Notes to Accounts of Jammu & Kashmir Bank Ltd.

Mar 31, 2023

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 1^st 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 31^st 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 14^th March 2023 and closed on 21^st 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 21^st 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 1^st 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 24^th 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 31^st 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 12^th 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 1^st 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 31^st 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.

---

Mar 31, 2022

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

a) The Bank has booked a profit of '' 44.79 crores on direct Sale of Securities from HTM category amounting to 1958.93 Crore (FV) during the financial year through open market operations (OMO) purchase auction by RBI. As such an appropriation of''33.51 Crore was made to Capital Reserve Account after netting of taxes and required transfer to statutory reserves.

b) With the approval of the Board of Directors, the Bank has shifted securities amounting to'' 1050 Crore (FV) on 26/04/2021 at the cost of acquisition in case of discounted/Par value securities and at the amortized cost in case of securities at the premium, from Held to Maturity (HTM) to Available for Sale (AFS) category. The revaluation of securities was undertaken immediately after transfer of securities to AFS category in conformity with regulatory guidelines.

c) 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.

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(R).

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.

21.4 Accounting Standard 17 - Segment Reporting

i) The Bank has recognized business segment as its primary reportable segment under AS-17 classified into treasury, Corporate/ Wholesale banking, Retail banking and other banking Business. The necessary disclosure is given below:

Advances is shown as borrowings from the sponsor bank in shape of SOD, LAD and Perpetual Bonds.

*''11.67 crore is 50 % share of Sponsor Bank for implementation of CBS by JKGB in the form of Investment in Tier II perpetual bonds.

The Jammu & Kashmir Asset Reconstruction Limited was incorporated jointly by Government of J&K and Jammu & Kashmir Bank Limited on 28.04.2017. The Bank subscribed capital to the tune of '' 98 lakhs whereas Government of J&K has subscribed '' 102 lakh. The Bank incurred an expenditure of '' 82,18,047.00 towards incorporation expenses for the company. An amount of '' 41,91,203.97 (being 51% of incorporation expenses) is receivable from Government of Jammu and Kashmir. The Promoters i.e. J&K Government and Jammu & Kashmir Bank Limited have not paid up for their respective shares towards the capital of the company. In the meantime the promoters have also decided to windup the company and the Bank in turn has approached the Registrar of Companies (J&K) (ROC) for removal of the name of the company from the register of companies under section 248 of the Companies Act, 2013. The application of the Bank is under consideration of ROC.

21.6 Leases (AS-19)

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 '' 77.79 crores (previous year being '' 77.24 crores)

21.8 Consolidated Financial Statements (AS-21)

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 DB0D.FSD.No./1124/24.01.001/2007-08 dated July 31, 2007. The investment towards the capital of subsidiary company is '' 20.00 Crores (Previous Year '' 20.00 Crores). The consolidated financial statements are placed accordingly in terms of AS 21.

21.10 Accounting for Investment in Associates (Consolidated Financial Statements) (AS-23)

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). The consolidated financial statements are placed accordingly in terms of AS 23.

21.11 Intangible Assets (AS-26)

The Bank has incurred an amount of '' 0.56 crores (previous year, '' 0.71 crores) on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to '' 0.07 crores (previous year, '' 0.17 crores) has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to '' 0.48 crores (Previous year, '' 0.54 crores) has been charged to Profit & Loss account treating it as a Revenue expenditure. 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 '' 26.45 Crores (previous year '' 38.77 crores) on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

21.12 Impairment of Assets (AS-28)

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.

21.13 Provisions, Contingent Liabilities and Contingent Assets (AS-29)

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.

No provision has been made during the financial year (as against previous year where a provision of '' 88.15 lakhs were released). The bank holds provision amounting '' 1169.83 lakhs (previous year '' 1169.83 lakhs) upto 31-03-2022 against claims decreed against the Bank. Claims have not been acknowledged as debts owing to the appeal filed by

24. Implementation of IFRS converged Indian Accounting Standards (IndAS)

RBI has indefinitely deferred implementation of IND AS in Banks. The bank had floated RFP in the current year for hiring of consultant for implementation of IND AS but could not complete the process. Bank had previously availed the services of a consultant for implementation of Ind AS and several phases were completed for implementation of same, but consultant did not complete the assignment and Performa financials as per IND AS were not complete in all respects for submission to RBI and his services were terminated. The bank will again start the process for hiring of a consultant for implementation of Ind AS.

27. Foreign Exchange

a) 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.

b) Claims pending with ECGC is NIL (Previous year '' 12.78 crores)

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

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 2021-22

29. Bancassurance Business:

The Bank has tie ups with PNB MetLife India Insurance Company Limited for mobilizing life insurance business and Bajaj Allianz General Insurance Company Ltd and IFFCO Tokio General Insurance Company Ltd for mobilizing general (nonlife and health) insurance business. The details of the commission earned by the Bank during FY 2021-22 on account of mobilizing said business is given hereunder: -

39. Divergence in the asset classification and provisioning:

As per RBI Master Direction No. DOR.ACC.REC.No.45/21.04.018/2021-22 dated 30.08.2021 (updated as on 15.11.2021) on financial statements - preparation and disclosures, divergence in the asset classification and provisioning, Banks should disclose divergences, if either or both of the following conditions are satisfied:

a. the additional provisioning for NPAs assessed by Reserve Bank of India as part of its supervisory process, exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period, and

b. The additional Gross NPAs identified by the Reserve Bank of India as part of its supervisory process exceed 15 per cent of the published incremental Gross NPAs for the reference period.

Divergences are within threshold limits in the Bank as specified above. Hence, no disclosure is required with respect to RBI''s annual supervisory process for FY 2021.

The Bank has provided 100% provisioning against the Fraud Amount as on 31st March, 2022.

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.

42. 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 immediately preceding financial years for CSR activities. Accordingly, bank is required to spend '' 0.63 crores (Previous year '' Nil) for twelve months period ended 31^st March 2022 against which bank has spent '' 0.63 crores (Previous year '' NIL).

43. 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 @ 15% of the existing outstanding balance under Food Credit availed by State Government of Punjab. Now, the RBI vide letter no. BVV.BP.S 7201/21.04.132/2017-18 dated 08 February 2018 has allowed banks to write back the provision of 10%. However, our Bank continues to maintain 5% provision and has maintained a provision of '' 7.86 crore against balance outstanding of '' 157.18 crores as on 31.03.2022 under Food credit availed by State Government of Punjab.

b) In terms of RBI Letter no. DBR.No.BP.15199/21.04.048/2016-17 dated June 23, 2017 (RBI List-1) and Letter no. DBR. BP.1908/21.04.048/2017-18 dated August 28, 2017 (RBI List-2) for the accounts admitted under the provisions of Insolvency & Bankruptcy Code (IBC), the Bank is holding total provision of '' 325.74 Crores (Aggregate provision of

Note - There is no requirement of additional provision during quarter ended 31/03/2022. The difference between provision held on 31/12/2021 (''416.21 Crores) and Provision held on 31/03/2022 (''425.14 Crores) is ''8.93 crore, which is due to the movement in asset classification of one of the accounts namely Hindustan Construction Company Ltd from DF-1 to DF-2 category.

d) Reserve Bank of India (RBI) vide Circular no DBR.DIR.BC.No.14/13.03.00/2019-20 dated September 04, 2019 has issued instructions to all scheduled commercial banks regarding introduction of external bench mark based lending. RBI vide the aforementioned circular directed that all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises extended by banks from October 01, 2019 shall be benchmarked to one of the external benchmarks as mentioned in the aforesaid circular. RBI further vide circular no DOR.DIR.BC.No.39/13.03.00/2019-20 dated February 26, 2020 decided that all new floating rate loans to the Medium Enterprises extended by banks from April 01, 2020 shall be linked to the external benchmarks.

In compliance to RBI direction bank introduced Repo Linked Lending Rate benchmarked to the RBI''s Policy Repo Rate with effect from October 01, 2019. I

44. Micro Small and Medium Enterprises Development Act

With regard to disclosure relating to MSME under the Micro Small & Medium Enterprises Development Act 2006, payments to Micro and Small Enterprises suppliers has not exceeded 45 days from the date of acceptance or the date of deemed acceptance of the goods or services as per the provisions of Section 9 of the Micro Small & Medium Enterprises Development Act 2006 (27 of 2006).

The capital held by the Bank towards the foreign currency exposure amounts to '' 3.03 crores (previous year '' 3.92 crores)

49. 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 RB1/2021-22/105 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 '' 7.25 Crores & 14.50 Crores to the Profit & Loss account for the quarter and year 31st March 2022 respectively and the balance unamortized expense of '' 58.00 Crores has been carried forward. Had the Bank charged the entire additional liability to the Profit and Loss Account, the net profit for the year ended March 31, 2022 would have been lower by '' 43.40 Crores.

50. The Bank has accounted for following Exceptional Items:

The Board has accorded approval for creating of corpus for funding of entire Medical Allowance and of 60% of Adjustment pay (formerly called Variable pay) components of the Pension Fund to the tune of '' 319.36 Crores. Accordingly the bank has charged the entire amount to the Profit and Loss account during the year ended 31st March 2022, out of which ''270 crores has been accounted for as Exceptional Item.

