Board of Directors

Your Bank has Seven (07) Directors consisting of two (2) promoter Directors including Chairman & CEO, Five Non Executive Directors, including One RBI Nominee Director, as on 31st March, 2017.

Independent and Non-Independent Non Independent Executive Director

Mr. Parvez Ahmed, Non-Independent Executive Director has been serving as the Chairman & CEO of the Bank since October 6, 2016, with the approval of Reserve Bank of India (RBI).

Non Independent Non Executive Directors

Mr. Navin Kumar Choudhary, IAS, Commissioner/Secretary to Govt. of J&K, Finance Department, Mr. Abdul Majid Mir and Mr. Azhar-ul-Amin are the Non Independent Non Executive Directors of the Bank.

Independent Non Executive Directors

In terms of the definition of ‘Independent Director'' as prescribed under Regulation 16(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Section 149(6) of the Companies Act, 2013 and based on the declarations/disclosures received from the Directors, the following Non-Executive Directors are Independent Directors:-

1. Mr. Mohammad Maqbool Rather

2. Mr. Mohammad Ashraf Mir

Both the Independent Directors of the Bank have given their respective declarations stating that they meet the criteria of Independence as laid down under the applicable laws and in the opinion of the Board, the independent directors meet the said criteria.

Reserve Bank Nominee Director

Mr. Yogesh Kumar Dayal, General Manger, Reserve Bank of India is the Nominee Director of the Reserve Bank of India on the Board of the Bank.

Appointments/Resignations from the Board of Directors

a. Mr. Vikrant Kuthiala, Mr. Dalip Kumar Kaul, Mr. Khaver Alam Jeelani, Directors, resigned from the Board of the Bank with effect from 29th June, 2016 owing to personal reasons.

b. Mr. J.P Sharma, Director was recalled by RBI and Mr. Yogesh Kumar Dayal was appointed in his place w.e.f 01.07.2016.

c. Mr. R.K. Gupta, Director, resigned from the Board of the Bank with effect from 31st January, 2017 owing to personal reasons.

Directors place on record their deep appreciation for the valuable services rendered by Mr. J.P Sharma, Mr. R.K. Gupta, Mr. Vikrant Kuthiala, Mr. Dalip Kumar Kaul and Mr. Khaver Alam Jeelani during their tenure as Directors of the Bank.

d. Mr. Mohammad Maqbool Rather and Mr. Mohammad Ashraf Mir were appointed as Directors by the Board of Directors to fill the casual vacancies, in the office of directors with effect from 10.08.2016

Appointments/Resignations of the Key Managerial Personnel

Mr. Parvez Ahmed Chairman & CEO, Mr. S. K. Bhat, Chief Financial Officer and Mr. Mohammad Shafi Mir, Company Secretary of the Bank are the Key Managerial Personnel. Mr. Mushtaq Ahmad on completion of his term ceased to be the Chairman & CEO of the Bank with effect from 05.10.2016 and Mr. Parvez Ahmed was appointed as Chairman & CEO of the Bank with effect from 06.10.2016. Mr.

S. K. Bhat and Mr. Mohammad Shafi Mir, were appointed as Chief Financial officer and Company Secretary by the Board of the Bank on 12th November, 2016 and 22nd November, 2016 respectively, consequent upon change in the assignments of Mr. Vagish Chander and Mr. Abdul Majid Bhat.

None of the Key Managerial Personnel has resigned during the year under review.

Number of Meetings of the Board

During the year under review, Twelve Board Meetings were held, in due compliance with statutory provisions, on the following dates:

21.04.2016, 24.05.2016, 29-6-2016, 10.08.2016, 20-09-2016, 06.10.2016, 12.11.2016, 15.12.2016, 04.02.2017, 03.03.2017, 04.03.2017, 20.03.2017

Participation of directors in board Meetings is provided in the Statement on Corporate Governance annexed to this report

Committees of the Board

The Bank has following Committees of the Board:

- Management Committee

- Audit Committee

- Monitoring of Large Value Frauds/Frauds Review/Willful Defaulters Classification Review Committee

- Stakeholders Relationship Committee

- Information Technology Strategy Committee

- Corporate Social Responsibility Committee

- Integrated Risk Management Committee

- Customer Service Committee

- Nomination Committee

- Nomination and Remuneration Committee

- Legal Committee

- Human Resource Development Committee

The compositions, powers, roles, terms of reference, etc. of relevant committees are given in detail in the statement on Corporate Governance annexed to this report.

