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CHAPTER 1

INTRODUCTION

1.1Background of the study

The word bank was borrowed in Middle English from middle French banque, from old Italian
banca, meaning “table”, from Old High German banc, bank “bench, counter”. Benches were used
as makeshift desk or exchange counter during the Renaissance by Jewish Florentine bankers, who
used to make their transition atop desks covered by green tablecloth.

A bank is a financial institution licensed to receive deposit and make launch. It is financial
institution which deals with money and credit. Bank may also provide financial service, such as
wealth management, currency exchange and safe deposit boxes. There are two types of bank;
commercial/retail banks and investment banks. In most countries, bank is regulated by the national
government or central bank. Bank is the mechanism of providing loan to demanders from
investors. Bank plays very important role in economic system.

Bank acts as payment agents by conducting checking or current account for customers, paying
checks drawn by customer on the bank and collecting cheques deposited to customer’s current
account. Bank also enables customer payments via other payment method such as Automated
Clearing House (ACH), Wire transfer or telegraphy transfer and Automated Teller Machine
(ATM).

Bank provides different payment services and bank account is considered indispensable by most
businesses and individual. Bank can create new money when they make a loan. The money supply
is usually increased by the act of lending and reduced when loans are repaid faster than new ones
are generated.
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Lending activities can be performed either directly or indirectly through capital markets. Due to
their importance in the financial stability of a country, banks are highly regulated in most
countries. Most nations have institutionalized a system known as fractional reserve banking under
which banks hold liquid assets equal to only a portion of their current liabilities. In addition to
other regulations intended to ensure liquidity, banks are generally subject to minimum capital
requirements based on an international set of capital standards, known as the Basel Accords.

Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance
Italy but in many ways was a continuation of ideas and concepts of credit and lending that had
their roots in the ancient world. In the history of banking, a number of banking dynasties – notably,
the Medicis, the Fuggers, the Welsers, the Berenbergs, and the Rothschilds – have played a central
role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena, while the oldest
existing merchant bank is Berenberg Bank.

Banks borrow money by accepting funds deposited on current accounts, by accepting term
deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by
making advances to customers on current accounts, by making installment loans, and by investing
in marketable debt securities and other forms of money lending.

Banks provide different payment services, and a bank account is considered indispensable by most
businesses and individuals. Non-banks that provide payment services such as remittance
companies are normally not considered as an adequate substitute for a bank account.

Banks can create new money when they make a loan. New loans throughout the banking system
generate new deposits elsewhere in the system. The money supply is usually increased by the act
of lending, and reduced when loans are repaid faster than new ones are generated.

In 1901, Justice Holmes wrote, in an Irish case (Re Shields Estate):

A bank is an institution, usually incorporated with power to issue its promissory notes intended to
circulate as money (known as bank notes); or to receive the money of others on general deposit,
to form a joint fund that shall be used by the institution, for its own benefit, for one or more of the
purposes of making temporary loans and discounts; of dealing in notes, foreign and domestic bills
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of exchange, coin, bullion, credits, and the remission of money; or with both these powers, and
with the privileges, in addition to these basic powers, of receiving special deposits and making
collections for the holders of negotiable paper, if the institution sees fit to engage in such business."

United Dominions (1966), Lord Denning deferred to these words to define a bank:

The bank undertakes to receive money and to collect bills for its customer's account. The proceeds
so received are not to be held in trust for the customer, but the bank borrows the proceeds and
undertakes to repay them. The promise to repay is to repay at the branch of the bank where the
account is kept, and during banking hours. It includes a promise to repay any part of the amount
due against the written order of the customer addressed to the bank at the branch..... Bankers never
do make a payment to a customer in respect of a current account except upon demand."

LOAN

A loan is the lending of money by one or more individuals, organizations, or other entities to other
individuals, organizations etc. The recipient (i.e. the borrower) incurs a debt, and is usually liable
to pay interest on that debt until it is repaid, and also to repay the principal amount borrowed.

The document evidencing the debt, e.g. a promissory note, will normally specify, among other
things, the principal amount of money borrowed, the interest rate the lender is charging, and date
of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between
the lender and the borrower.

The interest provides an incentive for the lender to engage in the loan. In a legal loan, each of these
obligations and restrictions is enforced by contract, which can also place the borrower under
additional restrictions known as loan covenants. Although this article focuses on monetary loans,
in practice any material object might be lent.
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Acting as a provider of loans is one of the main activities of financial institutions such as banks
and credit card companies. For other institutions, issuing of debt contracts such as bonds is a
typical source of funding.

Types of loan

Secured loan-

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or house)
as collateral.

A mortgage loan is a very common type of loan, used by many individuals to purchase residential
property. The lender, usually a financial institution, is given security – a lien on the title to the
property – until the mortgage is paid off in full. If the borrower defaults on the loan, the bank
would have the legal right to repossess the house and sell it, to recover sums owing to it.

Similarly, a loan taken out to buy a car may be secured by the car. The duration of the loan is much
shorter – often corresponding to the useful life of the car. There are two types of auto loans, direct
and indirect. In a direct auto loan, a bank lends the money directly to a consumer. In an indirect
auto loan, a car dealership (or a connected company) acts as an intermediary between the bank or
financial institution and the consumer.