DISCLOSURE ON LIQUIDITY COVERAGE RATIO AS ON 31.03.2022 Qualitative disclosure for LCR:

Liquidity Coverage Ratio (LCR) BLR-1 aims to ensure that a bank maintains an adequate level of unencumbered High-Quality Liquidity Assets (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.

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. Bank has put in place Contingency Funding Plan approved by the Board. The contingency Funding Plan includes stored Liquidity in the form of 1% of NDTL in the shape of excess SLR and 2% in the shape of CD''s/Liquid Funds or 3% in any of the two i.e., excess SLR or CD''s/

Liquid Funds. These investments can be liquidated any time to generate cash and maintain sufficient liquidity for funding, growth and meeting repayment obligations.

LCR is being computed strictly as per RBI guidelines issued vide circular BOD.BP.BC.No. 120/21.04.098/2013-14 and subsequent amendments issued by RBI. HQLA primarily include government securities in excess of minimum Statutory Liquidity Ratio (SLR), the extent allowed under the marginal Standing Facility to avail Liquidity for LCR (FALLCR). Cash and balances in excess of cash reserve requirement with RBI also constitute HQLA.

Average LCR of the bank was 209.16% for quarter March 2022 which is well above the regulatory requirement of 100% prescribed by RBI. 18 data points have been used to arrive at Average LCR.

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 quarterly intervals.

55. Pursuant to the Master Direction on Financial Statements-Presentation and Disclosures issued by Reserve Bank of India on 30^th August, 2021 and subsequent clarification dated 15th Nov.2021, provision for depreciation on investment earlier classified as part of provision & contingencies has been reclassified as part of other income.

56. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

57. 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.

---

Mar 31, 2021

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 favourable appellate orders and interpretation of law, no further provision has been considered by the management in respect of the disputed demands.

3. Fixed Assets

a) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at '' 9.31 (previous year '' 9.39 crores). In respect of immovable properties valued at '' 50.16 Crore (previous year '' 51.37 crores) Bank holds agreement to sell along with the possession of the properties.

b) Pursuant to the revised Accounting Standard-10 "Property, Plant & Equipment” applicable from 1^st April 2017 depreciation of '' 23.38 crores (previous year being '' 16.55 crores) on the revalued portion of the fixed assets (being Premises & Land) has been transferred from the Revaluation reserve to General/Revenue reserve instead of crediting to Profit & Loss account.

c) Depreciation is provided on straight line method in accordance with the provisions of Companies Act 2013 based on the useful life of the assets. However, the depreciation on the computers (including ATMs) along with software forming integral part of the computers is computed @ 33.33% on straight line method in terms of RBI guidelines.

d) In compliance to the directions of RBI, Board of Directors vide resolution no. 47 dated 21-04-2016 approved the policy on Revaluation of Bank''s own properties which covered all the immovable properties owned by the bank including land & office buildings except those fixed assets whose useful life has expired.

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 considered to be 2 years and the depreciation is charged on straight line method.

Depreciation on Banks property includes amortization in respect of leased properties amounting to ''0.76 Crores (previous year '' 0.76 Crores).

Previous year figures of Capital Adequacy includes Revaluation Reserves at a discount of 55% as part of CET-1 capital amounting to Rs 448.20 crores. However, with reference to RBI Maser Circular No DBR.No.BP.BC.1/21.06.201/2015-16 dated July 01, 2015, and as pointed out by RBI, the Bank has distributed the Revaluation Reserve as Rs 299.16 crores in

CET-1 and Rs 138.52 crores in Tier-2 Capital out of the total Revaluation Reserve of Rs 437.68 crores.

Government of Jammu & Kashmir holds 68.18% (Previous year 68.18%) of equity shares of the Bank as on 31.03.2021.

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 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 said arrangement is however subject to necessary approvals from regulators.

Investments

5. The Bank has booked a profit of Rs.178.50 Crore (previous year Rs.30.46 Crore) on direct sale of securities from HTM category during the year through open market operations (OMOs) purchase auction by RBI. As such an appropriation of Rs.133.88 Crore was made to Capital Reserve Account after netting of taxes and required transfer to statutory reserves.

6. The total investment of the Bank in PNB Met-life India Insurance Company Ltd stood at Rs.61.08 Crores as on 31.03.2021 (Previous year Rs.61.08 Crores). In compliance with RBI Letter No. DBOD.BP/-17099/21.4.141/ 2008-09 dated 9th April 2009, the investment stands transferred to AFS Category on October 1^st, 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.

7. Investments include Rs. 45.67 Crores in Sponsored institution J&K Grameen Bank. Net worth of the J&K Grameen bank has eroded due to continuing losses and since there is a permanent diminution in carrying cost of investment the bank has made prudential provision of Rs.36.92 Crore.

8. In terms of RBI Circular no. DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 and RBI Circular No. DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015, Bank holds Investment Fluctuation Reserve (IFR) of Rs 37.78 crore created during the Financial Year 2018-19. As per trading portfolio (AFS HFT) held for the FY 2020-21 no addition is required in the IFR account.

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

a) The Bank has booked a profit of Rs. 178.50 crores on direct Sale of Securities from HTM category amounting to Rs.3323.24 Crore (FV) during the financial year through open market operations (OMO) purchase auction by RBI. As such an appropriation of Rs. 133.88 Crore was made to Capital Reserve Account after netting of taxes and required transfer to statutory reserves.

b) With the approval of the Board of Directors, the Bank has shifted securities amounting to '' 850 Crore (FV) on 18/04/2020 at the cost of acquisition in case of discounted/Par value securities and at the amortized cost in case of securities at the premium, from Held to Maturity (HTM) to Available for Sale (AFS) category. The revaluation of securities was undertaken immediately after transfer of securities to AFS category in conformity with regulatory guidelines.

c) 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.

13.3 Disclosures on Risk exposures in derivatives

a) 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.

b) Quantitative Disclosures

25.2 Accounting Standard 9 - Revenue Recognition

There is no material deviation in the recognition of items of income, which are required to be disclosed as per Accounting Standard-9, read with the RBI guidelines.

25.3 Accounting Standard 15 - Employees Benefit*

Adoption of AS -15 (R) The bank has adopted accounting standard 15 (R) - Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), the Bank recognizes 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.

The disclosure required under Accounting Standard 15 "Employee Benefits- in line with the accounting policy as per the Accounting Standard- issued by the Institute of Chartered Accountants of India are 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-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.

The Jammu & Kashmir Asset Reconstruction Limited has been incorporated by Government of J&K and Jammu & Kashmir Bank Ltd on 28.04.2017. The Bank has subscribed capital to the tune of '' 98 lakhs whereas Government of J&K has subscribed '' 102 lakh. The Bank has incurred an expenditure of '' 82,18,047.00 towards incorporation expenses for the company, which includes ''5,85,317.00 payable to professionals on account of incorporation expenses for the company and the same was reimbursed to them during the financial year 2020-2021. The Promoters i.e. J&K Government and Jammu & Kashmir Bank Limited have not released their respective shares towards the capital of the company. In the meantime the promoters have also decided to windup the company and the Bank in turn has approached the Registrar of Companies (J&K) (ROC) for removal of the name of the company from the register of companies under section 248 of the companies Act, 2013. The application of the Bank is pending with ROC.

25.6 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 '' 77.24 crore (previous year being '' 67.31 crores)

25.8 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 DB0D.FSD.No./1124/24.01.001/2007-08 dated July 31, 2007. The investment towards the capital of subsidiary company is '' 20.00 Crores (Previous Year '' 20.00 Crores). The consolidated financial statements are placed accordingly in terms of AS 21 issued by the Institute of Chartered Accountants of India.

25.9 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.

25.10 Accounting standard 23-Accounting for Investment in Associates (Consolidated Financial Statements)

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). The consolidated financial statements are placed accordingly in terms of AS 23 issued by the Institute of Chartered Accountants of India.

25.11 Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of '' 71.40 Lakh (previous year, '' 146.03 Lakh) on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to '' 17.10 Lakh (previous year, '' 57.73 Lakh) has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to '' 54.30 Lakh (Previous year, '' 88.30 Lakh) has been charged to Profit & Loss account treating it as a Revenue expenditure. 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 '' 38.77 Crores (previous year '' 16.11 crores) on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

25.12 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.

25.13 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 '' 88.15 lakhs has been released during the financial year (as against previous year where a provision of '' 0.04 lakhs were made) totalling to '' 1169.83 lakhs (previous year '' 1257.98 lakhs) upto 31-03-2021 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.

26. ADDITIONAL DISCLOSURES

26.1 COVID-19 pandemic continues to spread across several countries including India resulting in a significant volatility in Global as well as Indian financial markets and a significant decline in global and local economic activities. The Govt. of India announced a series of lock down measures from March 2020 onwards. Such lockdowns were lifted and re-imposed for activities by various governments at various points of time depending on the situation prevailing in their respective jurisdictions. The current second wave of COVID 19 pandemic, wherever the number of new cases have increased significantly in India, has resulted in re-imposition of localized/regional lockdown measures in various parts of the country.