Corporate Social Responsibility Policy

As a responsible institution, J&K Bank is committed to Corporate Social Responsibility (CSR). The Bank has in place Board approved Policy on Corporate Social Responsibility. With an aim to instill a sense of relief and protection among the most vulnerable sections of society, the Corporate Social Responsibility (CSR) policy of the bank identifies key responsibility areas and seeks to assimilate the CSR ideals into its empowerment mission for optimizing its social performance. The CSR policy is available on the website of the Bank. (http://www.jkbank.net).

The Bank retained its comprehensive focus on activities for the larger community welfare through CSR initiatives concentrating on people''s health, education, environment and society at large. The statutory disclosures with respect to the CSR Committee and an Annual Report on CSR Activities forms part of this Report as Annexure 1.

Performance Evaluation of the Board

The Nomination & Remuneration Committee and the Board of Directors at their meetings held on 16th May, 2015 had laid down the criteria for performance evaluation of Directors, Chairman & CEO, Board level Committees and Board as a whole and also the evaluation process for the same.

The performance of the members of the Board, the Board level Committees and the Board were evaluated at the meetings of the Committee of Independent Directors and the Board of Directors held on 30th June, 2016 and 29th June, 2016 respectively.

Process of Performance Evaluation

The Companies Act, 2013 and Regulation 17(10) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 stipulates the performance evaluation of the Directors including Chairperson, Board and its Committees. Considering the said provisions, the Bank has devised the process and the criteria for the performance evaluation which has been recommended by the Nomination & Remuneration Committee and approved by the Board at their meetings held on May 16, 2015

The process for performance evaluation is as under:

- Committee of Independent Directors evaluates the performance of Non-Independent Directors including Chairman of the Bank and the Board as a whole

- The Board evaluates the performance of the Independent Directors and Board level Committees of the Board.

- Based on the recommendation of Independent Directors in their report, Board takes the appropriate action, wherever required.

Performance Evaluation of Non-Executive Directors, MD & CEO and Chairman

Attendance at the meetings; Participation and contribution; Responsibility towards stakeholders; Contribution in Strategic Planning; Compliance and Governance; Participation and Updation of Knowledge.

Performance Evaluation of Board

Composition and Diversity; Committees of the Board; Board & Committee meetings; Cohesiveness of Board decisions; Board Procedure; Performance Culture; Discussions at Board Meetings; Understanding of the business of the Bank; Understanding the role and effectiveness; Foresight to avoid crisis and effectiveness in crisis management; Understanding of the regulatory environment; Strategy and Growth; Risk Management and Financial Controls; Quality of Decision making and Board''s Communication systems.

Performance of the Board Level Committees Composition and Balance of skill sets; Frequency and duration; Interaction with the Board.

Corporate Governance

The Bank has established a tradition of exemplary practices in corporate governance. It encompasses not only regulatory and legal requirements, but also several voluntary practices, aimed at high level business ethics, effective supervision and enhancement of stakeholder volume. Several matters have been voluntary included in the statement on corporate governance annexed to this report, besides certificate from the Central Statutory Auditors regarding compliance of conditions of Corporate Governance as stipulated by the SEBI (Listing Obligations & Disclosure Requirement) Regulations, 2015.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review is presented in a separate section forming part of this Report.

Whistle Blower Policy and Vigil Mechanism

The Bank has implemented a Whistle Blower Policy pursuant to which Whistle Blowers can raise concerns relating to reportable matters (as defined in the policy) such as breach of J&K Bank Code of Conduct, fraud, bribery, corruption, employee misconduct, illegality, health & safety, environmental issues and wastage/misappropriation of banks funds/assets, etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avail of such mechanism and also provides for direct access to Chairman of the Audit Committee, in exceptional cases. The details of the Whistle Blower Policy are available on the website of the Bank (www.jkbank. net)

Risk Management

Bank has a comprehensive and a well-defined Risk management framework in place. The key components of the Bank''s Risk Management architecture rely on the risk governance structure, comprehensive processes and internal control mechanism based on approved policies and guidelines. The Bank''s Risk Management framework focuses on the key areas of Risk such as Credit, Market, Operational Risk and Liquidity Risk; quantification of these risks, wherever possible, for effective and continuous monitoring and control.

