CHAPTER 1

1. INTRODUCTION

1.1 Background of the Study

It is reasonable simple exercise to identify a bank as an institution whose essential
operation is to take deposit from public and to lend money. Bank accumulate a idle money from
general public by providing attractive sound interest rate in their deposits and disburse the
collected deposit as loan to business organizations, industrial, agricultural sector and needy
people etc. So, we can say that main task of commercial bank is to mobilize idle resources in
productive areas by collecting it from scattered sources and generating profit. Thus, banks act as
intermediaries channeling saving into investment and consumption through them bank plays and
imperative role in our economy by providing effective service, efficiently towards the attainment
of economic development.

1.1.1 Concept of Bank

Bank is a financial organization. When bank is established, our financial system is
conquered by bank. The banking system in Nepal is a recent occurrence that began only in 1994
BS as Nepal Bank Ltd .The term “bank is derived form Italian word “Banko” which means a
counter table or bench used by medieval money exchanges.

In brief, banks build up a idle money from ordinary people by providing gorgeous echo
interest rate in their deposits and distribute the collected deposits as loan to business,
organization, Agricultural sector, Industrial and needy people etc. Thus commercial bank’s major
mission is to organize unused supply in productive area by collecting it from spread sources and
generate profit.

1.1.2 Commercial bank in Nepal(historical development)

The history of banking dates backs to sixteenth century, However, in Nepal formal
banking system was introduce only in November 1937 with the establishment of Nepal Bank Ltd.
(NBL). Which is regarded as pioneer institution of modern banking system and served as a sole
financial institution of country for nearly two decades? Prior to establishment of this bank, the
banking needs of people were fulfilled to certain extent only by organized financial institution the
“Tejartha Adda” However, the services tit offered of high committee board “Udyog Parishad” was
indeed a landmark in opening new avenue in field of banking, industry and commerce.

1
 Accordingly, NBL was established in November 1937 under Nepal Bank act as joint venture
between government and Private sector and replaced the “Tejartha Adda” by taking over its
operation and overcoming it limitations. To regulate issue of currency, securing countrywide
circulation Nepalese currency, achieving stale exchange rate and mobilize capital for economic
development and for stimulation of trade, industry and banking sector Nepal Rastra Bank (NRB)
came into existence in April 26, 1956 as country’s central bank. After this, NRB diverted its
attention towards development of banking system by formulating relevant polices and procedure.

In this connection commercial bank, act 1963 was formulated. Hence, further shouldering
the banking services, the Rastriya Banijya Bank (RBB) was established in 1966 under RBB act
1964 with fully government owned commercial bank.

The process of the development of banking system in Nepal was not satisfactory
up to 1983. No bank was opened from during this period except extending the branches
and sub branches of the banks, which were established in this period. Nepal was
observing the events that were taking places in the world also. Nepal was deeply studying
and searching what sorts of programs, policies, law, and regulation should be brought into
practice. The country can’t change its status by using only its own capital in the country
without importing the new technology from foreign country and accordingly, law and
policy have been enacted by the state to encourage the foreign investment on banking
sector. From this the real form to the development of the banking system started in Nepal.
The competition began to grow. The banks began to offer their valuable services to the
people through new technologies. This was the great significant event. Thus, some banks
are opened on the joint investment basis. There is some banking name:
S.N Name of Commercial Banks Year

of Establishment (A.D)

1. Nepal Bank Limited 1937

2. Rastriya Banijya Bank 1965
3. Agriculture Development Bank Limited 1968
4. NABIL (Nepal Arab Bank) 1984
5. Nepal Investment Bank (Nepal Indosuez Bank) 1985
6. Standard Chartered Bank (Grindlays Bank) 1986
7. Himalayan Bank Limited 1992

2
8. Nepal SBI Limited 1993
9. Nepal Bangladesh Bank Limited 1993
10. Machhapuchchhre Bank Limited 1994
11. Bank of Kathmandu Limited 1994
12. Nepal Credit and Commerce Bank (Nepal Bank of 1996
Ceylon)
13. Lumbini Bank Limited 1998
14. Nepal Industrial and Commercial Bank 1998
15. Machhapuchchhre Bank Limited 2000
16. Kumari Bank Limited 2000
17. Laxmi Bank Limited 2001
18. Siddartha Bank Limited 2001
19. Global Bank Limited 2006
20. Citizen Bank International Limited 2007
21. Prime Bank Limited 2007
22. Sunrise Bank Limited 2007
23. Bank of Asia Nepal Limited 2007
24 Development Credit Bank 2008
25 NMB Bank 2008
26 Kist Bank 2009
27 Janata Bank 2010
28 Megha Bank 2010
29 Commerge and Trust Bank Limited 2010