The situation continues to be uncertain and the Bank is evaluating the situation on ongoing basis. The extent to which the Covid-19 pandemic will impact the Bank''s results will depend on future developments, which are highly uncertain including among other things, the success of vaccination drive. The major identified challenges for the Bank would arise from eroding cash flows and extended working capital cycles. The Bank is gearing itself on all the fronts to meet these challenges.

In accordance with the RBI guidelines relating to COVID-19 Regulatory Package dated March 27, 2020 and April 17, 2020, and clarification dated May 06, 2020 issued by RBI through Indian Banks Association, the Bank granted moratorium on the payment of instalments and/or interest, as applicable, falling due between March 01, 2020 and May 31, 2020 to eligible borrowers classified as Standard, even if overdue, as on February 29, 2020. In accordance with the additional Regulatory Package guidelines dated May 23, 2020, the Bank granted a second moratorium on instalments or interest, as applicable, due between June 01, 2020 and August 31, 2020.

Details of the relief extended in terms of RBI Circular RBI/2019-20/220 DOR. No. BP. BC. 63/21. 04.048/2020-21

In the interim order dated September 03, 2020, Hon''ble Supreme Court of India in writ petition Gajendra Sharma vs. Union of India Anrs had directed that the accounts which were not declared NPA till August 31, 2020 shall not be declared as NPA till further orders.

Based on the said interim order, the Bank on 31.12.2020 did not classify any account as N.P.A, which was not N.P.A as on August 31, 2020. As a matter of prudence, the Bank made an additional provision of Rs.164.12 Crores (excluding interest of Rs.96.36 crores) till 31.12.2020, thereby holding cumulative provision of Rs.459.12 Crores (Rs.295 crores Rs.164.12 crores) against the portfolio on which asset classification benefit was extended. Further, the Bank also made a provision of Rs.96.36 crores against interest income of Rs.96.36 crores reckoned in operating profit in respect of such accounts on 31.12.2020.

The above interim order of the Hon''ble Supreme Court of India was vacated 23.03.2021. Further, in accordance with the instructions of RBI Circular dated 07.04.2021, the Bank has classified these borrower accounts as per extant IRAC norms as on March 31, 2021.

26.2 In accordance with RBI circular dated 07.04.2021 on "Asset Classification and Income Recognition following expiry of Covid-19 regulatory package”, the Bank has created an estimated liability of Rs.30,93,78,918.85 towards the refund of ''interest on interest'' charged to all borrowers including those who have availed working capital facilities during moratorium period i.e., 01.03.2020 to 31.08.2020, irrespective of whether moratorium has been fully or partially availed or not availed. The methodology adopted for calculation of such refund is as prescribed by Indian Bank Association vide its letter dated 19.04.2021.

32. Foreign Exchange

a) The net funded exposure of the bank in respect of Foreign Exchange transactions is not more than 1% of the total assets of the bank, to any country 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.

b) Claims pending with ECGC is Rs. 12.78 crores (Previous year Rs. 1.67 crores)

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

The bank has not issued any letter of comfort on behalf of its customers or on its behalf in respect of trade credits during the FY 2020-21

34. Provision Coverage Ratio (PCR)

The provision coverage ratio (PCR) for the Bank as on 31^st March 2021 is 81.97 % (Previous Year 78.59% ) which is calculated taking into account the total technical write offs made by the Bank.

42. Divergence in the asset classification and provisioning:

As per RBI circular No. DBR.BP.BC.No.32/21.04.018/2018-19 dated April 1, 2019, in case the additional provisioning for NPAs assessed by RBI exceeds 10% of the reported profit before provisions and contingencies for the reference period and/or additional Gross NPAs identified by RBI exceeds 15% of published incremental Gross NPAs for the reference period, then the banks are required to disclose divergences from prudential norms on income recognition, asset classification and provisioning.

Divergence in terms of above circular are within threshold limits as specified above, hence no disclosure is required with respect to RBI''s annual supervisory process for FY 2020.

43. 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.

44. 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 immediately preceding financial years for CSR activities. Accordingly, bank is required to spend '' Nil (Previous year '' Nil) for twelve months period ended 31^st March 2021 against which bank has spent NIL (Previous year '' 2.40 Crores).

45. 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 @ 15% of the existing outstanding balance under Food Credit availed by State Government of Punjab. Now, the RBI vide letter no. BVV.BP.S 7201/21.04.132/2017-18 dated 08 February 2018 has allowed banks to write back the provision of 10%. The Bank continues to maintain 5% provisions and has maintained a provision of '' 8.22 crore against balance outstanding of '' 164.35 crores as on 31.03.2021 under Food credit availed by State Government of Punjab.

b) As per RBI Circular No DBR.No.BP.BC.18/21.04.048/2018-19 dated 1st January 2019 & DOR.No.BP.BC.34/ 21.04.048/2019-20 dated 11th February 2019 and circular DOR.No.BP.BC.4/21.04.048/2020-21 dated August 6,2020 on restructuring of Advances-MSME sector, the details of restructured accounts as on 31.03.2021 are

DISCLOSURE ON LIQUIDITY COVERAGE RATIO AS ON 31.03.2021 Qualitative disclosure for 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. Bank has put in place Contingency Funding Plan approved by ALCO and IRMC of the Board. The contingency Funding Plan includes stored Liquidity in the form of 1% of NDTL in the shape of excess SLR and 2% in the shape of CD''s/Liquid Funds or 3% in any of the two i.e., excess SLR or CD''s/Liquid Funds. These investments can be liquidated any time to generate cash and maintain sufficient liquidity for funding, growth and meeting repayment obligations.

Liquidity Coverage Ratio (LCR) BLR-1 aims to ensure that a bank maintains an adequate level of unencumbered High-Quality Liquidity Assets (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.

LCR is being computed strictly as per RBI guidelines issued vide circular BOD.BP.BC.No. 120/21.04.098/2013-14 and subsequent amendments issued by RBI. HQLA primarily include government securities in excess of minimum Statutory Liquidity Ratio (SLR), the extent allowed under the marginal Standing Facility to avail Liquidity for LCR (FALLCR). Cash and balances in excess of cash reserve requirement with RBI also constitute HQLA.

Average LCR of the bank was 337.09% for the FY 2020-21 which is well above the regulatory requirement prescribed by RBI.

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 quarterly intervals.

The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

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.

---

Mar 31, 2018

1. ADDITIONAL DISCLOSURES

2. Foreign Exchange

a) 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.

b) Claims pending with ECGC is Rs, 225.17 crores (Previous year NIL)

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

The bank has not issued any letter of comfort on its behalf. However, Letter of comfort issued on behalf of the customers have been reported under respective heads of contingent liabilities in the financial statement of banks as on 31.03.2018.

4. Provision Coverage Ratio (PCR)

The provision coverage ratio (PCR) for the Bank as on 31st March 2018 is 65.83% (Previous Year 66.88%) which is calculated taking into account the total technical write offs made by the Bank.

5. 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.

6. 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, 0.04 Crores (Previous year Rs, 21.76 Crores ) for twelve months period ended 31st March 2018 against which bank has spent Rs, 31.71 Crores (Previous year Rs, 21.87 Crores ).

7. 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 @ 15% of the existing outstanding balance under Food Credit availed by State Government of Punjab. Now, the RBI vide letter no. BVV.BP.S 7201/21.04.132/2017-18 dated 08 February 2018 has allowed banks to write back the provision of 10% however, continue to maintain 5% provisions. Accordingly, our bank has maintained a provision of Rs, 9.09 crore against balance outstanding of Rs, 181.85 crores as on 31.03.2018 under Food credit availed by State Government of Punjab.

b) In view of flood during 2014 and disturbance during 2016, Bank rehabilitated affected borrowal accounts under RBI Master Directions issued for Relief Measures by Banks in areas affected by Natural Calamities. The total amount of Rehabilitated/ Restructured advances stood at Rs,4286.80 crores (Flood & disturbance) as on 31.03.2018. The Bank has recognized funded interest aggregating Rs,796.02 crores as interest income in these accounts upto 31st Dec, 2017. Now the bank has capitalized funded interest (net of recoveries) of Rs,510.10 crores by staggering over five quarters beginning with 1st quarter ended 31st March 2018 in compliance of dispensation allowed to the Bank by Reserve Bank of India. Accordingly, the Bank has created Interest Capitalization of Rs,102.62 Crores by corresponding debit to interest income in Profit & Loss Account.

8. 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

9. 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. Accordingly, our bank has made the necessary provisions.

51.1 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.

Qualitative disclosure for 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 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 characterised 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.

10. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

11. 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.

---

Mar 31, 2017

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 9^th April 2009, the investment stands transferred to AFS Category on October 1^st, 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 31^st 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.

---

Mar 31, 2015

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:

a. Documentation formalities are pending in respect of two immovable properties held by the bank valued at Rs. 1.12 crores (previous year Rs. 1.13 crores). Depreciation in respect of immovable properties valued at Rs. 16.02 crores (previous year Rs.16.35 crores) bank holds agreement to sell along with the possession of the properties. The values have been re- calculated as per straight line method adopted by the bank during current financial year 2014-15.

b. 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 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.1660/21.04.018/2001 dated 01.02.2001.

c) 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.

d) 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.

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

Investments

5. The Bank has made no profit on sale of HTM category securities during the year as such no appropriation was made (Previous Year, Rs. Nil) to Capital Reserve Account.