Unsecured loan-

Unsecured loans are monetary loans that are not secured against the borrower's assets. These may
be available from financial institutions under many different guises or marketing packages:

 credit card debt

 personal loans
 bank overdrafts
 credit facilities or lines of credit
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 corporate bonds (may be secured or unsecured)

 peer-to-peer lending

The interest rates applicable to these different forms may vary depending on the lender and the
borrower. These may or may not be regulated by law

Interest rates on unsecured loans are nearly always higher than for secured loans because an
unsecured lender's options for recourse against the borrower in the event of default are severely
limited, subjecting the lender to higher risk compared to that encountered for a secured loan. An
unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then
pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not
already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have
priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher
interest rate reflects the additional risk that in the event of insolvency, the debt may be
uncollectible.

Demand loan-

Demand loans are short-term loans that typically do not have fixed dates for repayment. Instead,
demand loans carry a floating interest rate which varies according to the prime lending rate or
other defined contract terms. Demand loans can be "called" for repayment by the lending
institution at any time. Demand loans may be unsecured or secured.

Subsidized loan-

A subsidized loan is a loan on which the interest is reduced by an explicit or hidden subsidy. In
the context of college loans in the United States, it refers to a loan on which no interest is accrued
while a student remains enrolled in education.

Concessional loan-

A concessional loan, sometimes called a "soft loan", is granted on terms substantially more
generous than market loans either through below-market interest rates, by grace periods or a
combination of both.[3] Such loans may be made by foreign governments to developing countries
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or may be offered to employees of lending institutions as an employee benefit(sometimes called

a perk).

Target markets

Loans can also be subcategorized according to whether the debtor is an individual person
(consumer) or a business.

Personal loan-

Common personal loans include mortgage loans, car loans, home equity lines of credit, credit
cards, installment loans and payday loans. The credit score of the borrower is a major component
in and underwriting and interest rates (APR) of these loans. The monthly payments of personal
loans can be decreased by selecting longer payment terms, but overall interest paid increases as
well.

Commercial loan-

Loans to businesses are similar to the above, but also include commercial mortgages and corporate
bonds. Underwriting is not based upon credit score but rather credit rating.

Credit

Credit is a contractual agreement in which a borrower receives something of value now and agrees
to repay the lender at some time in future, generally within interest. There are various types of
credit: Bank credit, breaking down “bank credit”, approval, fees, business credit.
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Creditis the trust which allows one party to provide money or resources to another party wherein
the second party does not reimburse the first party immediately (thereby generating a debt), but
promises either to repay or return those resources (or other materials of equal value) at a later
date. In other words, credit is a method of making reciprocity formal, legally enforceable, and
extensible to a large group of unrelated people.

The resources provided may be financial (e.g. granting a loan), or they may consist of goods or
services (e.g. consumer credit). Credit encompasses any form of deferred payment. Credit is
extended by a creditor, also known as a lender, to a debtor, also known as a borrower.

There are many types of credit, including but not limited to bank credit, commerce, consumer
credit, investment credit, international credit, public credit and real estate.

Trade credit-

In commercial trade, the term "trade credit" refers to the approval of delayed payment for
purchased goods. Credit is sometimes not granted to a buyer who has financial instability or
difficulty. Companies frequently offer trade credit to their customers as part of the terms of a
purchase agreement. Organizations that offer credit to their customers frequently employ a credit
manager.

Consumer credit-

Consumer debt can be defined as "money, goods or services provided to an individual in the
absence of immediate payment". Common forms of consumer credit include credit cards, store
cards, motor vehicle finance, personal loans (installment loans), consumer lines of credit, retail
loans (retail installment loans) and mortgages. This is a broad definition of consumer credit and
corresponds with the Bank of England's definition of "Lending to individuals". Given the size and
nature of the mortgage market, many observers classify mortgage lending as a separate category
of personal borrowing, and consequently residential mortgages are excluded from some definitions
of consumer credit.
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The cost of credit is the additional amount, over and above the amount borrowed, that the borrower
has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory,
required by the lender as an integral part of the credit agreement. Other costs, such as those
for credit insurance, may be optional; the borrower chooses whether or not they are included as
part of the agreement.

Interest and other charges are presented in a variety of different ways, but under many legislative
regimes lenders are required to quote all mandatory charges in the form of an annual percentage
rate (APR). The goal of the APR calculation is to promote "truth in lending", to give potential
borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made
between competing products. The APR is derived from the pattern of advances and repayments
made during the agreement. Optional charges are usually not included in the APR calculation.

Interest rates on loans to consumers, whether mortgages or credit cards, are most commonly
determined with reference to a credit score. Calculated by private credit rating agencies or
centralized credit bureaus based on factors such as prior defaults, payment history and available
credit, individuals with higher scores are typically given a lower APR than those with lower scores.

1.1.1 Commercial bank in Nepal

The history of banking in Nepal dates back to the year 1937 AD with the establishment of Nepal
Bank Limited as the first commercial bank in Nepal. It was established as a semi-government
bank with METALLIC COINS worth NRs 10 million as the authorized capital. Banknotes in
Nepal weren’t introduced up until the mid-1940s. It was in the year 1945 that the earliest
banknotes were issued by the treasury “Sadar Muluki Khana”. These notes were signed by
a “Khajanchi”, the head of the treasury who also was a high Hindu Priest.

