Jammu & Kashmir Bank Limited,

Report on Audit of the Standalone Financial StatementsQualified Opinion

1. We have audited the accompanying standalone financial statements of Jammu & Kashmir Bank Limited ('the Bank'), which comprise the Balance Sheet as at 31st March 2023, the Statement of Profit and Loss and the Statement of Cash Flows for the year then ended, and notes to the financial statements including a summary of significant accounting policies and other explanatory information. In which are included the Returns of 47 branches/offices audited by us and 972 branches audited by Statutory Branch Auditors for the year ended on that date. The Branches/offices audited by us and those audited by other auditors have been selected by the Comptroller & Auditor General of India in accordance with the guidelines issued to the Bank by the Reserve Bank of India.

In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the Basis for Qualified Opinion in section of our report, the aforesaid standalone financial statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 ('the Act') in the manner so required for banking Companies and are in conformity with accounting principles generally accepted in India and give a true and fair view of the state of affairs of the Bank as at 31^st March 2023, and its profit and its cash flows for the year ended on that date.

Basis for Qualified Opinion

2. We draw attention to the matter described below, the possible effects of undetected misstatements on the financial statements due to the inability to obtain sufficient and appropriate audit evidence which is material but, not pervasive either individually or in aggregate.

a) Refer to Note No. 15 of Schedule 18 of the financial statements regarding the allotment of 7 Crore Equity Shares aggregating Rs. 274.75 Crore for Rs. 39.25 per share (at a face value of Rs. 1) to 9834 employees by the Bank on 21st March 2023 under the J&K Bank Employee Stock Purchase Scheme, 2023 (JKBESPS 2023).

The Compensation Committee of the Board approved the ESPS issue open date as 15th March 2023 and the issue close date as 21^st March 2023. During the process of issue of certificate for listing purpose, we came across from the sample data of employees(who have applied for issue) that the employees availed their existing/ freshly enhanced facilities of general-purpose cash credit limit and personal loan accounts and transferred amounts from such loan accounts to their saving bank accounts from where the amount

for share issue was debited/ ( money was given). These transfers from credit facility to saving bank account were made during the period of opening of ESPS or just before that to allotment of shares under ESPS. This use of credit facility is not in line with RBI Directions. It has also been noticed that Allotment was made on 21.03.2023 and payment was realized on

22.03.2023 and 23.03.2023. Further to substantiate the facts, we requested the management to provide us the information regarding the number of shares allotted to employees where amount was transferred from general purpose Cash Credit Limits and Personal Loan Accounts of the employees to saving bank accounts during the period of opening to allotment of ESPS but management vide its letters dated

25.04.2023 & 02.05.2023 submitted that "The funds have been purely debited from the saving accounts of the respective employees under their mandate”. We also escalated the issue to Audit Committee Board on17.04.2023 vide our detailed queries along with supporting documents but a reply from ACB is still awaited.

Based on the documents & information provided to us by the management, it seems that there is violation of:

• Clause 21 of J&K Bank Employee Stock Purchase Scheme, 2023 (JKBESPS 2023) as there was a restriction that the Eligible Employee under the scheme shall not be entitled to any loan facility specifically for the purchase of Shares of the Bank under the Scheme;

• Para No. 2.3.1.7 of RBI Master Circular- Loans and Advances - Statutory and Other Restrictions (RBI/2015-16 /95 DBR.No.Dir.BC.10/13.03.00/2015-16) dated July 1, 2015 which strictly prohibited the Banks to extend advances to their employees to purchase their own bank's shares;

• Section 39(1) & 42 of the Companies Act, 2013 as the allotment of the shares shall be made after receipt of funds under the said scheme in a separate Bank Account. However, the shares have been allotted on 21st March 2023 and payment was realised on

22.03.2023 and 23.03.2023 i.e. before receipt of the entire fund in the ESPS Scheme Account of the Bank;

b) Refer to Note no. 4.4 of Schedule 18 of the previous year's financial statement i.e. of the FY 2021-22, the Bank has allotted 5,17,62,954 equity shares aggregating for Rs 28.97 per share (at a face value of Rs. 1), aggregating Rs. 149,95,72,777.38. We have not issued any certificate for the purpose of listing during the financial year 2021-22 so if any similar set of transactions were occurred, we can not comment on those transactions.

c) The possible impact of such misstatement referred to in Points 'a' & 'b' above are as follows If the Regulating Authority declare this issue as illegal & irregular allotment of shares in violation of various statutory provisions aforementioned,:

(1) Refer to Note No. 1 of the financial statement, the Paid-up Share capital of the Bank is Rs. 103,14,79,861/- which includes Share Capital of Rs. 12,17,62,954/- raised through the ESPS Scheme at a face value of Rs. 1 each (i.e. Rs. 5,17,62,954/- of FY 202122 & Rs. 7,00,00,000/- of FY 2022-23). the Share Capital will be overstated by Rs. 12,17,62,954/- i.e. 11.80% of the total paid-up share capital of the bank.

