CHAPTER - I

INTRODUCTION

1.1 Background of the Study

Nepal sandwiched between the two giant countries, India and China, is
one of the landlocked countries, and survives with her own natural beauty in
Asia. Its half-century of experiments and efforts to raise the quality of life of its
populace is defeated. Almost half of its population lies under absolute poverty
line, especially living in the rural areas are deprived of even basic needs and
facilitates like enough calories pure drinking water sanitation facilities,
electricity, road facility etc . Some of the basic human indicators like life
expectancy, literacy, nutrition level etc also show that Nepal occupies among
the bottom range among the comity of the nations. Therefore, there is a great
challenge to the nation to eliminate the massive poverty persisting in the
country through gradual development of the total nation and by providing and
availing basic needs to poor people. Actually slow pace of developing of Nepal
is due to nothing but landlocked position, poor resources mobilization and its
utilization, weak infrastructure development and more over unstable eco-
political environment.

Banking plays significant role in the economic development of a

country. Bank is a resource for the economic development, which maintains the
self-confidence of various segments of society and extends credit to the people.
So, commercial banks are those financial institutions mainly dealing with
activities of the trade, commerce, industry and agriculture that seek regular
financial and other helps from them for growing and flourishing the objectives
of commercial banks is to mobilize idle resources into the most profitable
sector after collecting them from scattered sources. Commercial bank
contributes significantly in the formation and mobilization of internal capital
and development effort.
 The concept of the banking has been developed from the ancient history
with the effort of ancient goldsmiths who developed the practice of storing
people’s gold and valuables under such arrangement the depositors would leave
their gold for safekeeping and given a receipt by the goldsmith. Whenever, the
receipt was presented the depositors would get back their gold and valuables
after paying a small amount as fee for safekeeping and serving.

To overcome this economic situation, government has to formulate and

implement strategies focusing overall industrialization of the nation and
development of a sound banking system is necessary for the rapid industrial
development. Dr. Shrestha says, “Financial infrastructure of an economy
consists of financial intermediation, financial institution and financial markets”
(Shrestha: 1990)1 financial institution, in this economy plays a role of catalyst
in the process of economic growth of the country. In this country, a bank is a
financial institution, which plays a significance role in the development of a
country. It facilitates the growth of trade and industry of national economy.
However, bank is a resource for economic development, which maintains the
self-confidence of various segments of society and extends credit to the people.
Banking sector plays a vital role for the country’s economic development
opportunities to people. Such economy of the country secures proper growth.
In this way, it is crystal clear that a sound banking system is must for the
industrial development and creates employment and investment opportunities
to people. Such economy of the country secures proper growth. In this way, it
is crystal -clear that a sound banking system is necessary for the industrial
development and for economic development of the country. “A bank is a
business organization that receives and holds deposits of fund from other,
makes loans or extends credit and transfer funds by written orders of
depositors.” Banks have always been the most important and the targets of the
financial intermediaries almost everywhere. It plays significant role in the
development of a country intermediating between the savings and investment.
Essentially the banks and financial systems are the channel through which
money has been mobilized distribution throughout the economy. Any bank
must maintain adequate cash and bank balance to meet its day-to-day
management of cash resources for remote contingencies.

Bank grants loan and advances to industries, people and companies that
result in the increase in the productivity of nation. For Example:-The loan
against to agricultural sector enhances the agricultural product on. The farmers
can use the loan amount as per their need to produce their product that will
promote the agriculture product on. Similarly, the loan and advances to
different people and corporate bodies help to increase their income and profits.
They can use the amount as per their need at right place at the right time. Bank
is a business organization where monetary transaction occurs. It creates fund
from its clients saving and lends the same to needy person or business
companies in term loans, advances and investment. Therefore, proper financial
decision-making is more important in banking transactions for its efficiency
and profitability. Most of the financial decision-making is loan management. It
plays the vital role in the business succession, so efficient management of
lending policy is needed.

The source of finance is most essential element for the establishment

and operation of financial institute. Profit oriented institutions usually obtain
these sources through ownership capital, public capital through issue of shares
and debentures, borrowing through banking institution as credit or loan. Now
days, the essential sources of the organization for financial supporting is the
credit, overdrafts and others provided by banking institution.

The History of banking system in Nepal in the form of money lending

can be traced back in the reigning period of Gunakama Dev, the king of
Kathmandu (NBL Patrika: 2037)2. Tankadhari a special class of people was
established to deal with the lending activities of money toward the end of
fourteen century at the Ruling period of King Jaysthiti Malla (NBL Patrika,
2001)3. During period of Rannodip Singh Prime Minister of Nepal, one
financial institution was established to give loan facilities to the government
staff and afforded loan facilities to the public in general in the term of 5%
interest but ‘Tejarath did not accept money from public(NBL Patrika : 2040) 4.

The study focuses on evaluating the deposits utilization of the bank in

terms of loans and advances and investments and its contribution in the
profitability of the bank. It also focuses on the contribution of off-balance sheet
activities in the earnings of the bank and non-performing assets position of the
bank. The term credit is referred to the loan. Credit is the amount of money lent
by the creditor (bank) to the borrower (customers) either based on security or
without security.

1.2. Focus of the Study

Although joint venture banks have managed credit than other local
commercial banks within short span of time, they have been facing a neck –to-
neck competition against one another. Among this joint venture banks, this
research is based on mainly joint venture banks, namely Everest Bank Limited
Joint venture commercial banks play a tremendous role in a developed or
developing nation also helps to improve the economic sector of the country.
Typically, commercial banks main motive is to make profit by providing
quality services to the customers. In Nepal, there exist 20 commercial banks
realizing their services. The study focus on evaluating the deposits utilization
of the bank in terms of loans and advances and investments and its Commercial
banks are the heart of financial system. They hold the deposit of money
persons, government establishment and business. The study focuses on
evaluating the deposits utilization of the bank in terms of loans and advances
and investments and its contribution in the profitability of the bank. It also
focuses on the contribution in the profitability of the bank. Commercial banks
are the heart of financial system. They hold the deposit of many persons,
government establishment and business units. They make fund available
through their lending and investing activities to borrowing individual’s
business firms and government establishment. In doing so, they assist both the
flow of goods and services from the producers to consumers and the financial
activities of the government. They provide a large portion of medium of
exchange and they are the media through which monetary policy is affected.
These facts show that commercial banking system of nation is important to the
functioning of the economy.

Financial institution is currently viewed as catalyst in the process of

economic growth of country. A key factor in the development of an economy is
the mobilization of the domestic resources and intermediaries, the financial
institution helps the process of resources mobilization. The importance of
financial institutions in the economy has of late grown to an enormous extent.
The government in turn is required to regulate their activities. So, the financial
policies are implemented as per the requirement of the country.

Therefore, this researcher has focused this resource mainly to highlight

and examine the credit management of the selected bank ignoring other aspects
of bank transaction. To highlight the credit management of the bank, the
research is based on the certain statistical tools i.e. mean with a view to find out
the true picture of the bank. The main objective of this research is to analyze
the credit management through the use of appropriate financial tool.

1.3. Statement of the Problem

The problem of the study will ultimately find out the reasons about the
credit management. A study on the credit management of the commercial
banks would be highly beneficial for pointing out their strength and weakness.
Although joint venture banks have managed to perform better than other local
commercial banks within short span of time, they have been facing a neck-to-
neck competition against one another fluctuating and low interest rates on
deposits, poor deposit mobilization trade, commerce etc. have affected on the
return of funds, total assets, total deposits and shareholders wealth position.
Since the joint venture banks have been established gradually because of the
liberal and market –oriented economic policy (Report) of Nepal Government,
they have been facing though competition from other commercial banks and of
course each other. Although various joint venture banks operating in Nepal
after Nepal Government adopted the open liberal and market oriented
economic (Report), the financial sectors have not been enough to meet the
growing resource need to the economy as expected before. Why is so and what
is the problem? To answer this question an analysis of their present credit
management is necessary. Therefore, focus of the present study is on the credit
management of the joint-venture banks in Nepal with special reference to
Everest Bank Ltd.

Global economic prospects report Nepal’s Gross Domestic Product to

expand by an estimated 1.9% in 2006. Doing business in south Asia Nepal
ranks 25th worldwide on the ease of registering property 5 reasons why Nepal
reduced poverty by 11% between 1996 and 2004 despite conflict. Economic
activities in Nepal slowed to 1.9% because of the intensified conflict, weather –
related decline in agriculture production and a trend decline in clothing exports.
Growths are projected to strengthen, owing to diminished political uncertainties
following the recent restoration of parliament and the cessation of fighting with
insurgents. Poverty alleviation fund is us $ 25millions Oct 2006. Current
lending in Nepal is the total fiscal year in $43200, 000 us dollar. Finance
(Micro and SME finance) is 4% in 14 Nov-2006.

Since the liberalization policy of the government, various banks and

financial institutions has been established with, a view to reinforce the
economic growth of the country. They have played an indispensable role by
accepting deposits and granting loans. Investment of the collected funds is the
most important factor for both shareholders and the bank as they are the source
of earning. Credit extended by these banks is directly related to the national
interest.

Similarly financial companies have been emerging rapidly and the bank
has to compete with them. Since, finance companies are making investment in
the same sectors where commercial banks typically invest. Commercial banks
are more interested in providing loans on short -term projects due to safety and
security of their loans. Thus, they are following conservative loan policy based
on strong security. Similarly, these banks do not have a well-organized credit
management. They rely much on the instructions and guidelines of Nepal
Rastrya Bank. Even if they have formulated some guidelines, they fail to
implement it due to poor supervision and lack of professionalism.

Joint Venture Banks are of utmost importance as they have contributed

significantly to the overall economic development of the country. Yet, after so
long since their establishment and successful operations for almost two
decades, they are not free from problems and hindrances in their avenue. Since,
we are concerned with the sample (Everest Bank Ltd.) we will be discussing
about it. This bank has been operating pretty well from its inception. It has
been awarded prestigious titles because of its experience in the field of
international banking, hi-tech computerized services, professional attitude,
qualified and experienced work force, quality and reliable services that served
as the key factor for its rapid progress. It has been able to control and capture a
remarkable leadership of Nepalese banking sector in a relatively short period in
terms of both market share and market price. Project appraisal method followed
by commercial banks is not scientific and appropriate. Granting loan against
insufficient deposits overvaluation of goods pledged, land and building
mortgaged, risk–averting decision regarding loan recovery and negligence in
recovery of overdue loans are some of the drawbacks of unsound investment
policy. Similarly, loan supervision and follow-up mechanism is lacking in
many commercial banks.
 Total debenture and bond of the bank was Rs.300m in 2005/06 against
the debenture and bond of Rs.300millions in 2004/05. Total liabilities of the
bank were Rs.15,959,284 millions in 2005/06 against the liabilities of the bank
11,732.516 millions in 2004/05. Total loan and advances of the bank was Rs7,
900.09millions in 2005/06 against the loan and advances of the bank Rs.
1013.625millions in 2004/05. Total employee expenses is Rs.709, 24,675 and
operating expenses is Rs.14,35,62,167.The current ratio of the bank was 1.06
times in 2005/06 against the current ratio of the bank 1.03 times in 2004/05.
Total cash and bank balance to total deposit ratio was 0.11 times in 2005/06
against the ratio of the bank 0.10 times in 2004/05. The total return on loan and
advances ratio was 0.52 times in 2005/06 against the ratio of the bank was o.44
times in 2004/05. The total loan loss provision to total loan and advances ratio
was 0.719 times in 2005/06 against the ratio of the bank 1.169 times in
2004/05.

1.4 Research Question

The problem associated with Everest Bank with regard of credit management
aspects are highlighted below:
1. What is the impact of deposit and loan advance in liquidity?
2. What is the procedure of EBL for granting loan?
3. Is EBL maintaining lending efficiency?
4. How is EBL managing it’s assets and profitability?

1.5. Objective of the Study

Undoubtedly, the role of commercial bank in mobilizing and utilizing scattered
resources of nation is praiseworthy one-.The basis objectives of the study are to
have true insight into the credit management aspects (practice of disbursing
loans and recovery of the Everest Bank Ltd.). This aims to examine its efficient
in effectiveness, systematization and sincerity in disbursing and recovery loan
as well within the directives of NRB, Financial institution act and its own
policy.

The main objective of this study is to evaluate the credit management of

Everest Bank Limited. Besides, there may be other objectives as well.
1. To examine the impact of deposit in liquidity.
2. To examine and evaluate the various stages occurred in loan
management procedure.
3. To analyze the lending efficiency of the bank.
4. To examine the assets management efficiency and portfolio ratios.