Later in the year 1955, Nepal Rastra BankAct was formulated for a better banking system and
Nepal Rastra Bank was established in 1956 as the Central Bank of Nepal accordingly. After this
date, the banknotes were issued by the Central Bank with the signatures of the governors of the
institution. Till the 1980s, the banking sector was wholly owned by the government,
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with Agriculture Development Bank, Rastriya Banijya Bank, NBL and NRB being the pillars of
financial institution in Nepal.

1984 saw the start of the private banking industry with the establishment of Nabil Bank and the
introduction of foreign banks such as the Nepal Arab Bank, Nepal Indosuez Bank and Nepal
Grindlays. The banking sector in Nepal has faced many hurdles and hindrances. It has undergone
various political conflicts and instability. But today, it stands more liberalized and modernized.
There are various types of banks working in the modern banking system in Nepal. As per the list
issued by NRB as of Mid-June 2018, the modern banking sector includes 28 Commercial Banks,
33 Development Banks, 25 Finance Companies, and 63 Micro Credit Development Banks.

Cash Machines

The growth in the banking sector has drastically changed the paying habits of people. It wasn’t
long ago when people only dealt with hard cash. Queuing in banks to withdraw the smallest
amount of money also wasn’t unusual. But today, more and more Nepali people find it
convenient to carry plastic money in their wallets instead of hard cash.

If we look back into the history of banking in Nepal, the first credit card in Nepal was introduced
by Nabil Bank in 1990, and the first ATM was introduced by the Himalayan Bank in 1995.
However, it couldn’t take a swift leap into people’s behavior. Although ATM was introduced, it
wasn’t in an adequate amount at the time. But now, there are more than 9 ATMs per one
thousand adults in Nepal, belonging to different banks in various regions of the country. And
according to the Central Bank, there were 5,108,213 debit cards issued as of April 2017.

Furthermore, vendors have started using Electronic funds transfer at point of sale (EFTPOS)
machine, enabling customers to electronically transfer funds. And Nepalese people definitely
have developed a culture of using cash machines without a moment’s thought.
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Mobile and Online Banking

The history of banking in Nepal has taken a swift jump with the implementation of mobile and
online banking. The technological evolution has further enabled people to better utilize the
banking services. In case of Nepal, Kumari Bank was the initiator of internet banking. It started
its e-banking services in 2002. And soon was accompanied by Laxmi Bank with its mobile
(SMS) banking in 2004.

The easy accessibility of internet has greatly fostered e-banking. Hard cash was replaced by
banks issued cheque. But in recent history, credit/debit cards, e-banking, and mobile banking has
come to the emergence and slowly has been replacing the hassle of carrying cash and cheque at
all. Picturing the development of internet banking, NRB had revised Electronic Transaction and
Digital Signature Act in 2005.

Although banks played a major role in the emergence of mobile transaction, it was ‘Fonepay’, a
service offered by F1 Soft International which brought a revolution in the early 2000s. Not only
did it provide SMS banking but also enabled people to receive remittance through mobile
phones. Another company that enabled banks to provide mobile banking system was HelloPaisa.
It was founded in 2009 to help bank clients in paying bills, sending/receiving money within
Nepal, receiving money from abroad, and purchasing airtime for their mobile phones or making
merchant payments.

With the global business trend and need of payment gateway for the growth of digital commerce,
F1 Soft International introduced eSewa which brought a new and innovative concept in Nepali
financial market. With eSewa customers could pay their bills online regardless of their choice of
banks. It became a quick hit as people would rather make an online account and pay their bills
than standing in a queue for hours to pay their electricity or phone bills. Currently, eSewa has
partnered with most of the commercial banks in the country and partnered with various vendors
which accept payment through eSewa.
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In terms of digital wallet services, companies such as Khalti are not much behind in
revolutionizing the financial sector. People can recharge their mobile phones, pay electricity and
water bills, pay DTH and ISP bills, book movie tickets and airline tickets, book hotels online and
more. Along with making online payments, Khalti users are also provided with various offers
bonuses and cashback on transactions.

Accessing banking services in this way has not only become convenient but also essential for a
number of reasons. Not only is it more convenient, but being able to bank on the move helps
people to maintain better control of their finances. This makes sense when people consider the
benefits of being able to call up their financial balance as they pay up their bills.

1.1.2 Bank & Financial Institution Act 2073

Bank & Financial Institution Act 2073 has defined “bank” means a corporate body incorporated
to carry on financial transactions as referred to in Sub-section (1) of Section
47 performing following functions:
 Subject to the limit prescribed by the Rastra Bank,
accepting deposits with or without interest, and refund
such deposits;
 Supplying credit, other than hypothecation credit, as
prescribed;
 Dealing in foreign exchange, subject to the laws in force
and the directives given by the Rastra Bank;
Supplying credit for hire-purchase, leasing, housing and
service business;
 Engaging in merchant banking business, subject to the
directives given by the Rastra Bank;
 Making arrangements for jointly supplying credits on the
basis of co-financing in collaboration with other licensed
institutions in accordance with the mutual agreement
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entered into for the division of the collateral pari passu;

