"Principal Accounting Policies" 1. Basis of brparation of Financial Statements The accompanying financial statements are brpared on historical cost basis, except as otherwise stated, following the "Going Concern" concept and conform to the Generally Accepted Accounting Principles (GAAP) in India, applicable statutory provisions, regulatory norms brscribed by the Reserve Bank of India (RBI), applicable mandatory Accounting Standards (AS)/Guidance Notes/pronouncements issued by the Institute of Chartered Accountants of India (ICAI) and practices brvailing in the banking industry in India. 2. Use of Estimates The brparation of financial statements requires the management to make estimates and assumptions for considering the reported assets and liabilities (including contingent liabilities) as on the date of financial statements and the income and expenses for the reporting period. Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable. 3. Transactions involving Foreign Exchange i. Monetary Assets and Liabilities as on balance sheet date have been translated using closing rate as at year-end announced by Foreign Exchange Dealers Association of India. ii. Exchange differences arising on settlement of monetary items have been recognized as income or as expense in the period in which they arise. iii. The brmium or discount arising at the inception of a forward exchange contract, which is not intended for trading purpose, has been amortized as expense or income over the period of contract. 4. Investments i. Investments are classified into "Held-to-Maturity", "Available-for-Sale" and "Held-for-Trading" categories, in accordance with the guidelines issued by Reserve Bank of India. ii. Bank decides the category of each investment at the time of acquisition and classifies the same accordingly. iii. "Held-to- Maturity" category comprises securities acquired by the Bank with the intention to hold them up to maturity. "Held-for-Trading" category comprises securities acquired by the Bank with the intention of trading. "Available-for-Sale" securities are those, which do not qualify for being classified in either of the above categories. iv. Investments classified as "Held-to-Maturity" (HTM) category are carried at acquisition cost unless it is more than the face/redemption value, in which case the brmium is amortized over the period remaining to the maturity using straight line method. v. (a) T h e individual scrip's in the "Available-for-Sale" category are marked to market at quarterly intervals. The net debrciation under each of six classifications under which investments are brsented in the balance sheet is fully provided for, whereas the net apbrciation under any of the aforesaid classifications is ignored. (b) The market value for the purpose of periodical valuation of investments, included in "Available for Sale" and "Held for trading" categories is based on the market price available from the trades/quotes on stock exchanges. Central/State Government securities, other approved securities, debentures and Bonds are valued as per the prices/YTM rates declared by FIMMDA. (c) Unquoted shares are valued at break-up value ascertained from the latest balance sheet (which should not be more than one year prior to the date of valuation) and in case the latest balance sheet is not available the same are valued at X 1/- per Company, as per RBI guidelines. (d) Security receipts (SRs) issued by Asset Reconstruction Companies (ARCs) are valued at cost or NAV, whichever is lower, declared periodically by the ARCs. Debrciation, if any, in individual SRs is fully provided for. Apbrciation, if any, is ignored. (e) Investment in quoted Mutual Fund Units is valued as per Stock Exchange quotations. An investment in unquoted Mutual Fund Units is valued on the basis of the latest re-purchase price declared by the Mutual Fund in respect of each particular scheme. In case of Funds with a lock-in period, where repurchase price/market quote is not available, Units are valued at NAV. If NAV is not available, then these are valued at cost, till the end of the lock-in period. Wherever the re-purchase price is not available the Units are valued at the NAV of the respective scheme. vi. The individual scrip in the "held-for-trading" category are marked to market at monthly intervals and the net debrciation under each of the six classifications under which investments are brsented in the Balance Sheet is accounted for in the Profit and Loss account and apbrciation is ignored. vii. The debrciation in value of investments where interest/principal is in arrears is not set-off against the apbrciation in respect of other performing securities. Such investments including Non-performing Non-SLR investments are treated applying RBI prudential norms on NPA Classification and appropriate provisions are made as per RBI norms and no income on such investments is recognized. viii. (a) Profit or Loss on sale of Government Securities is computed on the basis of weighted average cost of the respective security. (b) Profit or loss on sale of investments in any category is taken to the Profit and Loss account. In case of profit on sale of investments in "Held-to-Maturity" category, an equivalent amount of profit net of taxes is appropriated to the "Capital Reserve Account". ix. Interest accrued up to the date of