30 Civil Bank Limited 2010

31 Century Commercial Bank Limited 2010

(Sources: Nepal Samachar Patra, 2011/01/08)

Finally it is appropriate to define the meaning of commercial bank according to

commercial bank act BS 2031 (1974A.D) which requires commercial bank means “A
bank which operates currency, exchange transaction, accepts deposit, provide loan
performs dealing relating to commerce and other than banks which been speechified for
the cooperative agriculture, Industry of likely and any other specific objective.

3
1.2 A Brief Introduction to Machhapuchchhre Bank Ltd.
Machhapuchchhre Bank is a huge bank with its branches in many places. We have gone
thought all the data and information collected from Machhapuchchhre Bank Limited.
This bank was registered in 2054 Ashad 26 under company act 2053. After receiving the
approval letter from Nepal Rastra bank in 2055 Baishak 28 It started its operation from
2055 shrowan 1st. This bank expanded its branched in pursuit of providing its services to
large section of the society. At present it has 39 branches including head office in total
and has plans to open more branches in near future. The promoter’s of Machhapuchchhre
bank Limited owns the majority of shares of MBL. So the maximum shares of MBL are
hold by Nepalese private sector. After establishment the bank has been providing
different facilities such As mobile banking services, Internet banking services, any branch
banking facility. Extended banking 9servicices etc. Machhapuchchhre banking has
always been committed to a quality service to its valued customers, with a personal
touch. All customers are treated with utmost courtesy as valved clients. However
Machhapuchchhre Bank is introduced in the following sub-titles:

Authorized Capital : 2,00,00,00,000

Issued Capital : 1,47,92,69,600

Paid up Capital : 1,47,92,69,600

1.2.1 Function of MBL

MBL has been providing different services and products to their customer from
their twelve branches besides performing ordinary banking operations as commercial
banks it has also announced some distinct product service and activities which are as
follows:-

a) Tele Banking :-
To provide more competent service to customer, MBL has been the pacesetter in
introducing Tele banking service .The customer just have to dial a prespecified telephone
number and they will be able to make inquiries about balance and statement, order
statement and cheque book, request for instant faxing of statement and sent information
of foreign exchange rates.
4
 b) Anywhere Branch Banking systems (ABBS):-
This service has enabled MBL, to make certain operations like with drawer and
deposit of cash and cheques from any of their branch with in county operation of
account. They are not restricted to particular branch for account operation.

c) Automatic Teller machine(ATM):-

MBL has established an ATM which enables them extends services for 24 hours.
To utilities this facility the customer must request for ATM card from any of its branches.

d) SWIFT (Society of world wide into banks financial telecommunication):-

To enhance the banking operation with modern technique and reliable service the
bank has also obtained the membership of “Swift “which has resulted in prompt and easy
banking transaction.

e) ERD Training:-
Bank has been organizing the training and workshop programs for their
employees to acquire or sharpen capabilities to develop organizational culture to relation
with customer and to make their customer service more effective prompt reliable.

1.2.2 Objectives of MBL

The commercial banking industry has been posturing through a athwart phases of
transaction right from it’s start which is now operating with the liberalization of financial
policies but has given a way to some malfunction misused if deceptive practices
deregulation in banking environment so as to capture the increased interest sensitivity of
depositors “manage the change” has becomes the stepping store for the success of Bank.
Thus to cope with changing environment the important management to banks is:-

1) To organize the structure to meet the challenges of changing environment.

2) To improve technology in banks.

3) To modernize office equipment.

4) To improve productivity through participates management.

5) To flow instruction and strict to rules and guidelines.