Supplying credits against the guarantee of any native bank
or financial institution;
 Issuing guarantees on behalf of its customers, having such
thereof, obtaining security, and acquiring their movable or
immovable assets as collateral or on mortgage, or the
assets of third persons as collateral;
cepting, paying, discounting or purchasing and
selling bills of exchange, promissory notes, cheques,
travelers cheques, drafts or hundies;
Accepting deposits, making payments and supplying
credit through automated teller machines and cash
dispensing machines;
 Providing overdraft to persons whom it trusts;
Obtaining credit against the security of its movable and
immovable property;
 Supplying a fresh credit in lump sum or by installment
against the security of the same movable or immovable
property which has already been furnished with, it to the
extent covered by the total value of such security or
 supplying a fresh credit in lump sum or by installment
against the security of the same movable or immovable
property which has already been furnished with any other
licensed institution as security, to the extent covered by
the total value of such security;
 To issue and accept letters of credit, subject to the
conditions prescribed by the Rastra Bank;
Transmitting funds within the State of Nepal through bills
of exchange, cheques or other financial instruments,
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purchasing and selling shares, debentures, bonds, etc., and

recovering dividends accruing on shares and interest on
 promissory notes, debentures, bonds, etc.;
 Performing such other functions as may be prescribed by Rastra Bank

Bank and Financial Institution Act 2073 has classified bank into following types:
 Commercial Bank (Class A)
 Development Bank (Class B)
 Finance Company ( Class C)
 Micro Credit Development Bank( Class D)

Commercial Banks (Class A)

1. Nepal Bank Limited

2. Rastriya Banijya Bank Limited
3. Agriculture Development Bank Limited
4. Nabil Bank Limited
5. Nepal Investment Bank Limited
6. Standard Chartered Bank Nepal Limited
7. Himalayan Bank Limited
8. Nepal SBI Limited
9. Nepal Bangladesh Bank Limited
10. Everest Bank Limited
11. Bank of Kathmandu Lumbini Limited
12. Nepal Credit and Commerce Bank Limited
13. Kumari Bank Limited
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14. Laxmi Bank Limited

15. Siddhartha Bank Limited
16. Global IME Bank Limited
17. Citizens Bank International Limited
18. Prime Commercial Bank Limited
19. Sunrise Bank Limited
20. NMB Bank Nepal Limited
21. NIC Asia Bank Limited
22. Machhapuchchhre Bank Limited
23. Mega Bank Nepal Limited
24. Civil Bank Limited
25. Century Bank Limited
26. Sanima Bank Limited
27. Janata Bank Nepal Limited
28. Prabhu Bank Limited

1.2Profile of the Organization

Rastriya Banijya Bank was established on January 23, 1966 (2022, Magh 10) is a synonymous of
stable and people’s bank in Nepal – is one of the pioneer bank in the country with the history of
nearly a half century. Earlier constituted under RBB act 2021 with the full ownership of the
government of Nepal, the bank has been running under bank and financial institute Act (BAFIA)
and company act (CA) 2063 at present. The bank licensed by NRB as a ‘A’ class commercial Bank
of the country has grown as an indispensable component of the Nepalese economy.

Rastriya Banijya Bank which has made glorious history of contributing for the monetize of the
economy , eliminating dual currency in the market, initiating preliminary financial literacy, and
help flourish industrial , commercial and financial sector of the country has now emerged as a
modern and strong financial institute of the country .The bank with 2600 hands has expanded its
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wings in the most parts of the country through multiple distribution outlets of 170 branches, 17
counters, 28 branch less banking (BLB) and 72 ATMs.The bank with the highest public
confidence- reflected in the highest deposit base and growing demand for branch establishment in
the various parts-has stood as a pyramid in the financial arena. The bank with as many as 1.7
million satisfied /direct customers ranging from poor to elite once and millions of indirect ones,
has drawn important imprints in the picture of country’s economy through its significant
involvement in the best use of its resources to enhance the production, income and employment
opportunities. The bank is fully commited to contribute its best for the socio economic
development of the country and people in the days to come.

Regional offices of Rastriya Banijya Bank:

 Kathmandu Regional Office

 Biratnagar Regional Office
 Birgunj Regional Office
 Pokhara Regional Office
 Nepalgunj Regional Office
Vision:” To provide innovative banking services to everyone, everytime and everywhere.”
Mission:” To provide easy and innovative banking products and services for our cutomer
by implementing one stop service concept from our wide network using our modern
technology qualified human resources in competitive environment. We always look for the
benefit of the local communities supporting entrepreneurship, social responsibility and
economic prosperity of the nation.”

Major objective of Rastriya Banijya Bank

 Focus on providing innovative financial services.

 Increase in capital base of the Bank by meeting the minimum capital requirement.
 Business growth and increase in market share.
 Enhance operational efficiency.
 Sustainable increase in profits.
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 Focus on empowerment of deprived class.

Though the wide spread and strong network of correspondent banking relationships, Rastriya
Banijya Bank is capable to offer various products related to internstional trade suitable to your
needs. Some of the major product and services provided by Rastriya Banijya Bank:

 Letters of credit (local, import and export)

 Various types of Bonds/Guarantee (including counter guarantee)
 Collections (clean and documentary)
 Short-term Trade finance (import, export , and bills)

1.3 Statement of the Problem

There are many problems that are disturbing the Nepalese banking industry. Some of the problems
are listed as follows:

 The main problem is banking habit of people. Only 30% of the people have access to banks.
 Commercial banks are mostly concentrated in urban areas.
 Bank credit is security oriented rather than project oriented.
 Less investment in productive nepotism, government instability & cutthroat competition.

