Directors’ Report To the Members, Your Board of Directors has pleasure in presenting the 78th 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, 2016. Performance at a Glance • The aggregate business of the Bank stood at Rs. 119583.54 Crore at the end of the financial year 2015-16. The total business of the Bank increased by Rs. 9241.53 Crore from the previous year’s figure of Rs. 110342.01 Crore, registering a growth of 8.37 percent. • The total deposits of the Bank grew by Rs. 3634.06 Crore from Rs. 65756.19 Crore as on 31st March, 2015 to Rs. 69390.25 Crore as on 31st March, 2016, a growth of 5.53 percent. CASA deposits of the Bank at Rs. 30620.37 Crore constituted 44.12 percent of total deposits of the Bank. • Cost of deposits for current FY stood at 6.34 percent. • The net advances of the Bank increased by Rs. 5607.47 Crore from Rs. 44585.82 Crore as on 31st March, 2015 to Rs. 50193.29 Crore as on 31st March, 2016, a growth of 12.58 percent. • Yield on advances for the current FY stood at 10.90 percent. • Priority sector advances (Gross) stood at Rs. 19227 Crore as on 31st March, 2016. • The Bank effected cumulative cash recovery, upgradation of NPA’s and technical write-off of Rs. 778.69 Crore during FY 2015-16. • Investment portfolio of the Bank stood at Rs. 20353.62 Crore as on 31st March, 2016. Insurance Business The Bank earned an income of Rs. 43.16 Crore from the Insurance Business. In life insurance, the Bank mobilized business of Rs. 257.32 Crore and in non-life segment, business of Rs. 140.01 Crore was mobilized during the year. Income Analysis • The Interest income of the Bank stood at Rs. 6843.57 Crore in the year 2015-16. Interest expenses decreased from Rs. 4410.22 Crore to Rs. 4133.48 Crore during the year. The Net Interest Income stood at Rs. 2710.09 Crore for FY 2015-16 compared to Rs. 2650.91 for FY 2014-15. • The Net Income from operations [Interest Spread plus Non-interest Income] stood at Rs. 3214.12 Crore in the financial year 2015-16. • The Operating Expenses registered an increase of Rs. 137.15 Crore during the financial year 2015-16 and stood at Rs. 1546.20 Crore as compared to Rs. 1409.05 Crore in 2014-15. • The Cost to Income ratio (Operating Expenses to Net Operating Income) stood at 48.11 percent in the financial year 2015-16. Gross Profit The Gross Profit for the financial year 2015-16 stood at Rs. 1667.92 Crore. Provisions The Provision for Loan Losses, Provision on Standard Assets, Taxation and others aggregated to Rs. 1251.88 Crore in the financial year 2015-16. Net Profit The Bank registered a Net Profit of Rs. 416.04 Crore for the financial year 2015-16. Branch/ATM Network During the financial year 2015-16, 40 new branches were established, thereby taking the number of branches to 857 as on 31-03-2016, spread over 20 states and one union territory. The area-wise breakup of the branch network (excluding extension counters/ mobile branches and Service branches) as at the end of FY 2015-16 is as under: During the financial year 2015-16, 121 ATMs were commissioned thereby taking the number of ATMs to 1006 as on 31.03.2016. Dividend The Board of Directors has recommended a dividend of 175 per cent for the financial year 2015-16 for approval by the shareholders at the 78th Annual General Meeting. If approved, the total outflow on account of dividend for the year 2015-16 will be Rs. 102.11 Crore including the dividend distribution tax. Net Worth and Capital Adequacy Ratio (CRAR) • The Net Worth of the bank increased to Rs. 6423.97 Crore on 31st March 2016 from Rs. 6110.05 Crore on 31st March, 2015. The Bank has implemented the Basel-III guidelines on capital regulations w.e.f. June 2013. • Capital Adequacy Ratio under Basel III stood at 11.81 percent as on March, 2016 well above RBI stipulated norm of 9.625 percent. The tier I component of CRAR is 10.60 percent as on 31st March 2016.The Return on Average Net Worth stood at 6.65 percent for FY 2015-16. Earnings per Share and Book Value per Share for the financial year 2015-16 stood at Rs. 8.58 and Rs. 87.46. Advertising and Publicity Promoting our brand image proactively, we kept on positioning our brand deeper within the growing public consciousness and thereby enhanced our brand equity during the financial year. The Bank’s products, services and facilities were successfully advertised across the operational geographies while as its functioning and achievements were effectively communicated to the respective target audiences including customers, shareowners, stakeholders and general public through customized