We are independent of the Bank in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Act and the Rules there under, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
1. We have audited the accompanying standalone financial statements of Jammu & Kashmir Bank Limited ('the Bank') which comprise the Standalone Balance Sheet as at 31st March 2024, the standalone Profit & Loss Account and the standalone Statement of Cash Flow for the year then ended & notes to the financial statements including a summary of significant accounting policies and other explanatory information in which are included the Returns of 48 branches/offices audited by us and 980 branches audited by the Statutory Branch Auditors for the year ended on that date. The Branches/offices audited by us and those audited by other auditors have been selected by the Comptroller & Auditor General of India in accordance with the guidelines issued to the Bank by the Reserve Bank of India. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 ('the Act') in the manner so required for Banking Companies and are in conformity with the accounting principles generally accepted in India and give a true and fair view of the state of affairs of the Bank as at 31st March 2024, and its profit and its cash flows for the year ended on that date.
Basis for Opinion
2. We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor's Responsibilities for the Audit of the standalone Financial Statements section of our report.
Emphasis of Matter
3. We draw attention to
i. Note No 15(b)(vii) of Schedule 18 of the financial statements regarding excess in fair value of Plan Assets in Gratuity Benefits over present value of funded obligation amounting to Rs 243.07 crore credited to “Payments to and Provisions for Employees" with consequential impact on results for the year.
ii. Note no. 16(g) of Schedule 18 of the financial statements, which states that 'Other assets' of the Bank include dues of Rs 3253.69 crore from Government of UT of Jammu and Kashmir on account of disbursement of Pension to retired employees of UT of Jammu and Kashmir.
Our Opinion is not modified in respect of these matters.
Key Audit Matters
4. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the standalone financial statements the year ended March 31, 2024. These matters were addressed in the context of our audit of the standalone financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters prescribed below to be the key audit matters to be communicated in our report.
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Sr.
No.
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Key Audit Matters
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How the matter was addressed in our audit
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i.
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Classification of Advances, Income Recognition, Identification of and provisioning for non-performing Advances (Refer Schedule 9 read with Note 3 of Schedule 17 to the financial statements):
Advances include Bills purchased and discounted, Cash credits, Overdrafts, Loans repayable on demand and Term loans. These are further categorized as secured by Tangible assets (including advances against Book Debts), covered by Bank/Government Guarantees and Unsecured advances. Advances constitute 60.68% of the Bank's total assets. They are, interalia, governed by income recognition, asset classification and provisioning (IRAC) norms and other circulars and directives issued by the RBI from time to time which provide guidelines related to classification of Advances into performing and non- performing Advances (NPA), classification of advances and provisioning thereof is made as per RBI guidelines. The Bank classifies these Advances based on IRAC norms as per its accounting policy No.3 of Schedule 17.
Identification of performing and non-performing Advances involves establishment of proper mechanism. The Bank accounts for all the transactions related to Advances in its Information Technology System (IT System) viz. Core Banking Solution (CBS) which identifies whether the advances are performing or non- performing.
The bank is in the continuous process to upgrade existing & implement new IT applications in various areas of its business operations, including income recognition and asset classification in terms of RBI guidelines. These applications require detailed testing, verifications and User Acceptance Testing (UAT) before final implementation.
The carrying value of the advances (net of provisions) may be materially misstated if, either individually or in aggregate, the IRAC norms are not properly followed.
Considering the nature of the transactions, regulatory requirements, existing business environment, estimation/ judgement involved in valuation of securities and calculation of provisions, it is a matter of high importance for the intended users of the Standalone Financial Statements, we have determined this as a Key Audit Matter.
Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to the materiality of the balances.
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Our audit approach towards advances with reference to the Income Recognition and asset classification (IRAC) norms and other related circulars/directives issued by the RBI and also internal policies and procedures of the Bank includes the testing of controls on sample basis. Also performed other substantive procedures included and not limited to the following:
a. The accuracy of the data input in the system for income recognition, classification into performing and nonperforming Advances and provisioning in accordance with the IRAC norms in respect of the branches audited by us;
b. Existence and effectiveness of monitoring mechanisms by way of various internal audits as per the policies and procedures of the Bank;
c. Examination of advances including stressed advances on a sample basis with respect to compliance with the RBI Master Circulars/ Directions/ Guidelines;
d. We have examined the efficacy of various internal controls over advances to determine the nature, timing and extent of the substantive procedures and compliance with the observations of the various audits conducted as per the monitoring mechanism of the Bank and RBI SPARC, IRAR and RMP.
e. In carrying out substantive procedures at the branches audited by us, we have examined large advances/ stressed advances while other advances have been examined on a sample basis including review of valuation reports of independent valuers provided by the Bank's management.
f. We assessed and evaluated the process of identification of NPAs and corresponding reversal of income and creation of provisions;
g. Reliance is also placed on Audit Reports of other Statutory Branch Auditors.
h. Bank has laid down detailed Standard Operating Procedure to ensure control over processes. We have relied on these Standard Operating Procedures and have conducted our testing based on these Standard Operating Procedures.
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ii.
