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Jammu and Kashmir Bank

BSE: 532209|NSE: J&KBANK|ISIN: INE168A01041|SECTOR: Banks - Private Sector
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Mar 16
Notes to Accounts Year End : Mar '17

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:

4. Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs. 115.83 crores (Values of properties appreciated on account of revised valuation) (previous year Rs. 1.10 crores). In respect of immovable properties valued at Rs. 21.50 crores (Values of properties appreciated on account of revised valuation) (previous year Rs. 15.68crores) bank holds agreement to sell along with the possession of the properties.

5. In compliance to the directions of RBI and as per the approved policy of Revaluation of Bank''s own properties, Bank has completed the process of valuation. In this connection, the revaluation results have been vouched as under:-

6. For Assets that show appreciation in value:-

An amount of Rs. 638,42,00,610.71(Six hundred thirty eight crores forty two lakhs six hundred ten and seventy-one paisa only) has been vouched as Appreciation amount Of Fixed Assets by Crediting the amount to Revaluation Reserve Fixed Asset Account.

Depreciation on appreciated value of Premises assets amounting to Rs. 3,04,11,241.35/-has been applied and charged to Revaluation Reserve Fixed Asset Account.

Depreciation/Amortization on appreciated value of Land Assets amounting to Rs. 56,64,870.95 has been charged to Revaluation Reserve Fixed Asset Account.

7. For Assets that show decrease in value:-

An amount of Rs. 9,01,42,737.86 (Nine Crore one lakh forty two thousand seven hundred thirty seven and eighty six paisa only) has been debited to depreciation being amount of decrease in value of assets on account of revaluation of the assets. 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 the 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 1660/21.04.2018 /2001 dated 01.02.2001.

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.

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.

Depreciation on Banks property includes amortization in respect of leased properties amounting to '' 0.147 Crores (previous year '' 0.14 Crores).

8. Capital

Government of Jammu & Kashmir holds 56.45% of equity shares of the Bank (previous year 53.17%)

The subordinate debt of Rs. 600 Crores raised by way of Unsecured Redeemable Lower tier-II Bonds on 30.12.2009, maturing on 30.12.2019 has been shown under Borrowings as per RBI guidelines. Rs. 500 crores raised by way of BASEL III compliant Tier II bonds on 24.03.2017, maturing on 24.06.2022 has been shown under Borrowings as per RBI guidelines.

During the Financial year 2016-17, Bank has allotted 36555051 shares to Govt. of J&K at face value of Rs. 1/- each at a premium of Rs. 67.39/- per equity share for a total consideration of Rs. 250.00 crores

Investments

9. The Bank has made a profit of Rs. 7.72 Crores on sale of HTM category securities during the year, as such an appropriation of Rs. 7.72 crores was made (Previous Year, Rs. Nil) to Capital Reserve Account.

10. 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).

11. The total investment of the Bank in the PNB Met-life India Insurance Co Pvt. Ltd stood at Rs. 102.19 Crores as on 31.03.2017 (Previous year Rs. 102.19 Crores). In compliance with RBI Letter No. DB0D.BP/-17099/21.4.141/ 2008-09 dated 9th April 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.

12. Sale and Transfers to/from Held to Maturity (HTM) Category

13. Bank has made a profit of Rs. 7.72 Crores on sale of HTM category securities during the year (previous year nil) as such an appropriation was made to Capital Reserve Account.

14. With the approval of the Board of Directors, the Bank has shifted securities amounting to Rs. 634.81 Cr (FV) on 26/04/2016 (Previous year Rs. 753.75 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.

15. On the basis of special dispensation being allowed by the Reserve Bank of India vide its 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. 475 Cr, 300 Cr & Rs. 410 Cr on 05/07/2016,01/10/2016 & 05/01/2017 respectively from HTM to AFS Category.

16. 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.

17. Disclosures on Risk exposures in derivatives

18. 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.

Particular Basis of assumption:

Discount rate : Discount rate has been determined by reference to market yields on the balance sheet date on Government Bonds of term consistent with estimated term of the obligations as per para 78 of AS-15R.

Expected rate of return on plan assets: The expected return on plan assets is based on market expectations, at the beginning of the period, for returns over the entire life of the related obligation.

Rate of escalation in salary: The estimates of future salary increases considered in actuarial valuations taking into account inflation, seniority, promotion and other relevant factors mentioned in paras 83-91 of AS-15R.

Attrition rate: Attrition rate has been determined by reference to past and expected future experience and includes all types of withdrawals other than death but including those due to disability.

The above information is based on the information certified by the actuary except para XI above.