and efficiently packaged messages using relevant multi-media outlets across the country. Present in the virtual space of social media networking, the Bank firmed up its online presence and processes of image-building through highly popular mediums of Facebook and Twitter. Subsidiary Company As on March 31, 2016, your Bank has one Subsidiary, JKB Financial Services Limited (JKBFSL) Performance and Financial Position of JKBFSL The operating income of the Company for the year ended 31st March, 2016 stands at Rs. 466.45 lacs. Other incomes of the company stood at Rs. 130.25 lacs. The Total income of the Company for the year ended March 31, 2015 stood at Rs. 596.71 lacs. The net loss of the company for the financial year ended 31st March, 2016 stood at Rs. 151.39 Lacs, increasing its accumulated net loss to Rs. 311.97 lacs as on 31st March, 2016 Progress of Regional Rural Bank Sponsored by J&K Bank: J&K Grameen Bank The J & K Grameen Bank came 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. The J & K Grameen Bank 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 31-03-2016): 217 No. of Employees (as on 31-03-2016): 984 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 as per details below: 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 NOTE: Pursuant to NABARD letter No. NB.IDD. RRCBD/1637/316 (Gen)/2015-16 dated March 30, 2016, Additional Share Capital Deposit of Rs. 95.16 has been converted to Share Capital on 31-03-2016. 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 J&K Grameen Bank as on 31.03.2016 (Unaudited): Business: The total business of the Bank as on 31st March 2016 stood at Rs. 4172.78 crore against Rs. 3760.61 crore as on 31st March 2015, thereby showing an increase of Rs. 412.17 crore registering a growth of 10.96 percent during the year 2015-16. Deposits: The deposits of the bank have increased from Rs. 2586.69 crore to Rs. 2833.84 crore during the year 2015-16 thereby registering a growth rate of 9.55 percent. Advances: The gross advances of the Bank as on 31st March 2016 stood at Rs. 1338.94 crore as against Rs. 1173.92 Crore as on the corresponding date of the previous year recording a growth of 14.06 percent. CD Ratio: The C.D. Ratio of the bank has increased by 1.87 percent from 45.38 percent as on 31st March 2015 to 47.25 percent as on March 31, 2016. Priority Sector Advances: The priority sector advances outstanding as on 31st March 2016 stood at Rs. 996.04 crore against Rs. 857.19 crore outstanding as on 31st March 2015, thereby showing increase of Rs. 138.85 crore recording a growth of 16.20 percent during the year 2015- 16. Priority sector constituted 74 percent of total advances against benchmark of 75 percent (RRB Specific). NPA Position: The gross NPAs of the Bank as on 31.03.2016 stood at Rs. 147.23 Crore which accounts for 11 percent of gross advances. The Net NPAs as on 31.03.2016 stood at Rs. 91.73 Crore which accounts for 7.15 percent of net advances. Business per Employee: The business per employee as on 31st March 2016 stood as Rs. 4.24 Crore against Rs. 3.92 Crore as on corresponding date of the previous year recording a growth of 8.16 percent. Business per Branch: The business per branch as on 31st March 2016 stood as Rs. 19.22 Crore against Rs. 17.41 crore as on corresponding date of the previous year recording a growth of 10.45 percent. Profitability: The bank has shown net profit of Rs. 2.88 Crore as on March 31, 2016 against previous years’ net profit of Rs. 1.79 Crore. 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 2015-16 was launched in time and its implementation was monitored on quarterly intervals in State Level Bankers’ Committee meetings. During the FY 2015-16, Banks extended a total credit of Rs. 15,753.29 Crore in favour of 4,87,736 beneficiaries (both under Priority as well as Non-priority Sector) against annual target of Rs. 23,605.23 Crore for 10,57,906 beneficiaries under Annual Credit Plan 2015- 16, thereby registering achievement of 67 percent in financial terms and 46 percent in physical terms. This includes Priority Sector credit of Rs. 8,754.40 Crore disbursed in favour of 3,05,308 beneficiaries against the annual target of Rs. 14,804.83 Crore for 8,16,524 beneficiaries (constituting 59 percent achievement in financial terms and 37 percent in physical terms) and Nonpriority sector credit of Rs. 6,998.89 Crore disbursed in favour of 1,82,428 beneficiaries against annual target of Rs. 8,800.40 Crore for 2,41,382 beneficiaries (constituting achievement of 80 percent in financial and 76 percent in physical