1.2 The J&K Govt. General Administration Department S.O. No. 339 dated 30/10/2020 apportioned the Assets, Liabilities and Posts of the erstwhile State of Jammu and Kashmir between the Union Territory of Jammu and Kashmir and Union Territory of Ladakh w.e.f. 31.10.2020. As per the said notification 8.23% shareholding of Jammu & Kashmir Bank Ltd. consisting of 4,58,29,445 shares which amounts to 13.89% of the shareholding of the erstwhile state of Jammu and Kashmir as on 31.10.2019 shall be transferred to the UT of Ladakh and the then remaining 51% of shareholding of erstwhile Jammu and Kashmir state would remain with the UT of Jammu and Kashmir. The UT of Jammu and Kashmir has completed the transfer of the said 4,58,29,445 shares to UT of Ladakh on February 10, 2023.
1.3 On 1st April, 2022, the bank has allotted 2,85,93,267 (Two Crores Eighty Five Lacs Ninety Three Thousand Two Hundred and Sixty Seven) equity shares at a price of ' 32.70 (Rupees Thirty Two and Seventy Paisa Only) which was at a discount of 4.97% (i.e. ' 1,71 per equity share) to the Qualified Institutional Buyers (QIB) aggregating to a total of ' 93,49,99,830.90 (Rupees Ninety Three Crores Forty Nine Lacs Ninety Nine Thousand Eight Hundred Thirty and Ninety Paisa Only). The issue opened on March 28, 2022 and closed on March 31, 2022. As on 31st March, 2022 the said amount was received in share application money account (Escrow Account) and was pending appropriation subject to allotment of equity shares to the subscribers.
1.4 During the FY 2022-23, the Bank raised its equity capital through Employee Stock Purchase Scheme, 2023 (JKBESPS-2023) by allotting 7,00,00,000 (Seven Crore) equity shares to the eligible employees. The issue opened on 14th March 2023 and closed on 21st March 2023.
The scheme was voluntary in nature and the Bank received the subscription amount from the employees in a manner similar to ASBA by placing a lien on the subscription amount in the personal saving bank accounts of the subscribing employees. The Bank did not sanction any loan facility to its employees specifically for subscribing to the issue as prescribed in the scheme itself. Some employees subscribing to the issue had transferred some amounts from their pre-existing general purpose loan facilities (salary overdraft and personal consumption loans) to their savings bank accounts and used the same for subscribing to the share issue. The Bank has additionally taken an independent legal opinion from a reputed law firm confirming that the scheme has been implemented in conformity with all the governing regulations including compliance with RBI Circular no RBI/2015-16/95 DBR.No.Dir.BC.10/13.03.00/2015-16 on "Loans and Advances - Statutory and Other Restrictions” dated July 01, 2015.
On 21st March 2023, the Compensation Committee of Board of Directors approved the allotment of 700,00,000 (Seven Crore) equity shares with face value of ' 1.00 each to the eligible employees of the Bank under JKB ESPS 2023.
The Bank had accounted for this transaction in line with the 'Guidance Note on Accounting for Share-based Payments' issued by Institute of Chartered Accountants of India in September 2020, taking the fair value of the share as ' 48.33, face value of ' 1.00 per share and a premium of ' 47.33 per share (including discount of ' 9.08 per share). The total amount received by the Bank on this account is ' 338.31 crores which includes ' 7.00 crores as equity capital and ' 331.31 crores as share premium.
However, owing to the observations of the Statutory Auditors regarding transfer of amounts by some employees from their general purpose pre-existing personal loans (Salary Overdraft and Consumption Loan) to their Savings Bank account used for subscribing to the issue, we, as a matter of adopting prudent Corporate Governance Standards, have not reckoned the amount in the financial ratios/prudential limits concerning networth/capital funds and a decision in this regard shall be taken after getting the clarifications/clearance.