6. 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.33,30,70,800) in its sponsored Regional Rural Bank (J&K Grameen Bank).

7. The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs.102.19 Crores as on 31.03.2015 (Previous year Rs.102.19 Crores). In compliance with RBI Letter No. DBOD.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.

8. A Shortfall in the Govt. Security has occurred due to non transferring of security to SGL account well before CCIL, security settlement. Securities were adequately available with the bank & the same has been represented to Reserve bank of India, the matter is under examination.

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

a) Bank has not sold any HTM category securities during the year (previous year nil) as such no appropriation was made to Capital Reserve Account.

b) With the approval of the Board of Directors, the Bank has shifted securities amounting to Rs. 370.00 Crores (FV) on 26/05/2014 (Previous year Rs.405 Crores) 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.

c) On the basis of special dispensation being allowed by the Reserve Bank of India vide its circular No. DBOD.No.BP. BC.30/21.04.141/2014-15 dated 05/08/2014, & circular No. DBOD.No.BP.BC.42/21.04.141/2014-15 dated 07.10.2014, with the approval of the Board Of Directors, the Bank undertook shifting of Govt. securities having face value of Rs.700 Crores & Rs. 800 Crores. on 07.08.2014 and 01.01.2015 respectively from HTM to AFS category.

d) 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.

10. Disclosures on Risk exposures in derivatives a) 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.

11. Details of single borrower limit/ group borrower limit exceeded by the Bank:

The Bank has not exceeded single borrower exposure limit (SGL)/Group Borrower Exposure Limit (GBL) during the year.

12. penalty imposed by Reserve Bank of India

Penalty imposed by Reserve Bank of India during the year: NIL (Previous year Rs. 2.501 crores).

13. disclosures as per Accounting standards (As) in terms of RBI guidelines.

14. Accounting standard 1.

Consequent upon enactment of the Companies Act 2013 and its applicability for accounting periods commencing from 1st April 2014, the bank has from 1st April 2014 changed the method of providing depreciation on fixed assets from written down value method under provisions of Income Tax Act 1961 to Straight line method based on remaining useful life of assets as per provisions Companies Act 2013. The Bank has as per new method charged depreciation of Rs.94.50 crores on fixed assets during the financial year 2014-15. Had the bank followed earlier method of providing depreciation, charge for the year would have been less by Rs.11.49 crores and resultant profit would have increased to that extent.

15. accounting standard 5

Net profit or loss for the period, prior period items and changes in accounting policies:

There is no material Prior Period item included in Profit & Loss Account required to be disclosed as per Accounting Standard-5 read with RBI Guidelines except as per Para 24.3 below.

16. accounting standard 6.

The bank has from 1st April 2014 changed the method of providing depreciation on fixed assets from written down value method under provisions of Income Tax Act 1961 to Straight line method based on remaining useful life of assets as per provisions of Companies Act 2013. Further due to this change in method of depreciation, retrospective re-computation of depreciation has resulted in over charge of depreciation amounting to Rs.135.67crores (Rs.89.55 Crores net of deferred tax liability) which has been credited to profit &loss account for the year ended 31st March 2015 in accordance with accounting standard 6 issued by Institute of Chartered Accountants of India on Depreciation Accounting.

17. accounting standard 9- revenue recognition

There are no material items of income, which are required to be disclosed as per Accounting Standard-9, read with the RBI guidelines.

18. Accounting Standard 15 - Retirement Benefit

Adoption of AS -15 (R) The bank has adopted accounting standards 15 (R ) - employee benefits , issued by the Institute of Chartered Accountants of India (ICAI ), the Bank 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.

The disclosure required under Accounting Standard 15 "Employee Benefits- in line with the accounting policy as per the Accounting Standard- issued by the Institute of Chartered Accountants of India are 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-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

19. Accounting standard 19 - Leases

The bank has taken premises only on rental basis and has no long-term operating leases taken/given and hence reporting under AS-19 is not considered necessary.

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. 10.00 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 26-Intangible Assets

The Bank has incurred an amount of Rs.137.19 Lacs on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs.59.76 Lacs has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs.77.43 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.6.33 Crores on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

22. 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.

23. 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.1.90 Crores has been made during the year totaling to Rs.5.59 Crores upto 31.03.2015 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.

24. Foreign Exchange

a) 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.

b) Claims pending with ECGC amounts Nil (Previous year Nil)

31. 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 2015.

25. provision coverage Ratio (pcR)

The provision coverage ratio (PCR) for the Bank as on 31st March 2015 is 59.02% which is calculated taking into account the total technical write offs made by the Bank.

26. 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.

27. Payments to and Provisions for employees include Rs. 84.00 Crores towards liability for wage arrears calculated on estimated basis. (Previous year Rs. 82.50 Crores).

28. Pursuant to schedule II of the Companies Act 2013, the carrying cost amount of the assets as on 01.04.2014 after retaining the residual value shall be recognized in the opening balance of retained earning where the remaining useful life of an asset is nil. Whereas the Bank has charged carrying cost of such assets amounting to Rs.5.84 Crores in the current year's profit /loss account in absence of prior permission from RBI for any adjustment in revenue and other reserves.

29.. During the financial year ended 31st March 2015 fraudulent transactions on account of discounting of fake LC's were detected at two business units of the bank . An amount of Rs. 60.25 crores outstanding against such fake LC's has been classified under loss category and fully provided for as on 31st December 2014 . However during the quarter ended 31st March 2015, an amount of Rs.16.07 crores has been recovered and the provisions to the extent reversed. Further RBI on 20.01.2015 identified and intimated the Bank that advances made by different banks to a specific borrower fall in the category of fraud and in this regard as per directions of RBI, bank declared advance amounting to Rs.680 crores as fraud. Pursuant to RBI circular DBR. NO.BP.BC.83/21.04.048/2014-15 dated 01.04.2015, the amount of fraud irrespective of the value of security held by the bank, has to be provided for over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected. RBI vide letter dated DBR.BP.No16804/21.04.048/2014-15 dated May07,2015 granted permission for making 50% of the required provisioning in March quarter and balance in two equal installments in quarter ending June 2015 and Sep.2015. Against the provisioning requirement of Rs.215.85 Crores, bank has made provisioning of Rs.297.63 Crores in March quarter (which is Rs.81.78 Crores more than the regulatory requirement).As on 31.03.2015 against outstanding exposure of Rs.675.31 Crores in the account, total provision held is Rs.544.75Crores.

30. During the recent devastating floods in the state of J&K, few business units /offices were affected causing loss to the infrastructural peripherals installed therein. The bank has lodged an insurance claim of Rs.27.00 crores based on acquisition cost of damaged infrastructural peripherals having book value of Rs.11.75 crores as on date of flood. An amount of Rs.10.00 Crores has been received from Insurance Company as part of insurance claim up to March 2015 which has been appropriated towards the adjustment of book value of assets and balance amount of Rs.1.75 Crores has been debited to profit & loss account as loss from damage of fixed assets. Further under Rehabilitation Plan approved in terms of RBI MASTER CIRCULAR no.rpcd. no.fsd.bc07/05.04.02/2014-15 dated 01.07.2014, the bank has restructured loan portfolio of Rs.463.74 crores for which provision of Rs.56.38 crores and Rs.23.11 crores has been made for DIFV and standard provisioning respectively

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 proceeding financial years for CSR activities. Accordingly the bank is required to spendRs.29.86 crores for twelve months period ended 31st March 2015. During the year the bank has spent Rs. 13.75 crores for CSR activities. However in the opinion of the management , the balance amount of Rs. 16.13 crores could not be expended due to devastating floods that hit the state of J& K in September 2014 and derailed every activity of normal life. As a result the areas where bank was looking upon to do the CSR activities/programmers became inaccessible.

32. 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

33. 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. For the financial year 2014-15 bank has a provision requirement of Rs.4.09 Crores for the same as on 31.03.2015. However the bank during nine months period ended December 2014 has already made a provision of Rs.9.63 Crores for it on estimates basis and accordingly reversed the excess provision as on 31.03.2015.

34. 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.

35 Qualitative disclosure for Liquidity Coverage Ratio (LCR) :

The Bank has a 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 assets 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 2 (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 2 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

All the relevant inflows and outflows are captured in the LCR template. concentration of Funding

Management of funding concentration risk is meant to identify those sources of funding that are of such significance, the withdrawal of which could trigger liquidity problems, thus encourages the diversification of funding sources .This aims to address the funding concentration by monitoring funding from each significant counterparty, each significant product / instrument and each significant currency. Presently, Bank is submitting the details of Top 20 depositors as part BLR report (Statement of funding concentration, BLR-3). Further, there are regulatory limits like Inter-bank liability and call borrowings, which address funding concentration.

36. Disclosure on Remuneration

Information relating to the Bank has constituted the Nomination composition and mandate of and Remuneration committee of the the Remuneration Committee. Board pursuant to the requirement of the Reserve Bank of India and the Companies Act, 2013, constitutes of following members of the Board.

Mr. A. M. Matto, (Chairman)

Mr. Vikrant Kuthiala (Member)

Mr. Dalip Kumar Kaul (Member)

Information relating to the design and structure of remuneration processes * Ensure effective governance and the key features and compensation alignment of objectives of remuneration compensation with prudent risk policy. taking.