acquisition of securities i.e. broken period interest is excluded from the acquisition cost and recognized as interest expense. Broken period interest received on Sale of securities is recognized as interest income. x. Brokerage paid on securities purchased is charged to revenue account except for equity investment operations the same is added to the cost of purchase of investment. xi. Investments in J&K Grameen Bank/Sponsored Institutions have been accounted for on carrying cost basis. xii. Transfer of securities from one category to another is done at the least of the acquisition cost/book value/market value on the date of transfer. xiii. Repurchase & Reverse repurchase transactions are accounted for in accordance with the extant RBI guidelines. xiv. Bank is following settlement date accounting policy. In accordance with RBI circular No. IDMD 4135/11.08.43/2009-10 dated 23-03-2010, the Bank has made changes in accounting for Repo/ Reverse Repo transactions (Other than transactions under the liquidity adjustment facility (LAF) with the RBI). Accordingly the securities sold and purchased under Repo/Reverse Repo are accounted for as collateralized lending and borrowing transactions. However, securities are transferred as in case of normal outright sale/purchase transactions and such movement of security is reflected using Repo/Reverse Repo accounts and contra entries. The above entries are reversed on the date of maturity. Cost and revenue are accounted as interest expenditure/Income as the case may be. Balance in Repo account is classified under schedule 4 (Borrowing) and balance in Reverse Repo account is classified under schedule 7 (Balance with Banks & money at call & short notice). 5. Advances i) Classification of Advances and Provisions thereof have been made as per the Income Recognition and Asset Classification norms formulated by the RBI viz., Standard, Sub-Standard, Doubtful and Loss Assets and accordingly requisite provisions have been made thereof. ii) Advances are shown net of provisions required for NPA's. Provisions for advances classified as Standard Assets is shown under Other Liabilities & Provisions. iii) Restructuring of Advances and provisioning thereof have been made as per RBI guidelines. 6. Fixed Assets a) Premises and other fixed assets are accounted for at historical cost. b) Premises include free hold as well as lease hold properties. c) Premises include capital work in progress. d) Debrciation is charged on straight line method as per provisions of Companies Act 2013 based on the useful life of the assets brscribed in Part C of the schedule II of the Companies Act 2013 as given hereunder. S.No. Block Useful Life a Building (with RCC Frame Structure) Commercial60 yrs Residential 60 yrs b Building (with Other than RCC Frame Structure) Commercial30 yrs Residential30 yrs c Plant & Machinery 15 yrs d Furniture Fixture 10 yrs e Vehicles 8 yrs f Fences 5 years g Others (including temporary structures etc) 3 yrs Debrciation 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 The debrciation on computer software where it is probable that the future benefits that are contributable to such software will flow to Bank is being capitalized and debrciation is charged @33.33% in terms of RBI guidelines on straight line method Useful life of the mobile phones is continued to be 2 years and the debrciation is charged on straight line method as per provisions of Companies Act 2013 with no residual value. e) Premium paid for Leasehold properties is amortized over the period of the lease. 7. Employees Benefits i) Short-term employee benefits are charged to revenue in the year in which the related service is rendered. ii) Long Term Employee Benefit iii) Defined Contribution Plan (a) Provident Fund: Provident Fund is a defined contribution scheme as the bank pays fixed contribution at br-determined rates. The obligation of the Bank is limited to such fixed contribution .The contributions are charged to profit & loss A/C .The bank is paying matching contribution towards those employees who have not opted for the pension. iv) Defined Benefit Plan (a) Gratuity: Gratuity liability is a defined obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust. (b) Pension: Pension liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation. The scheme is funded by the bank and is managed by a separate trust. (c) Leave Salary: Leave salary is a defined benefit obligation and is provided for on the basis of an actuarial valuation determined on the basis of un-availed privilege leave of an employee at the time of leaving services of the company. 8. Income Recognition and Expenditure booking Income and expenditure is accounted for on accrual basis unless otherwise stated. a) Interest and other income on advances/ investments classified as Non Performing Advances/ investments are recognized to the extent realized in accordance with the guidelines issued by the Reserve Bank of India. b) The recovery in Non-Performing Assets has been first appropriated towards amount of principal and thereafter towards amount of interest. c) Interest on overdue term deposits is provided at Savings Bank Rate of Interest. d) Fee, commission (other than insurance commission & Government business), exchange, locker rent, insurance claims and dividend on shares and units in Mutual Fund are recognized on realization basis. e) Income from interest on income tax/ other tax refunds is accounted for on the basis of orders passed by the Competent Authorities. f) Unforeseen income/ expenses are accounted for in the year of receipt/ payment. g) Stationery issued to branches has been considered as consumed. 