In accordance with RBI guidelines vide circular no. RBI/2014-15/529 DBR. No. BP.BC.80/21.06.201/2014-15 dated 31st March 2015, average weighted and unweighted amounts have been calculated taking simple daily average. We have considered 46 data points for the quarter March 2023.
DISCLOSURE ON LIQUIDITY COVERAGE RATIO AS ON 31.03.2023 Qualitative disclosure for LCR:
Liquidity Coverage Ratio (LCR) guidelines were implemented by the Banks with an objective to maintain adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet liquidity needs for a time-horizon up to 30 calendar days under a significantly severe liquidity stress scenario.
LCR = Stock of High-Quality Liquid Assets (HQLAs)
Total Net Cash Outflows over the next 30 calendar days
HQLA comprise of liquid assets that can be readily encashed or used as collateral to obtain cash in a range of stress scenarios. There are two categories of assets included in the stock of HQLAs, viz. Level 1 and Level 2 (Level 2A and Level 2B) assets. While Level 1 assets are with 0% haircut, Level 2A and Level 2B assets are with 15% and 50% haircuts respectively. The Total Net Cash Outflows are the total expected cash outflows minus total expected cash inflows for the subsequent 30 calendar days.
Bank's LCR was at 202.43% based on daily average of past three months (Q4 FY22-23). The position remained above the minimum regulatory requirement of 100%. Average HQLA held during the quarter was Rs 30259.92 Cr which were mostly in the form of level 1 assets. The weighted average total net cash outflows were to the tune of Rs 16501.99 Cr.
Liquidity Management in the Bank is driven by RBI guidelines and Bank's ALM Policy. ALCO has been empowered by the Bank's Board to formulate the funding strategies to ensure that the funding sources are well diversified and is consistent with the operational requirements of the Bank. In addition to daily / monthly LCR reporting, Bank also prepares daily Structural Liquidity Statement to assess the liquidity needs of the Bank on an ongoing basis.
Net Stable Funding Ratio (NSFR) guidelines ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress. The NSFR is defined as the amount of Available Stable Funding relative to the amount of Required Stable Funding.
Available Stable Funding {ASF)
N$FR= — --' 1 100%
Required Stable Funding (RSF)
Bank's NSFR comes to 170.95% as at the end of the quarter Q4 (FY 2022-23) and is above the minimum regulatory requirement of 100%. The Available Stable Funding (ASF) as on 31.3.2023 stood at Rs. 122897.48 crores and amount for Required Stable Funding (RSF) as on 31.03.2023 was Rs 71598.50 crores.
The Available Stable Funding (ASF) is primarily driven by the total regulatory Capital as per Basel III capital adequacy guidelines stipulated by RBI and the deposits from retail customers, small business customers and non-financial corporate customers. Under the Required Stable Funding (RSF) the primary drivers are unencumbered performing loans with residual maturities of one year or more.
It is in place to mention that:
• Account of Hindustan Construction Company Ltd. Of ' 114.13 crore has been adjusted as per the resolution plan on 30.09.2022.
• In the account of Reliance Commercial Finance Ltd., the Bank has received an amount of ' 35.03 crores and remaining
amount has been waived off as per the Implementation Memorandum signed by ICA lenders on 30.09.2022.
• In the account of Reliance Finance Home Ltd., the Bank has received an amount of ' 30.42 crore and remaining
amount has been waived off as per the Implementation Memorandum signed by ICA lenders on 29.03.2023.
• In the account of Reliance Infrastructure Ltd., the Bank has effected a recovery of ' 10 crore during the year.
d) Divergence in asset classification and provisioning:
No disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI's supervisory process for the year ended March 31, 2022, based on the conditions mentioned in RBI circular No. DBR. BP.BC.No.31/21.04.018/2018-19 dated 1st April, 2019.
e) Disclosure of transfer of loan accounts (SMAs & NPAs) in terms of RBI Circular No.DOR.STR.REC.51/21.04.048/2021-22 dated 24th September 2021
c) Disclosures on risk exposures in derivatives i) 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.
f) Implementation of IFRS converged Indian Accounting Standards (Ind AS)
RBI vide Circular DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 deferred implementation of Ind AS till further notice. However, RBI requires all banks to submit Proforma Ind AS financial statements every half year.