The Bank''s Risk management processes are guided by well-defined policies appropriate for various risk categories, independent risk oversight and periodic monitoring through the sub-committees of the Board. The Board sets the overall risk appetite and philosophy for the Bank. The Committee of Directors, the Integrated Risk Management Committee of the Board, which is a sub-committee of the Board, reviews various aspects of Risk arising from the businesses of the Bank. Three Executive/ Senior management committees; Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC) and Market Risk Management Committee (MRMC) operate within the broad Risk Management framework of the Bank.

The Bank has put in place policies relating to management of Pillar I and Pillar II risks. Risk management is administered by Executive/ Senior management committees through Integrated Risk Management Department (IRMD). IRMD has three dedicated divisions for Credit risk, Operational risk and Market risk management. Business Continuity plan and Information Security plan also forms part of Risk Management functions in the Bank. Treasury activities are separately monitored by mid office, which reports to IRMD. The Bank has formulated a comprehensive Stress Testing Policy to measure the impact of adverse stress scenarios on the

Business Responsibility Report

In terms of Regulation 34(2)(f) of the Listing Regulations, top 500 Listed Entities based on their market capitalization as on 31st March every year are required to submit their Business Responsibility Report(BRR) as a part of the Annual Report. The Bank''s Business Responsibility Report describing the initiatives taken by the Bank from an environmental, Social and governance perspective has been hosted on the website of the Bank, www.jkbank.net. Any member interested in obtaining a copy of the BRR may write to the Company Secretary of the Bank at its Registered Office: Corporate Headquarters, M. A. Road Srinagar.

Loans, Guarantees or Investment in Securities

Pursuant to section 186(11) of the Companies Act, 2013 loans made, guarantees given or securities provided or acquisition of shares by a Banking company in the ordinary course of its business are exempted from disclosure in the Annual Report.

Contracts or Arrangements with related parties

Considering the nature of the Industry in which the Bank operates, transactions with related parties of the Bank are in the ordinary course of business and are also at arm''s length basis. There was no materially significant related party transaction entered by the Bank with promoters, Directors, Key managerial personnel or other persons which may have a potential conflict with the interests of the Bank. The policy on Related Party Transactions and dealing with related parties as approved by the Audit Committee and the Board of Directors is uploaded on the website of the Bank and the link for the same is (http://jkbank.net/others/common/ policy.php)

Statement of related party transactions under sub section (1) of section 188 of the Companies Act, 2013 is attached herewith as Annexure 6.

Consolidated Financial Statements

Pursuant to Section 129 of the Companies Act, 2013, the Bank has prepared Consolidated Financial Statements of the Bank and also of its Subsidiary, JKBFSL, in the same form and manner as that of the Bank which shall be laid before the ensuing 79th Annual General Meeting of the Bank along with laying of the Banks Financial Statements under sub-section (20) of Section 129 i.e. Standalone Financial Statements of the Bank. Further, pursuant to the provisions of Accounting Standard (AS) 21, Consolidated Financial Statements notified under section 133 of the Companies Act 2013, read together with Rule 7 of the Companies (Accounts) Rules 2014 issued by the Ministry of Corporate Affairs, the Consolidated Financial Statements of the Bank along with its subsidiary for the year ended March 31, 2017 form part of this Annual Report.

Auditors

Statutory Auditors

The Central Statutory and Branch auditors of the Bank are appointed by the Comptroller & Auditor General of India (C&AG) pursuant to Section 139(5) of the Companies Act, 2013. The Bank had three (3) Central Statutory auditors appointed by the C&AG of India for the year under review as under:

1. Dhar Tiku & Co, Chartered Accountants, Srinagar

2. Arora Vohra & Co, Chartered Accountants, Jammu

3. Dhram Raj & Co., Chartered Accountants, Jammu

Secretarial Auditors

Pursuant to Section 204 of the Companies Act 2013, your Bank has appointed M/s DSMR & Associates, Practicing Company Secretaries, Hyderabad as its Secretarial Auditors to conduct the secretarial Audit of the Bank for the FY 2016-17. The Bank provided all assistance and facilities to the Secretarial Auditor for conducting their audit.

Secretarial Audit Report

The report of Secretarial Auditor for the FY 2016-17 is annexed to this report as Annexure 2. The Bank''s reply to the comments of secretarial Auditor are furnished as under.

a. Delayed submission of Form No. MGT 14, MGT 10 & AOC 4

Bank''s Response The delay in submission of the forms was due to technical problems arising in transmission of data to the Ministry of Corporate Affairs and time involved in mandatory procedural aspects before the submission of Forms.

b. Non submission of Form AOC I relating to financial details of subsidiary company and Form AOC 2 relating to Related Party Disclosure.