9. Credit Card reward Points The Bank has estimated the probable redemption of reward points by not using actuarial method but has made 100% provision for redemption against the loyalty points as on the reporting date. 10. Profit The net profit is disclosed in the profit and loss account after providing for: i) Income Tax, wealth tax and Deferred Tax. ii) Standard Assets, Non Performing Advances/ Investments as per RBI guidelines. iii) Debrciation/ amortization on Investments. iv) Transfer to contingency fund. v) Other usual and necessary provisions. 11. Taxation Provision for tax is made for both current and deferred taxes in accordance with As-22 on "Accounting for Taxes on Income. 12. Contingency Funds Contingency Funds have been grouped in the Balance Sheet under the head "Other Liabilities and Provisions". "Notes on Accounts" 1. R e conciliation/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. R ax 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 interbrtation 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 X 1.10 crores (brvious year X 1.12 crores). Debrciation in respect of immovable properties valued at X 15.68 crores (brvious year X 16.02 crores) bank holds agreement to sell along with the possession of the properties. b) Debrciation is provided on straight line method in accordance with the provisions of Companies Act 2013 based on the useful life of the assets brscribed in Part C of the Schedule II of the Companies Act 2013. However the debrciation 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 debrciation 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 debrciation is charged on straight line method as per provisions of Companies Act 2013 with no residual value. e) Debrciation on Banks property includes amortization in respect of leased properties amounting to Rs. 0.14 Crores (brvious year Rs. 0.14 Crores) 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 (brvious year Rs. 70,00,000) and Rs. 44,97,47,715 in share capital deposit account (brvious year Rs. 44,97,47,715) 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 31.03.2016 (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 apbrciation has been ignored in view of the Accounting Policy in respect of such investments. 8. Details of single borrower limit/ group borrower limit exceeded by the Bank: The Bank has exceeded single borrower exposure limit (SGL)/Group Borrower Exposure Limit (GBL) in respect of ONGC Petro additions Limited by 4.83% over prudential exposure ceiling during the year. 9. Penalty imposed by Reserve Bank of India Penalty imposed by Reserve Bank of India during the year: Rs. 2.25 lacs (Previous year Rs. NIL). 29. 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 Rs. 14.20 Crores (Previous year: Rs. Nil) 30. 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 2016. 31. Provision Coverage Ratio (PCR) The provision coverage ratio (PCR) for the Bank as on 31st March 2016 is 56.15% (Previous Year 59.02%) which is calculated taking into account the total technical write offs made by the Bank. 40. 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. 41. 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, bank is required to spend Rs. 27.33 Crores (Previous year Rs. 29.86 Crores) for twelve months period ended 31st March 2016 against which bank has spent Rs. 28.48 Crores (Previous year Rs. 13.75 Crores).The bank has decided to include expenditure made on maintenance of Parks and Gardens as CSR expenditure from the current year on which an amount of Rs. 13.86 Crores has been incurred. 42. In Compliance to RBI Letter No. DBR.NO.BP.13018/21.04.048/2015-16 dated April 12, 2016, bank has provided a sum of Rs. 22.50 crores being 7.50% of the existing outstanding balance of Rs. 299.95 crores as on 31.03.2016 under the Food Credit availed by the State Government of Punjab. 43. 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 50. The Principal Accounting Policies (Schedule 17) and Notes on Accounts (Schedule 18) form an integral part of these Accounts Mushtaq Ahmad Chairman & CEO Dalip Kumar Kaul Director Navin Kumar Choudhary, I.A.S Director Khaver Alam Jeelani Director J. P. Sharma Director Abdul Majid Mir Director Abdul Majid Bhat Company secretary Vikrant Kuthiala Director Azhar-ul-Amin Director R. K. Gupta Director Masooda Jabeen Director Vagish Chander Executive President & CFO Khurshid Ahmad Fazili Vice President Place : Srinagar Dated : 24th May 2016 In terms of our report of even date annexed For Gupta Sharma & Associates Chartered Accountants FRN:001466N CA Gurneet Singh Bhan Partner (M. No. 532675) For Dhar Tiku & Co. Chartered Accountants FRN:003423N CA Madhusudan Meher Partner (M No.097409) For Arora Vohra & Co Chartered Accountants FRN:009487N CA Prem C. Bansa Partner (M. No. 083597) For Darshan Nagpal & Associates Chartered Accountants CA Vishal Rometra Partner (M. No. 501333) For Dharam Raj & Co Chartered Accountants FRN:014461N CA Dharam Raj Partner (M No.094108) Place : Srinagar Dated : 24th May 2016 |