1.6. Significant of the Study

The needs of the study are:
1. The study will give a clear picture of financial position of the
company under study.
2. This study will provide information to those who are planning to
invest in Everest Bank Limited.
3. With the help of the report of this study, the management may apply
corrective measures for the improvement of the banks performance.
4. The policy formulates of the bank may gain something with the help
of the result of this study.
5. The study will help general public to know about the overall
financial position of the Everest Bank Limited.
6. After the completion, this report will be kept in the library, which
plays the role of reference to the students making the similar study in
future.

1.7. Limitations of the Study

This study is conducted for the partial fulfillment of Master’s of Business
Studies, so it processes some limitations of its own kind. The limitations of the
study are follows:
 1. The study is based only on secondary data so it may contain reporting
errors.
2. There is in total 23 commercial banks in the financial market but this
researcher takes only one from them. The sampled bank is Everest Bank
Ltd
3. The study covers the past and present state of the commercial banks in
Nepal and will not make any projection in future.
4. The study is made within limited timeframe, limited data and with lack
of research experiments.
5. The study covers the data of only five fiscal years from 2002/2003 to
2006/2007 and the conclusion drawn confines only to the above period
6. This research used only the selective tools for analysis and interpretation
of data.

1.8. Organization of the Study

The present study is organized in such way that the stated objectives can
easily be fulfilled. The structure of the study will try to analyze the study in a
systematic way. The study report has presented the systematic presentation and
finding of the study. The study report is designed in five chapters which are as
follows:

Chapter-I: Introduction
This chapter describes the basic concept and background of the study. It
has served orientation for readers to know about the basic information of the
research area, various problems of the study, objectives of the study and need
or significance of the study. It is oriented for readers for reporting giving them
the perspective they need to understand the detailed information about coming
chapter.

Chapter-II: Review of literature

 The second chapter of the study assures readers that they are familiar
with important research that has been carried out in similar areas. It also
establishes that the study as a link in a chain of research that is developing and
emerging knowledge about concerned field.

Chapter-III: Research Methodology

Research methodology refers to the various sequential steps to be
adopted by a researcher in studying a problem with certain objectives in view.
It describes about the various source of data related with study and various
tools and techniques employed for presenting the data.

Chapter-IV: Presentation and Analysis of data

This chapter analysis the data related with study and presents the finding
of the study and also comments briefly on them.

Chapter-V: Summary, Conclusion and Recommendation

On the basis of the results from data analysis, the researcher concluded
about the performance of the concerned organization for better improvement.
 CHAPTER-II
REVIEW OF LITERATURE

To explore the relevant and true facts for the research purpose, this
chapter highlights the literature available related to the study. An attempt has
been made to look into bank publications, periodicals and central banks rules
and regulations. In addition, informal interviews with bank personal and a few
customer /borrowers have been aimed to receive. Further, interaction programs
related with the financial issues transmitted by the various television channels
will be taken as supportive concept. For review study, the researcher uses
different books, reports, journals and research studies published by various
institutions, unpublished dissertations submitted by master level students have
been reviewed.
It is divided into two headings:
-Conceptual Review
-Review of Different Studies

2.1 Conceptual Review

The review of textbooks and other reference materials such as:
newspaper, magazines, research articles and past thesis have been included in
this topic.

Credit administration involves the creation and management of risk

assets. The process of lending takes into consideration about the people and
system required for evaluation and approval of loan requests, negotiation of
terms, documentation, disbursement, administration of outstanding loans and
workouts, knowledge of the process and awareness of its strength and
weaknesses are important in setting objectives and goals for lending activities
and for allocating available funds to various lending functions such as
commercial, installment and mortgage portfolios.
 Mobilization of the domestic saving is one of the prime objectives of the
monetary policy in Nepal. And commercial banks are the most active financial
intermediary for generating resources in the form of deposit of private sector
and providing credit to the investors in different sectors of the economy. In
banking sector or transaction, an unavoidable ness of loan management, many
subject matters are considered and thought. For example, there are subject
matters like the policy of loan flow, the documents of loan flow, loan
administration, audit of loan, renewal of loan, the condition of loan flow, and
the provision of security, the provision of the payment of capital and its interest
and other such procedures. This management plays a great role in healthy
competitive activities.

It is very important to be reminded that most of the bank failures in the

world are due to shrinkage in the value of loan and advances. Hence, risk of
non-payment of loan is known as credit risk or default risk.

2.1.1 Concept of Commercial Bank

Before defining the term commercial bank, let us define the meaning of
bank and commercial. According to S. and S.’s definition of bank, a banker or
bank is a person or company carrying on the business of receiving money
collecting drafts, for customers subject to the obligation of honoring cheques
drawn upon them from time to time by the customers to the extent to the
amount available on their customer, Shekher & Shekher, 1999.

Paget (1987), states that no one can be a banker who does not take
deposit accounts, take current accounts, issues and pay cheques of crossed and
uncrossed, for his customers. He further adds that if the banking business
carried on by any person is subsidiary to some other business; he cannot be
regarded as a banker.
 Commerce is the financial transactions related to selling and buying
activities of goods and services. Therefore commercial banks are those banks,
which work from commercial viewpoint. They perform all kinds of banking
functions as accepting deposits, advancing credits, credit creation and agency
functions. They provide short-term credit, medium term credits and long terms
credit to trade and industry. They also operate off balance sheet functions such
as issuing guarantee, bonds, letter of credit, etc.

Commercial banks act as an intermediately; accepting deposits and

providing credits to the needy area. The main source of the commercial bank is
current deposit, so they give more importance to the liquidity of investment and
as such they specialize in satisfying the short-term credit needs of business
other than the long-term. Commercial banks are restricted to invest their funds
in corporate securities. Their business is confined to financing the short-term
needs of trade and industry such as working capital financing. They cannot
finance in fixed assets. They grant credits in the form of cash credits and
overdraft. Apart from financing, they also render services like collection of
bills and cheques, safe keeping of valuables, financial advising, etc to their
customers.

2.1.2 Functions of Commercial Banks

The business of commercial bank is primarily to hold deposits and make
credits and investments with the object of securing profits for its shareholders.
Its primary motive is profit; other considerations are secondary. The major
functions of commercial banks are as follows:

Accepting Deposit, Advancing credits, Agency Services, Credit

Creation, Financing of Foreign Trade, Safekeeping of valuables, Making
Venture Capital Credits, Financial Advising, Offers Security Brokerage
Services.
i) Assist in foreign Trade:
The bank assist the traders engaged in foreign trade of the country. He
discounts the bills of exchange drawn by exporters on the foreign importers and
enables the exporters to receive money in the home currency. Similarly, he also
accepts the bills drawn by foreign exports.

ii) Offers Investment Banking and Merchant Banking Services:

Banks today are following in the footsteps of leading financial
institutions all over the globe in offering investment banking and merchant
banking services to corporations. These services include identifying possible
merger targets, financing acquisitions of other companies, dealing in security
underwriting, providing strategies marketing advice and offering hedging
services to protect their customers against risk from fluctuating world currency
prices and changing interest rate.

Further, they support the overall economic development of the country

by various modes of financing.

2.1.3 Concept of Credit

Credit is the amount of money lent by the creditor (bank) to the
borrower (customers) either on the basis of security or without security. Sum of
the money lent by a bank, is known as credit (Oxford Advanced Learners
Dictionary, 1992). Credit and advances is an important item on the asset side of
the balance sheet of a commercial bank. Bank earns interest on credits and
advances, which is one of the major sources of income for banks. Bank
prepares credit portfolio, otherwise it will not only add bad debts but also affect
profitability adversely, Varshney and Swaroop, 1994.

Credit is financial assets resulting from the delivery of cash or other

assets by a lender to a borrower in return for an obligation of repay on specified
on demand. Banks generally grants credit on four ways (Chhabra and Taneja,
1991)
1. Overdraft
2. Cash Credit
3. Direct Credit
4. Discounting of Bills

2.1.4 Types of Credit

Overdrafts:
It denotes the excess amount withdrawn over their deposits.
Cash Credit:
The credit is not given directly in cash but deposit account is being
opened on the name of credit taker and the amount credited to that account. In
this way, every credit creates deposit.

Term Credit:
It refers to money lent in lump sum to the borrowers. It is principle form
of medium term debt financing having maturities of 1 to 8 years.

Barely and Myers urge that bank credits with maturities exceeding 1
years are called term credits. The firm agrees to pay interest based on the
bank’s prime rate and to repay principle in the regular installments. Special
patterns of principle payments over time can be negotiated to meet the firm’s
special needs (Richard, 1996).

Working Capital Credit:

Working capital denotes the difference between current liabilities. It is
granted to the customers to meet their working capital gap for supporting
production process. A natural process develops in funds moving through the
cycle are generated to repay a working capital credit.
Priority or Deprived sector Credit:
Commercial banks are required to extend advances to the priority and
deprived sector 12% of the total Credit must be toward priority sector including
deprived sector. Rs.2 million for agriculture cum service sector and Rs.2.5
million for single borrowers are limit sanctioned to priority sector. Institutional
support to ‘Agriculture Development bank’ and ‘Rural Development Bank’ are
also considered under this category. Deprived sector lending includes:
- Advances to poor/downtrodden/weak/deprived people up to Rs
30,000 for generating income or employment.
- Institutional Credit to Rural Development Bank.
- Credits to NGOs those are permitted to carryout banking
transactions for lending up to Rs. 30,000.

Hire Purchase Financing (Installment Credit):

Hire-Purchase credits are characterized by periodic repayment of
principle and interest over the maturity of the credit. Hirer agrees to take the
goods on hire at a stated rental including their repayment of principle as well as
interest with an option to purchase.

A recent survey of commercial banks indicates those banks are planning

to offer installment credits on a variable rate basis. It can be secured and
unsecured as well as direct and indirect installment credits on a variable rate
basis. It can be secured and unsecured as well as direct and indirect installment
credit.

Housing Credit (Real Estate Credit):

Financial institutions also extend credit to their customers. It is different
types, such as: residential building, commercial complex, construction of
warehouse etc. It is given to those who have regular income or can earn
revenue from housing project itself.
Project Credit:
Project credit is granted to the customers as per project viability. The
borrowers have to invest certain proportion to the project from their equity and
the rest will be financed as project credit. Construction credit is short-term
credits made to developers for the purpose of completing proposed projects.
Maturities on developers for the purpose of completing proposed projects.
Maturities on construction credits range from 12 months to as long as 4 to 5
years, depending on the construction credits range from 12 months to as long as
4 to 5 years, depending on the size of the specific project (Johnson, 1940). The
basic guideline principle involved in disbursement policy is to advance funds
corresponding to the completion policy is to advance funds corresponding to
the completion stage of the project. Term of credit needed for project fall under
it.

Consortium Credit:
No single financial institution grant credit to the project due to single
borrower limit or other reason and two or more such institutions may consent
to grant credit facility to the project of which is baptized as consortium credit.
It reduces the risk of project among them. Financials bank equal (or likely)
charge on the project’s assets.

Credit Cards and Revolving Lines of Credit:

Banks are increasingly utilizing cards and revolving lines of credit to
make unsecured consumer credit. Revolving credit line lowers the cost of
making credit since operating and processing cost are reduced. Due to
standardization, centralized department processes revolving credits resulting
reduction on administration cost. Continued borrowing arrangement enhances
cost advantages. Once the credit line is established, the customer can borrow
and repay according to his needs and the bank can provide the fund to the
customer at lower cost.
Off-Balance Sheet Transaction:
In fact, bank guarantee and letter of credit refer to off balance sheet
transactions of financial institution. It is also known as contingent liability.
Contingent liability pinpoints the liability, which may or may not arise during
the happening of certain event. Footnotes are kept as references to them instead
of recording in the books of accounts.
It is non-funded based remunerative facilities but more risky than the
funded until adequate collateral are not taken. Lets its two varieties be
described separately.

Bank Guarantee:
It used for the sake of the customers in favor of the other party
(beneficiary) up to the approved limit. Generally, a certain percent amount is
taken as margin from the customer and the customer’s margin account is
credited.
Letter of Credit (L/C):
It is issued on behalf of the customer (buyer/importer) in favor of the
exporter (seller) for the import of goods and services stating to pay certain sum
of money on the submission of certain documents complying the stipulated
terms and conditions as per the agreement of L/C. It is also known as importers
letter of credit since the bank of importer do not open separate L/C for the trade
of same commodities.

2.1.5 Objectives of the Sound Credit Policy

The purposes of a written credit policy are:
I) To assure compliance by lending personnel with the bank’s polices
and objectives regarding the portfolio of credits and
II) To provide personnel with a framework of standards within which
they can operate.
2.1.6 Lending Criteria
While screening a credit application, 5-cs to be first considered supported by
documents.