5
1.3 Statement of the Problem
Nepal is an economically back pushed country. Most of the resources of the
country are remained unused due to lack of finance. Nepal is a country which is made up of
villages and where there is predominant of agriculture sector so commercial banks alone are not
sufficient to solve the credit problem of the country which are reactant to enter rural and
agriculture sector to over came these challenges the Nepal Rastra Bank has mandated commercial
bank to open branches in rural area while opening branches in Urban areas. However this
arrangement is no making efficiently. A challenge for country is to direct these commercial banks
to provide service to small and middle enterprise. The rural branches of commercial banks
opened in the rural areas of Nepal don’t seem to have activated their role effectively in deposit
mobilization and distribution. There is political influence upon bank and corruption in the
banking service of Nepal. The productive sector of Nepal is not getting the service of bank
properly. Even in this situation the central bank is not able to control the activities of banks and
not giving correct direction. There is the problem of over staffing in government bank. Most of
the banks in Nepal are in urban sector only and they are investing their funds in importing
business this is not good sign for the country in long run.

The competition is the ablaze issue of this time in our country due to
establishment of number of finances companies and about a dozen of Rural Banks and co-
operative societies in short span of time. It has threatened the entire banking system. It has
warned the bank to improve and manage their productivity. So it is the crucial time to concentrate
and think better productivity management for the survival and growth of the bank in such an
environment of tough competition.

The research seeks to find out inefficiency and weakness of Standard Chartered
Bank with analysis of these bank financial statements. Attempts are made to find out the answer
for the following question.

1) How far have MBL bank been able to transfer monetary resources from savers to users?

2) How sound are operational results in relation their profitability?

3) How have MBL bank been managing their position in relation to solvency and profitability?

4) What is the degree of financial risk measured in terms financial leverage?

1.4 Objective of the study

6
 The main objective of this study is to analyze the financial performance and
solvency position of MBL by using different financial ratios. This study is to analyze,
examine and interpret the policies adopted by MBL. The main objectives of this study are
given below:

a. To evaluate the profitability and solvency.

b. To suggest and recommend some measure on the basis of the study of financial
performance evaluation for the improvement of financial performance of MBL in the
future.

c. To evaluate the trend in the growth of loans and investment and total deposit of MBL.

1.5 Scope of the Study

The present study deserves some significance of its own kind in this field. This
study will be concise practical usable and valuable to this major parities interested in the

Performance of MBL, stock holder, management of bank store brokers financial

institution general public (depositor, prospective, customers, creditors) etc.

Financial executives as well as those other policy marketing bodies, which are
concerned with banking, would also find it’s a useful reference. This study will be also
being useful to the advanced teachers and students of the subject, particularly those in
commerce chattered accountancy and institutional finance.

1.6 Methodology

The research methodology is the process of arriving to the solution of the problem
through planned and systematic dealing with the collection analysis and interpretation of
facts and figures. As this research entirely consider about the operation the performances
of MBL those research methodology has been used which proves helpful to tit.

For the purpose of achieving the objective the following methodology has been to
follow which included research design, nature of data, data gathering, procedure,
presentation and analysis technique.

7
1.6.1 Research Design

The research followed is basically for the revaluation of financial performance of

MBL with reference to solvency and profitability. Analytical and descriptive approaches
are used to evaluate the financial performance of MBL and the points are discussed
basically on the basis of secondary data and financial statement of the banks.

1.6.2 Nature and sources of data

This study is primarily based on secondary data provided by MBL. They are
derived basically from annual reports of the bank. The data are taken from given
published sources.

Financial statement of bank annual reports, bulletins and reports periodically published.

Other published material like newspaper, journal, magazine, textbook, etc.

1.6.3 Tool and Techniques of analysis

The collected and observed date is tabulated after adjusting necessarily amounts
of each overhead ,however for the analysis of the data following tools are used :-

 Financial tools
 Statistical tools

1.6.4 Financial tools

There are different types of financial tools that can be applied to analyze the
financial performance of MBL but in our fieldwork reports following tools are used.

Solvency ratio

 Debt assets ratio

 Interest Coverage ratio
Profitability ratio

 Net profit margin on sales ratio

8
  Basic Earning power ratio
 Return on total assets
 Return on equity
 Return on shareholder’s fund
 Staff expenses to total income ratio
 Overhead to total income ratio
 Graphic Presentation of Profit &Deposit

1.6.5 Statistical tools

The statistical tools selected for the study are as follows.