1.4 Objective of Study

The primary purpose of the study is to identify financial problem of Rastriya Banijya Bank
Ltd(RBBL).This study intends to analyze some relevant factors affecting the financial
performances of RBBL.
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 To examine the financial performance of RBBL in terms of their liquidity position.

 To examine the financial performance of RBBL in terms of their leverage position.
 To examine the financial performance of RBBL in terms of profitability.

1.5 Rationale of the Study

The study bears usefulness which are mentioned as follows:

 This study will be helpful to go deeply into various as too why the performance of other
joint venture banks.
 The study will help the shareholders to know their funds are utilizing and to what extent
they are gaining.
 The study will be useful to know the performance of RBBL.

1.6 Report Structure

The project study will be divided into the following chapters. They are as follows:

 Chapter one: This deals with introduction of the study which includes the background,
profile of the organization, objectives of the study, rationale of the study, review, methods
and limitations of the study.

 Chapter Two: This deals with results and analysis which includes data presentation,
analysis of results and findings.
 Chapter Three: This deals with the summary and conclusion.

1.7 Review of literature

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1.7.1 Conceptual Review

Lending is the principle business activity for most commercial bank . The loan is
typically the largest assets and the predominant source of revenue. As such it is one of the
greatest source of risk to a bank safety and soundness. Whether due to lax credit
standards poor portfolio risk management or weakness in the economy, loan problems
have been the major causes of bank losses and failures. A credit score provides an easy
way for lenders to numerically judge your credit at a point in time. It gauges how likely
you are to repay your loan in a timely manner. The better your history appears, the more
attractive you become as a loan customer.

1.7.2Review of Related project work

According to Merriam webster, ‘credit is the provision of money, goods and services
with the expectation of future payment. credit means assets to the trust of something offered
for acceptance. A credit is a legal contract where one party receives resource or wealth
from another party and promises to repay him on a future date along with interest.

Frequently, credit refers to the terms and conditions associated with a deferred payment
arrangement, for example, easy credit and cheap prices. Credit also denotes the borrowing
capability of an organization or person.

According to Leonke,” a loan is the act of giving money, property or other material goods
to another party in exchange for future repayment of the principal amount along with
interest’

According toBusiness dictionary, written or oral agreement for a temporary transfer of a

property (usually cash) from its owner (the lender) to a borrower who promises to return it
according to the terms of the agreement, usually with interest for its use. If the loan is
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repayable on the demand of the lender, it is called a demand loan. If repayable in equal
monthly payment, it is an installment loan. If repayable in lump sum on the loan’s
maturity(expiration) date, it is a time loan.

Loans can come from individuals, corporation, financial institutions, and governments.
They offer a way to grow the overall money supply in an economy as well as open up
competition and expand business operations. The interest and fees from loan are a primary
source of revenue for many financial institutions such as bank, as well as some retailers
through the use of credit facilities.
Parker (2002) presents an overview of the modern theory and evidence of credit rationing,
and concludes that the case for credit rationing is weak. He suggests that theoretical
arguments for or against credit rationing are inconclusive, so evidence is needed to decide
the issue.

According to Racheal 91984:p.478) , the primary function of the commercial bank is the
extension of credit to worthy borrowers . it has been noted that commercial bank is the
most important institution n the mobilization of funds.

Firstly the total amount of deposit in the commercial banking system has the capacity to
create deposit demand resulting from lending activities.

Since demand deposit constitutes a large sum of the money supplied, the banking system
is able to expand the nation supply of money. The consent that commercial bank need
liquid asset especially the short term asset that an be converted into cash loan accordant to
him constitute the largest amount of asset

Good bank lending ensure high profit level, ensure greater return and have underscore of
meeting the social responsibility to the benefit of the society while in the other way bank
lending can affect the bank negatively in various way for instance, it might take a great
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chance of their annual profit which the bank need to stay in business with . This and the
indiscriminate extension of loan although within the credit guideline without proper
supervision of such loan and account have led to an increasing trend in the existence of bad
dept.

The bank has failed in the implementation of various checks against bad debt and has
tended to forget every loan committed the moment the contract has been concluded. The
author contention here is that the cause of bad debt is due to improper supervision and
management of loan granted. Thus study is been carried with the Hallmark bank limited as
the case of study’

1.7.3Research Gap

Several studies can be found in literature. Hence, this study will made an effort on fund
should be mobilized in more productive sector to increase profit, extend more facilities to
customer.

1.8Methods

1.8.1Research Design

The process used to collect information and data for the purpose of making business decision.
The methodology may include publication research, interviews, surveys and other research
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techniques, and could include both present and historical information. Research comprises
”creative work undertaken on a systematic basis in order to increase the stock of knowledge
,including knowledge of human , culture and society, and the use of this stock of knowledge to
devise new application. Research design is plan, structure and strategy of investment conceived
so as to obtain answer to research question. The plan is overall scene or program of the research.