* Ensure effective supervisory oversight and engagement by stakeholders.

* Comply with the regulatory directives whereby all Private Sector Banks are required to formulate and adopt a compre- hensive compensation policy covering all their employees and conduct annual review thereof.

* Identify persons who are qualified and may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal.

* Recommend to the Board a policy, relating to the remuneration for directors the key managerial personnel and other employees.

* Formulae the policy which inter alia shall ensure that :

(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Key Management Personnel and other employees of the company;

(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

(c) Remuneration to key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

Description of the ways Remuneration committee of the Board in which current and undertakes risk evaluations based future risks are on industry standards and risk taken into account in the profile of the bank. remuneration processes. It should include the nature and type of the key measures used to take account of these risks.

Description of the ways in The performance of the Bank as a which the bank seeks to whole is linked to the performance link performance during of its management and employees. a performance measurement However in individual cases variable period with levels of pay is withheld in case of remuneration. low performance of individual staff member.

A discussion of the bank's policy on deferral and vesting of NIL variable remuneration and a discussion of the bank's policy and criteria for adjusting deferred remuneration before vesting and after vesting.

Description of the different forms of variable remuneration (i.e. NIL cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms.

Quantitative Disclosure

Particulars 31.03.2015

Number of meetings held The Committee met two times by the Remuneration during the year and total Committee during the sitting fee of Rs.75000/- financial year and @ Rs.15000 for each meeting remuneration paid attended by its members was to its members. paid.

(i) Number of employees Performance bonus during the having received a year to CEO @ 35% of salary variable remuneration Rs.19.95 Lacs. and to three award during the Executive Presidents Rs.9.00 financial year. Lacs (Rs.3.00Lac each) (The quantitative disclosures should only cover Whole Time Directors / Chief Executive Officer/ Other Risk Takers)

(ii) Number and total amount of sign-on awards made during NIL the financial year.

(iii) Details of guaranteed bonus, if any, paid as joining / sign on NIL bonus

(iv) Details of severance pay, in addition to accrued benefits, if any NIL

a. Total amount of outstanding deferred remuneration, split NIL into cash, shares and share-linked instruments and other forms.

b. Total amount of deferred remuneration paid out in the NIL financial year.

Breakdown of amount of No other remuneration awards remuneration awards other than performance bonus for the financial has been paid. year to show fixed and Performance bonus during the variable, deferred and to CEO and three Executive non-deferred. Presidents paid @ 35% of basic Pay (Rs. 3.00 Lacs each)

a. Total amount of outstanding deferred remuneration NIL and retained remuneration exposed to ex post explicit and / or implicit adjustments.

b. Total amount of reductions during the financial year NIL due to ex- post explicit adjustments.

c. Total amount of reductions during the financial year NIL due to ex- post implicit adjustments.

37 CONTiNGENT LiABiLiTiES

I) Claims against the Bank not acknowledged as debts 2,163,878 1,519,646

II) Liability for partly paid investments - 14,008

III) Liability on account of outstanding Forward Exchange Contracts 146,781,871 101,848,460

IV) Guarantees given on behalf of constituents:-

a) In India 15,844,900 15,504,100

b) Outside India 3,271,400 2,571,600

V) Acceptances, Endorsements & Other Obligations 48,748,900 39,949,300

VI) Other items for which the Bank is Contingently liable - 40

VII) Liabitty on account of Depositers Education Awareness Fund(DEAF) 161,436 -

total ( i to vi ) 216,972,385 161,407,154

38. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

39.Previous year figures have been regrouped / rearranged, where ever 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.

---

Mar 31, 2014

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 fnancial 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:

a) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs.0.42 crores (previous year Rs.0.45 crores). In respect of immovable properties valued at Rs.4.99 crores (previous year Rs.5.54 crores) bank holds agreement to sell along with the possession of the properties.

b) The Bank has been consistently following the method of charging depreciation on fxed assets on diminishing balance as per the rates prescribed in Income Tax Rules which is higher in totality as compared to rates prescribed in Schedule XIV of the Companies Act, 1956. However, the depreciation on computers (including ATMs) along with software forming integral part of computers has been computed at the rate of 33.33% on straight-line method.

c) 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 benefts that are contributable to this software will fow to bank, is being capitalized and depreciation is charged at the rate of 33.33% on straight line method in terms of RBI guidelines.

d) Further the mobile phones are depreciated @50% on straight line method.

e) Depreciation on Banks property includes amortization in respect of leased properties amounting to Rs.0.14 Crores (previous year Rs.0.14 Crores). The book value of these properties as on 31.03.2014 was Rs.8.00 Crores (previous year Rs.7.88 Crores).

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.

4. Investments

The Bank has made no proft on sale of HTM category securities during the year, as such no appropriation was made (Previous Year, Rs. Nil) to Capital Reserve Account.

5. The Bank has Rs.70,00,000 (previous year Rs.70,00,000) as share capital and Rs.33,30,70,800 (previous year Rs.21,40,70,800) in share capital deposit account in its sponsored Regional Rural Bank (J&K Grameen Bank).

6. The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs.102.19 Crores as on 31.03.2014 (Previous year Rs.102.19 Crores). In compliance with RBI Letter No. DBOD.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.

7. Penalty imposed by Reserve Bank of India

Penalty imposed by Reserve Bank of India during the year: One amounting to Rs.2.501 Crores (Previous year Rs.10,000/-).

8. Disclosures as per Accounting Standards (AS) in terms of RBI guidelines.

8.1 Accounting Standard 5-Net proft or loss for the period, prior period items and changes in accounting policies:

There is no material Prior Period item included in Proft & Loss Account required to be disclosed as per Accounting Standard–5 read with RBI Guidelines.

8.2 Accounting Standard 9- Revenue Recognition

There are no material items of income, which are required to be disclosed as per Accounting Standard–9, read with the RBI guidelines.

8.3 Accounting Standard 15 – Retirement Beneft

The disclosure required under Accounting Standard 15 "Employee Benefts- issued by the Institute of Chartered Accountants of India are as under":

Defned Contribution Plan

In respect of employees, who hold the option of provident fund, matching contribution has been made.

Defned Beneft Plans

The Employee''s Gratuity Fund Scheme, Pension Fund and Leave Encashment are defned beneft plans. The present value of obligation is determined based on Actuarial Valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee beneft entitlement and measures each unit separately to build up the fnal obligation.

9. 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.10.00 Crores (Previous Year Rs.10.00 Crores). The consolidated fnancial statements are placed accordingly in terms of AS-21 issued by the Institute of Chartered Accountants of India.

10. Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs.1.43 Crores on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs.0.83 Crores has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs.0.60 Crores has been charged to Proft & 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.13.60 Crores on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

11. 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.

12. 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 fow in settlement is remote. However, a provision of Rs.3.69 Crores is outstanding as on 31.03.2014 (During the year Rs.1.07 Crores) to meet certain claims decreed against the Bank but still not acknowledged as debts owing to the appeal fled by the bank before the court of competent jurisdiction, pending adjudication.

13. ADDITIONAL DISCLOSURES

14.1 Draw Down from Reserves

The Bank during the year 2012-13 created a special reserve under section 36(1) (viii) of the income tax act 1961 to the tune of Rs.123.16 crores without creating deferred tax liability on the grounds that the Bank does not have any intention to withdraw from such reserve in future. However pursuant to RBI circular letter no.BDOD.NO.BP.BC77/21. 04.018 / 2013-14 dated December 20, 2013 issued to all commercial banks, Bank created a deferred Tax liability of Rs.39.97 crores for the said special reserve out of revenue and other reserves.

14.2 Foreign Exchange

a) 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.

b) Claims pending with ECGC amounts to Rs.0.00 (Previous year Rs.0.00 Crores)

14.3 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 fnancial statements of Bank as on 31st March 2014.

14.4 Provision Coverage Ratio (PCR)

The provision coverage ratio (PCR) for the Bank as on 31st March 2014 is 90.30% which is calculated taking into account the total technical write offs made by the Bank.

15. 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.

16. Payments to and Provisions for employees include Rs.82.50 Crores toward liability for wage arrears calculated on estimated basis. (Previous year Rs.33.75 Crores).

17. The Bank w.e.f April 01, 2013 changed the accounting policy with regard to appropriation of recovery in Non- Performing Assets. The recovery in NPA accounts has been frst appropriated towards amount of principal and thereafter towards amount of interest. The impact in the opinion of the management of such change in accounting policy on the fnancial statements would not be material.

18. 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.

---

Mar 31, 2013

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:

a) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs. 0.45 Crores (previous year Rs. 0.49 Crores). In respect of immovable properties valued at Rs. 5.54 Crores (previous year Rs. 6.15 Crores) bank holds agreement to sell along with the possession of the properties.

b) The Bank has certain fixed assets with Book Value at Rs. 258.96 lacs (Previous year Rs. 287.74 Lacs) generating cash, parked under respective heads, for the promotion and development of its business.

c) The Bank has been consistently following the method of charging depreciation on fixed assets on diminishing balance as per the rates prescribed in Income Tax Rules which is higher in totality as compared to rates prescribed in Schedule XIV of the Companies Act, 1956. However, the depreciation on computers (including ATMs) along with software forming integral part of computers has been computed at the rate of 33.33% on straight-line method.

d) 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.

e) Further the mobile phones are depreciated @50% on straight line method.

f) Depreciation on Banks property includes amortization in respect of leased properties amounting to Rs. 13.19 Lacs (previous year Rs. 13.19 Lacs). The book value of these properties as on 31.03.2013 was Rs. 7.88 Crores (previous year Rs. 8.02 Crores).