terms). Out of the total Priority Sector credit of Rs. 8,754.40 Crore disbursed by all banks in the State upto 31st March 2016, J&K Bank alone disbursed Rs. 5,498.18 Crore against the target of Rs. 8,290.71 Crore, thereby achieving 66 percent of its annual ACP target, which accounts for the lion’s share of 63 percent of the to tal flow of credit to priority sector by all banks in the State during FY 2015-16. During FY 2015-16, following meetings were conducted: • Four Quarterly J&K State Level Bankers Committee (SLBC) meetings, viz. 97th, 98th, 99th and 100th were held on 10th June 2015, 26th August 2015, 16th November 2015 and 19th March 2016 respectively. • A Special meeting of J&K SLBC held on the occasion of visit of Governor, Reserve Bank of India to Srinagar on 14th September 2015. • Meeting of the Sub-group to devise modalities to bring sericulture sector within the purview of KCC Scheme on 18th May 2015. • One day workshop on Self Help Groups (SHGs)/Joint Liability Groups (JLGs) financing organized by J&K SLBC in collaboration with NABARD on 5th August 2015. • Two meetings of Steering Sub-Committee of J&K SLBC to monitor IT enabled Financial Inclusion, FLCCs & Credit Plus Activities held on 6th August 2015 and 12th January 2016. • A meeting of Sub-Committee of Empowered Committee on MSMEs to monitor individual cases of Sick MSME units for rehabilitation held on 8th August 2015. • Meeting of the senior officers of Social Welfare Deptt., J&K Govt., T&ISD Deptt., J&K Bank and SLBC Secretariat J&K Bank was held on 27th October 2015 to discuss the impediments in the smooth implementation of EBT Scheme in the State. • Meeting of the Sub-Committee constituted in the 97th SLBC meeting to devise strategy for enhancing flow of credit to housing and Education sectors in J&K State held on 28th October 2015. • Meeting of the steering Sub-Committee of J&K SLBC to SHG-Bank Linkage programme. b. Implementation of Financial Inclusion Plan (FIP) under SLBC 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 coverage of 5582 villages (having population below 2000) during the years 2012-13, 2013-14 and completion upto August 14, 2015, was formulated as per regulatory requirements of RBI, which were 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). All the villages under the plan have been covered as per the prescribed timeline. J&K SLBC, in coordination with concerned Lead District Managers, has identified 235 villages with population of more than 5000 (as per Census 2011), out of which 104 villages do not have a branch of any 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 – 40; SBI – 20; PNB – 12; HDFC Bank – 11; ICICI Bank – 6; Canara Bank – 5; UCO Bank – 5; Central Bank of India - 5) for opening the “Brick & Mortar” branches in the allocated villages in two phases i.e. Upto March 31, 2016 and from 01.04.2016 to 31.03.2017. Against the target of 18 branches to be opened till March 31, 2016 for all the 8 banks, only J&K bank has opened one branch in the allocated villages. c. 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 camps and the number of persons benefited is being regularly reviewed in quarterly SLBC meetings. d. 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. The performance of FLCs in conducting the Financial Literacy Camps in their respective districts is being reviewed at various forums including SLBC meetings. e. 100 percent coverage of farmers under KCC Scheme: The initiative of 100 percent coverage of farmers under KCC Scheme was launched in J&K State in terms of GoI, MoF directives. Its implementation is being vigorously pursued with all the stakeholders including banks, Agriculture Department, Lead District Managers, etc. Upto the end of March 2016, banks sanctioned a total number of 10,00,581 KCCs in J&K State against which 8,83,892 KCCs have been disbursed with credit amounting to Rs. 7969.41 Crore. Board of Directors Your Bank has ten (10) Directors consisting of two (2) promoter Directors including Chairman & CEO, Eight Non Executive Directors, including One RBI Nominee Director, as on March 31, 2016. Independent and Non-Independent Non Independent Executive Director Mr. Mushtaq Ahmad, Non Independent Executive Director has been serving as the Chairman & CEO of the Bank since October 6, 2010, with the approval of Reserve Bank of India (RBI). Non Independent Non Executive Directors Mr. Navin Kumar Choudhary, IAS, Principal Secretary to Hon’ble Chief Minister, and Mr. Abdul Majid Mir 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. Vikrant Kuthiala 