19. Accounting Standard 19 - Leases

The properties taken on lease/rental basis are renewable/cancellable at the option of the Bank.

The lease entered into by the Bank are for agreed period with an option to terminate the leases even during the currency of lease period by giving agreed calendar months'' notice in writing.

Lease rent paid for operating leases are recognized as an expense in the Profit & Loss account in the year to which it relates. The lease rent recognized during the year is Rs. 47.58 crores (previous year Rs. 45.65 crores)

20. Accounting Standard -21 (Consolidated Financial Statements)

The Bank has a fully owned subsidiary company JKB Financial Services Ltd. In terms of the approval of Reserve Bank of India vide its letter No DBOD.FSD.No./1124/24.01.001/2007-08 dated July 31, 2007. The investment towards the capital of subsidiary company is Rs. 20.00 Crores (Previous Year Rs. 20.00 Crores). The consolidated financial statements are placed accordingly in terms of AS 21 issued by the Institute of Chartered Accountants of India.

21. Accounting standard 22 - Accounting for taxes on income

The Bank has accounted for Income Tax in compliance with Accounting Standard-22 accordingly Deferred Tax Assets and Liabilities are recognized.

22. Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs. 58.92 Lacs on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs. 24.17 Lacs has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs. 34.75 Lacs has been charged to Profit & Loss account treating it as a Revenue expenditure for the reason that the Bank cannot declare dividend to shareholders without writing it off completely in view of the provisions of the Banking Regulation Act, 1949. Accordingly, the Bank has not evaluated useful life of this Brand strategy project over which the expenses could be amortized.

Further, the Bank has incurred an amount of Rs. 3.49 Crores on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

23. Accounting Standard 28 - Impairment of Assets

Majority of Fixed Assets of the Bank are considered as Corporate Assets and not cash generating assets and in the opinion of Management there is no material impairment in these Fixed Assets. Regarding other Fixed Assets generating cash there is no material impairment. As such no provision is required as per AS-28 issued by ICAI.

24. Accounting Standard 29- Provisions, Contingent Liabilities and Contingent Assets

In respect of Contingent Liabilities under each class shown as per Schedule 12, in the opinion of the Management, the possibility of any out flow in settlement is remote. A provision of Rs. 5.89 crores (Previous year Rs. 2.23 Crores) has been made during the year totaling to Rs. 11.45 crores (Previous year Rs. 7.81 Crores) up to 31.03.2017 against claims decreed against the Bank. Claims have not been acknowledged as debts owing to the appeal filed by the bank before the court of competent jurisdiction, pending adjudication.

25. Foreign Exchange

26. The net funded exposure of the Bank in respect of Foreign Exchange transactions with each country is within 1% of the Total Assets of the Bank and hence no Provision and Disclosure is required to be made as per the RBI Circular No. 96/21.04.103/2003 dated: 17.06.2004.

27. Claims pending with ECGC stands NIL (Previous year Rs. 14.20 Crores)

28. Letter of comfort (LOC''s) issued by the Bank.

The Bank has not issued any letter of comfort (LOC) on its behalf. However, Letters of Comfort issued on behalf of customers has been reported under respective heads of contingent liabilities in the financial statements of Bank as on 31st March 2017.

29. Provision Coverage Ratio (PCR)

The provision coverage ratio (PCR) for the Bank as on 31st March 2017 is 66.88% (Previous Year 56.15%) which is calculated taking into account the total technical write offs made by the Bank.

30. Bancassurance Business:

The Bank has tie ups with M/S PNB Met-Life Insurance (P) Ltd and Bajaj Alliance (P) Ltd for mobilizing insurance business both life and non-life. The details of the commission earned by the Bank during FY 2016-17 on account of mobilizing said business is given hereunder:-

41. The Bank follows policy of providing interest on overdue time deposits at Saving Bank interest rates in conformity with guidelines of Reserve Bank of India.

31. Corporate Social Responsibility (CSR Activities)

Pursuant to section 135 of the Companies Act 2013, it is required to expend 2% of the average net profits made during three immediate preceding financial years for CSR activities. Accordingly, bank is required to spent Rs. 21.76 Crores (Previous year Rs. 27.33 Crores ) for twelve months period ended 31st March 2017 against which bank has spent Rs. 21.87 Crores (Previous year Rs. 28.48 Crores ).

32. a) In Compliance to RBI Letter No. DBR.NO.BP.13018/21.04.048/2015-16 dated April 12, 2016, bank is required to make a provision of Rs. 28.27 crores being 15% of the existing outstanding balance of Rs. 188.27 crores as on 31.03.2017 under Food credit availed by State Government of Punjab. The bank has made provision to the extent of Rs. 28.67 crores till 31.12.2016. Accordingly excess provision of Rs. 0.40 crores has been taken into account during the quarter.