1. Character
Character is the analysis of the applicant as to his ability to meet the obligations
put forth by the lending institution. For this analysis, generally the following
documents are needed.
- Memorandum and Article of Association
- Registration certification
- Tax registration certificate (Renewed)
- Resolution to borrow
- Authorization-person authorizing to deal with the bank.
- Reference of other lenders with whom the applicant has dealt in
the past of bank A/C statement of the customer.

2. Capacity
Describes customer’s ability to pay, It is measured by applicants past
performance records and followed by physical observation. For this, an
interview with applicant’s customers/suppliers/ will further clarify the
situation. Documents relating to this area were:
- Certified balance sheet and profit and loss account for at least
past 3 years.
- References or other lenders with whom the applicant has dealt in
the past or bank A/C.

3. Capital
This indicates applicant’s capacity to inject his own money. By capacity
analysis, it can be concluded that whether borrower is truing to play with
lender’s money only or is also injecting his own fund to the project. For capital
analysis, financial statements, like certified balance sheet, profit and loss
account is the only tools.

4. Collateral
Collateral is the security proposed by the borrower. Collateral may be of
either nature moveable or immovable. Moveable collateral comprises right
from stock, inventories to playing vehicles. In case of immovable it may be
land with or without building or fixture, plant machineries attached to it.

5. Conditions
Once the funding company is satisfied with the character, capacity,
capital and collateral then a credit agreement (sanction letter) is issued in favor
of the borrower stating conditions of the credit to which borrower’s acceptance
is accepted.

2.1.7 Principle of Credit Policy

Good credit policy is essential to carry out the business of lending more

effectively. Banks should look the fact that is there any unproductive or

speculative venture or dishonest behavior of the borrower. Liquidity refers to

pay on hands on cash when it needed without having to sell long-term assets at

loss in unfavorable market. A banker has to ensure that money will come in as

on demand or as per agreed terms of repayment.

It acts as cushion to grant advances and credits. Adequate values of collaterals

ensure the recovery of credit correctly at the right time. Accepted security

should be readily marketable, handy and free from encumbrances.

Generally, credit request would be accepted for productive sector only. Bank

should be rejected credit request for speculation, social functions, pleasures

trips, ceremonies and repayment of prior credit as they are unproductive.

Profitability denotes the value created by the use of resource is more than the

total of the input resources. Bank should provide to such project that can

provide optimum amount of return. For such purpose, bank should take a little

bit risk by providing to venturous project. Portfolio of credit advances is to be

spread not only among many borrowers of same industry. It across the

industries in order to minimize the risk of lending, by keeping “Do not put your

all eggs in the same basket” in mind. In lending and granting advances, interest

of nation should not be distorted (if undermined). Priority and deprived sector

of economy and other alarming sector should be given proper emphasis while

extending advances.

2.1.8 Project Appraisal

Before providing credit to the customer, bank makes analysis of project
from various aspects and angles. It will help the bank to see whether project is
really suitable to invest. The purpose of project appraisal is to achieve the
guarantee of reasonable return from the project. Project appraisal answers the
following questions:
- Is the project technically sound?
- Will the project provide a reasonable return?
- Is the project in line with the overall economic objectives of the
country?
Generally, the project appraisal involves the investigation from the
following aspects (Gautam, 2004)6
a. Financial aspect
 b. Economic aspect
c. Management /organizational aspect
d. Legal aspect

Directives issued by NRB for the commercial Bank: (related to credit aspect
only):
1. Credit classification and provisioning
Classification Provision
1. Pass Credit 1%
2. Sub Standard Credit 25%
3. Doubtful Credit 50%
4. Bad Credit 100%

Those credits that have not crossed the time schedule of repayment and
are within 3 months delay of maturity date fall under the classification topic
‘pass credit’. It is also known as performing credit.

Sub standard credit are those credit which are already crossed the
repayment time schedule and are within 3-6 months delay of maturity date.
Likewise, within 6-12 months from the time to be recovered are classified as
doubtful credit. Those credits, which are not recovered yet after 1 year from
maturity date, are known as bad credit. All the above 3 types of credits are
classified as non-performing credit also. The credit loss provision for
performing credit is termed as general credit loss provision whereas the credit
loss provision for non- performing credit is termed as specific credit loss
provision.

Auditor has to correctly rate the credit and ensure that accurate credit
loss provision has been made. The auditor should examine whether the bank
has obtained complete documentation so that banks interest is secured. In
addition audit is made to inspect compliance of terms and conditions laid
down. Credit audit is required to check whether credit given is within authority,
drawing power, etc. Credit audit helps the bank to know quality of its credit, its
weakness and strengths. This, in turn, helps the bank to adopt corrective
measures where weaknesses have been pointed out and to focus further on
strengths. General guidelines whether to reject or renew the credit can be
established with the help of credit audit.
2. Limit of Credit and Advances in a Particular Sector
- Fund based credit and advances can be issued up to 25% (upper
limit) of core capital to a single customer, firm, company and a
group of related customer.
- Non-fund based (off-balance items) can be issued up to 50% of
core capital to a single customer, firm, company and group of
related customer.
Note: The core capital includes {paid up capital + share premium + non-
redeemable preference share + general fund + accumulated profit (loss) –
goodwill (if any included)}.

Group of related customer:

- If a company takes 25% or more share of another company.
- Member of board of directors of company shareholders of private
limited company and such members and shareholders with others
in a single house, even if husband, wife, son, daughter, daughter
in law, unmarried daughter, adopted son, adopted unmarried
daughter, father, mother, stepmother, brothers and sisters whom
be should look after. And the above members personally or
combined take 25% or more share of another company.
- Firm, company and members as a related group.
- Members of board of directors, shareholders and other relatives
as stated in serial number ‘b’ takes less than 25% of board of
directors of the company solely or combined but have control on
the other company by the following ways:
 - Being president of board of directors of the company.
- Being executive directors of the company.
- Nominating more than 25% of members of board of directors of
the company.
- If cross guarantee is given by one company to another company.

2.3 Review of Thesis

(Upreti, 2001) states that profitability in term of return on shareholders
equity ratio of NGBL is found lower in F.Y, 1994/95 (3671%). Similarly, the
ratio of HBL is found within the range from 38.68 % (in 1995/96) to 23.13%
(in 1998/99). The yearly average of NGBL (i.e. 31.52) is higher than yearly
average (i.e.30.152) of HBL. It can be concluded that both the banks have been
able to earn profit on shareholder’s equity but not satisfactory level. NGBL is
more success to generate more return on its shareholder’s funds than that of
HBL, although there is no significant different between the averages of these
ratio of the two banks. Return on total assets ratio of NGBL is found within the
range between 2.95 % (in 1995/96), (2.30%) and (in1994/95) where the same
ratio of HBL is found within the range from 2.48 % (in 1995/96) to 1.48% (in
1998/99). The yearly ratio of HBL is generally decreasing over the study
period. Moreover, the yearly average of NHBL (2.64) is found higher than the
yearly average of HBL along with its yearly average ratio is also higher than
composite average of the banks. It can be concluded that return on total assets
ratio in cash of NGBL is found better performance by utilizing overall
resources but the generated profit is found lower for the overall resources in
both the joint venture banks.

The main statement of the problem of his research is the Himalayan

bank Ltd. and Nepal bank operating in Nepal. In comparison to their JVB’s
these bank have achieved a desirable success in terms of market share and
profit due to their service excellence, consumer satisfaction, highly skilled
management and staff and worldwide network of branch. Although, Himalayan
Bank Limited and Nepal Grindlays Bank have able to perform better than other
local banks and financial companies within a short span of time, they have been
facing competition with each other. These banks do not have strong financial
position in respect to net profit to capital employed ratio, capital adequacy and
earning per share. The contribution of these banks in rural areas is very
unsatisfactory. To know the solution of these problems, the competitive
financial analysis of these two banks will be much more helpful.

(Kapadi: 2002) states that most of the capital structure ratios show that
the capital structure of both the banks is highly leveraged. Total debt to equity
ratio of both the banks reveals that the claims of the outsider exceeds mere than
that of the owner’s over the bank asset. However NABIL bank seems to be
more leveraged than SCBNL. Total debt to total assets ratio of both the banks
has always been over 88, which indicates the excessively geared capital
structure. Comparatively NABIL bank has used a little more debt financial than
SCBNL. Long term debt to total assets ratio of NABIL bank is seems to be
greater as per mean which shows more use of long-term debt by NABIL bank
than by SCBNL. Long term debt to net worth ratio of both the banks is
following the fluctuating trend. The mean proportion of outsiders fund and
owners fund employed in the total capitalization of NABIL bank is higher than
that of SCBNL. This implies that it is following an aggressive strategy of
higher risk higher return policy. The net fixed asset to net worth ratio of
NABIL bank is higher than that of SCBNL as per mean ratio. But the
investment of owners’ equity in fixed assets for both the banks are minimum as
is commonly seen in various financial institutions.

The main statement of the problem of his research is NABIL bank and
SCBNL have been operating well from their very establishment. Their
experience on international banking, prompt and computerized services
professional altitude are the factor for their rapid progress. They have been
gaining weakness and inefficiency of domestic commercial banks. These banks
have succeeded to capture a remarkable market share of Nepalese banking
sector in a relatively short period of time. This fluctuation in different aspects
of both the sample banks can be traced out by analyzing their financial
performance. Therefore, the researcher of this thesis will seek the answers to
the following questions relating to both of these banks.

(Bista: 2002), found that the study has been undertaken to examine and
evaluate the financial performance of NIBIL bank limited. The researcher has
used the financial tools to make this study more effective and informative. This
study has corrected ten years data from 1991/1992 to 2000/2001 of the NABIL
bank limited. The analysis shows that the deposits of the bank have increased
during the years 1999/00 and 2000/01. The rate of increase was comparatively
low for the year 1996/97. Total loans and advances have been increasing at an
average rate of 24% each year, highest of 51% in year and lowest of 7% in year
1996/97. Total investment of the bank has been increasing over the years,
which is mainly due to the bank’s strategy of safe lending and because of
increase in customer’s deposits and limited opportunities for prudent lending.

The main statements of the problem of his research is financial

management aspect is considered to be the vital and integral part of overall
management of any enterprises, ensuring financial strength through adequate
cash flows, liquidity and better utilization of assets. Commercial joint venture
banks set up in Nepal seem to need grater funds in terms of financing to the
expansion of their assets because of growing number of new establishment of
joint venture banks in the country. These banks deal with other people’s
deposits, most of which are payable on demand. There is no doubt that the
survival of the existing commercial banks and other financial institution depend
upon how they manage their assets and liabilities to maximize their profits with
the minimum exposure of assets to risks, and are guided by there important
conflicting criteria of solvency, liquidity and profitability. Therefore, the
financial management is the main indicator of the success or failure of any
business firm. Financial condition of the business firm should be sound be
sound from the point of view of shareholders, debenture holders’ financial
institutions and nation as a whole.

(Parajuli: 2003), states that concept of financial reform emerged since

1980s with economic liberalization. Nepal Government and NRB published the
economic and monitory policy to support such reform. As the result of these
policies various jointed venture bank established in the private sector. Under
the structural adjustment program of the IME the financial sector was further
liberalized in 1987. The focus of NRB was placed on indirect monitory control.
The agricultural development bank of Nepal and Nepal industrial development
corporation were allowed to issue debentures to increase their financial
resources. NRB strengthened its regulation and supervision of banking and
financial institution and the commercial banks were granted virtually freedom
to fix their interest rates on deposit in July 1989 except for the priority sector
credit. The credit information Bureau was established in 1989. NRB started to
control the financial institutions with strengthening to supervision and
monitoring system. It has also pointed out the need of having deposit taking
institutions act which it’s on umbrella act of all deposit taking institution. Some
of the main elements of financial sector reform strategy published by NG in
December 2000 such as restructuring the government owned banks
strengthening the commercial banks regulation accounting and auditing system
improving the regulation and supervision on non banking deposit institutions.

(Luitel: 2003), found that to examine the short-term solvency of the

NBL the help of liquidity ratios was taken. While comparing the ratios of two
periods at an average the first period had higher current liabilities ratio than the
second period. The average current ratio of the first period was 105.11% over
100.49% of the second period. Through the proportion of current assets greater
than that of current liabilities at an average during both the periods the bank
can not be said to have a sound current ratio or during both the periods the
banks did not have healthy short-term solvency. Even then the first period of
the study had better short term solvency than the second period. The highest
and lowest current ratio for the first period were 110.35% and 101.031%in the
F.Y. 047/048 and 048/049 respectively whereas the same for the second period
were 104.47.1%.and 94.16% in F. Y. 053/054 and 0567/057 B.S.
respectively. The F.Y. 055/056 also showed the ratio less than 100 %
i.e.97.92% which signifies that during the years the bank had current liabilities
more than current assets. During both the periods’ liquidity position of the bank
was worsening.