It includes an outlines of what the investigator will do in the field study and writing and their
operational implication to the final analysis of data .In this study descriptive as well as analytical
research design has been used

Research design indicates a plan of action to be carried out in connection with purpose research
work. For these research work the necessary information regarding to RBBL has been collected
by interviewing to the concern staff and its web sites

1.8.1.1 Descriptive Research Design

The research design that is developed with the aim of studying the subject of research in detail and
explains the facts related to the research is known as Descriptive research design.The main goal of
this design is to describe the relevant aspect of the factor of interest to the researcher from an
individual, organizational or other prospective. People believe that in descriptive research design
scientific approach can’t be applied. It is not true weather the research design is descriptive or any
other, It uses the scientific method of collecting, classifying and analyzing related data and facts.
This design is widely used by researcher. If the research is related to prediction, explanations of
facts etc i.e. widely used in descriptive research. Mainly following works are to be performed
while using descriptive research design.

 Determine the study objective

 Collect samples.
 Prepare procedures to collect data
 Collect data
 Process and analysis of data
 22

 Prepare findings and draw conclusion

Descriptive research can be undertaken using following methods:

 Case Study
 Development research design

A research design used to predict the future trend considering to the changes in events and social,
Human and cultural activities is known as development research design .this research design is
used to study the variable, specified time ,correlation between variable, rate of change etc.
Research design is flexible and generalize and valid to all.

1.8.2 Population and Sample

It is the entire group of people, events or things that the researcher wishes to investigate. In simple
meaning, it is people, object or events as defined by the researcher in his/her report. The finding
of the research is generalized in the population. Representation portion of the population selected
for investigation based on nature and necessity of research is sample. In the final report, all the
banks of Nepal are the population and RBB is the sample bank in our research.

1.8.3Natures and Sources of Data

Data can be broadly classified into two types:

 Primary data and secondary data

 Qualitative and quantitative data
 23

 Primary Data: Data that has been collected by researcher himself and herself as per the
objective of the research is known as primary data.

 Secondary Data: Data developed by others in the past for their own purpose and if they
are used by secondary person, it is called secondary data.

 Qualitative Data: Data collected on the basis of quality or characteristics is known as

qualitative data.

 Quantitative Data: The data that deals with Number is quantitative data. They are the data
measured like length, height, volume, weight, speed, etc.

I have used secondary data and quantitative data. I have collected this data from organizational
reports of Rastriya Banijya Bank.

1.8.4Data Collection Procedure

The sources of data have been collected from reports of banks published in their respective annual
general meeting and website of relevant bank. Financial statistics published by Nepal Rastriya
Bank and non-bank regulation department.

1.8.5 Methods of Data analysis

I have used Ratio analysis, Current ratio, Quick ratio, Total deposit, Debt Assets ratio, Earning
per share, Net Profit, Interest coverage.
 24

1.8.6Technique of Analysis

I have focused on content analysis like different charts, tables, bar diagram, presentation, etc.

1.9. Limitation of the Study

A research is a vast investigation study for the settlement of the problems. So it needs full time
finance and authentic information. But this study is totally depended on financial statement.

 The study is mainly depending on secondary and quantitative data.

 Only few methods are used to analyze they are: Ratio analysis, current ratio, Quick ratio,
Total debt ratio, Debt Assets ratio, Earning per share, Net profit, Interest coverage.
 The study is based on the period of 5 years’ trend of concerned bank.
 Time and resources lack are the main limitation of the study.

CHAPTER-2

Result analysis and finding

2.1 Ratio Analysis

Ratio analysis is defined as the systematic use of ratio to interpret the financial statement so that
strength and weakness of a firm as well as its historical and current financial condition can be
determined. From an investor’s stand point-point, predicting the future is what financial
 25

statement analysis is useful both as a way to anticipate future conditions and important as a
starting point for planning action will influence the future course of events. Ratios are very
useful and powerful tools to interpret the financial performance of the firm. Ratio analysis is an
important, effective and commonly used techniquein an analysis of financial statement and
evaluations of managerial performance. Ratio analysis provides the information related to
strengths and weakness of financial data in relation to others.

2.1.1. Current Ratio

Current ratio is calculated by dividend current assets by liabilities.

Current ratio = Current Assets

Current liabilities

Table 1:

current ratio

in RS '000'
(B) Current
Fiscal year (A)Current Asstes Ratio A/B
liabilites
2071/72 13,088,907.00 14,038,577.00 0.93:1

2072/73 15,031,115.00 17,383,782.00 0.86:1

2073/74 18,275,928.00 20,436,359.00 0.81:1
 26

Source:RBBL

Figure 1
Current Ratio
 27

25,000,000.00

20,000,000.00

15,000,000.00

10,000,000.00

5,000,000.00

0.00
2071/72 2072/73 2073/74

(A)Current Asstes (B) Current liabilites

A current ratio of 2:1 which shows that the company is in good quality position .the current ratio
of RBBL is lower than theoretical standard by NRB in cash production company so, there is no
necessary to maintain current assets to the extent of twice the current liabilities .from the above
figure we can know that the firms liquidity position is poor.