33. In view of recent disturbances in the state of J&K, RBI has allowed relaxation in asset classification for all borrowal accounts of J&K state except those which are overdue as on July 07, 2016 in terms of RBI Master Directions issued for Relief Measures by Banks in areas affected by Natural Calamities. Accordingly Bank has rehabilitated/restructured borrowal accounts after recovering the overdue amount as of July 07, 2016. In total advances to the tune of Rs. 3265.83 crores have been rehabilitated/ restructured for which an amount of Rs. 163.29 crores and Rs. 134.98 crores has been kept as provision and DIFV respectively as on 31.03.2017

34. Micro Small and Medium Enterprises Development Act

With regard to disclosure relating to MSME under the Micro Small & Medium Enterprises Development Act 2006, no Purchases have been made from Micro Small Medium Enterprises hence the disclosure be treated as NIL

35. Un-hedged Foreign Currency Exposure

In accordance with RBI circular no DBOD .BP.BC.85/21.06.200/2013-14 dated 15th January, 2014 and circular no DBOD. BP.BC.116/21.06.200/2013-14 dated 3rd June 2014, banks are required to make an additional provision in respect of borrowers with Un-hedged Foreign Currency Exposures (UFCE) from April 1, 2014 onwards. However no provisions were required to be made by the bank for the financial year 2016-17 towards this exposure.

36. Policy to manage currency induced Credit Risk:-

Foreign currency exposures are hedged under permitted hedging products in accordance with guidelines of RBI on Risk Management and inter-bank dealings, FEDAI norms and guidelines. The objective of the policy is to maximize hedging on the foreign currency exposures of borrowers monitoring and review of the un-hedged foreign currency exposures to borrowers is undertaken by the bank on monthly basis by obtaining borrower-wise statements. Specific action/ suitable remedial measures including stipulation of additional cash margin and /or increase in pricing spread, wherever required are accordingly devised by the bank.

37. Qualitative disclosure for Liquidity Coverage Ratio (LCR):

The Bank has robust liquidity risk management framework in place that ensures sufficient liquidity including a cushion of unencumbered, high quality liquid assets, to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources.

Liquidity Coverage Ratio (LCR) BLR-1 aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquidity Asset (HQLAs) that can be converted into cash to meet liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario.

Composition of High quality liquid assets (HQLAs)

High quality liquid assets (HQLAs) comprise of assets that can be readily sold or used as collateral to obtain funds in a range of stress scenario. These are asset categories which can be easily or immediately converted into cash at little or no loss in value.

With zero percent haircut Level 1 (HQLA) asset comprises of:

- Cash

- Excess CRR

- Government securities in excess of SLR

- Marginal Standing Facility (MSF)

- Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR)

- Marketable securities issued by foreign sovereigns

A minimum haircut of 15% is applied on the following assets and is placed in the category of Level 2A (HQLA) assets:

- Marketable securities guaranteed by sovereigns, PSEs or multilateral development banks assigned risk weights of up to 20% but are not issued by banks/financial institutions/NBFCs

- Corporate bonds not issued by banks/financial institutions/NBFCs

- Commercial Papers not issued by PDs/financial institutions/NBFCs

With a haircut of 50%following HQLAs are also placed in category of level 2B assets:

- Marketable securities guaranteed by sovereigns having risk weights of higher than 20% but not more than 50%.

- Common equity shares included in NSE CNX Nifty index or S&P BSE Sensex index but not issued by banks/financial institutions/ NBFCs

- From February 2016, In line with the RBI guidelines Corporate debt securities (including commercial paper) not issued by a bank, financial institution, PD, NBFC or any of its affiliated entities have a long-term credit rating from an Eligible Credit Rating Agency between A and BBB- or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating; traded in large, deep and active repo or cash markets characterized by a low level of concentration; and have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, i.e. a maximum decline of price not exceeding 20% or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress is also reckoned as Level 2B HQLAs.

All the relevant inflows and outflows as per RBI stipulations are captured in the LCR template.

LCR statement in the prescribed format is submitted to RBI at the end of every month and put up to the Board and management as part of ICAAP at annual and quarterly rests respectively.

38. Previous year figures have been regrouped / rearranged, wherever necessary and possible, to conform to current year figures. In cases where disclosures have been made for the first time in terms of RBI guidelines, previous year''s figures have not been given.

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