(Joshi: 2003) states that the mean current ratio of EBL is slightly higher
than that of the SCBNL and the variability of ratio of EBL is more consistence
than SCBNL in comparison. The mean ratio of cash and bank balance to total
deposit of SCBNL is lower in comparison to EBL. SCBNL has better liquidity
position than EBL because of the high volume of liquidity indicated the
inability of the bank to mobilize its current assets. Moreover SCBNL’s ratios
are homogeneous than EBL. The mean ratio of cash and bank balance to
current assets of SCBNL is lower in comparison to EBL. Similarly, SCBNL’s
ratios of the study period are more consistent than EBL. The mean ratio of loan
and advances to total deposit of EBL is higher than SCBNL. It can be said that
EBL used to provide grater loan and advance in comparison to its total deposit
than SCBNL. Likewise, SCBNL’s ratio seems to be variable them EBL. The
mean ratio of investment on government securities to total working fund of
SCBNL is higher than EBL. Consequently, it has consistency in maintaining
the ratio than EBL. The mean ratio of return on loan and advances of SCBNL
has found to be significantly grater than EBL with more consistency than that
of EBL. The mean ratio of credit risk of SCBNL is lower than that of EBL’s
ratios are more consistent than that of SCBNL. Growth ratio of deposit are
more consistent than that of SCBNL is lower i.e. 19.28% in comparison to EBL
i.e. 76.46%.
 The main statement of the problem of his research is the investment
decision is the major tool of financial institution. There are many finance
companies and commercial banks operating in Nepal. According to NEPSE
record, there were 17 commercial banks 46 finance companies 5 Gramin Bikas
banks, 30 non -government financial organizations until July 2001. The fast
growth of such organizations has made pro-rata increment of in collecting
deposits and their investment. They collected adequate amount from the mass,
however they could not find or locate new investment sectors required to
mobilizes their fund on the changing context of Nepal. Many banks or
companies succumbed to liquidation although they had sustainable investment
capacity. The increasing rate of liquidity has caused a downward trend in
investment sectors. It has ensured bad impact on interest rate to the depositors,
lower market value of shares etc. for the assessment of such adverse impact,
this study has shown to contrast and analyses the investment policy of joint
venture banks. Joint venture banks viz. standard chartered bank Nepal Ltd and
Everest bank limited.

(Regmi: 2004) states that commercial banks are those banks, which
works from commercial view point. They perform all kinds of banking
functions such as, accepting deposits, advancing credits, credit creation and
management of credit and advances. Portfolio management helps to minimize
or manage the credit risks and spreading over the risks to various portfolios.
Banks earn interest on credit and advances which is one of the major source of
income for banks. On average 5 years of research period, cash and bank
balance to total deposits of ratio of NB bank and BOK is 12.75% and 14.12%
respectively. Likewise NB bank and cash and bank balance 1.584 times of
current deposits and BOK has cash and bank balance 1.14 times of current
assets. NB bank: most of the credit and advances almost 70% is provided an
assets guarantee. The assets guarantee credit is increasing period by period.
After assets guarantee bank has provided credit based on bills guarantee credit
is 3421.3millions (76.1% of total credit) and in the last period it is
3347.99millions (58.2%of total credit).

(Dhital: 2004) states that the liquidity position of BOKL is

comparatively better than SCBNL. It has the highest cash and bank balance to
total deposit ratio, cash and balance to current assets ratio. This may be the
bank is in a good position to meet the daily cash requirement but it has to bear
high cost of fund. Since investment on government securities of SCBNL is far
better than BOKL. However, higher ratio shows unstable policy of investment.
At last, we can be concluded that BOKL has good deposit collection and
SCBNL can success to invest more amounts on government securities.
Therefore, BOKL has maintained moderate investment policy on loan and
advances. The asset management ratios of the both banks are satisfactory, it can
be shown that SCBNL is not able to provide its deposit as loan and advances in
comparison to BOKL. Whereas, SCBNL have more portion of deposit invested
as investment in different sectors. Moreover, SCBNL has not utilized its
working fund as loan and advances in comparison to BOKL. Due to security,
SCBNL have also invest able its working fund in government securities and
other company’s share and debentures than that of BOKL.

(Karki: 2004) found that the development of any country largely depend
upon its economic development capital formation is the prerequisite in setting
the overall pace of the economic development of a country. Well-organized
financial system contributes to the process of capital formation by converting
scattered saving into meaningful capital investment in order to aid industry,
trade, commerce and agriculture for the economic development of the nation.
The financial institution play dominant role in the process of economic
development. Banks are indispensable elements in these systems. Commercial
banks furnish necessary capital needed for trade and commerce for mobilizing
the dispersed saving of the individuals and institutions. They provide the bank
of the money supply as well as the primary means of facilitating the flow of
credit.

(Dahal: 2004) states that the liquidity ratio measures the ability of a firm
to meet its short-term obligations and select the short term financial solvency of
a firm. The liquidity position of the banks in term of current ratio shows that
the ratios of NBBL are always above then normal standard (i.e.2:1) where as
HBL’s ratio is always below than normal standard. It shows that the liquidity
position in term of current assets to current liability of NBBL is better than
HBL. Therefore, it is concluded that NBBL is better short -term solvency
position as compared with HBL. The liquidity position of NBBL in term of
cash and bank balance to deposit ratio is higher than that of HBL (i.e.39.09
percentage>11.85% on an average). Therefore, it is concluded that NBBL has
sufficient cash and bank balance to its deposit except fixed deposit then that of
HBL. Likewise, the liquidity position of NBBL in term of cash and bank
balance to current deposit ratio is found higher than HBL (i.e.
165.95%>63.16% in an average). Here, NBBL has so high ratio that it is bad
because “ideal assets earn nothing.” Therefore, NBBL should invest in
productive area. This analysis shows that NBBL has more cash ideal than HBL.

(Basnet: 2005) states that financial analysis involves the method of

calculating and interpreting financial ratio in order to assess the firm’s
performance and status. The following are the main findings from the financial
ratio. The current ratio measures only total rupees worth of current assets and
total rupees worth of current liabilities i.e., it indicates the availability of for
current liabilities. A ratio that is grater than one means that the firms has more
current asset than current claims against them. The calculation found that the
average current ratio of SBI (1.05 times) is greater than that of NBB
(0.98times). The table shows that the ratio is in fluctuating trend of SBI and
decreasing trend of NBB. The highest ratio for SBI is 31.41% and lowest is
18.45% and lowest ratio is 8.47%. Calculation of loan and advances to total
deposit exhibits that the ratio is fluctuating for SBI. It was lowest in fiscal year
2000/2001 whereas the ratio was in increasing trend up to fiscal year
2001/2002 for NBB but it is decreased in 2002/2003.

(Shrestha: 2005) states that lending is one of the most important part of
function of a commercial bank and composition of loan and advances directly
affects the performance and profitability of the bank. There is intense
competition in banking business with limited market and less investment
opportunities available. Every bank is facing the problem of default loan and
there is always possibility of a certain portion of the loan and advances,
profitability deposits position of Nepal SBI Bank Limited is analyzed and its
contribution in total profitability has been measured.
(Subedi: 2005) states that deposit is the part of balance sheet which
always remains the biggest in amount. It is the sensitive liability among al
items. As like total liabilities and capital deposit also increase until 2057/58
and starts to fall down. The increment rate is satisfactory in first and second
changing years, and then it has changed by negative digits therefore in two
subsequent year’s. The business in peak where the value was
Rs.15839.0077millions. The proportion of debt over the total liabilities and
capital is 83.35% in average. Fixed deposit is taken as a long-term debt in the
banking business; it is key department factor to capital structure. The bank
could collect the deposit is Rs.7667.8459 millions. In two subsequent years, it
decreases and becomes Rs.2252.5464millions in the final study years. This
items changes by in highly decreasing trend. The average change rate is 5.89%.
The proportion over total liabilities and capital is 26.32% in average. The
composition of paid up capital, reserve and surplus other reserves and
undistributed profit is known as shareholders equity. Unlike other items
mentioned above, shareholders equity is regularly increasing. The yearly
change rate is in fluctuating trend varied from 8.97% to 24.63%.
 The main statement of his research is the banking industry is one of the
fast growing businesses in Nepal. After the liberalization policy was adopted
by government this sector has been dramatically. Now, more then one and half
dozen banks are in operation. Now too, new banks are being set up. Due to
security, problem and political instability government could not be able to pay
sufficient attention to business and industry sector. Regulation and monitoring
by government has been weekend in the banking sector as like others free and
fair competition is decreasing. Customers and stakeholders are too much sad to
hear the news that banks have tried to cartel in taking treasury bills before some
months other type non-business practices might have been occurred in this
industry. Surely such types of practices will hamper the whole sector.
Ultimately, the capital structure will be affected. We have been watching the
type scenario where the capital structure is not so stagnant and continues
progress.

(Shrestha: 2006) found that NB bank has sufficient liquidity. It shows

that bank has not got investment sectors to utilize their liquid money. Now, in
Nepal many banks and other financial institution are functioning to collect
deposits and invest money somewhere in the invest able sectors. Therefore,
monetarization have been increased since liberalization policy taken by the
government. Heavy remittance has also helps to increase the amount of
deposits in bank. On the other hand, due to political crisis, economic sectors
have been fully damaged. Most of the projects have been withdrawn due to
security problem. Therefore, bank has maximum liquidity due to lack of safety
investments sectors. NB bank has utilized most funds in the form of credit and
advances. More than 75% of total deposits of the bank have been forwarded to
customers as a credit and advances. Therefore, it is the major part of utilizing
deposits and income generating sectors. If the bank has high deposits, bank can
provide money to its customers as credit and advances. Therefore, there is
highly positive correlation between total deposits and credit and advances of
NB bank is 0.978 times. Therefore, bank is providing different schemes to
attract good customers. After attracting deposits from the customers, bank has
issued the deposits to the needy area to make profit for the bank.

The main statement of the problem of his research is the commercial

banks in Nepal have been facing various challenges and problems. Some of
them arising due to the economic condition of the country and arising due to
lack of policy clarity of government and many of them arising due to default
borrowers. After liberalization of economy, banking sector has growth and
various opportunities have emerged. However, the financial institutions do not
seem to be performing well. Liquidity is high with the financial institutions.
Hence, the banks and financial institutions are competing among themselves to
advance credit to limited sectors available. Banks and financial institutions are
investing in house loan, hire purchase loan for safety purpose. Due to lack of
good lending opportunities, banks appear to be facing problems of excess
liquidity. Nowadays, Banks have increasing amount of deposits in fixed and
saving accounts but have decreasing trend in lending behaviors. Therefore, this
has caused major problems to the commercial banks. Due to competition
among banks the interest rate for loan is in a decreasing trend.

(Paudyal: 2006) states that interest income from loan and advances are
the main sources of income, which will increases profit of commercial bank.
The main ratio of interest income to total income of NSBL is higher than that
HBI. NRB has restricted the gap between the interest taken in loan and
advances and interest offered in deposit. HBL have higher mean ratio of
interest income to interest expenses and total income to expenses ratio than that
of NSBL. HBL has maintained high return in every reflect than that of NSBL.
Among the various measurement of profitability ratios return to equity and
earning per share, reflects the relative measure of profitability. The
performance of NBL is higher than that of NSBL. Coefficient of correlation
between deposit and loan and advances total income and loan and advances of
both bank have positive value there is significant relationship between deposit
and loan and advances total income and loan and advances. Coefficient of
correlation between net profit and loan and advances of both bank have
positive relationship. But the number of HBI is greater than number of NSBL.
There is no significant relationship between net profit and loan and advances of
both banks. They are greater than number of both banks.

(Gautam: 2006) states that many joint venture banks are operating in
Nepal as commercial and merchant banks. The growth is still going on as so
many new banks are coming into existence after this study. Therefore, JVB’s
are operating with higher technology and new efficient methods in banking
sector. However, this study has been undertaking only three JVB’s viz. SCBNL
and NBBL to examine and evaluation the financial data. Besides latest
financial statement of six year from 1999 to 2004 have been conferred for the
purpose of the study. All JVB’s has used high percentage purpose of the study.
All JVB’s have used high percentage of total debt in raising the assets. The
higher ratio constitutes that the outsider’s claim in total assets of the bank is
owner’s claim. The on an average, NBBL bank constitutes 16.27 times of D/E
ratio, which should be reduce as quickly as possible. The financial risk of the
banks NBBL average degree of finance leverage constitutes 3.73 times which
indicates the higher degree of financial risks 3.73 times which indicates the
higher degree of financial risks. The average ROE of JVB’s i.e. SCBL and
NBBL area 37.36% and 21.75% respectively.