The bank has hired a consultant for implementation of Ind AS in the current year and has started the process of parallel conversion to Ind AS. It is pertinent to mention that the Bank had previously availed the services of a consultant for implementation of Ind AS but the contract was terminated due to non-performance by the Consultant.
h) Disclosure on amortisation of expenditure on account of enhancement in family pension of employees of banks Bank has estimated the additional liability on account of revision in family pension for employees as per IBA Joint Note dated November 11, 2020, amounting to '72.50 Crores. However, RBI vide their Circular RBV2021-22/105 DOR.ACC.REC.57/21.04.018/2021-22 dated 4th October 2021, has permitted Banks to amortize the said additional liability over a period not exceeding 5 (five) years, beginning with financial year ending 31st March 2022, subject to a minimum of 1/5th of the total amount being expensed every year. Bank has opted the said provision of RBI, charged an amount of '3.625 Crores & 14.50 Crores to the Profit & Loss account for the quarter and year 31st March 2023 respectively and the balance unamortized expense of '43.50 Crores has been carried forward. Had the Bank charged the entire additional liability to the Profit and Loss Account, the consequential net profit for the year ended March 31, 2023 would have been 1153.88 crore.
15. Disclosure Requirements as per the Accounting Standards
a) Accounting Standard 5: Net Profit or Loss for the period, Prior Period Items, and Changes in Accounting Policies
• During the year, there were no material prior period income/expenditure items.
• There is no change in the Significant Accounting Policies adopted during the Financial Year 2022-23 as compared to those followed in the previous Financial Year 2021-2022.
b) Accounting Standard - 15 "Employee Benefits”
The bank has recognized in its books of accounts the liability arising out of employee benefits as the sum of the present value of obligation as reduced by fair value of plan assets on the balance sheet date, as under:
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-15.
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-15.
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.
Note: Transactions in the nature of Banker-Customer relationship have not been disclosed including those with Key Management Personnel and relatives of Key Management Personnel, in terms of paragraph 5 of AS 18.
e) 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 ' 83.57 crores (previous year being ' 77.79 crores).
f) Accounting Standard - 20 "Earnings per Share”
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 - "Earnings
g) Accounting Standard - 21 "Consolidated Financial Statements”
The Bank has a fully owned subsidiary company "JKB Financial Services Ltd.”. The investment towards the capital of subsidiary company is ' 40.00 Crores (Previous Year ' 20.00 Crores). The consolidated financial statements are placed accordingly in terms of AS 21.
h) Accounting Standard - 22 "Accounting for Taxes on Income”
i) Current Tax:
During the year, the Bank has debited to Profit & Loss Account ' 530.55 crore (Previous Year ' 215.34 crore) on account of current tax. The current tax has been calculated in accordance with the provisions of Income Tax Act, 1961.
The Bank has exercised the option of lower tax permitted under Section 115BAA of the Income-tax Act, 1961 as introduced by the Taxation Laws (Amendment) Act, 2019 from the financial year 2019-20 onwards.
ii) Deferred Tax:
During the year, ' 56.43 crore has been debited to Profit & Loss Account (Previous Year debit ' 25.80 crore) on account of deferred tax.
j) Accounting Standard - 23 "Accounting for Investments in Associates in CFS”
The Bank has a sponsored Bank "J&K Grameen Bank”. The investment towards the capital of associate concern is '34.01 Crores (Previous Year '34.01 Crores). Further, during the year ended March 31, 2023, the Bank has advanced an amount of 100.73 crore towards capital subscription in J&K Grameen Bank. However, the shares have not yet been allotted and the same has been shown as 'Other Assets' in the Standalone Balance Sheet.