(2) Refer to Note No.2 .of the financial statement, the Share premium balance under the head 'Reserve & Surplus' in the Balance Sheet is Rs. 218.41 Crore which includes Share Premium on the said allotted ESPS shares of Rs. 412,53,09,823/- (i.e. Rs. 144,78,09,823 of FY 2021-22 & Rs. 267,75,00,000/- of FY 2022-23). the Share Premium is overstated by Rs. 412,53,09,823/- i.e. 18.22% of the total share premium/securities premium of the bank.

(3) Refer to Note No. 1 of Schedule 18 of the financial statement regarding the composition of Regulatory Capital, the Capital Adequacy ratio (Common Equity Tier I & Capital conservation buffer), the financial ratios/prudent limits concerning net worth/capital funds have been adjusted due to observations made above at Sno. 1 and 2 in regard to such overstated Share capital 7-00 crores , Share Premium 331.31 crore due to prohibited advances to the employees for the purchase of shares.

(4) Refer to Note No.9 of the financial statement regarding Advances, a factual position of the Loan and Advances availed by the employees for the purchase of shares is not properly & separately disclosed. In the absence of complete information provided by the management, we are unable to quantify.

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the standalone Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements

cease operations, or has no realistic alternative but to do so.

Auditor's Responsibilities for the audit of the Financial

Statements

5. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SAs, we exercise

professional judgment and maintain professional scepticism

throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3) (i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the Bank has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the

underlying transactions and events in a manner that achieves fair presentation.

Materiality is the magnitude of the misstatements in the standalone financial statements that, individually or aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning of the scope of our audit work and evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatement in the financial statements.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Other Matters

6. We did not audit the financial statements / information of 972 branches and processing centres included in the standalone financial statements of the Bank whose financial statements / financial information reflect total assets of Rs 66031.33 crores as at 31st March 2023 and total revenue of Rs. 6503. for the year ended on that date, as considered in the standalone financial statements. These branches and processing centers cover 91.03 % of advances, 93.51 % of deposits and 93.84 % of Nonperforming assets as at 31st March 2023 and 64.31 % of revenue for the year ended 31st March 2023. The financial statements / information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the report of such branch auditors.

7. The annual financial results include the results for the quarter ended 31st March 2023 being the balancing figure between the audited figures in respect of the full financial year and the published unaudited year to date figures up to the third quarter of the current financial year which were subjected to limited review by us.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

8. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 and Section 133 of the Companies Act, 2013 .

9. The Comptroller and Auditor General of India has issued directions indicating the areas to be examined in terms of sub-section (5) of section 143 of the Companies Act, 2013, the compliance of which is set out in "Annexure-A” to this Report.

10. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, we report that:

(a) we have obtained all the information and explanations except for the matter described in the Basis for Qualified Opinion which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory;

(b) the transactions of the Bank except for the matter described in the Basis for Qualified Opinion, which have come to our notice, have been within the powers of the Bank;

(c) the returns received from the offices; and branches of the Bank have been found adequate for the purposes of our audit;

(d) the profit and loss account shows a true balance [of profit or loss] for the year then ended.

11. Further, as required by section 143(3) of the Act, we report that:

a) we have sought and except for the matter described in the Basis for Qualified Opinion obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

b) except for the matter described in the Basis for Qualified Opinion, in our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us;

c) the reports on the accounts of the branch offices of the bank audited under section 143(8) of the Act by branch auditors of the Bank have been sent to us and have been properly dealt with by us in preparing this report;

d) the Balance Sheet, the Statement of Profit and Loss and the Statement of Cash Flows dealt with in this report are in agreement with the books of account and with the returns received from the branches not visited by us

e) except for the matter described in the Basis for Qualified Opinion in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, to the extent they are not inconsistent with the accounting policies prescribed by RBI;

f) As per Notification No. GSR 463(E) sated

05.06.2015 Section 164(2) of Companies Act, 2013 is not applicable to Jammu & Kashmir Bank Limited being a Government Company.

g) with respect to the adequacy of the internal financial controls over financial reporting of the Bank and the operating effectiveness of such controls, refer to our separate Report in "Annexure B”;

h) as per the Notification No.GSR 463(E) dated

05.06.2015 Section 197 of Companies Act, 2013 is not applicable to The Jammu & Kashmir Bank Limited, being a Government Company;

i) with respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. the Bank has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Schedule 12., to the financial statements;

ii. the Bank has made Nil provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts -

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank;

iv. (a) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

(b) The management has represented,

that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities ("Funding Parties”), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries”) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and

(c) Based on such audit procedures that were considered reasonable and appropriate by us in the circumstances, nothing

has come to our notice that has caused us to believe that the representations under sub clause (a) and (b) contain any material misstatement.

v. The Bank has not declared or paid any dividend during the year 2022-23.

vi. The Bank has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention. (This Clause is applicable from the financial 2023-2024).