(Sedai, 2007) in his dissertation “An analysis on lending policy and

strength of Nepal Investment Bank Ltd” highlighted that aggregate
performance of NIBL is satisfactory and pushing upward. Lending strength of
NIBL in term of exposure of loan and advances is good and appreciable. The
contribution made by bank in industrial as well as agriculture sector of the
economy is highly appreciable and its bust up towards national prosperity. The
ratio of loan and advances to total asset, loan and advance to shareholder‘s
equity indicate a good performance of NIBL in its lending activities.
Looking at the asset management ratio the performance of NIBL seems good
in the area of lending, productivity and impact on national economy. The
activity ratio also reflects to the soaring performance of NIBL. The decreasing
loss loan provision ratio incate that bank is good enough to judgment in their
value customer. The better activity ratio of this bank been a major contributor
in managing the lending portfolio according to the demand of the profit
oriented business. The high volume of lending activity of NIBL has put this
bank in the top position in absolute term. Thus looking at the various
summaries and findings, we can conclude that the bank has accelerated its
performance in the year 2002/3 and has continued till 2004/5 and the bank has
the potentiality to become a leading bank in Nepal.

The recommendations are forwarded according to finding and conclusion. It is

recommended that extend their credit and branch in rural area, continue to
maintain or further increase the performance, decrease the NPL and make
proper loss loan provision, required proper market analysis, diversify the
investment sector etc. finally however performance of NIBL seems to be good
till the date. There are still many opportunities for further growth of the bank.
NIBL is suggested to further improve current position of lending portfolio. The
bank should concentrate on financial strength, pe5rsonal integrity and
credibility of the borrower of loan disbursement. It should maintain high level
of monitoring and control system over the disbursed loan and advances. To
create opportunity of business new and attractive lending scheme would be
launched to the customer.

The main objective and target of this study is to observe the loan disbursement
of Nepal Investment Bank Ltd. its shows the actual lending position, strength
and weakness. The specific purpose are study of loan and advances provided to
customer, amount loan investing in industrial sector, trend of loan disbursement
, process are according to NRB rules & regulation and position of bank and its
profitability.

2.3 Research Gap

The review of above relevant literature has contributed to enhance the

fundamental understanding and knowledge, which is required to make this
study meaningful and purpose. There are various researchers conduct on
lending practice, financial performance and credit management of commercial
bank. Some of the researchers have compared the financial performance
between two or three different commercial bank. In order to perform those
analysis researchers have used ratio analysis. Thesis done by shrestha an credit
management of commercial bank with special refers to Nepal SBI bank ltd on
2004 and Bista done by financial performance of NABIL bank on
2002.however no one has done study on “credit policy with special refers to
Everest Bank Ltd”. There fore the researcher attempts to study in this area.
Since the researcher have used data only five fiscal year. In this study
researcher also used the different statistical tools like coefficient of correlation
and trend analysis to analyze the data.
 CHAPTER - III
RESEARCH METHODOLOGY

In this chapter research methodology is presented for achieving the

predetermined objective which is already stated. One various statically and
financial instrument will be used for the required purpose. It counts on the
resources and techniques available and to the extent of their reliability and
validity in this chapter. This research methodology has primary sought the
evaluation of the credit practices of the targeted joint venture bank i.e. Everest
Bank Ltd. The research methodology adopted in this chapter follows some
limited but crucial steps aimed to achieve the objective of the research.
Research methodology refer to the various sequential steps (along with a
rationale of each such steps) to be adopted by researcher in studying a problem
with certain objective in view.

3.1 Research Design

The crux this research is to analyze the soundness of Everest Bank
Limited in relation to credit disbursement and recovery as well. Decision
regarding what, when, how, when by what means concerning an enquiry of a
research study constitute a research design. “A research design is the
arrangement of conditions for collection and analysis of data in manner that
aims to combine relevance to the research purpose with economy in
procedure.” In fact the research constitutes the blueprint of the collection,
measurement and analysis of data. As such the design includes an outline of
what the researcher will do from writing the hypothesis and its operational
implication to the final analysis of data.

3.2 Population and Sample

Commercial banks are the principle agents of the money market which
is turn is the major instrument of the financial system. Thus commercial banks
and their lending transaction obviously affect the national economy. Moreover
lending and borrowing transaction that takes place through the commercial
banks influence the daily livings of each national. And at the same time from
the government side a great concern should be taken as the misleading by the
commercial banks can violate the total economic system. Commercial banks,
financial management system can contribute the economic growth too because
this bank is the major variable of financial market. The total 20 commercial
banks shall constitute the population of the data and single bank under the
study constitute the sample under the study. So among the various commercial
banks in the banking industry, Everest Bank Limited is taken sample for the
study.

3.3 Sources of Data

Necessary data collected from both sources: primary and secondary.
Even though adequate data are collected from secondary sources.

3.4 Secondary Sources

1. Economy survey of NG, Ministry of finance.
2. Annual general report of EBL.
3. National newspaper, journals and magazine.
4. Internet.
5. NRB directives.

3.5 Method of Data Analysis Technique

For the purpose of the study all collected primary as well as secondary data are
arranged, tabulated under various heads and them after disunities and statistical
analysis have been carried out to enlighten the study.
1. Financial method.
2. Statistical method
3.5.1 Financial Method
3.5.2 Financial Tool
Stakeholders of a business firm perform several types of analyses on a
bank is financial statements. All of these analyses rely on comparisons or
relationship of data that enhance the utility or practical value of accounting
information.

3.5.3 Liquidity Ratio

It measures the adequacy of firm’s cash resources to meet its near-term
cash obligations. Short-term lenders such as suppliers and creditors use
liquidity analysis to assess the risk level and ability of a firm its current
obligations. Satisfying these obligations requires the use of the cash resources
available as of the balance sheet date and the cash to be generated through the
operating cycle of the firm.

3.5.1.1 Cash Reserve Ratio

Deposit is one of the major liabilities of the commercial bank. Bank has
to manage its liquidity meet depositors demand. This ratio measures the
availability of the banks liquid or immediate fund to meet its unanticipated
calls on all types of deposit. Total deposit includes current deposit saving, fixed
deposit, call short deposit, and other types of deposit.
Cash and bank balance
Cash Reserve Ratio =
Total deposit

3.5.2.1.2 Cash and Bank Balance to Interest Sensitive Deposit Ratio

Saving deposit is deposited by public in a bank with objectives of
increasing their wealth; interest rate plays important in the follow of interest
sensitive deposit. Fixed and current deposits are not interest sensitive. Fixed
deposits have a fixed term to maturity and Current deposits are not sensitive
toward interest rate. The ratio of cash and bank balance to interest sensitive
deposits measure the bank ability to meets its sudden out flow of interest
sensitive deposits to the change interest rate.
 Cash and bank balance
Cash and bank balance to interest sensitive deposit ratio =
sensitive deposit

3.5.1.3 Cash and Bank Balance to current Assets Ratio

Cash and bank balance are the liquid current assets. This ratio measures
the percentage of liquid fund with the current assets. Higher ratio indicates the
banks sound ability to meet the daily cash requirement of their customers’
deposit. If bank maintain low ratio, bank may not able to make the payment of
against cheque. So bank has to maintain cash and bank balance to current assets
ratio properly.
cash and bank balance
Cash and bank balance to current assets ratio =
current assets

3.5.2.2 Assets Management Ratio

Assets management ratio measures the proportion of various assets and
liabilities in balance sheet. Commercial bank should manage its assets and
liabilities properly to earn profit. Assets management ratio measures its
efficiency in performing assets. Following are the various assets management
ratio, which measures the lending strength and effective use of assets.

3.5.2.1 Loan Advances to Total Deposit Ratio

The main sources of banks lending is its deposit. This ratio is calculated
to find out now successfully the banks are utilizing their deposits on loan and
advances for profit generating activities. Greater ratio indicates better
utilization of total deposits.
Loan and advances
Loan and advances to total deposits ratio=
Total deposits

3.5.2.2 Interest Spread Rate

The ratio measures the contribution made by investment in total loan
and advances. The proportion between investment to loan and advances and
investment measures the management attitude towards risk assets and safety
assets. Investment and loan and advances in whole do not provide the quality of
assets that a bank has created. The low ratio indicates the mobilization of funds
in safe area and vice versa.

Interest spread rate = Interest Income - Interest Expenses

Loan and advances Deposit

3.5.2.3 Non-performing Assets to Total Assets Ratio

This ratio shows the relationship of Non-Performing assets and total
assets and is to determine how efficiently management has used the total asset.
Higher ratio shows the low efficient operating of the credit management and
lower ratio shows the more efficient operating of credit management.
Non-performing assets
Non-performing assets to total assets ratio=
Total assets

3.5.3 Profitability Ratio

This ratio shows the profitability conditions of the bank. Profit is
essential for the survival of bank so it is regarded as the engine that drives the
banking business and indicates economic progress. Profitability ratios are
calculating to measure the management ability regarding how well they have
utilized their funds. Lending is one of the major functions of commercial bank
so following are the various types of ratio, which should the contribution of
loan and advances in profit and help to be investor whether to invest in
particular firm or not.

3.5.3.1 Net Profit to Gross Income Ratio

The ratio measures the position of profitability of the company to total
income. This shows the sound and weakness of the company to utilize its
resources. Higher ratio shows the higher efficiency of management and lower
ratio shows the lower efficiency of the management. The formula of net Profit
to Gross income ratio is-
 Net profit
Net Profit to Gross income ratio=
Gross income

3.5.3.2 Interest Income to Total Income Ratio

The ratio measures the volume of interest income to total income. The
high ratio indicated the banks performance on other fee-based activities. The
high ratio indicates the high contribution made by lending and investing
activities.
Interest income
Interest income to total income ratio =
Total income

3.5.3.3 Operating Profit to Loan and Advances Ratio

Operating profit to loan and advances ratio measure the earning capacity
of commercial bank. Operating profit to loan and advances ratio is calculated
by dividing operating profit by loan and advances.
Operating profit
Operating profit to loan and advances ratio =
Loan and advances

3.5.3.4 Return on Loan and Advances Ratio

This ratio measures the earning capacity of the commercial bank
through it fund mobilization as loan and advances. Higher ratio indicated
greater success to mobilize fund as loan and advances and vice versa. Mostly
loan and advances includes cash, credit, bank overdraft, bills purchased and
discounted.
Net profit
Return on loan and advances =
Loan and advances
3.5.3.5 Net Profit to Total Assets
This ratio shows the relationship of Net profit and total assets and is to
determine how efficiently the total assets and is to determine how efficiently
the total assets have been used by the management. This ratio indicates the
ability of generating profit per rupees of total assets. It also evaluates the
present return on the total assets as a guide for return expected on future
purchase of assets. Higher the ratio shows the more efficient operating of
management and lower the ratio shows the low efficient operating of
management. This ratio is computed by –
Net profit
Net profit to total assets ratio =
Total assets

3.5.3.6 Earning Per Share (EPS)

Earning per share measures the profit available to the cash equity
holders. It only measures the overall operational efficiency bank. It is the profit
tax figure EPS tells us what profit the common share holder get for every share.
Profit after tax
Earning per share =
No. of common share

3.5.3.7 Price Earning Ratio

This ratio shows the relationship between earning per share and market
value per share. This ratio measures the profitability of the firm. Higher ratio
shows the higher efficiency of the management and lower ratio shows the
lower efficiency of the management. The ratio is computed by-
Earning per share
Earning per share =
Market value per share

3.5.4 Lending Efficiency Ratio

This ratio is concerned with measuring the efficiency of bank. This ratio
also shows the utility of available fund. One following is the various types of
lending efficiency ratio.

3.5.4.1 Loan Loss Provision to Total Loan and Advances ratio

Loan loss provision to total loan and advances describes the quality
assets that a bank holding. The provision for loan loss reflects the increasing
probability of non-performing loan. The provision of loan mean the net profit
of the banks will come down by such amount. Increase in loan loss provision
decreases in profit result to decreases in dividends but its positive impact is that
strengthens financial conditions of the bank by controlling the credit risk and
reduced the risks related deposits. So, it can said that loan suffer it only for
short term while the good financial conditions and safety of loans will make
banks prosperity regulating increasing profits for long term.

The low ratio indicates the good quality of assets in total volume of loan
and advances. High ratio indicates more risky assets in total volume of loan
advances.
Loan loss provision
Loan loss provision to total loan and advances =
Total loan and advances

3.5.4.2 Non-Performing Loan to Total Loan and Advances

This ratio shows the relationship of Non-Performing loan and total loan
and advances and is to determine how efficiently the total loan and advances
have been used by management. Higher ratio shows the low efficient operating
of the management and lower ratio shows the more efficient operating of credit
management.
Non-performing loan
Non-performing loan to total loan and advances =
Total Loan and advances

3. 5.4.3 Interest Expenses to Total Deposit Ratio

This ratio measures the percentage of total interest paid against total
deposit. A high ratio indicates higher interest expenses on total deposit.
Commercial banks are dependent upon its ability to generate cheaper fund. The
cheaper fund has more the probability of generating loans, advances, and vice
versa.