Arithmetic mean

An arithmetic mean of a set of observation is defined as the ration of the sum of

all observation to the total number of observations as arithmetic mean is denoted by x

for variable x.

Standard Deviation

Standard deviation is a statistical measure of the variability of a set of

observation/ its measure total risk.

S.D is denoted as follows.

= √ ∑ ( X−X )2
N

Coefficient of variation

The coefficient of variation is the relative of measure of dispersion, comparable

across distribution. The higher CV means the higher variability or less uniformity. It is

9
 computed as the ratio of the standard deviation to the mean expressed in percentage. It is
denoted as follows.

σ
C . V .= ×100
. X

1.7 Limitations of the Study

This study is simply a practical requirement of BBS program. There are some
limitations as given below:

a. The whole study is based on secondary data.

b. The study covers data of fiscal year 2061/62 to 2066/67 of MBL only.
c. The study is considered in solvency and profitability position of the bank.
d. Limited variables have been selected.
e. Simple techniques have been used in analysis.
And limited time period, lack of research experience and limited resources are the
limitation of the study.

10
 CHAPTER -2

2. DATA PRESENTATION AND ANALYSIS

2.1 Cash Reserve Ratio (CRR) of MBL Bank

CRR indicates the availability of bank’s immediate funds to meet its demand on deposit
(i.e. current, saving, fixed, call, and others). This ratio is calculated dividing cash and bank
balance by total deposit collected in different accounts.

CRR= Cash and Bank balance

Total deposits

Cash and bank balance are the liquid assets consisting of cash in hand including foreign
currencies, balance with NRB, and balance with domestic bank and balance hold abroad

Table -1
Cash Reserve Ratio of Nepal MBL
(Rs. In ‘000’)
Year Cash & Bank Balance Total Deposit Ratio (%) (X)
2062/63 890019 4535734 19.62
2063/64 1922748 6612290 29.08
2064/65 1619962 5572470 29.07
2065/66 1333534 6522817 20.44
2066/67 864427 7198327 12.01
Mean 22.044
Source: Annual report of MBL Bank
Mean =∑X
N
The above table shows that bank has maintained maximum CRR up to 29.08% and the
minimum up to 12.01% in year 2062/63 and year 2063/64 respectively, which total deposit
amount is Rs. 6612290000 and liquid fund amounts is Rs. 1922748000 in year 2061/62 and total
deposit Rs. 719832700 and liquid fund is Rs. 86442700 in year 2066/67. In year2062/63, the
CRR is increased than the year 2057/58. The total deposit and liquid fund is also increased. But
the CRR is decrease from 2062/63 to 2065/66. The total deposit is increasing trend from 2063/64
to till date but liquid fund is decreasing from 2062/63 to till year. It shows that withdraw are low
and deposit is high. The above ratio shows that CRR of MBL bank is fluctuation.

11
 Figure-1
Cash Reserve Ratio of Nepal MBL
8000000
7000000
6000000
A 5000000
m
o 4000000
u
n 3000000
t
2000000
1000000
0
2062/63 2063/64 2064/65 2065/66 2066/67
Years

The above figure shows that bank has maintained maximum CRR up to 29.08% and the
minimum up to 12.01% in year 2062/63 and year 2063/64 respectively, which total deposit
amount is Rs. 6612290000 and liquid fund amounts is Rs. 1922748000 in year 2061/62 and total
deposit Rs. 719832700 and liquid fund is Rs. 86442700 in year 2066/67. In year2062/63, the
CRR is increased than the year 2057/58. The total deposit and liquid fund is also increased. But
the CRR is decrease from 2062/63 to 2065/66. The total deposit is increasing trend from 2063/64
to till date but liquid fund is decreasing from 2062/63 to till year. It shows that withdraw are low
and deposit is high. The above ratio shows that CRR of MBL bank is fluctuation.

2.2. Fixed deposit to Total Deposit Ratio:

The ratio measures the % of the fixed deposit to total deposit. It is calculated dividing
fixed deposit by total deposit.

Fixed deposit to total deposit ratio= Fixed deposit

Total deposit

The following table shows the % of fixed deposit to total deposit.