The consolidated financial statements are placed accordingly in terms of AS 23.
k) Accounting Standard - 28 "Impairment of Assets”
In the opinion of the Bank's management, there is no indication of material impairment to the non-monetary assets during the year.
l) Accounting Standard - 29 "Provisions, Contingent Liabilities and Contingent Assets”
Additional Disclosures
a. Payment to Micro, Small & Medium Enterprises under the Micro, Small & Medium Enterprises Development Act, 2006
There have been no reported cases of delayed payments of the principal amount or interest due thereon to Micro, Small & Medium Enterprises.
b. Office Accounts
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.
c. Provision on accounts covered under the provisions of Insolvency and Bankruptcy Code (IBC):
In terms of RBI letter no. DBR,No.BO.15199/21.04.048/2016-17 dated June 23, 2017 and Letter no. DBR. BP.1908/21.04.048/2017-18 dated August 28, 2017 for the accounts covered under the provisions of Insolvency and Bankruptcy Code (IBC), the bank is holding total provision of ' 129.35 crore (100% of total outstanding) as on 31st March 2023 (Previous year ' 325.74 crore {100% of total outstanding}
d. During the year ended March 31, 2023, the Bank has made provision of ' 139.99 crore towards wage revision on account of 12th Bi-Partite Wage Settlement effective from November 01, 2022 on ad-hoc basis. The same has been accounted for as 'Payments to and provisions for employees' under "Schedule 16: Operating Expenses.”
e. Previous year figures have been regrouped/reclassified, wherever necessary, to conform to current year classification.
h. Tax paid in advance/Tax deducted at source includes amount adjusted by Income Tax Department in respect of various disputed demands. Based on the favourable appellate orders and interpretation of law, no further provision has been considered by the management in respect of the disputed demands.
i. Fixed Assets
• Documentation formalities are pending in respect of certain immovable properties held by the Bank valued at ' 9.20 crores (previous year ' 9.18 crores). In respect of immovable properties valued at '49.89 crores (previous year ' 48.95 crores), Bank holds agreement to sell along with the possession of properties.
• During the current financial year, the Bank has revalued immovable properties based on the average valuation of reports obtained from two independent external valuers. The net revaluation surplus amounting to ' 351.96 crore has been credited to the Revaluation Reserve. Further, a net amount of
1.49 crore on account of revaluation has been credited to the profit and loss account as it was earlier charged to the profit and loss account.
• Pursuant to the revised Accounting Standard-10 "Property, Plant & Equipment” applicable from 1st April 2017, depreciation of ' 20.54 crores (previous year - '22.77 crores) on the revalued portion of fixed assets (being Premises & Land) has been transferred from the Revaluation Reserve to General Reserve.
• Depreciation on Bank's property includes amortization in respect of leased properties amounting to ' 0.76 crore (previous year ' 0.76 crore).
j. Corporate Social Responsibility (CSR)
Pursuant to Section 135 of the Companies Act 2013, specified companies covered under section 135(1) of
the Companies Act 2013 are required to spend at least 2% of the average net profits made during the three immediately preceding financial years in pursuance of their Corporate Social Responsibility Policy. Accordingly, the Bank was required to spend an amount of ' 1.18 crores (Previous Year ' 0.63 crores) on CSR activities during FY 2022-23, against which the Bank has spent an amount of ' 1.18 crores (Previous year ' 0.63 crores).
k. Provision Coverage Ratio (PCR)
Provision Coverage Ratio as on 31st March 2023 is 86.20% (previous year 84.26%) without taking into account floating provision of ' 124.48 crores held by the Bank, which has been included as part of Tier II Capital.
m. Letter of Comfort
The Bank has not issued any letter of comfort on behalf of the customers or on its behalf in respect of trade credits during the FY 2022-23.
n. Proposed Dividend
The Board of Directors at its meeting held on May 04, 2023 proposed a dividend of ' 0.50 per share (previous year nil), subject to approval of the members at the ensuing Annual General Meeting. Effect of the proposed dividend has been reckoned in determining capital funds in the computation of capital adequacy ratios as at March 31, 2023.
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