The economic environment of the country witnessed mixed trends during the year 2002-03 with lower GDP growth estimated at 4.40%, attributable to the drought conditions, which prevailed in some parts of the country. Consequently food credit declined by 7.1% compared to an increase of 33% during the last year. However, despite several downslides in the international and domestic economy, the growth has been significant.

The outlook for recovery of global economy and world trade remained subdued. International financial flows were affected by the unsettled conditions in Latin America, Turkey and highly volatile geopolitical conditions owing to Iraq crisis. Moreover, back home the economy was affected by poor monsoons. The average inflation rate based on Wholesale Price Index (WPI) was estimated at 2.6%. Reserve accretion accelerated further during the year, with foreign exchange reserves reaching a record high of $74 billion up from $51.05 billion of previous year. The rapid growth in reserves was partly owing to strong current account balance position. The money supply (M3) rose by 13.2% whereas reserve money declined by 0.7% during the same period.

The Banking industry has been reeling under the pressure of increasing intermediation and declining profits for the past few years. The margins have been under strain due to high level of competition and rising NPAs. In view of the financial reforms, Banks are confronted with the tighter Capital Adequacy and Prudential Norms, transparency and disclosure practices, Asset-Liability Management, Risk Management and Monitoring, Information Technology and cyber crimes. With relatively lower inflation, interest rates continued to soften during the year. The Reserve Bank of India reduced the Bank rate by 25 basis points to 6.25%. At its present level, the Bank rate is the lowest since 1973.

The cash reserve ratio (CRR) was reduced by 50 basis points to 5.0 percent from June 1, 2002, and further to 4.75 percent from the fortnight beginning November 16, 2002. A noticeable development in the current year is the sub-PLR lending by commercial Banks. The yield on 7.4 percent 12-year government paper reached a low of 6.13 percent on December 31, 2002. Capital markets continued to remain subdued. This weakness in the secondary market led to small volumes of new issues in the primary market. The subdued conditions in domestic capital markets, however, over shadowed structural reforms. The equity market has absorbed new market design, with rolling settlement and equity derivatives trading. Liquidity, which was adversely affected in July 2001, has bounced back to strong levels from March 2002 onwards.

• The innovation is the order of the day. In keeping with this fact, the Bank during the year continued its tradition of introducing new value added products like floating rate deposit schemes viz., ‘Super Earner Deposit Scheme’ and Super Reinvestment Deposit Scheme to add to the options/ choices available to the customers were introduced. The ‘ChildCare Deposit Scheme’ introduced last year has received overwhelming response from the public. Bank is shortly launching another new deposit product under the name and style of ‘Mehendi Deposit Scheme’ targeted for girl child. The scheme has value-added features and a free accidental insurance cover. Two new credit products namely ‘Mortgage Loan’ and ‘Loan Against Rentals’ were also launched during the year under report.
• The Bank continued to widen the scope of multiple delivery channels such as ATM installations, AnyWhere Banking and Tele-Banking at more & more centres for facilitating the existing as well as new customers. With the expansion of ATM net work and interconnectivity of more and more branches to offer Anywhere Banking services, the Bank has as a policy decided to issue free ATM cards in all the eligible SB and CD accounts. Over 21,000 ATM cards have been issued up to 31-03-2003. The scope of Tele Banking Facility has been extended to further branches and is now available at 52 branches.
• Moreover, in order to diversify the Banks services to increase non-interest income, the Bank continued to catch the opportunities of Cash Management and other similar business. In this context the Bank succeeded to secure BSNL bill collection business in J&K state. This has not only created another avenue for increasing the earnings / revenue for the Bank, but has satisfied the long felt need of the telephone subscribers in general and our customers in particular. The arrangement has given a great relief to them, since they have now multiple points available for depositing of telephone bills. Bank has also tied up with some reputed educational institutions for collection of fees of their students and a few corporates for collection of remittances from their constituents as a measure of cash management services.
• As aforesaid, the Bank has been continuously looking for new areas of business/services to improve its non-interest income. During the year a new service of registration of Shree Amarnathji Yatra Pilgrims was under taken countrywide. The Bank which has on one hand facilitated and provided great convenience to Shree Amarnathji Yatra Pilgrims all over the country on the other opened up new areas of revenue generation for the Bank. The Bank opened registration counters at all branches of the Bank outside the state and some selected branches in Jammu & Kashmir State, and also made available accidental insurance cover of Bajaj Allianz General Insurance Co. Ltd to the pilgrims at a nominalpremium, a facility of its kind made available for the first time. People in general and yatris in particular all over the country appreciated this effort of the Bank and it won lot of applause for the Bank and added to the popularity of the Bank among the common people even at far and distant localities of the country.