Non-performing loan
Non-performing loan to total loan and advances =
Total Loan and advances

3.5.3 Statistical Method

For supporting the study statistical tool such as mean, has been used
under this.
Arithmetic Means (average)
Arithmetic mean also called ‘the mean’ or ‘average’ as most popular
and widely used measure of central tendency. Arithmetic mean represents the
entire data by a single value. It provides the gist and gives the birds’ eye view
of the huge mass of a widely numerical data. It is calculated as:
1 n
X  Xi
n i 1
Where:
X = mean value or arithmetic mean
n

Xi 1
i = sum of the observation

N =number of observation
 CHAPTER - IV
DATA PRESENTATION AND ANALYSIS

In the chapter, the data collected from various sources have been
analyzed and major findings of the study are presented systematically. Data
have been analyzed according to the research methodology as mentioned in
third chapter. The purpose of this chapter is to introduce the mechanics of data
analysis and interpretation. With the help of this analysis efforts have been
made to highlight credit management of Everest Bank Limited.

4.1 Measuring Liquidity Position of the Bank

A commercial bank must maintain its satisfactory liquidity position to
satisfy the credit needs to meet demands for deposit withdrawal, pay maturity
obligation in time and convert non-cash assets into cash to satisfy immediate
needs without loss to the bank and without consequent impact on long run
profitability of the bank. To measure the liquidity position of the bank the
following measures of liquidity ratio has been calculated and a brief of the
same has been done as be low.

4.1.1 Cash Reserve ratio

Cash and bank balance are the liquid current assets. This ratio measures
the percentage of liquid fund with the bank to make immediate payment to the
depositors. Both higher and lower ratios are not desirable. The reserve
requirement below 10% of deposit liabilities is noted as fully liberalized, 10%-
15% as largely liberalized, 15%-25% as partially repressed and above 25% as
completely repressed, it is ranked by 3, 2, 1 and 0 respectively.
 Table 4.1
Cash Reserve Ratio
(Amount in Rs. Lakhs)
Year Cash bank Total Cash
balance Deposit Reserve
Ratio(Times)
2003 1366 10029 66949 0.17
2004 1287 5030 80639 0.08
2005 1925 8573 100976 0.10
2006 2593 12936 138024 0.11
2007 5350 18564 181863 0.13
Mean 0.12
Source: EBL of annual report

Cash and balance

20000
18000
16000
14000
12000
Amount

Year
10000
bank balance
8000
6000
4000
2000
0
1 2 3 4 5 6
ye ar

Figure 4.1
 Total Deposit

200000
180000
160000
140000
120000
Amount

Year
100000
Total Deposit
80000
60000
40000
20000
0
1 2 3 4 5
Years

Figure 4.2

Above figure and table shows that the cash and bank balance to total deposit
ratio of EBL is in fluctuating trend. The highest ratio is 0.17 times in year 2003
and lowest ratio 0.08 times in 2004. The mean ratio is 0.12 times in the study
period. This means that the bank is able to maintain this ratio in the good
liquidity position of the bank. Ratio is 0.17 times in year 2003. This shows that
a high liquidity position of the bank. Ratios are 0.10, 0.11 and 0.13 times in
year 2005, 2006 and 2007. These shows that low liquidity position of the bank.
Therefore, that credit management is in good position of the EBL. Cash reserve
ratio, in year 2003 is 17%, it is partially repressed, in year 2004 is 8%, it is
fully repressed, in year 2005 is 10%, it is largely liberalized in year, 2006 is
11%, it is also largely liberalized and in 2007 is 13%, it is also largely
liberalized. Cash, bank balance and total deposit are presented in bar diagram
as follows:

4.1.2 Cash and Bank Balance to Interest Sensitive Deposit Ratio.

The ratio of cash and bank balance to interest sensitive deposits measures the
ability to meet its sudden outflow of interest sensitive deposits due to the
change in interest rate.
 Table 4.2
Cash and Bank balance to Total deposit Ratio
(Amount in Rs. Lakhs)
Year Cash Bank Sensitive Cash and bank
balance Deposit balance to interest
sensitive ratio(Times)
2003 1366 10029 27579 0.40
2004 1287 5030 37306 0.17
2005 1925 8573 48068 0.22
2006 2593 12936 69292 0.22
2007 5350 18564 90293 0.26
Mean 0.26
Source; Annual report of EBL

Sensitive Deposit

200000
Cash
150000
bank balance
100000

50000 Total Deposit

0 Cash Reserve
Ratio(Times)
03

04

05

06

07

n
ea
20

20

20

20

20

Figure 4.3

Above table and figure shows that the cash and bank balance to interest
sensitive ratio of EBL is in fluctuating trend. The mean ratio is 0.26 times. This
means that the bank is able to maintain this ratio in the good financial
condition. The highest ratio is 0.40 times in year 2003 and lowest ratio 0.17
times in year 2004. In year, 2003 this bank mobilized deposits 0.40 times and it
maintained good financial condition. In year, 2004 mobilized saving deposit
0.17 times and did not maintain good financial condition. In the year 2005 and
2006, this bank is mobilizing deposit 0.22 times each and does not maintain
good financial condition. Therefore, credit management neither good nor bad
position of the EBL. Cash, bank balance and interest sensitive deposit are
presented in bar diagram as follows:

4.1.3 Cash and bank balance to current assets ratio

This ratio shows the percentage of the banks liquid fund over current assets of
the bank. Higher ratio indicates the bank’s sound ability to meet the daily cash
requirement of their customer’s deposit. Low ratio is also dangerous. If bank
maintain low ratio, bank may not be able to make the payment against of
cheques.

Table 4.3
Cash and Bank Balance to Current Assets Ratio
(Amount in Rs.
Lakhs)
Years Cash Bank Current Cash and bank
balance assets balance to current
assets ratio(Times)

2003 1366 10029 76522 0.15

2004 1287 5030 91254 0.07
2005 1925 8573 112910 0.09
2006 2593 12936 154950 0.10
2007 5350 18564 210962 0.11
Mean 0.10

Source: Annual report of EBL

 Cash and Bank Balance

20000
18000
16000
14000
12000
Amount

Year
10000
bank balance
8000
6000
4000
2000
0
1 2 3 4 5 6
ye ar

Figure 4.4

Cash and bank Balance and Cash Balance

250000
200000
Cash
150000
Bank balance
100000
Current assets
50000
0
20 4

20 5

20 6

20 7

8
/0

/0

/0

/0

/0
03

04

05

06

07
20

Figure 4.5

Above table and figure shows that the cash and bank balance to current assets
ratio of EBL is in fluctuating trend. The highest ratio is 0.15 times in year 2003
and lowest ratio 0.07 times in year 2004. The mean ratio is 0.10 times. This
means that the bank’s sound ability to meet the daily cash requirement of their
customers deposit. Ratio is 0.15 times in year 2003. This indicates the bank is
in sound ability to meet the daily cash requirement of their customer’s deposit.
Ratios are 0.09, 0.10, 0.11 times in year 2005, 2006 and 2007 respectively; the
bank may not be able to make the payment against cheque. Thus, credit
management is not in good position of the bank. Cash, bank balance and
current assets are presented in bar diagram as follows:

4.2 Assets Management Ratio

This ratio measures the efficiency of commercial bank generate sales in
the fund mobilization. A commercial bank must be able to manage its assets
properly to earn high profit maintaining the appropriate level of liquidity.
Assets management ratio measures the efficiency of the bank. By the help of
the following ratios, asset management of Everest bank limited has been
analyzed.

4.2.1 Loan and Advances to Total Deposit Ratio

This ratio measures the extent to which the bank is successful to manage
its total deposit on loan and advances for the purpose of income generation. A
high ratio indicates better mobilization of collected deposit and vice-versa.
However, it should be noted that too high ratio might not be better from
liquidity point of view.

Table 4.4
Loan and Advances to Total Deposit Ratio
(Amount in Rs. Lakhs)
Year Loan and Total Loan and advances to
advances deposit total deposit ratio ( in %)

2003 50495 66949 75.42

2004 60958 80639 75.59
2005 79000 100976 78.24
2006 101362 138024 73.44
2007 136641 181862 75.13
 Mean 75.57

Source: Annual report of EBL

Loan and advance and total Deposit

160000
140000
120000
Year
100000
80000
Loan and
60000
advances
40000
20000
0
1 2 3 4 5

Figure 4.6

Above table and figure shows that the total loan advances to total deposit ratio
of EBL is in fluctuating trend. The highest ratio is 78.24% in year 2005 and
lowest ratio 73.44% in year 2006. The mean ratio is 75.57% in the study
period. This means that the bank is able to mobilization of collected deposit.
According to NRB directives above 70% to 90% of loan and advances to total
deposit ratio is able to better mobilization of collected deposit. So all of the
year the bank has met the NRB requirement or it has utilized its deposit to
provide loan.. Loan advances and total deposit are presented in bar diagram as
follows:

4.2.2 Interest Spread Rate

The ratio measures the contribution made by investment in total loan
and advances. The low ratio indicates the mobilization of funds in safe area and
vice versa.
 Table 4.5
Interest Spread Rate
(Amount in Rs. Lakhs)
Year Interest Interest Loan and Deposit Interest spread
income expenses advances rate (%)
2003 5202 3076 50495 66949 5.71
2004 6573 3163 60958 80639 6.86
2005 7193 2995 79000 100976 6.14
2006 9034 4013 101362 138024 6.01
2007 11444 5172 136641 181863 5.53
Mean 6.05
Source: Annual report of EBL

Interest Spread Rate

200000
Interest
150000 income
100000 Interest
expenses
50000 Loan and
0 advances
Deposit
4

8
/0

/0

/0

/0

/0
03

04

05

06

07
20

20

20

20

20

Figure 4.7

Above figure and table shows that the interest spread rate ratio of EBL is in
fluctuating trend. The highest ratio is 6.86%in year 2004 and lowest ratio
5.53% in year 2007. The mean ratio is 6.05%. This indicates the mobilization
of funds in the better area. Ratios are 5.71 %, 6.14%, 6.01% in 2003, 2005 and
2006 respectively. These indicate the mobilization of funds in the better
earning area. This indicates the mobilization of funds in safe area. Interest
income, Interest expenses, Loan advances and Deposit are represented bar-
diagram as follows:

4.2.3 Non-Performing Assets to Total Assets Ratio

Lower the non-performing assets ratio is good and higher the ratio is
bad. This ratio measures lending opportunity of the bank.

Table 4.6
Non-performing assets to Total assets ratio
(Amount in Rs. Lakhs)
Year Non- Total Non-performing
performing Assets Assets to Total Assets
Assets ratio (%)
2003 1112 80522 1.38
2004 1047 96085 1.09
2005 1288 117325 1.10
2006 1292 159592 0.81
2007 1282 214326 0.60
Mean 1.00
Source: Annual report of EBL
 Non-performing Assets to Total Assets Ratio

1.6
1.4
Ratio in % 1.2
1 Non-performing
0.8 Assets to Total
0.6 Assets ratio (%)
0.4
0.2
0
1 2 3 4 5
Year

Figure no 4.8

Above table shows that the total non-performing assets to total assets ratio of
EBL is in fluctuating trend. The highest ratio is 1.38% in year 2003 and lowest
ratio 0.60% in year 2007. The mean ratio is 1.00%. The bank is able to obtain
higher lending opportunity. Ratios are 1.09%, 1.10%,0.81% in year 2004,2005
and 2006 respectively. These are able to obtain higher lending opportunity.
Ratio is 0.343% in year 2006. This does not able to obtain higher lending
efficiency. Therefore, credit management is in good position of the bank.
According to the direction of NRB to the commercial banks, the ratio of non-
performing assets to total assets should be less than 5%.With referring to this
table, EBL is able to keep the level of non-performing assets as an adequate
position, which is on an average of 1.00%. Non-performing assets to total
assets ratio is represented in bar diagram as follows:

4.3 Profitability Ratio

Profitability ratios are very helpful to measure the overall efficiency in
operation of a financial institution. In the context of banks, no bank can survive
without profit. Profit is one the major indicates or efficient operation of a bank.
The banks acquire profit by providing different services to its customers or by
providing loan and advances and making various kinds of investment
opportunities. Profitability ratios measure the efficiency of bank. A higher
profit ratio shows the higher efficiency of a bank. The following ratios are
calculated:

4.3.1 Net Profit to Gross Income Ratio

The ratio measures the volume of gross income. The high ratio measure
the higher efficiency of the bank and lower ratio indicates the lower efficiency
of the bank.