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.

4. Investments

The Bank has made no profit on sale of HTM category securities during the year, as such no appropriation was made (Previous Year, Rs. Nil) to Capital Reserve Account.

5. The Bank has Rs. 70,00,000 as share capital and Rs. 21,40,70,800 in share capital deposit account in its sponsored Regional Rural Bank (J&K Grameen Bank).

6. (a) The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs. 102.19 Crores as on 31.03.2013 (Previous year Rs. 220.27 Crores). In compliance with RBI Letter No. DB0D.BP.07099/21.4.141/ 2008-09 dated 9th April, 2009, the investment stands transferred to AFS Category on 1st October, 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.

(b) Other income (Schedule 14) includes a profit of Rs. 71.91 Crores on account of sale of equity shares of Met-life India Insurance Co. Pvt. Ltd to Punjab National Bank & Met-life International Holdings Inc. Post-sale the holding of the Bank in Met-life India Insurance Co. Pvt. Ltd has reduced from 11.18% to 5.08%.

7. Derivatives

7.1 No forward rate agreements / interest rate swaps were undertaken by the bank during the year.

7.2 The bank has not entered into exchange traded interest rate derivatives transactions during the year

7.3 Disclosures on Risk exposures in derivatives

a) 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.

**Net NPA has been arrived at after adding net interest suspense of Rs. 0.61 Crores.(Previous year Rs. 0.61 Crores) and net ECGC claims of Rs. 2.37 Crores (Previous year Rs. 11.64 Crores) and reducing Interest Capitalization of Rs. 11.70 Crores (previous year NIL).

*Information regarding movement of Net NPA''s has been compiled at Corporate Office and relied upon by the Auditors.

*Including floating provision of Rs. 52.90 Crores. The Provision Coverage Ratio for the Bank as on 31.03.2013 is 94.01% which is calculated after taking into account technical write off.

8. Statement of loans & Advances secured by Intangible Assets viz. Rights, Licenses, Authorizations etc.

The advances of the Bank as on 31st March, 2013 against intangible security of Rights, Licenses and Authorizations are Rs. 41.51 Crores.

9. Penalty imposed by Reserve Bank of India during the year: One amounting to Rs. 10,000/- (Previous year Nil).

10. Information in respect of Accounting Standards issued by the Institute of Chartered Accountants of India:

10.1 Accounting Standard 5-Net profit or loss for the period, prior period items and changes in accounting policies:

There is no material Prior Period item included in Profit & Loss Account required to be disclosed as per Accounting Standard-5 read with RBI Guidelines.

10.2 Accounting Standard 9- Revenue Recognition

There are no material items of income, which are required to be disclosed as per Accounting Standard-9, read with the RBI guidelines.

10.3 Accounting Standard 15 - Retirement Benefit

The disclosure required under Accounting Standard 15 "Employee Benefits- issued by the Institute of Chartered Accountants of India is as under":

Defined Contribution Plan

In respect of employees, who hold the option of provident fund, matching contribution has been made.

Defined Benefit Plans

The Employee''s Gratuity Fund Scheme, Pension Fund and Leave Encashment are defined benefit plans. The present value of obligation is determined based on Actuarial Valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

10.4. Accounting standard 19 - Leases

The Bank has taken premises only on rental basis and has no long-term operating leases taken/given and hence reporting under AS-19 is not considered necessary.

10.5. 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 DB0D.FSD.No./1124/24.01.001/2007-08 dated 31st July, 2007. The investment towards the capital of subsidiary company is Rs. 10.00 Crores (Previous Year Rs. 5.00 Crores). The consolidated financial statements are placed accordingly in terms of AS 21 issued by the Institute of Chartered Accountants of India.

10.6. Accounting standard 22 - Accounting for taxes on income

a. The Bank has accounted for Income Tax in compliance with Accounting Standard-22 accordingly deferred Tax assets and liabilities are recognized.

b. The Bank has created Special Reserve of Rs. 74.41 Crores under section 36(1)(viii) of the Income Tax Act, 1961. After the approval of the Board of Directors that it has no intention to withdraw from special Reserve, no DTL on the amount of Special Reserve of Rs. 74.41 Crores has been considered.

10.7 Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs. 0.31 Crores on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs. 0.20 Crores has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs. 0.11 Crores 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. 2.84 Crores on account of purchase of computer software, not forming integral part of computers, and has capitalized the cost of the same.

10.8 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.

10.9 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. However, a provision of Rs. 2.62 Crores is outstanding as on 31.03.2013 to meet certain claims decreed against the Bank but still not acknowledged as debts owing to the appeal filed by the bank before the court of competent jurisdiction, pending adjudication.

10.10 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, 2013.

11. OTHER DISCLOSURES Foreign Exchange

a) 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.

b) Claims pending with ECGC amounts to Rs. NIL (Previous year Rs. 5.08 Crores)

12. 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.

13. 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.

14. BANCASSURANCE BUSINESS:

The Bank has tie ups with M/S 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 2012-13 on account of mobilizing said business is given hereunder:-

15. The Bank has transferred its entire business of depository services to JKB Financial Services Ltd (Fully owned Subsidiary Company of the Bank) as on 31.12.2012 at Book Value and hence w.e.f., 1st January, 2013 no business of the depository has been incorporated in the financials of the Bank.

The Special Reserve has been created after approval of the Board of Directors that it has no intention to withdraw any amount from the Special Reserve.

16. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

17. Previous year figures have been regrouped / rearranged, where ever 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.

---

Mar 31, 2012

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 fi nancial staThements would not be maTherial.

2. Tax paid in Advance/ Tax deducted at source includes amount adjusThed by Income Tax Department in respect of various dispuThed demands. Based on the favourable appellaThe orders and interpretation of law, no further provision has been considered by the management in respect of the dispuThed demands.

3. Fixed Assets:

a) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs. 0.49 Crores (previous year Rs. 0.53 Crores). In respect of immovable properties valued at Rs. 6.15 Crores (previous year Rs. 6.84 Crores) bank holds agreement to sell along with the possession of the properties.

b) The Bank has certain fixed assets with Book Value at Rs. 287.74 lacs (Previous year Rs. 319.72 lacs) generating cash, parked under respective heads, for the promotion and development of its business.

c) The Bank has been consistently following the method of charging depreciation on fi xed assets on diminishing balance as per the rates prescribed in Income Tax Rules which is higher in totality as compared to rates prescribed in Schedule XIV of the Companies Act, 1956. However, the depreciation on compuThers (including ATMs) along with software forming integral part of compuThers has been compuThed at the rate of 33.33% on straight-line method.

d) Hitherto acquisition cost of compuTher software, not forming integral part of compuThers, was being charged fully in the year of purchase. In compliance to Accounting Standard(AS)-26, the Bank has changed its accounting policy w.e.f 1st April, 2011. Accordingly, acquisition cost of such software is being capitalised and depreciation is charged at the rate of 33.33% on straight line method in Therms of RBI guidelines . However the impact on accounts is not maTherial.

e) Further the mobile phones are depreciaThed @50% on straight line method.

f) Depreciation on Banks property includes amortisation in respect of leased properties amounting to Rs.13.19 lacs (previous year Rs. 13.12 lacs). The book value of these properties as on 31.03.2012 was Rs. 12.57 Crores (previous year Rs. 11.36 Crores).

5. Investments

The Bank has made no Profit on sale of HTM caThegory securities during the year, as such no appropriation was made (Previous Ye a r, Rs. Nil) to Capital Reserve Account.

6. The Bank has Rs. 70,00,000 as share capital and Rs. 21,40,70,800 in share capital deposit account in its sponsored Regional Rural Bank (J& K Grameen Bank).

7. The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs. 220.27 Crores as on 31.03.2012 (Previous year Rs. 220.27 Crores). In compliance with RBI Letter No. DBOD.BP.07099/21.4.141/2008-09 daThed 9th April, 2009, the investment stands transferred to AFS CaThegory on 1st October, 2009. The valuation has been carried out at an average of two independent valuation reports obtained from CaThegory I Merchant Bankers as per RBI guidelines & the consequent appreciation has been ignored in view of the Accounting Policy in respect of such investments

11. Derivatives

11.1 No forward rate agreements / interest rate swaps were undertaken by the bank during the year.

11.2 The bank has noThenThered into exchange traded interest rate derivatives transactions during the year

11.3 Disclosures on Risk exposures in derivatives

a) 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 Va R .

Outstanding forward exchange contracts held for trading are revalued at the exchange rates for appropriaThe maturity rates as announced by FEDAI at the year-end exchange rates and the resultant gain/ loss is taken to revenue.

21. StaThement of loans & Advances secured by Intangible Assets viz. Rights, Licenses, Authorisations etc.

The advances of the Bank as on 31st March, 2012 against intangible security of Rights, Licenses and Authorisations are Nil.