Bank''s Response Though the information has been provided in the Directors Report, the same has not been provided as required in the prescribed format. However, information in the prescribed Forms has been included in the Annual Report of the Bank for the year 2016-17.

c. Improper balance of independent Directors.

d. Not appointed Woman Director.

e. Non independent Directors acting as Chairman of Audit Committee and Nomination & Remuneration Committee.

f. Specific policies for listed companies relating to preservation of Documents, Determination of Materiality & Material subsidiary, not framed by the Bank.

Bank''s Response The Bank is governed by the provisions of Banking Regulation Act, 1949 and the provisions applicable to a Government Company apart from the provisions of the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements), 2015. The Bank could not appoint requisite Independent Directors as the provisions relating to appointment of Independent Directors was not provided in the Articles of Association of the Bank. The Bank had to obtain the approvals of the Reserve Bank of India and the State Government for change in the composition of the Board to comply with the provisions of the Companies Act, 2013 and Listing Regulations, 2015.

The Bank is seeking necessary approvals from the Reserve Bank of India in this regard and the modifications in the Articles of Association providing enabling provisions relating to appointment of requisite number of Independent Directors have been proposed at the ensuing Annual General Meeting. After approval of the members at the ensuing Annual General Meeting the Composition of our Board of Directors and various Committees of the Board shall be aligned with the provisions of the Companies Act, 2013 and SEBI (LODR) Regulations, 2015

The required policies as specified under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 would be placed on the website of the Bank shortly after obtaining the approval of Board of Directors.

Employee Remuneration

A. PARTICULARS OF EMPLOYEES AS PER RULE 2 OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES, 2014 FOR THE YEAR ENDED 31st MARCH, 2017, ARE AS UNDER:

I. EMPLOYED THROUGHOUT THE FINANCIAL YEAR AND IN RECEIPT OF REMUNERATION AGGREGATING Rs. 60,00,000/- OR MORE PER

ANNUM NIL

II. EMPLOYED FOR A PART OF THE FINANCIAL YEAR AND IN RECEIPT OF REMUNERATION AGGREGATING Rs. 5, 00,000/- OR MORE PER MONTH

Sr.No.

Name of the Employee

Designation/ Nature of Duties

Remuneration received per month (Rs. In lakhs)

Nature of Employment

Qualification

Experience In Years

Date of Commencement of Employment

Age of the Employee (Years)

Last Employment held before joining the Company

1.

Mr. Parvez Ahmed

Chairman & Chief Executive Officer

5.50

In Whole time employment of the Bank

Associate Company Secretary (ACS)

18 years

06-10-2016

53

J&K Bank Ltd.

2.

Mr. Mushtaq Ahmad

Chairman & Chief Executive Officer

5.50

In Whole time employment of the Bank

B. A: CAIIB -I

43 years

06-10-2010 to 0510-2016

67

J&K Bank Ltd.

B. The ratio of the remuneration of each director to the median employee''s remuneration and other details in terms of sub section 12 of section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are forming part of this report as Annexure 3.

Statutory Disclosures

(1) The disclosures to be made under sub-section (3)(m) of Section 134 of the Companies Act 2013 read with Rule (8)(3) of the Companies (Accounts) Rules , 2014 by your Bank are explained as under:

A. Conservation of energy-

(i) The steps taken or impact on conservation of energy:

- The operation of the bank are not energy intensive, however adequate measures have been taken for reducing carbon footprint as mentioned below:

- Banks Data centre is hosted at a high energy efficient and environment friendly Data Centre at Noida.

- Bank has discontinued paper circulars/newsletters for internal communication for which a dedicated intranet site is maintained.

- To discontinue paper based regulatory and internal reporting, Bank has placed an automated MIS system.

- Bank uses energy star compliant computing and communication hardware.

- Web Page for Green Banking.

(ii) The steps taken by the company for utilizing alternate sources of energy.

Though the operations of the Bank are not energy intensive, however, Bank shall explore alternative sources of energy, as and when necessity arises.

(i) The capital investment on energy conservation equipments.

INR 11.61 Crores. (On procuring energy star compliant servers and desktops).

B. Technology Absorption :-

(i) The efforts made towards technology absorption.