2. Mr. Dalip Kumar Kaul 3. Mr. Khaver Alam Jeelani 4. Mr. R. K. Gupta 5. Mr. Azhar Ul Amin 6. Mst. Masooda Jabeen Reserve Bank Nominee Director Mr. J. P. Sharma, 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. B. B. Vyas, IAS, Principal Secretary to Govt. Finance Deptt. Govt. of J&K was recalled by the Government of J&K and Mr. Navin Kumar Choudhary, IAS Commissioner/ Secretary to Govt. Finance Deptt. Govt. of J&K was appointed in his place with effect from 12-06-2015. b) Mr. M. I. Shahdad, Director, retired by rotation at the last Annual General Meeting of the Bank held on 22-08-2015. Mr. A. M. Matto and Prof. Nisar Ali, Directors resigned from the Board of the Bank with effect from 22nd August, 2015 owing to personal reasons. c) Directors place on record their deep appreciation for the valuable services rendered by Mr. B. B. Vyas, IAS ; Mr. M. I. Shahdad, Mr.A. M. Matto and Prof. Nisar Ali during their tenure as Directors of the Bank. d) Mr. Abdul Majid Mir and Mr. Azhar ul Amin were appointed as Directors in the last Annual General Meeting of the Shareholders of the Bank held on 22nd August, 2015. e) Mst. Masooda Jabeen, Director was appointed to the casual vacancy in the office of the director with effect from 26-10-2015 Appointments/Resignations of the Key Managerial Personnel Mr. Mushtaq Ahmad Chairman & CEO, Mr. Vagish Chander, Chief Financial Officer and Mr. Abdul Majid Bhat, Company Secretary of the Bank are the Key Managerial Personnel. Mr. Mushtaq Ahmad and Mr. Abdul Majid Bhat were already in office before the commencement of the Companies Act, 2013, while as Mr. Vagish Chander was appointed as Chief Financial Officer by the Board of the Bank on 10th August, 2015, subsequent to the superannuation of Mr. R. K. Shah from the services of the Bank. None of the Key Managerial Personnel has resigned during the year under review. Number of Meetings of the Board During the year under review, Ten Board Meetings were held, in due compliance with statutory provisions, on the following dates: 16.05.2015; 22.06.2015; 10.08.2015; 24.08.2015; 29.09.2015; 26.10.2015; 13.11.2015; 21.12.2015; 11.02.2016; 16.03.2016 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 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 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 22nd June, 2015. 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. The criteria for performance evaluation are as under: 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. 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 (http://www.jkbank.net) Risk Management The Board of Directors oversees the enterprise wide risk management functions of the Bank. A separate Integrated Risk Management Committee of the Board is in place for bringing in a top to down focus on risk management function. Risk management is coordinated and administered by the Integrated Risk Management Department. The Department has three dedicated divisions for credit risk, market risk and operational risk management. Treasury activities are separately monitored by the Mid Office, which reports to Integrated Risk Management Department. Business Continuity plans and Information Security plans also form part of risk management functions in the Bank. Bank has Board approved Risk Management Policies to identify measure and manage all types of risk inherent in the banking operations. Risk Management Policies are approved by the Board of Directors, and reviewed from time to time. Executive level risk management committees, such as Credit Risk Management Committee, Asset Liability Management Committee, Operational Risk Management Committee, Market Risk Management committee, Information Security Committee, regularly assess the functional efficiency of the Bank in risk management and refine the policies and processes. Responsibility for identification, measurement and controlling of risk in various spheres of activities of the Bank is vested with a senior executive who reports to Chairman & CEO. All material risks of the Bank, emerging in the course of its business are identified, assessed and monitored and in our opinion presently there is no material risk which threatens the current functioning of the Bank. 