Table 4.7
Net Profit to Gross Income Ratio
(Amount in Rs. Lakhs)
Years Net profit Gross Net profit to Gross
Income income ratio (%)
2003 853 5409 15.77
2004 1436 7550 19.02
2005 1708 8589 19.89
2006 2372 10665 22.24
2007 2964 13707 21.62
Mean 19.71
Source: Annual report of EBL

Above table shows that the total net profit to gross income ratio of EBL is in
fluctuating trend. The highest ratio is 22.24% in year 2006 and lowest ratio
15.77% in year 2003. The mean ratio is 19.71%. The bank is able to obtain
higher efficiency. Ratios are 19.02% , 19.89% and 21.62% in year 2004, 2005
and 2007 respectively. These are able to obtain higher efficiency of the bank.
Ratio’s is 15.77% in 2003. It indicates in 2003, the bank is not able to obtain
higher efficiency of the bank.
4.3.2 Interest Income to Total Income Ratio
This ratio measures the volume to total income. The ratio indicates the
high contribution made by lending and investing activities.

Table 4.8
Interest Income to Total Income Ratio
(Amount in Rs.Lakhs)
Years Interest Total Interest income to total
income income income ratio(Times)
2003 5202 6353 0.82
2004 6573 7851 0.84
2005 7193 8590 0.84
2006 9034 10665 0.85
2007 11444 13707 0.83
Mean 0.84
Source: Annual report of EBL

Above the table shows that the total interest income to total income ratio of
EBL is in fluctuating trend. The highest ratio is 0.85 times in year 2006 and
lowest ratio 0.82 times in year 2003. The mean ratio is 0.84 times in the study
period. The ratio indicates the high contribution made by lending and investing
activities. Ratios are 0.84 times, 0.84 times and 0.83 times in year 2004, 2005
and 2007 respectively. These indicate that high contribution made by lending
and investing activities. Ratio is 0.82 times in year 2003. These indicate that
high contribution do not made by lending and investing activities in 2003.

4.3.3 Operating Profit to Loan and Advances Ratio

Operating profit to loan advances ratio measures the earning capacity of
commercial bank.
 Table 4.9
Operating profit to Loan and advances ratio
(Amount in Rs. Lakhs)
Years Operating Loan and Operating profit to loan
profit advances and advances ratio(in%)
2003 1967 50495 3.90
2004 3164 60958 5.19
2005 3752 79000 4.75
2006 3772 101362 3.72
2007 4880 136641 3.57
Mean 4.23

Source: Annual report of EBL

Above the table shows that the operating profit to loan and advances ratio of
EBL is in fluctuating trend. The highest ratio is 5.19% times in year 2004 and
lowest ratio 3.57% in year 2007.The mean ratio over the period is 3.90% times.
This shows the better profitability position of the bank. Ratios are 3.90%,
4.75% and 3.72% in year 2003, 2005 and 2006 respectively. These shows the
better profitability position of commercial bank .Ratio is 3.57% in year 2007. It
doesn’t show the better profitability position of the bank in year2007.

4.3.4 Total Income to Total Expenses Ratio.

Total income to total expenses ratio measures the productivity of
expenses to generate income. The high ratio indicates the higher productivity of
expenses.
 Table 4.10
Total Income to Total Expenses Ratio
(Amount in Rs. Lakhs)
Years Total Total Total income to total
income expenses expenses ratio(Times)
2003 6353 4416 1.44
2004 7851 4687 1.68
2005 8590 4838 1.78
2006 10665 6134 1.74
2007 13707 9160 1.50
Mean 1.62
Source: Annual report of EBL

Total income and Total Expenses

15000
Amount

10000 Total income

5000 Total expenses

0
20 4

20 5

20 6

20 7

8
/0

/0

/0

/0

/0
03

04

05

06

07
20

years

Figure 4.9

Above figure and table shows that the total income to total expenses ratio of
EBL is in fluctuating trend .The highest ratio is 1.78 times in year 2005 and
lowest ratio 1.44 times in year 2003.The mean ratio is 1.62 times in the study
period; this indicates that higher productivity of expenses. Ratios are 1.44 times
and 1.50 times in year 2003and 2007 respectively. These do not indicate the
higher productivity of expenses. Ratios are 1.68 times and 1.74 times in year
2004 and 2005 respectively. These indicate the higher productivity of expenses.

4.3.5 Return on Loan and Advances Ratio

This ratio measures the earning capacity of commercial banks through
its fund mobilization as loan advances and vice-versa.

Table 4.11
Return on Loan Advances Ratio
(Amount in Rs. Lakhs)
Years Net profit Loan and Return on loan and
advances advances ratio (in%)
2003 942 50495 1.87
2004 1435 60958 2.35
2005 1708 79000 2.16
2006 2372 101362 2.34
2007 2964 136641 2.17
Mean 2.20
Source: Annual report of EBL
 Return on Loan Advances Ratio

150000
Net profit
Amount

100000

50000 Loan and

advances
0
4

20 6

8
/0

/0

/0

/0

/0
03

04

05

06

07
20

20

20

20
years

Figure 4.10

Above table and figure shows that return on loan and advances ratio of EBL is
in fluctuating trend. The highest ratio is 2.35% in the year 2004 and lowest
ratio 1.87% in year 2003. The mean ratio is 2.20%. This shows the normal
earning capacity of EBL in loan and advances. Ratios are 2.35% and 2.34 % in
year 2004 and 2006 respectively. These show the normal earning capacity in
loan and advances. Ratios are 1.87% and 2.17 % in year 2003 and 2007
respectively. These do not show the normal earning capacity in loan and
advances.

4.3.6 Earning per Share

It measures the profit available to equity shareholders on per share basis
i.e. the amount they can get each share held. The objective of computing this
ratio is to measure the profitability of the firm on per equity share basis. This
ratio is commutated by dividing the net profit after preference dividend by the
number of equity.
 Table 4.12
Earning Per Share
(Amount in Rs.Lakhs)
Years Net profit No. of equity Earning per share
shares (In Rs.)
2003 942 31 30.39
2004 1435 31 46.29
2005 1708 31 55.10
2006 2372 38 62.42
2007 2964 51.8 57.22
Mean 50.28
Source: Annual report of EBL

Earning Per Share

Earning per share (In Rs.)

80
Amount

60
Earning per
40
20 share (In Rs.)
0
20 4

20 6

20 7

8
/0

/0

/0

/0

/0
03

04

05

06

07
20

20

Years

Figure 4.11

Above table and figure shows that the Earning per share of EBL is in
increasing trend. The highest EPS is RS.62.78 in year 2006 and lowest EPS
Rs.30.39 in year 2003. The mean EPS of the EBL is Rs.50.28 in the study
period. This shows the better profitability in the coming last years. Earning per
shares are Rs.46.29, Rs.55.10 and Rs.57.22 in year 2004, 2005 and 2007
respectively; these mean that the better profitability in the coming last years.
EPS are Rs.30.39 and Rs.46.29 in year 2003 and 2004 respectively; these mean
that the bank don’t have good profitability position . But in overall, profitability
is in good position.

4.3.7 Price Earning Ratio

Price earning ratio measures the profitability of the firm. Higher ratio
measures the higher profitability of the firm lower ratio measures lower
profitability of the firm.
Table 4.13
Price Earning Ratio
(Amount in Rs. Lakhs)
Years Market price Earning per Price earning
per share share ratio(Times)
2003 445 29.90 14.88
2004 680 45.58 14.92
2005 870 54.22 16.05
2006 1379 62.78 21.97
2007 2430 57.22 42.47
Mean 22.06
Source: Annual report of EBL

Price earning ratio of EBL

45
40
35
30
Ratio

25 Price earning
20 ratio(Times)
15
10
5
0
1 2 3 4 5
Year

Figure No 4.12
Above the table shows that price earning ratio earning of EBL is in increasing
trend. The highest price earning ratio is 42.47 times in year 2007 and lowest
ratio 14.88 times in year 2003.The mean ratio of the EBL is 22.06 times in the
study period. This shows the better profitability in the coming last years. Ratio
is 42.47 in 2007.It means that the better profitability in the coming last years.
Ratios are 14.88, 14.92, 16.05 and 21.97 times in year 2032, 2004, 2005 and
2006 respectively. These ratios are lower than mean ratio but in 2007 ratio is
higher than mean. In overall profitability position of the bank is satisfactory in
last year.

4.4 Lending Efficiency Ratio

The efficiency of firm depends largely on the efficiency with which its
assets are managed and utilized. This ratio is concerned with measuring the
efficiency of bank. This ratio also shows the utility to available fund. The
following are the various type of lending efficiency ratio:

4.4.1 Loan Loss Provision to Total Loan and Advances Ratio

Loan loss provision to total loan and advances describes the quality of
assets that a bank holding. The amount of loan loss provision in balance sheet
refers to general loan loss provision. The provision for loan loss reflects the
increasing probability of non-performing loan. The provision of loan means the
profit of the banks will come down by such amount. Increase in loan loss
provisions decreases in profit result to decrease in dividends but its positive
impact is that strength financial conditions of the banks by controlling the
credit risk and reduced the risks related to deposits. Therefore, it can be said
that banks suffer it only for short-term loan while the good financial conditions
and safely of loans will make bank’s prosperity resulting increasing profit for
long term. Loan loss provision is not more than 1.25% of risk bearing assets.
 Table 4.14
Loan Loss Provision to Total Loan and Advances Ratio
(Amount in Rs. Lakhs)
Years Loan loss Loan and Loan loss provision to
provision advances Loan and advances ratio
(%)
2003 457 50495 0.91
2004 818 60958 1.34
2005 889 79000 1.13
2006 705 101362 0.70
2007 897 136641 0.66
Mean 0.94
Source: Annual report of EBL

Above the table shows that loan loss provision to total loan and advances ratio
of EBL is in fluctuating trend. The highest ratio is 1.34% in year 2004 and
lowest ratio 0.66% in year 2007.The mean ratio of the study period is 0.94%.
This shows that good quality of assets in total volume of loan and advances.
Ratios are 0.91%, 0.70% and 0.66% in the year 2003, 2006 and 2007
respectively. These indicate the good quality of assets in total volume of loan
and advances. Ratios are 1.34% and 1.13% in year 2004 and 2005 respectively.
This indicates that more risky assets in total volume of loan advances. So, in all
of the year the bank has met the NRB requirement.

4.4.2 Interest Expenses to Total Deposit Ratio

The ratio measures the percentage of total interest against total deposit.
Commercial banks are dependent upon its ability to generate cheaper fund. The
cheaper fund has more the probability of generating loans and advances and
vice-versa.
 Table 4.15
Interest Expenses to Total Deposit Ratio
(Amounts in Rs. Lakhs)
Years Interest Total deposit Interest expenses to
expenses total deposit ratio
(%)
2003 3076 66950 4.60
2004 3164 80639 3.92
2005 2996 100977 2.97
2006 4014 138024 2.91
2007 5172 181863 2.84
Mean 3.45
Source: Annual report of EBL

Above the table shows that interest expenses to total deposit ratio of EBL is in
decreasing trend. The highest ratio is 4.60% in the year 2003 and lowest ratio
2.84% in 2007. From mean point of view, interest expenses to total deposit
ratio of EBL is 3.45% during the study period. That this ratio does not indicate
higher interest expenses on total deposit. Commercial banks are dependent
upon its ability to generate cheaper fund. Ratios are 4.60%, 3.92% in 2003 and
2004 respectively. These indicate that higher interest expenses on total deposit
than in average. Ratios are 2.97%, 2.91% and 2.84 in year 2005, 2006 and 2007
respectively. These do not indicate that the higher interest expenses on total
deposit.

4.4.3 Non-Performing Loan to Total Loan and Advances Ratio

Higher ratio shows the low efficient operating of the management and lower
ratio shows the more efficient operating of credit management.
 Table 4.16
Non-Performing Loan to Total Loan and Advances
(Amounts in Rs. Lakhs)
Years Non- Loan and Non-performing loan
performing advances to loan and advances
loan (%)
2003 1112 50495 2.20
2004 1047 60958 1.72
2005 1288 79000 1.63
2006 1292 101362 1.27
2007 1282 136641 0.94

Mean 1.55
Source: Annual report of EBL

Non-performing loan to loan and advances of

EBL

2.5

2
In Percent

1.5 Non-performing loan

to loan and advances
1 (%)
0.5

0
1 2 3 4 5
Year

Figure No 4.13

Above figure and table shows that interest expenses to total deposit ratio of
EBL is in decreasing trend. The highest ratio is 2.20 % in the year 2003 and
lowest ratio0.94 % in the year 2007. From mean point of view, non-performing
loan to total loan and advances ratio of EBL is 1.55 % during the study period.
This ratio indicates the more efficient operating of credit management. Ratios
are 2.2 %, 1.72 % & 1.63 % in year 2003, 2004 and 2005 respectively. These
ratios indicate the lower efficient operating of credit management. Ratios are
1.27% and 0.97% in year 2006 and 2007 respectively. These ratios indicate the
higher efficient of credit management. In overall credit management is in good
position. Non- performing loan and loan advances are represented bar-diagram
as follows:

4.5 Major Findings of the Study

Based on the analysis of data the main findings are summarized as follows:

4.5.1 Liquidity Ratio

The cash reserve ratio of the bank shows the fluctuating trend during the
study period. The mean ratio is 0.12 times in the study period. This means that
the bank is able to be maintained in the good liquidity position of the bank.
Therefore, that credit management is in good position of the EBL.