2.1.2Quick ratio:

The ratio is also known as liquid or acid test ratio. This ratio establishes a relationship between
quick assets and current liabilities. It is calculated as follows:

Quick ratio = Quick Assets

Current liabilities
 28

Table 2:
Quick ratio

in Rs' 000'
(B) Current
Fiscal year (A)Quick Asstes liabilites Ratio A/B
2071/72 12,273,987.00 14,038,577.00 0.87:1
2072/73 13,446,039.00 17,383,782.00 0.77:1
2073/74 16,782,459.00 20,436,359.00 0.82:1
Source: RBBL

Figure 2 Quick Ratio

 29

25,000,000.00

20,000,000.00

15,000,000.00

10,000,000.00

5,000,000.00

0.00
2071/72 2072/73 2073/74

(A)Quick Asstes (B) Current liabilites

Generally, a quick ratio of 1:1 is considered to be good quick ratio for a firm. It reveals its sound
liquidity position. Here while, calculating quick ratio accrued and prepaid expose has been
omitted from assets.

2.1.3 Total Deposit

Total deposit is a term included in the balance sheet of a bank. When calculating the total deposit
from a banks perspective, various kind of deposit is taken into consideration. These are added
together to determine the total deposits. Demand deposits, term deposits and interest and non
interest bearing deposits are the cumulative example of deposit items that are summed to get the
value of total deposits.
 30

Table 3 Total Deposit: (in Rs 000)

Fiscal year Total Deposit %change

2069/70 7394 -

2070/71 8778 18.71

2071/72 9,109.00 3.77

2072/73 10,727.00 17.76

2073/74 12,422.00 15.8

From table no. 3 and figure no. 3 shows the deposit trend of ashadh 2069/70 to ashadh 2073/74.
The table suggest that the deposits is in increasing trend except 2071/72. However, its percentage
is not uniform throughout five years period.
 31

Figure no 3 Total Deposit

14000

12000

10000

8000

6000

4000

2000

0
2069/70 2070/71 2071/72 2072/73 2073/74

From Table no 3 and figure no 3 shows the deposit trend of Ashadh 2069/70 to Ashadh
2073/2074. The table suggest that the deposits is in increasing trend except 2071/72. However,
its percentage is not uniform throughout five years period.

2.1.4 Debts Assets Ratio

 32

The debt assets ratio which is the ratio of total assets measure the percentage of the firm’s assets
financed by creditors.
Debt Assets Ratio: total debt/shareholder capital
Total debt includes both current liabilities and long term debt.

Table no.4
Debt Assets Ratio

IN RS '000'

Fiscal Year Total Debt Total Assets Ratio

2071/72 16988070 18443105 0.92

2072/73 19411541 21000505 0.92

2073/74 21853226.75 23642059 0.92

Source:RBBL

Figure no 4
Debts Assets Ratio
 33

25000000

20000000

15000000

10000000

5000000

0
2071/72 2072/73 2073/74

Total debt Total Assets

From the above table and figure clearly states reveals that in fiscal year
2071/72 ,72/73 & 73/74 is 92% of RBBL’S Total assets is financed by outsiders and remaining
8% by shareholders

2.1.5 Earning per Share:

The ratio measure the return per share receivables by equity or ordinary shareholder. Equity
shareholders are virtually the owner of company.Thus’s it measure the profit available t equity
shareholder’s on a per share basis.EPS is calculated on the basis of following formulas.

EPS=Earnings available to Equity shareholder’s/no of common shares

 34

Table no 5 Earnings per shares (in RS 000)

In Rs '000'
Proposed No of outstding common
Fiscal year Eps
dividend stock
2071/72 4,792,074.00 3,395,488.00 1.41
2072/73 5,069,328.00 3,395,488.00 1.49
2073/74 5,378,044.00 3,746,404.00 1.43
Source: RBBL

Figure no 5 Earnings per Share

Eps
1.5

1.48

1.46

1.44

1.42 Eps
1.4

1.38

1.36
2071/72 2072/73 2073/74
 35

The above table and figure shows that EPS is not constant rather it fluctuates Overs The years .it
increases over the second year and decrease on the third .it does not reveal how much is paid to
the workers or how much of earning are retained in the business.

2.1.6 Net Profit

Net profit referred to as net income, is the amount of money a company has left after all
expenses, including taxes, have been subtracted from total revenue.Net profit is reported on a
company’s income statement and is one of the key indicators of the success or failure of a
company’s business operation during a given time period. The actual formula for calculating net
profit is :

Net Profit = Total revenue-Total expenses

Table no 6
Net Profit
In Rs’000’

Fiscal year Net profit %Growth

2070/71 172 0

2071/72 115 -33.13

2072/73 131 13.91

 36

2073/74 184 40.45

Source:RBBL

Figure 5
Earnings per share

200

150

100

50

0
2070/71 2071/72 2072/73 2073/74

-50

Net profit %Growth

In above figure and table,in 2070/71 net profit is 172 million to 115 million which is in
decreasing rate so its % growth is also decreasing up to 33.13 .Similarly in 2072/73 net profit
increased upto 131 million with % growth of 13.13%.There is maximum growth rate of net profit
between 2073 to 2074 which is beneficial to ever organization.

2.2 SWOT Analysis Rastriya Banijya

 37

2.2.1 strenghths

 Vast industry
 Successful history of apps intake
 Product knowledge

2.2.2 weakness

 No architecture considerations
 Software design, usability,etc.
 No innovation
 Business capabilities are limited
 Weak ALM considerations
 Corporate structure

2.2.3 opportunities

 Strong focus on business logic

 Integration points
 Emerging consumers and markets
 Integrated platform

2.2.4 Threats

 No IT buys-in
 Not enough agility
 Not enough structure
 No strong IP-lower cost
 NO competitive analysis
 38

2.3 Major findings

Based on the analysis and the observation of field work study, the major findings on the credit
and loans management are mentioned below:

 The bank is fully owned by the Government of Nepal.