12
 Table -2
Fixed Deposit to Total Deposit Ratio
(Rs. In ‘000’)
Year Fixed deposit Total Deposit Ratio (%) (X)
2062/63 2420298 4535734 53.36
2063/64 2929351 6612290 44.30
2064/65 3132677 5572470 56.22
2065/66 3337575 6522817 51.17
2066/67 3352270 7198327 46.57
Mean 50.324
Source: Annual report of MBL Bank

From the above table it is clear that, the years have fixed deposit to total deposit ratio of
more than 50% excepts year 2062/63 and year 2066/67.The fixed deposit is increasing from in
year 2062/63 to till year but total deposit is decreased in year 2063/64 and other year are
increasing consistently. The lowest amount in fixed deposit was observed in year 2062/63 as Rs.
2420298000 and highest in year 2066/67 as Rs. 3352270000. The lowest and highest fixed
deposit to total deposit ratio is 44.30% and 56.22% in year 2062/63 and 2063/64 respectively.
The average balance of Machhapuchchhre Bank’s fixed deposit to total deposit is 50.324 for 5
year.

The fixed deposit to total deposit is also shown by histogram as follows:

Figure -2
Fixed Deposit to Total Deposit
8000000
7000000
6000000
A 5000000
m
o 4000000
u
n 3000000
t
2000000
1000000
0
2062/63 2063/64 2064/65 2065/66 2066/67
Years

13
2.3. Cash and Bank Balance to Fixed Ratio
The following ratio shows the availability of banks highly liquidity or immediate fund to
satisfy it’s unanticipated call regarding fixed deposit. Cash and bank balance to fixed deposit
ratio is calculated cash and bank balance dividing by fixed deposit.

Cash and bank balance to fixed deposit= Cash and bank balance

Fixed deposits

Table -3
Cash and Bank Balance to Fixed Deposited Ratio.
(Rs. In ‘000’)
Year Cash and bank balance Fixed deposit Ratio (%)
2062/63 890019 2420298 36.77
2063/64 1922748 2929351 65.64
2064/65 1619962 3132677 51.71
2065/66 1333534 3337575 39.96
2066/67 864427 3352270 25.79
Mean 43.974
Source: Annual report of MBL Bank

As from the above table one can see that in year 2062/63 cash and bank balance to fixed
deposit ratio is 36.77% with cash and bank balance of Rs. 890019000 and fixed deposit of Rs.
2420298. In year 2063/64 the ratio is 65.64% with cash and bank balance of Rs. 19722748 and
fixed deposit of Rs. 2929351. The ratio of 65.64% isfive year. Then after the ratio decreases. The
lower ratio is 25.79% in year 2066/67. The average cash and bank balance to fixed deposit ratio
of Nepal MBL Bank is 43.974%.The cash and bank balance to fixed deposit is also shown by
histogram as follows:

14
 Figure -3
Cash and Bank Balance to Fixed Deposit Ratio
4000000
3500000
3000000
A 2500000
m
o 2000000
u
n 1500000
t
1000000
500000
0
2062/63 2063/64 2064/65 2065/66 2066/67
Fiscal Years

2.4. Investment to Fixed Deposit Ratio:

This ratio measures the extent to which MBL bank is managing to mobilize its fixed deposit fund.
MBL Bank is calculated its ratio Investment dividing by Fixed deposit.

Investment to fixed deposit ratio= Investment

Fixed deposits
The following table shows the ratio of investment to fixed deposit:

Table -4
Cash and Bank Balance to Fixed Deposit
(Rs. In ‘000’)
Year Investment Fixed deposit Ratio (%)
2062/63 201794 2420298 8.34
2063/64 522932 2929351 17.85
2064/65 599056 3132677 19.12
2065/66 1207275 3337575 36.17
2066/67 1907521 3352270 56.90
Mean 27.676
Source: Annual report of MBL Bank

The above table shows that MBL Bank has maintained investment to fixed
deposit ratio of 8.34% in 2062/63 and then after ratio is increased till year 2066/67. The lowest

15
ratio is 8.34% and highest ratio is 56.90% of Nepal MBL Bank in year 2062/63 and 2065/66
respectively. Investment and fixed deposit are increasing trend from year 2062/63 to 2066/67. It
shows average of ratio is 27.676% in five years. The investment to fixed deposit is also shown by
the histogram as follows:

2.5 Statistical Analysis

Karl Pearson’s Correlation co-efficient of the several mathematical method of measuring

correlation the Karl-Pearson’s Co-efficient of correlation is must widely used in practice. The Pearson
coefficient of correlation is denoted by symbol ‘r’ which shows the relationship between the two
variables.