Cash and bank balance to interest sensitive ratio of EBL is also in

fluctuating trend. The mean ratio is 0.26 times. This means that the bank is able
to maintain neither the good nor bad financial condition. Thus, credit
management is not in good or bad position.

Cash and bank balance to current assets ratio of EBL is also in

fluctuating trend. The mean ratio is 0.10 times. The bank is in sound ability to
meet the daily cash requirement of their customer’s deposit.

4.5.2 Assets Management Ratio

Loan and advances to total deposit ratio of EBL is also in fluctuating
trend. The mean ratio is 75.13% times in the study period. The ratio indicates
that it has used its deposit in loan and advance in proper way.
 Interest spread rate ratio of EBL is also in fluctuating trend. The mean
ratio is 6.05%; this indicates that collection of fund in low cost and use fund
high rate. However, fluctuating trend is not better for the bank It should be in
upward trend.

Non-performing assets to total assets ratio of EBL is also in decreasing

trend except in 2004. The mean ratio is 1.00%. According to the direction of
NRB to the commercial banks, the ratio of non-performing assets to total assets
should be less than 5%.With referring to this table, EBL is able to keep the
level of non-performing assets as an adequate position. The bank is able to
obtain higher lending opportunity.

4.5.3 Profitability Ratios

Profit to gross income ratio of EBL is also in increasing trend except in
2007. The mean ratio is 19.71%. The bank is able to obtain higher efficiency in
overall.
Interest income to total income ratio of EBL is also in fluctuating trend. The
mean ratio is 0.84 times in the study period. The ratio indicates the high
contribution made by lending and investing activities.

Operating profit to loan and advances ratio of EBL is also in fluctuating

trend. The mean ratio over the period is 3.90%. This shows the better
profitability position of the bank.

Total income to total expenses ratio of EBL is also in fluctuating trend.

The mean ratio is 1.62 times in the study period. This indicates that higher
productivity of expenses. Thus, credit management is in good position.

Return on loan advances ratio of EBL is also in fluctuating trend. The

mean ratio is 2.20 times. This shows the normal earning capacity of EBL in
loan and advances.
 Earning per share of EBL is in increasing trend except in 2007. The
mean EPS of the EBL is Rs.50.28 in the study period. This shows the better
profitability in the coming last years. In overall, profitability of bank’s belongs
to equity shareholder is in normal condition.

Price earning ratio earning of EBL has increasing trend. The mean EPS
of the EBL is 22.06 times in the study period. This shows the better
profitability in the coming last years.

4.5.4 Lending Efficiency Ratio

Loan loss provision to total loan advances ratio of EBL is also in
fluctuating trend. The mean ratio of the study period is 0.94 times. This shows
that good quality of assets in total volume of loan advances.

Interest expenses to total deposit ratio of EBL is also in decreasing

trend. From mean point of view, interest expenses to total deposit ratio of EBL
is 3.45% during the study period. This ratio does not indicate higher interest
expenses on total deposit. Thus, credit management is in good position.

Non-performing loan to total loan advances ratio is also in decreasing

trend. From mean point of view, Non-performing loan to total loan advances
ratio of EBL is during the study period is 1.55. This means that efficient
operating of credit management.
 CHAPTER - V
SUMMARY CONCLUSION AND RECOMMENDATION

5.1 Summary
In this chapter, summary conclusion and recommendation are included.
Recommendation has made which would be beneficial for the management of
the bank.

In the aspect of liquidity position, cash reserve ratio shows the more
liquidity position. Cash and bank balance to interest sensitive ratio shows the
bank is able to maintain neither good nor financial condition. Cash and bank
balance to current assets ratio shows that the bank’s sound ability to meet the
daily cash requirement of their customers deposit. That is why liquidity
position of the bank is the better. How ever it must enhance cash and bank
balance for the purpose of meeting its interest sensitive deposit demanded.

By analyzing the assets management ratio, loan advances to total assets

ratio shows the better performance but loan and advances to total deposit
position in minimum than the averages. Whereas investment in loan and
advances is safely and not taking more risk. Interest spread rate is in
fluctuating trend so it should increase in interest spread rate in latest year.

In the aspect of profitability position, interest income to interest

expenses ratio shows the more profitable situation. In addition, total income to
total expenses ratio shows the overall predominance of the bank. Operating
income of bank is also in satisfactory position however it is not in good
condition. Interest income to total income ratio of EBL is higher which is good
from view point of bank in short run but in long run it is not good. Bank should
generate its income from extra sources (like exchange gain, commission and
discount, remittance service) other than interest for the survival in long run.
 After analyzing the lending efficiency of the bank, the loan loss
provision to loan advances indicator shows the better performance in the latest
year. The interest expenses to total deposit ratios shows the improving
efficiency of the bank. And decreasing trend of NPL to total loan and advance
shows non-performing loan as an adequate position according to Nepal
Rastriya bank directives

Major ratios calculated for the analysis of credit management of EBL

bank is as follows.
Summary of Major Ratios:

5.2 Conclusion
EBL bank has sufficient liquidity. It shows that bank has not got
investment sectors to utilize their liquid money. Now in Nepal, many
banks and other financial institution are functioning to collect deposits
and invest money somewhere in the investable sectors. Therefore
monetarization have been increased since liberalization policy taken by
the government. Remittance has also help to increase the amount of
deposit in bank. On the other hand due to political crisis economic
sectors have been damaged. Most of the projects have been withdrawn
due to security problem. Therefore banks have maximum liquidity due
to lack of safety investment sectors.
- Provision for credit loss has been increasing year by year of EBL bank
and decreases in the year 2006. Due to political disturbance in the
country credit takers are not getting good return from their investment
sectors. On that situation credit customers do not return money of the
bank in the stipulated time period therefore the non-performing credit of
the bank increases.
- Equity portion of the bank is slightly increasing in the recent years due
to issue of directives by Nepal Rastra Bank (NRB) the entire bank to
increases it’s paid up capital. NRB has issued that direction to provide
 more safety to the customers. Therefore bank has issued new share in
the market. That’s why the bank leverage ratio is decreasing.

5.3 Recommendation
According to the analyses the following suggestions are highlight to put
forward for the future improvement of EBL bank.
 Cash and bank balance of EBL bank is high. Banks efficiency should be
increased to satisfy the demand of depositor at low level of cash and
bank balance does not provide return to the bank. Therefore some
percentage of the cash and bank balance should be invested in profitable
sectors.
 EBL bank should avoid extending credits merely based on oral
information presented at the credit interview. Historical financial and
trade records should be obtained for proper assessment of the proposal.
 Operating income of bank is also in satisfactory position however it is
not in good condition.So it should enhance its operating income.
 Interest income to total income ratio of EBL is higher which is good
from view point of bank in short run but in long run it is not good. Bank
should generate its income from extra sources (like exchange gain,
commission and discount, remittance service) other than interest for the
survival in long run.
 Bank should regularly follow of the credit customers. If the customers
have utilized their credit for same purpose or not committed of the time
of taking credit from the bank.
 EBL bank should be fulfilling some social obligations by extending their
resources to rural areas and promoting the development of poor and
disadvantages group. In order do so; they should open their branches in
the remote area with the objective to provide the banking services. The
minimum deposit amounts should be reduced.
 The economic liberalization policy adopted by Nepal Government has
created an environment of cutthroat competition in the banking sectors.
 In this context EBL bank is suggested to formulate and implement
sound and effective financial and non-financial strategies to minimize
their operational expenses to meet required level of profitability.
 International relations of the EBL bank are limited in comparison to
others banks. Therefore, the bank should make negotiation with the
international banks to increase its transactions in the international areas.
 Future researchers are recommended to focus into non-financial
performance indicators such as job satisfaction, services quality
performance, customers satisfaction, stakeholders support, government
rating, supervisor’s teamwork, human resource development, human
resource planning, human resource planning, human resource
management, job satisfaction etc.
 The researcher felt to improve internal system more effectively and
introducing of new strategies and major functions for effective existing
credit management for all selected banks.
 Interest spread rate ratio of EBL is also in fluctuating trend. However,
fluctuating trend is not better for the bank it should be in upward trend.
Therefore it should invest its deposit in high rate and borrow fund in low
rate.
 Appendix

 Profile of concern Bank
 Everest Bank limited
 Everest Bank limited was established in 1992 under the company Act,
1964 with an objective of carrying out commercial banking activities
under the commercial Bank Act, 1974. United Bank of India Ltd. under
Technical services Agreement signed between it Nepali promoters was
managing the bank from the very beginning till November 1996. Later
on, it handed over the management to the Punjab National Bank Ltd.
India which holds 20% equity on the bank‘s share capital. The bank has
18 branches in various parts of the country. Its head office is located in
 Baneshowr, kathmandu. Other Branches located within Kathmandu and
Lalitpur valley are New Road Branch, Teku Branch, Pulchok Branch,
Lajimpat Branch,Chabahil Branch and Satungal Branch. Remaining
Branches outside the valley are in Biratnagar, Duhabi, Itahari, Janakpur,
Birgunj, I.C.D.Dry.Port, Simara, Pkhara, Butuwal, Bhairahawa and
Dhangadhi.
 Its present capital structure is as follows:
 Capital Present (Amount)
 Authorized Equity capital 600million
 Issued Equity capital 466.8million
 Paid up Equity capital 518million
 Equity participation is Punjab National bank, India is 20%, local
promoters is 50%and public is 30%. Total after other expenses profit of
the bank was Rs.380.160million in 2006/07 against the net profit of
Rs.280.802millions in 2005/06.Total investment of the bank was
Rs.4200.515millions in 2006/07 against the investment of
Rs.2128.93millions.

 From the very beginning, the bank has been providing services with
latest technology and computerized equipments and the bank is fully
determined to offer quality services to its valued clients. The bank is
using computerized banking technique. The software is the use in
‘Pumori plus.’ It is going to launch ‘Anywhere Branch Banking System
through Wide Area Network’in near future. The branches within the
valley provide their services from Monday to Friday i.e. five days a
week. However, the main Branch in Baneshor and New road are
providing services through additional counters on Sunday too.
 Appendix

Profile of concern Bank

Everest Bank limited
Everest Bank limited was established in 1992 under the company Act, 1964
with an objective of carrying out commercial banking activities under the
commercial Bank Act, 1974. United Bank of India Ltd. under Technical
services Agreement signed between it Nepali promoters was managing the
bank from the very beginning till November 1996. Later on, it handed over the
management to the Punjab National Bank Ltd. India which holds 20% equity
on the bank‘s share capital. The bank has 18 branches in various parts of the
country. Its head office is located in Baneshowr, kathmandu. Other Branches
located within Kathmandu and Lalitpur valley are New Road Branch, Teku
Branch, Pulchok Branch, Lajimpat Branch,Chabahil Branch and Satungal
Branch. Remaining Branches outside the valley are in Biratnagar, Duhabi,
Itahari, Janakpur, Birgunj, I.C.D.Dry.Port, Simara, Pkhara, Butuwal,
Bhairahawa and Dhangadhi.
Its present capital structure is as follows:
Capital Present (Amount)
Authorized Equity capital 600million
Issued Equity capital 466.8million
Paid up Equity capital 518million
Equity participation is Punjab National bank, India is 20%, local promoters is
50%and public is 30%. Total after other expenses profit of the bank was
Rs.380.160million in 2006/07 against the net profit of Rs.280.802millions in
2005/06.Total investment of the bank was Rs.4200.515millions in 2006/07
against the investment of Rs.2128.93millions.

From the very beginning, the bank has been providing services with latest
technology and computerized equipments and the bank is fully determined to
offer quality services to its valued clients. The bank is using computerized
banking technique. The software is the use in ‘Pumori plus.’ It is going to
launch ‘Anywhere Branch Banking System through Wide Area Network’in
near future. The branches within the valley provide their services from Monday
to Friday i.e. five days a week. However, the main Branch in Baneshor and
New road are providing services through additional counters on Sunday too.

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