The DP business of our bank has continued to grow and during the year, bank has emerged as a market leader in the state of Jammu & Kashmir. Bank is providing quality Depository Services of both Depositories i.e. NSDL and CDSL to more than 10000 customers from its Centers at Srinagar, Jammu and Delhi and is holding securities worth more than 2787 Crores for its clients. Bank continued to add to the bevy of value added products offered by it, by introducing Stock Broking Services at its D.P. Centers in association with M/S IL&FS Investsmart Ltd. Bank has also introduced an attractive Loan against Shares Scheme at its branches at most competitive rates and with an approved list of more than 300 scrips, which has received a very encouraging response amongst the Bank’s retail base. Bank has a vision to act as a catalyst in the development of Capital Market Operations in the state of Jammu and Kashmir, which has hitherto been lacking such facilities, from reliable players in the segment.

• Marketing and Research Cell of the Bank functioning for last two years has come up with various value added products and services to suit customer expectations and requirements. The market research is conducted on an ongoing basis to identify needs and expectations of the customers and shape products / services accordingly. Even value addition to the extant products/services is made to suit the growing needs/ demands of the customers. Bank provides value to its customers by delivery of innovative products and services in an effective and efficient manner. In order to reach extant and potential customers in an effective manner creative promotional campaigns are being undertaken to create a strong "Brand Identity" for the Bank. With multiple options available to customer in shopping their products, more focus was laid on retail advertising during the year and extensive promotional campaign through print and electronic media was undertaken which showed significant results in the form of increased demand for the Bank’s products and customer base. As a part of the advertising strategy the Bank has sponsored weekly radio programme named "JK Bank Dairy" which is aired from the three stations of radio Kashmir viz., Srinagar, Jammu and Leh. It is an innovative programme and is successfully running for last 18 months. The programme is being produced by Bank’s own staff. The programme has gained wide popularity among the people as it provides awareness and up-to-date information about Banking in general and products/services offered by the Bank in particular. People from all walks of life with their responses have appreciated the usefulness of the programme, which is evident from hundreds of responses received every week from the listeners.
• Bank’s web site is a powerful resource for customer education and information. The website provides the visitors up-to-date information about all the products/services offered by the Bank and other matters of interest relating to the Bank besides, providing some on-line services. The updating of the site is done on daily basis so as to provide the visitors latest information about the Bank. The site attracts on an average 700 visitors weekly.

As the people are the most important resource to achieve the growth and enhance the corporate image of an organisation, foremost importance is given to development of human resources in the Bank to enable them to cope up with the rapidly changing Banking needs. As the quality of human resources indicates the ability of Bank to deliver value to its customers, foremost attention is being given to development of skill, attitude and knowledge of the staff. Emphasis has been on integrating HRM strategies with business strategies. HRM strategies of the Bank include managing change, creating commitment, infusing flexibility and improving teamwork.

In order to achieve excellence in this critical area, 3127 staff members (2050 officers, 994 clerks, 83 subordinates) were imparted training at Bank’s Staff Training Colleges Srinagar/ Jammu, Bank’s Technology Training Centre, Srinagar and other Institutes of repute within and outside the country in various Banking, economic and I.T. related fields besides behavioral aspects during the year under report. With the phenomenal increase in the business of the Bank, need to strengthen the officers cadre at various levels was felt. Accordingly 395 promotions were made from clerical cadre to officer’s cadre (Scale-I) and 14 promotions in the Senior Executive level. The promotions were made on the basis of merit and performance. While the policy of the merit and performance based promotions in the officers cadre was introduced in the earlier years, it is for the first time in the Bank’s history that the said policy of merit based promotions was introduced and implemented in promotions from workmen to officer’s cadre. To fill-up the gap so created in the workmen cadre strength and also meet the requirements on account of business growth achieved by the Bank, 544 fresh appointments were made in workmen cadre and 100 in officer’s cadre (Scale-I), besides 19 appointments of computer engineers / professionals. With these appointments the total number of employees of the Bank has increased from 6495 to 7112 as at the end of the financial year.

• The extant system of the Bank takes care of most of the aspects of the "Risk Management". We have well-defined Credit & Investment policies wherein different parameters like Portfolio Management, Processes, Procedures, Prudential limits, exposures to industries and other sectors are clearly articulated. The operational risks are being regularly monitored.
• However, in order to make the decision-making process more realistic and scientific the Bank appointed National Institute of Bank Management (NIBM), Pune as consultants for providing Asset Liability Management and Risk Management solutions.
• For speedy and accurate flow of information, the software solution for ALM developed by NIBM has already been implemented at many branches and installation at other branches is in progress. The package has facilitated the flow of information and helped in effective Asset-Liability Management. The NIBM has also developed Decision Support System (DSS) for investment portfolio and have given their suggestions with regard to Credit Risk Management.
• Housekeeping has vital bearing on the efficiency of internal controls in the Bank. Balancing of books of accounts and timely submission of control returns and MIS reports with the increasing automation of branches has been considerably improved.
• The Bank has achieved remarkable progress in reconciliation of Inter branch and Inter Bank transactions. The reconciliation has been brought upto date and has presently achieved 100% reconciliation level both in respect of inter branch as well as inter Bank transactions.

The Board of Directors hereby confirm: -

that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; that the Directors had selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period; that the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; that the Directors had prepared the annual accounts on a going concern basis.

FOR AND ON BEHALF OF THE BOARD

Place: Srinagar (M.Y. KHAN)

Dated: 08.05.2002 Chairman