23. Penalty imposed by Reserve Bank of India during the year Nil (Previous year Nil).

24. Information in respect of Accounting Standards issued by the InstituThe of CharThered Accountants of India:

24.1 Accounting Standard 5 – Net prof t or loss for the period, prior period iThems and changes in accounting policies:

There are no maTherial Prior Period iThems included in Profit & Loss Account required to be disclosed as per Accounting Standard–5 read with RBI Guidelines.

Prior to this fi scal the bank used to receive the commission directly from StaThe Government of Jammu & Kashmir on government business on receipt basis. However, due to change in System owing to agency arrangement with Reserve Bank of India, the commission on government business is now being booked on accrual basis. The change in accounting policy has resulThed in increase of Profits by Rs. 18.23 Crores.

24.2 Accounting Standard 9- Revenue Recognition

There are no maTherial iThems of income, which are required to be disclosed as per Accounting Standard–9, read with the RBI guidelines.

24.3 Accounting Standard 15 – Retirement Benef t

a) In view of Accounting Standard-15(Revised 2005) issued by The InstituThe of CharThered Accountants of India, the Bank in respect of its Defi ned Benefi t Plans (Pension, Gratuity, and Leave Encashment) on fi rst adopting this staThement as on 01-04-2007, had

a transitional Liability of Rs. 149.70 Crores as per Actuarial Valuation. The liability was recognised as an expense on straight line basis over a period of fi ve years beginning from 1.4.2007 which stands fully provided for as on 31.03.2012. Further an additional amount of Rs. 65.89 Crores has been charged to Profit & Loss account towards provision on account of Gratuity, Pension and Leave encashment as per actuarial valuation

b) The disclosure required under Accounting Standard 15 "Employee Benefi ts- issued by the InstituThe of CharThered Accountants of India are as under":

Defi ned Contribution Plan

In respect of employees who hold the option of provident fund matching contribution has been made.

Defi ned Benefi t Plans

The Employee's Gratuity Fund Scheme, Pension Fund and Leave Encashment are defi ned benefi t plans. The present value of obligation is deThermined based on Actuarial Va luation using the ProjecThed Unit Credit Method, which recognises each period of service as giving rise to additional unit of employee benefi Thentitlement and measures each unit separately to build up the fi nal obligation.

24.6. Accounting standard 19 – Leases

The Bank has taken premises only on rental basis and has no long-Therm operating leases taken/given and hence reporting under AS-19 is not considered necessary.

24.8. Accounting Standard –21 (ConsolidaThed Financial StaThements)

The Bank has a fully owned subsidiary Company "JKB Financial Services Ltd." in Therms of the approval of Reserve Bank of India vide its Letter No DBOD.FSD.No./1124/24.01.001/2007-08 daThed 31st July, 2007. The investment towards the capital of subsidiary Company is Rs. 5.00 Crores. The consolidaThed fi nancial staThements are placed accordingly in Therms of AS 21 issued by the InstituThe of CharThered Accountants of India.

24.10. Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs. 0.74 Crores on Brand names bifurcaThed into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs. 0.34 Crores has been debiThed under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs. 0.40 Crores 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 compleThely in view of the provisions of the Banking Regulation Act, 1949. Accordingly, the Bank has not evaluaThed useful life of this Brand strategy project over which the expenses could be amortised.

Further, the Bank has incurred an amount of Rs. 2.80 Crores on account of purchase of compuTher software, not forming integral part of compuThers, and has capitalised the cost of the same.

24.11. 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 maTherial impairment in these Fixed Assets. Regarding other Fixed Assets generating cash there is no maTherial impairment. As such no provision is required as per AS-28 issued by ICAI.

24.12. 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 fl ow in settlement is remoThe. However, a provision of Rs. 1.45 Crores is outstanding as on 31.03.2012 to meet certain claims decreed against the Bank but still not acknowledged as debts owing to the appeal fi led by the bank before the court of compeThent jurisdiction, pending adjudication.

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

The Bank has not issued any Letter of comfort (LOC) on its behalf. However, Letter of Comfort issued on behalf of customers have been reporThed under respective heads of contingent liabilities in the fi nancial staThements of bank as on 31.03.2012.

25. Other Disclosures Foreign Exchange

a) The net funded exposure of the Bank in respect of Foreign Exchange transactions with each country is within 1% of the To tal 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 daThed: 17.06.2004.

Claims pending with ECGC amounts to Rs. 05.08 Crores (Previous year Rs. 37.93 Crores)

b) Concentration of Deposits, Advances, Exposures & NPA's

29. 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.

32. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

33. Previous year fi gures have been regrouped / rearranged where ever necessary and possible to conform to current year fi gures. In cases where disclosures have been made for the fi rst time in Therms of RBI guidelines, previous year's fi gures have not been given.

---

Mar 31, 2011

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

i) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs. 0.53 Crores (previous year Rs. 0.62 Crores). In respect of immovable properties valued at Rs. 6.84 Crores (previous year Rs. 7.60 Crores) bank holds agreement to sell along with the possession of the properties.

ii) The Bank has also acquired certain fixed assets valued at Rs. 319.72 lacs generating cash, parked under respective heads, for the promotion and development of its business.

iii) The Bank has been consistently following the method of charging depreciation on fixed assets on diminishing balance as per the rates prescribed in Income Tax Rules which is higher in totality as compared to rates prescribed in Schedule XIV of the Companies Act, 1956.However, the depreciation on computers (including ATMs) along with software forming integral part of computers has been computed at the rate of 33.33% on straight-line method. Further the mobile phones are depreciated @50% on straight line method.

Government of Jammu & Kashmir holds 53.17% 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.

5. Investments

The Bank has made no profit on sale of HTM category securities during the year, as such no appropriation was made (Previous Year, Rs. Nil) to Capital Reserve Account.

6. The Bank has Rs. 70,00,000 as share capital and Rs. 21,40,70,800 in share capital deposit account in its sponsored Regional Rural Bank (J& K Grameen Bank).

7. The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs. 220.27 Crores as on 31.03.2011 (Previous year Rs. 220.27 Crores). In compliance with RBI Letter No. DBOD.BP.07099/21.4.141/2008-09 dated 9th April, 2009, the investment stands transferred to AFS Category on 1st October, 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

11. Derivatives

11.1 No forward rate agreements / interest rate swaps were undertaken by the bank during the year.

11.2 The bank has not entered into exchange traded interest rate derivatives transactions during the year

11.3 Disclosures on Risk exposures in derivatives

a) 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 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.

*Including floating provision of Rs. 52.90 Crores. The Provision Coverage Ratio for the Bank as on 31.03.2011 is 92.71% which is calculated after taking into account technical write off .

13. Particulars of Accounts Restructured

* For loan accounts with restructured amount up to 1 Rs.Crore, Diminishing Fair Value has been worked out at the rate of 5% of the amount restructured.

For loan accounts with restructured amount exceeding Rs. 1 Crore, Diminishing Fair Value has been worked out as a difference in NPV of cash flows against pre-restructured terms and restructured terms at discount factor linked to PLR + Risk Premium + Term Premium.

16. Provisions on standard Assets

Bank holds a provision of Rs. 138.74 Crores on standard assets (previous year Rs. 138.74 Crores) which has been arrived at in accordance with RBI guidelines. No further provision was required during the current year.

* Working funds are the average of total of assets as reported to RBI in Form X.

** Assets are the total assets as at the close of the year.

*** Deposits (other than inter-bank deposits) & Gross Advances are as at the close of the year.

22. Statement of loans & Advances secured by Intangible Assets viz. Rights, Licenses, Authorizations etc.

The advances of the Bank as on 31st March, 2011 against intangible security of Rights, Licenses and Authorizations are Nil.

24. Penalty imposed by Reserve Bank of India during the year Nil (Previous year Nil).

25. Information in respect of Accounting Standards issued by the Institute of Chartered Accountants of India:

25.1 Accounting Standard 5 – Net profit or loss for the period, prior period items and changes in accounting policies:

There are no material Prior Period items included in Profit & Loss Account required to be disclosed as per Accounting Standard–5 read with RBI Guidelines.

25.2 Accounting Standard 9- Revenue Recognition

There are no material items of income, which are required to be disclosed as per Accounting Standard–9, read with the RBI guidelines.

25.3 Accounting Standard 15 – Retirement Benefit

a) In view of Accounting Standard-15 (Revised 2005) issued by The Institute of Chartered Accountants of India, the Bank in respect of its Defined Benefit Plans (Pension, Gratuity, and Leave Encashment) on first adopting this statement as on 01-04-2007, has a transitional Liability of Rs. 149.70 Crores as per Actuarial Valuation. The 1/5th of this liability on a straight-line basis amounting to Rs. 29.94 Crores has been recognized as an expense during the year 2010-11(4th year) and the remaining unrecognized amount of Rs. 29.94 Crores is carried forward to next year.

b) The disclosure required under Accounting Standard 15 “Employee Benefits- issued by the Institute of Chartered Accountants of India are as under”:

Defined Contribution Plan

Consequent upon the change of the option by the employees from Defined Provident Fund Contribution plan to Defined Pension Benefit Plan, the balance of the employer’s contribution to Provident Fund to the tune of Rs. 6,13,00,890/- has been transferred to the Pension Fund for the employees. In respect of employees who still hold the option of provident fund matching contribution has been made.