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Classification and Valuation of Investments, Identification of and provisioning for Non-Performing Investments (Schedule 8 read with Note 2 of Schedule 17 to the financial statements):
Investments include investments made by the Bank in various Government Securities, other approved securities, Shares, Debentures & Bonds, subsidiaries & sponsored Institutions, and other approved securities.
Investments constitute 22.64 % of the Bank's total assets. These are governed by the circulars and directives of the RBI. These directions of RBI, inter-alia, cover valuation of investments, classification of investments, identification of non-performing investments, the corresponding nonrecognition of income and provision thereof.
Considering the complexities and extent of judgement involved in the valuation, volume of transactions, investments on hand and degree of regulatory focus, this has been determined as a Key Audit Matter. Accordingly, our audit was focused on valuation of investments, classification, identification of non-performing investments and provisioning related to investments.
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Our audit approach towards Investments with reference to the RBI Master directions included the understanding of internal controls and substantive audit procedures in relation to valuation, classification, identification of non-performing investments (NPIs), provisioning/depreciation related to Investments. In particular;
a. We understood and evaluated the Bank's internal control system to comply with relevant RBI guidelines regarding valuation, classification, identification of NPIs, provisioning/ depreciation related to investments;
b. For the selected sample of investments in hand, we tested accuracy and compliance with the RBI Master directions by re-performing valuation for each category of security. Samples were selected after ensuring that all the categories of investments (based on nature of security) were covered in the sample;
c. We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision;
d. We carried out substantive audit procedures to recompute independently the provision to be maintained and depreciation to be provided in accordance with RBI guidelines.
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iii.
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Assessment of Provisions and Contingent liabilities in respect of certain litigations on Taxes, various claims filed by other parties not acknowledged as debt (Schedule 12 read with Note 15 (k) of Schedule 18 to the financial statements):
There is high level of judgement required in estimating the level of provisioning. The Bank's assessment is supported by the facts of matter, their own judgement, past experience, and advice from legal and independent tax consultants wherever considered necessary. Accordingly, unexpected adverse outcomes may significantly impact the Bank's reported profit and state of affairs presented in the Balance Sheet. We determined the above area as a Key Audit Matter in view of associated uncertainty relating to the outcome of these matters which requires application of judgement in interpretation of law. Accordingly, our audit was focused on analyzing the facts of subject matter under consideration and judgements/interpretation of law involved.
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Our audit approach involved:
a. Understanding the current status of the litigations/ tax
assessments including the status upto the date of auditor's report;
b. Examining recent orders and/or communication received from various tax authorities/judicial forums and follow up action thereon;
c. Review and analysis of evaluation of the contentions of the Bank through discussions, collection of details of the subject matter under consideration, the likely outcome and consequent potential outflows on those issues; and
d. Verification of disclosures related to significant litigations and taxation matters.
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iv.
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Information Technology ("IT") Systems and Controls impacting Financial Reporting
The Bank's IT environment comprises a multitude of autonomous and interdependent IT systems that are utilized to process and record a substantial volume of transactions in the course of business operations.
Consequently, the Bank's financial reporting process is highly critical and reliant on these information technology systems.
Appropriate IT general controls and IT application controls are necessary to ensure that such IT systems can process the data in a consistent, comprehensive, and accurate manner, as required for dependable financial reporting.
We have identified specific critical IT systems that significantly influence the financial reporting process and associated control testing. These systems are considered a critical audit matter due to several factors, including the Bank's extensive use of automation, the complex nature of its IT architecture, and the influence it has on the financial records and financial reporting process.
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Our protocols pertaining to this issue comprised the following measures: Technology specialist assisted in the evaluation of the controls governing the Bank's IT systems by gaining knowledge of the IT infrastructure, IT environment, and IT systems. We assessed and examined the pertinent IT general controls on the critical IT systems and IT dependencies that were determined to be significant for our examination of the Bank's standalone financial statements and financial reporting process. Important general controls in information technology have been evaluated for the critical IT systems in the following domains:
Programme change management, encompassing the transfer of programme modifications to the production environment in accordance with established protocols,
while also ensuring the appropriate segregation of environments.
User access management, encompassing activities such as provisioning and de-provisioning user access, conducting access reviews, managing passwords, overseeing sensitive access rights, and implementing segregation of duties, to guarantee that only authorised personnel were granted privilege access to applications, operating systems, and databases in the production environment.
Programme development, encompassing the establishment of controls pertaining to the development or implementation of IT applications and the associated infrastructure, upon which financial reporting is dependent.
IT operations, encompassing tasks such as backup and recovery, monitoring, and job scheduling.
In addition, we assessed the operational efficiency and design of critical IT dependencies that are integral to the critical business process. This encompassed the testing of interfaces, automated controls, accounting procedures, calculations, segregation of duties, and system-generated reports, where applicable.
We established communication with individuals responsible for governance and management, and when required, we implemented alternative audit procedures and/or tested a combination of compensating controls or remedied controls.