 The bank is committed to ensure the sufficient capital is always maintained to cover up
for the risk of looses arising from all the material risks.
 Credit concentration is monitored periodically and the bank bears a highly diverse credit
portfolio with large number of followers.
 Liquidity position and leverage is very good.
 Profitability position of RBBL is high.
 39

Chapter – 3

Summary and conclusion

3.1 Summary:

The role of bank has paramount significance role in the economic development of the country.
Along with the government participation, there should be equal participation from private and
public sector to perform development activities. Financial analysis is the process of identifying
the strength and weakness of bank by establishing between the items of the balance sheet and
profit and loss account.

This bank was established on 2043/10/16 and is now one of the prominent joint venture bank in
Nepal. It has been providing the services to businessman, factory, general customer also by
accepting deposit etc. The important role played by the bank in our country is very significant.
The bank is providing high quality of services. The role of the bank has paramount significance
role in the economic development of the country,

Along with the government participation, there should be equal participation from private and
public sector to perform development activities. Financial analysis is the process of identifying
the strength and weakness of bank by establishing between the items of the balance sheet and
profit and loss account. Most of the ratios calculated above seem to be very much violate, three
years comparative analysis.

The fluctuation as net profit has contributed to the volatility of ROA, ROE, ROSE, EPS and
DPS. From the view point of shareholder the return on shareholder’s equity has been fluctuating
slightly but the rates satisfactory. The bank is fully owned by the government of Nepal. The
capitalization plan of the bank has been successfully implemented increasing its capital base.
Risk management committee and loan recovery and debt restricting committee are responsible to
identify large and problematic loans and to recovery write off such loan. The effectiveness of the
 40

internal control system of the bank is reviewed regularly by the board, its committees,
management committee and internal Audit department.

3.2Conclusion

The establishment of joint venture bank is playing immensely valuable role in the development
of the nation. Joint venture banks are also major commercial banks that are contributing for
economic development of the nation among the various joint ventures bank in our country.
Rastriya Banijya Bank Limited shows that the bank’s credibility is increasing each year. The
important role played by the bank in the economic development of our country is very
significant. The bank has been providing services through business banking, personal banking;
business finance, credit cards and so on. The bank has also been fulfilling the requirement of
Nepal Rastra bank of investment in priority sectors. The shareholders of Rastriya Banijya Bank
Limited are receiving comparatively sufficient rate to return on their shares. The creditors and
loans providers are earning suitable rate of return.

The performance of any bank cannot be measured only in term of profit, it has earned by
maintaining adequate liquidity and safety. It should also evaluate on the ground of the
contribution it has made to the community, to the government and to the national economy as a
whole. This means the bank should come forward to the national economy as a whole. This
means the bank should come forward to the national priorities like more deposits mobilization
and more resources mobilization, more employment generation, more accountability can be
discharged by following its rules, regulation, direction, instruction and priorities.

In an underdeveloped country like Nepal, the joint venture banks should have satisfactory profit
level, but not too high. Therefore in the country like Nepal, the joint ventures banks are
providing more profit.

Finally, I would like to comment above the liquidity position of RBBL, the current ratio of the
company is decreased in 72/73 then that of 71/72, so it can be said that it may face difficulty in
paying its current liabilities and also quick ratio of bank is not favorable so, would face difficulty
 41

in paying its current liabilities. The debt ratio and debt to capital ratio are low which indicates
that the bank has very low risk. And the RBBL’s ROA, ROSE, DPS, EPS AND P/E ratio are
very high which indicates that the profitability position of the bank is satisfactory.

The overall financial position of the RBBL can be divided into three parts:

 Liquidity position: liquidity position of RBBL is very good because its current
ratio and quick ratio has increased in each fiscal year.
 Leverage ratio: leverage ratio of RBBL is good because its debt equity ratio, debt
assets ratio has decreased in each fiscal year.
 Profitability ratio: profitability position of RBBL is high which indicates that the
profit after tax is increasing in each fiscal year. DPS has also increased in each
and earnings per share also increased in each fiscal year.

REFERENCES

Bhandari, Dilli raj, “Banking and insurance” 4thEdition 2064, Ayushprakashan

Chaudari,A.K and Pant G.D, “Business Mathematics and Mastistics”Third Edition

Chandler. L.V, The Economics of money and banking, University of Chicago press 1985

Clipora R..Dictionary of Management, Annual publishing PVT. LTD New Delhi, Revised

edition 1995.

Lawerence,D. Gitman,,Principle of management finance, Tada McGraw Hill. 1998

Pandey,I…M, management Accounting, Vikash publishing House LTD.1992

Pradhan,S Basics of Financial Management, educational Enterprise(p) Ltd, New Delhi, 2005
 42

RastriyaBanijya Bank “Banking Prawadan”

RastriyaBanijya Bank Annnual Balance Sheet 2074.

Sayers R.s, Modern Banking, Oxford Clearedon press, India 2007

Weston,J.F and Brigham, E.F, Essential of managerial finance, the Dryden press, Chicago

www.rbb.np