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. However, M/s Gupta Gupta & Associates, Chartered Accountants, a firm in which Mr. R. K. Gupta, Director of the Bank, is a partner acts as Tax Consultants of the Bank at an annual consultation fee of Rs. 5 lakhs. Keeping in view third proviso to Section 188(1) of the Companies Act, 2013 read with Ministry of Corporate Affairs, Govt. of India Notification No. 1/22/2013-CL-V dated 9th June, 2014 the said transaction has been entered into in the ordinary course of business of the Bank and is at Arm’s length. Hence, no disclosure relating to the same needs to be made by 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://www.jkbank.net/ disclosure&policy /relatedpartytransactionspolicy.html) 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 78th 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, 2016 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 five (5) Central Statutory auditors appointed by the C&AG of India for the year under review as under: 1. Gupta Sharma & Associates, Chartered Accountants, Jammu 2. Dhar Tikoo & Co, Chartered Accountants, Srinagar 3. Arora Vohra & Co, Chartered Accountants, Jammu 4. Darshan Nagpal & Associates, Chartered Accountants, Srinagar 5. Dhram Raj & Co., Chartered Accountants, Jammu Secretarial Auditors Pursuant to Section 204 of the Companies Act 2013, your Bank has appointed M/s Ghulam Geelani Reshi & Associates, Practicing Company Secretaries, Srinagar as its Secretarial Auditors to conduct the secretarial Audit of the Bank for the FY 2015-16. The Bank provided all assistance and facilities to the Secretarial Auditor for conducting their audit. The report of Secretarial Auditor for the FY 2015-16 is annexed to this report as Annexure 2. 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 conversation of energy: Technology initiatives aimed at reducing the carbon footprint of the Bank are mentioned below:- • Banks Data centre is hosted at a high energy efficient and environment friendly Data Centre at Noida from Sify Technologies. • Discontinuation of paper circulars for internal communication. • Automation of MIS reports to discontinue paper based regulatory and internal reports. • Dedicated intranet site for E-newsletter in place of a paper newsletter. • Use of energy star compliant computing and communication hardware. • Web Page for Green Banking (ii) The steps taken by the Bank for utilizing alternate source of energy: • Endeavour to use Energy efficient Devices: Bank of late has started using the equipments which consume less power and are more Energy efficient as per the BEE Indian Standards. a) Switching over from CFL/ Fluorescent Lamp To LED Lights b) Shifting to new technology for Air conditioning i.e. VRV/VRF c) Shall explore the possibility of using sensor based Electrical devices in future. • Bank has installed Solar UPS in some of the ATMs of the Bank. We shall further explore the use of renewable energy for street lights etc. (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. Bank has all major business processes automated from transactional systems to MIS/DSS reporting, management of assets, HR management through state of the art technology available in the industry. 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. i. ISO 27001 Certification ISO 27001:2013 Certification project was initiated to provide a model for establishing, implementing, operating, monitoring, reviewing, maintaining and improving an information security management system in the Bank. M/s Delloitte was selected for ISO27001 Consultancy & Certification services for Bank’s Data Centre (facility and Operations), DR Site and Near Line Site. Bank has been awarded with the prestigious certification (ISO 27001:2013), by Intertek - a reputed agency, for its ‘Information Security Management System being compliant with the best and latest industry standards in terms of practices, controls and effectiveness. ii. Contact Center Bank has setup its own contact centre to enhance customer’s service and establish an additional channel for supporting business operations. Contact center of the Bank is driven by the state of art technology to instantly provide most of the banking support services for convenience of the customers. iii. Implementation of AEPS (Aadhaar Enabled Payment System), e-KYC and Rupay Card Interoperability and Atal Pension Yojna applications AEPS (Aadhaar Enabled Payment System) has been implemented by the Bank in the month of July 2015. The functionality empowers customers to use Aadhaar as his/ her identity to access his/ her respective Aadhaar enabled bank account and perform basic banking transactions like balance enquiry, Cash deposit, cash withdrawal, remittances that are intrabank or interbank in nature, through a Business Correspondent. iv. e-KYC e-KYC has been implemented by the Bank in the month of Nov 2015. The system is available