Technology absorption needs stable and conducive policy and governance framework. As such, J&K Bank has adopted IT governance model for restructuring the IT organizational structure as per the recommendations of RBI.

Trainings are being conducted on regular basis to train the banks staff at gross root level to make full use of the technology in order to reduce the operating costs and bring in efficiencies to business processes.

(ii) The benefits derived like product improvement, cost reduction, product development or import substitution.

Following technology initiatives taken by the bank have brought efficacy in the processes besides reduction in the effort and cost involved in handling such operations.

a. Mobile banking Application Upgrade

To provide user friendly and robust Mobile banking application, mobile banking upgrade was initiated. The new mobile banking application was designed with enhanced features vis-a-vis IMPS and PDD bill payment and has been made live for public. As of now following functionalities are live:-

i. a)Balance Inquiry b)Statement c)Stop Cheque d) All Intra Bank Transactions e) NEFT f) IMPS g) PDD Bill payment

b. Digital Transformation

Apart from several initiatives taken by the bank in its continued efforts to provide better, prompt and efficient services to the customers, digital transformation was pushed at the highest level to enable customers use digital channels of the bank. These efforts resulted in a substantial growth in digital ecosystem of the bank with an overall 13% increase in digital transactions.

c. IT Security

The Bank has Information Security Policy which is approved by Board and reviewed each year to keep it updated as per latest trend and best practices. Bank has got ISO 27001:2013 Certification for Data centre, Operations Centre and DR Site.

(iii) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year) None.

(iv) Your Bank has not incurred any expenditure on Research and Development during the year under review.

(C) Foreign Exchange Earnings and Outgo

The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflow.

During the year ended March 31st, 2017 the Bank earned Rs. 76.93 Lacs and spent Rs. 60.50 Lacs in Foreign currency. This does not include Foreign Currency cash flows in derivatives and Foreign currency exchange transactions.

(2) No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status of the Bank''s operations in future.

(3) Number of cases filed, if any, and their disposal under Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and redressal) Act, 2013.

Your Bank has Zero tolerance towards any action on the part of any executive/employee which may fall under the ambit of ‘Sexual Harassment'' at workplace, and is fully committed to uphold and maintain the dignity of every women executive/ employee working in the Bank. No such case was reported during the period under report.

(4) No Stock options were issued to the Director''s of your Bank

Extracts of Annual Return

Pursuant to sub-section 3(a) of Section 134 and sub-section (3) of Section 92 of the Companies Act 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014 the extracts of the Annual Return as at March 31, 2017 forms part of this report as Annexure 4.

Directors Responsibility Statement

The Board of Directors hereby confirms that:-

i. in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

ii. the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;

iii. the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

iv. the directors had prepared the annual accounts on a going concern basis; and

v. the directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

Explanation.—“internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company''s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information;

vi. the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Adequacy of Internal Financial Controls related to Financial Statements

The Bank has adequate internal controls and processes in place with respect to its financial statements which provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. These controls and processes are driven through various policies, procedures and certifications. The processes and controls are reviewed periodically. The Bank has a mechanism of testing the controls at regular intervals for their design and operating effectiveness to ascertain the reliability and authenticity of financial information.

CEO & CFO Certification

Certificate issued by Mr. Parvez Ahmed, Chairman & CEO and Mr. Surender Kishen Bhat, CFO of the Bank, for the financial year under review, was placed before the Board of Directors at its meeting held on 13th May, 2017, in terms of Regulation 17(8) of the Listing Regulations.

Acknowledgement

The Directors thank the valued customers, shareholders, well wishers and correspondents of the bank in India and abroad for their goodwill, patronage and support. The Directors acknowledge with gratitude the valuable and timely advice, guidance and support received from Government of India, Government of Jammu & Kashmir, Reserve Bank of India, Securities and Exchange Board of India (SEBI), Insurance Regulatory Developmental Authority (IRDA), NABARD, SIDBI, IBA, FIMMDA, FEDAI, Stock Exchanges, Ministry of Corporate Affairs, Registrar of Companies, Comptroller & Auditor General of India, Financial Institutions and the Central Statutory Auditors of the bank in the functioning of the bank. The Directors place on record their deep appreciation of the valuable contribution of the members of the staff at all levels for the progress of the bank during the year and look forward to their continued cooperation in realization of the corporate goals in the years ahead.

For and on behalf of the Board of Directors

Parvez Ahmed

Chairman & CEO

Place: Srinagar (J&K)

Date: 22nd May, 2017

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