Defined Benefit Plans

The Employee’s Gratuity Fund Scheme, Pension Fund and Leave Encashment are defined benefit plans. The present value of obligation is determined based on Actuarial Valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.

* Key Managerial Personnel

25.6 Accounting standard 19 – Leases

The Bank has taken premises only on rental basis and has no long-term operating leases taken/given and hence reporting under AS-19 is not considered necessary.

25.8 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 31st July, 2007. The investment towards the capital of subsidiary company is Rs. 5.00 Crores. The consolidated financial statements are placed accordingly in terms of AS 21 issued by the Institute of Chartered Accountants of India.

25.10 Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs. 0.55 Crores on Brand names bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs. 0.32 Crores has been debited under the head Furniture & Fixture, whereas, Brand strategy project expenses amounting to Rs. 0.23 Crores 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.

25.11 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.

25.12 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. However, a provision of Rs. 49.24 lacs is outstanding as on 31.03.2011 to meet certain claims decreed against the Bank but still not acknowledged as debts owing to the appeal filed by the bank before the court of competent jurisdiction, pending adjudication. .

25.13 Letter of comfort (LOC’s) issued by the Bank. (Nil)

26. Other Disclosures

Foreign Exchange

a) 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.

Claims pending with ECGCI amounts to Rs. 37.93 Crores (Previous year Rs. 22.53 Crores)

b) Concentration of Deposits, Advances, Exposures & NPA’s

30. 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. In CBS Business units of the Bank the system itself takes care of providing interest on overdue time deposits at the gross root/individual constituent level.

30.1 Payments to and Provisions for employees include arrears of wage revision of Rs. 49 Crores Previous year (Rs. 75.92 Crores)

31. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

32. Previous year figures have been regrouped / rearranged where ever 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.

---

Mar 31, 2010

1. Reconciliation/adjustment of inter bank/ inter branch transactions, branch suspense, Government Transactions [State], 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 fi nancial 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

i) Documentation formalities are pending in respect of certain immovable properties held by the bank valued at Rs. 0.62 Crores (Previous Year Rs. 4.38 Crores). In respect of immovable properties valued at Rs. 7.60 Crores (Previous Year Rs. 12.82 Crores) bank hold agreement to sell along with possession of the properties.

ii) The Bank has also acquired certain fi xed assets generating cash, parked under respective heads, for the promotion and development of its business.

iii) The Bank has been consistently following the method of charging depreciation on fi xed assets on diminishing balance as per the rates prescribed in Income Tax Rules which is higher in totality as compared to rates prescribed in Schedule XIV of the Companies Act, 1956.However, the depreciation on computers (including ATMs) along with software forming integral part of computers has been computed at the rate of 33.33% on straight-line method.

iv) The Bank has changed the policy of charging depreciation on Mobile Phones from @33.33% to 50% from this year on the Straight Line Method and there is no material eff ect on the profi tability of the Bank.

v) Depreciation on Banks property includes amortization in respect of leased properties amounting to Rs. 22.98 Lacs (Previous Year Rs 34.54 Lacs). The book value of these properties as on 31.03.2010 was Rs. 11.69 Crores (Previous Year Rs 11.92 Crores).

4. Investments

The bank has made no profi t on sale of HTM category securities during the year, as such no appropriation was made (Previous Year, Rs. Nil) to capital Reserve Account.

5. Consequent upon the amalgamation of two sponsored Regional Rural Banks viz., Kamraz Rural Bank and Jammu Rural Bank into a single RRB called as J & K Grameen Bank (as notifi ed by the GOI the Ministry of Finance vide no. S O 1580(E) dated 30th June, 2009), the Bank has Rs. 70 Lacs as share capital in the new entity and Rs 214,070,800/- as share capital Deposit account. (Totaling to Rs. 221,070,800).

6. The total investment of the Bank in the Met-life India Insurance Co Pvt. Ltd stood at Rs. 220.27 Crores as on 31.03.2010 (Previous Year, Rs. 220.27 Crores). In compliance with RBI Letter DBOD.BP.07099/21.4.141/2008-09 dated 9th April 2009, the investment stands transferred to AFS Category on 1st October, 2009. The valuation has been carried out at average of two independent valuation reports obtained from Category I merchant Bankers as per RBI guidelines and the consequent appreciation has been ignored in view of the accounting policy in respect of such investments.

7. Derivatives

7.1 No Forward Rate Agreements / Interest Rate Swaps were undertaken by the bank during year.

7.2 The bank has not entered into exchange traded interest rate derivatives transactions during the year

7.3 Disclosures on Risk exposures in derivatives

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 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.

8.1 Statement of Loans & Advances secured by Intangible Assets viz. Rights, Licenses, Authorizations etc.

The advances of the bank as on 31st March, 2010 against intangible security of Rights, Licenses and Authorization are Nil.

9. The Government of India has notifi ed Relief Scheme viz., "Agricultural Debt Waiver & Debt Relief Scheme-2008," for giving debt waivers to marginal & small farmers and to other farmers who have availed direct agricultural loans. Advances include Rs. 6.87 Crores claim due from Government under Agriculture Debt Waiter and Debt Relief Scheme-2008".

10. Information in respect of Accounting Standards issued by the Institute of Chartered Accountants of India:

10.1. Accounting Standard 5 - Net profi t or loss for the period, prior period items and changes in accounting policies There are no material Prior Period items included in Profi t & Loss Account required to be disclosed as per Accounting Standard-5 read with RBI Guidelines.

10.2. Accounting Standard 9- Revenue recognition

There are no material items of income, which are required to be disclosed as per Accounting Standard - 9, read with RBI guidelines.

10.3. Accounting Standard 15 - Retirement benefi ts

a) In view of Accounting Standard 15 (Revised 2005) issued by the Institute of Chartered Accountants of India, the Bank in respect of its Defi ned Benefi t Plans (Pension, Gratuity, and Leave Encashment) on fi rst adopting this statement as on 1-04-2007, has a transitional Liability of Rs. 149.70 Crores as per Actuarial Valuation. The 1/5th of this liability on a straight-line basis amounting to Rs. 29.94 Crores has been recognized as an expense during the year 2009-10 (3rd year) and the remaining unrecognized amount of Rs. 59.88 Crores is spread over to next two years.

b) The disclosures required under Accounting Standard 15 "Employee Benefi ts-issued by the Institute of Chartered Accountants of India are as under:

Defined Contribution Plan

Contribution to Defi ned Contribution Plan recognized and charged off is as under:

(Amount in Rs.)

Employers Contribution to Provident Fund 67,855,637.66



Defined Benefit Plans

The Employees Gratuity Fund Scheme, Pension Fund and Leave Encashment are Defi ned Benefit Plans.

The present value of obligation is determined based on Actuarial Valuation using the Projected Unit Credit Method, which recognizes each period of service as giving rise to additional unit of employee benefi t entitlement and measures each unit separately to build up the fi nal obligation.

10.4. 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 31st July, 2007. The investment towards the capital of subsidiary company is Rs. 5.00 Crores. The consolidated fi nancial statements are placed accordingly in terms of AS 21 issued by the Institute of Chartered Accountants of India.

10.5. Accounting Standard 26-Intangible Assets

The Bank has incurred an amount of Rs. 0.37 Crores on Branding bifurcated into two heads namely Business Unit Signage and Brand Strategy Project. Expenditure on Business Unit Signage amounting to Rs. 0.33 Crores has been debited under the head Furniture & Fixture, whereas, Brand Strategy project expenses amounting to Rs. 0.04 Crores has been charged to Profi t & 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.

11.00. 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.

11.1. 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 fl ow in settlement is remote. However, a provision of Rs. 41.57 lacs has been made during the year to meet certain claims decreed against the Bank but still not acknowledged as debts owing to the appeal fi led by the bank before the court of competent jurisdiction, pending adjudication. Further as the Bank does not have any overseas subsidiary, no letter of comfort has been issued.

12. Other Disclosures

12.1. Foreign Exchange

a) 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.

b) Claims pending with ECGCI amounts to Rs. 22.53 Crores (Previous year Rs. 21.52 Crores)

c) The bank in terms of RBI circular no.DBOD.BP.BCNo.133/21.04.018 /2008-09 dated 11.05.2009 appropriated an amount of Rs. 5,699,616.00 to Profi t & Loss account on account of un-reconciled credit outstanding entries of value less than $2500 in Nostro /mirror accounts from 1.04.1996 to31.03.2002 and transferred it to the General Reserve Account. The action has resulted in increase of the profi ts of the bank to the extent of such amount.

12.2. 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. In CBS Business units of the Bank the system itself takes care of providing interest on overdue time deposits at the gross root/individual constituent level. However for other than CBS Business units and the consolidated balances lying in overdue time deposits in Finacle business units, the bank has made a provision of RS 7.50 Crores on adhoc basis, which is suffi cient enough to meet the requirements.

12.3. Payments to and Provisions for employees include Rs. 75.92 Crores towards liability for wage arrears calculated on estimated basis.

12.4. Penalty imposed by Reserve Bank of India during the year Nil (Previous year Nil).

13. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts.

14. 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 Years figures have not been given.