for use at all the branches of the Bank and BC locations. Under the electronic knowyour- customer (e-KYC) process, customers can open a bank account online based on just their Aadhaar card. v. RuPay Card Interoperability RuPay Card interoperability at BC locations has been implemented by the Bank in the month of Jan. 2016 which enables use of RuPay as well as debit cards for transactions. i) Near about 12 lac RuPay cards have been distributed under PMJDY scheme. ii) BC are able to make the payments to the account holders having issued Rupay Cards through pin pad devices provided by the Bank. vi. Atal Pension Yojna Bank has deployed an industry standard Software application for Atal Pension Yojna Scheme. vii. Priveledge Identity Mangement (PIM) As a measure of putting in enhanced security controls and in order to monitor activities of privileged system users, Privilege Identity management (PIM) solution has been implemented. This PIM solution has enabled the Bank to put in place a unified policy based solution that secures, manages and logs all the privilege users and activities associated with critical resources. This solution takes care of the special needs of the privileged users, including their provisioning and life cycle management, authentication, authorization, password management and monitoring. viii. SOC (Security Operations Centre) Bank has implemented SOC with an objective of Risk Management, 24x7 Monitoring of Logs for applications, OS, databases, Middleware, Incident Management and Regulatory Information Security Compliance. ix. ATM During the financial year 2015-16, 121 ATMs, both onsite & offsite, were commissioned thereby taking the number of ATMs to 1006 as on 31.03.2016. No. of ATM cards issued to customers increased from 19,00,588 to 24,62,728 during the financial year 2015-16. x. Cash Deposit Machines/Bunch Note Acceptors (BNA) In order to facilitate customers with instant cash deposit services Bank started deployment of specialized ATM machines known as Bunch Note Acceptors which are capable of accepting deposits from customers anytime. In the first phase 25 locations have been identified for deployment of Bunch Note Acceptor machines. xi. e-Banking In an endeavor to serve our customers better a new e-Banking application was launched with enhanced features. With the new e-banking application customer can now use following features:- 1. Register for e-banking facility online. 2. The passwords can as well be re-generated online. 3. Open Term Deposits under various scheme like Cash Certificate, Fixed Deposit and Monthly Yield online. 4. Schedule transactions for future dates. This scheduling can be either for a single transaction or a recurring set of transactions spread over a defined period as per your need and requirement. 5. View FORM 26 AS online. 6. View Demat Holdings online. 7. Credit EMI to loan accounts online. 8. Corporate Customers can request for LC issuance online and view issued LCs & BGs 9. Excel Upload for Corporate Customers 10. BULK NEFT /RTGS for Corporate customers xii. Web Application Firewall (WAF) Implementation Web Application Firewall has been implemented as an additional security control to protect Bank’s web application against zero-day exploits, impersonation and known vulnerabilities and attackers besides monitoring , filtering or blocking the HTTP traffic to and from a Web application. The system is helping the Bank to monitor traffic before it reaches the web applications in real time or near-real time, analyze all requests using a rule base to filter out potentially harmful traffic or traffic patterns. xiii. Automation of Legal Data of the Bank. Bank, in its endeavor to bring accuracy/efficiency in the litigation data management and its availability concerning the suit file cases, SARFAESI Matters, Suits filed by/against Bank, complaints under section 138 of the Negotiable Instruments Act (N. I. Act), criminal complaints filed by/against bank and other allied matters, has implemented a Centralized legal software - CRISMAC LEGAL SOFTWARE (iii) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year). Nil (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. (1)During the year ended March 31st, 2016 the Bank earned Rs. 31.99 Lacs and spent Rs. 1.03 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. (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, 2016 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. 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 Mushtaq Ahmad Chairman & CEO Place : Srinagar (J&K) Date: 24th May, 2016 |