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Information Other than the Standalone Financial Statements and Auditor's Report Thereon
5. The Bank's Board of Directors is responsible for the other information.The other information comprises the Corporate Governance Report, but does not include the standalone financial statements and our auditor's report thereon.
Our opinion on the standalone financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon.
In connection with our audit of the standalone financial
statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the standalone financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with
Governance for the Standalone Financial Statements
6. The Bank's Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under section 133 of the Act, and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars and guidelines issued by the Reserve Bank of India ('RBI') from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
In preparing the standalone financial statements, the management is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Auditor's Responsibilities for the audit of the Financial Statements
7. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3) (i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the Bank has adequate internal financial controls system in place and the operating effectiveness of such controls.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank's ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Materiality is the magnitude of the misstatements in the standalone financial statements that, individually or in aggregate, makes it probable that the economic decisions of a reasonably knowledgeable user of the financial statements may be influenced. We consider quantitative materiality and qualitative factors in (i) planning the scope of our audit work and evaluating the results of our work; and (ii) to evaluate the effect of any identified misstatement in the financial statements.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with the relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Other Matters
8. We did not audit the financial statements / information of 980 branches/ offices included in the standalone financial statements of the Bank whose financial statements / financial information reflect total assets of Rs 70622.21 Crore as at 31st March 2024 and total revenue of Rs. 8476.06 Crore for the year ended on that date, as considered in the standalone financial statements. These branches cover 93.40 % of advances, 93.65 % of deposits and 91.86 % of non-performing assets as at 31st March 2024 and 70.41 % of revenue for the year ended 31st March 2024. The financial statements / information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of branches, is based solely on the reports of such branch auditors.
9. The annual financial results include the results for the quarter ended 31st March 2024 being the balancing figure between the audited figures in respect of the full financial year and the published unaudited year to date figures up to the third quarter of the current financial year which were subjected to limited review by us.
Our opinion is not modified in respect of these matters.
Report on Other Legal and Regulatory Requirements
10. The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 and Section 133 of the Companies Act, 2013.
11. The Comptroller and Auditor General of India has issued directions indicating the areas to be examined in terms of sub-section (5) of section 143 of the Companies Act, 2013, the compliance of which is set out in "Annexure-A" to this Report.
12. As required by sub-section (3) of section 30 of the Banking Regulation Act, 1949, we report that:
(a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory;
(b) the transactions of the Bank, which have come to our notice, have been within the powers of the Bank;
(c) the returns received from the offices; and branches of the Bank have been found adequate for the purposes of our audit;
(d) the profit and loss account shows a true balance of profit for the year then ended.
13. Further, as required by section 143(3) of the Act, we report that:
a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
b) in our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from branches not visited by us;
c) the reports on the accounts of the branch offices of the bank audited under section 143(8) of the Act by branch auditors of the Bank have been sent to us and have been properly dealt with by us in preparing this report;
d) the Balance Sheet, the Statement of Profit and Loss and the Statement of Cash Flows dealt with in this report are in agreement with the books of account and with the returns received from the branches not visited by us;
e) in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, to the extent they are not inconsistent with the accounting policies prescribed by RBI;
f) as per Notification No. GSR 463(E) dated 05.06.2015 Section 164(2) of Companies Act, 2013 is not applicable to Jammu & Kashmir Bank Limited being a Government Company;
g) with respect to the adequacy of the internal financial controls over financial reporting of the Bank and the operating effectiveness of such controls, refer to our separate Report in "Annexure B";
h) as per the Notification No.GSR 463(E) dated 05.06.2015 Section 197 of Companies Act, 2013 is not applicable to The Jammu & Kashmir Bank Limited, being a Government Company;
i) with respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i) the Bank has disclosed the impact of pending litigations on its financial position in its financial statements - in Schedule 12., to the financial statements;
ii) the Bank has made Nil provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;
iii) there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank
iv) a) The management has represented that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the company ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
b) The management has represented, that, to the best of its knowledge and belief, other than as disclosed in the notes to the accounts, no funds have been received by the Bank from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
c) Based on such audit procedures that were considered reasonable and appropriate by us in the circumstances, nothing has come to our notice that has caused us to believe that the representations under sub clause (a) and (b) contain any material misstatement.
v) the dividend declared and paid during the year by the bank is in compliance with section 123 of the Companies Act 2013.
vi) As per the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 (as amended), the bank has used such accounting software for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all transactions recorded in the software and the audit trail feature has not been tampered with and the audit trail has been preserved by the company as per the statutory requirements for record retention.
FOR GUPTA GUPTA & FOR J C R & CO LLP FOR LUNAWAT & CO
ASSOCIATES LLP Chartered Accountants Chartered Accountants
Chartered Accountants FRN: 105270W/W100846 FRN: 000629N
FRN: 001728N/N500321
CA. Nakul Saraf CA. Rakesh Kaushik CA. Ramesh K Bhatia
Partner Partner Partner
M.No. 541550 M.No. 089562 M.No. 080160
UDIN: 24541550BKAEUR9648 UDIN: 24089562BKCMZL2222 UDIN: 24080160BKCSIZ2889
Place : Srinagar Dated: 4th May, 2024
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