The value of ‘r’ always has between the +1 when r =+1 it means there is perfect correlation
between variables. When r=0 it means there is no relationship. However in practice such values of ‘r’ as
+1,-1 and 0 are rare. The formula for computing Pearson’s Co-efficient of correlation is:

r = ∑XY
√ (∑X2∑Y2)
Where x=(X-X) & y= (y-y) probable error (PE) with help of probable error it is possible determine the
reliability value of coefficient i.e. formula PE=

0.67451* 1-r2
√n
Where r= coefficient of co-relation
n= no of observation
The value of r is less than PE there is no evidence of correlation i.e. value of r is insignificant and
if value of r is more than six time the PE the r is practically certain and significant.

Table -5
Correlation between Fixed Deposit and Total Deposit
(Rs. In lakh)
Fixed Total x=(x- x2 y=(y- y2 Xy
deposit(x) deposit(y) 30344.6 60883.2)
)
24203 45357 -6141.6 37719250.56 -15526.2 241062886. 95355709.9
4 2
29294 66123 -1050.6 1103760.36 5239.8 27455504.0 -5594933.88
4
31327 55725 982.4 965109.76 -5158.2 26607027.2 -5067415.68
4

16
33376 65228 3031.4 9189385.96 4344.8 18877287.0 12170826.7
4 2
33523 71983 3178.4 10102226.56 11099.8 123205560 35279604.3
2
∑x=15172 ∑y=30441 ∑x2= ∑y2= ∑xy=
3 6 59079733.2 437208264. 133233791.
7 4
[Source: Annual report of MBL Bank

We know,
r = ∑XY
√( ∑X2∑Y2)

r=133233791.4
√(59079733.2*437208264.7)

r=0.829

From the above table the co-efficient of correlation r= +0.829 which is near 1. It indicates
that there is high degree of positive correlation between fixed deposit and total deposit. It
signifies that is fixed deposit increases total deposit also increases.

Now, PE=0.67451* 1-0.8292

√5
= 0.094
PE=0.094 i.e. r>6PE since r is greater than PE there is highly significant relationship between
fixed deposit and total deposit.

2.6. Trend Analysis

The statistical test used in this study which describes the trend of any variables whether it
increases with passes of time.

The formula of list square Yc= a+bx

Where a =∑y and b=∑xy

n x2
Here, Yc is used to designate the trend value of distinguish from the actual value is the Y c
intersects as computed figure of the trend line or the amount of change u variables i.e. associated
with the change of 1 unit on ‘x’ variables. The ‘x’ variable represents time line.

Table -6
Trend Analysis of Fixed Deposit with Passes of Time
(Rs. in Lakh)
X Fixed x=x-2062/63 x2 xy yc
deposit (y)
2062/63 24203 -2 4 -48406 25800.2
2063/64 29294 -1 1 -29294 28072.4
17
2064/65 31327 0 0 0 30344.6
2065/66 33376 1 1 33376 32616.8
2066/67 33523 2 4 67046 34889
∑y=151723 ∑x=0 ∑x2=10 ∑xy=22722
Source: Annual report of MBL Bank
Since ∑x=0, so a =∑y = 151723 =30344.6
n 5

b=∑xy = 22722 = 2272.2

x2 10
Equation of trend line Yc= a+bx = 30344.6+2272.2x
Estimated calculation of trend line values for the year 2066/67.
In the year 2066/67
x= x-2064/65
=3
Current amount (yc) =?
Yc= a+bx
=30344.6+2272.2 * 3
= Rs. 37161.2 million
The result of the calculation of fixed deposit of Machhapuchchhre bank is Rs. 37161.2 million
in 2065/66.

Figure -4
Trend Analysis of Fixed Deposit

A
yc
m 40000
o
u 35000
n 30000
t
25000
a 20000 yc
n 15000
d
10000
T 5000
r 0
e
n 2062/63 2063/64 2064/65 2065/66 2066/67
d Years

2.7 Major Findings

18
- The decreasing ratio of investment to other deposit indicates that Machhapuchchhre
Bank has not been able to mobilize its available fund properly therefore, it is suggested to
Machhapuchchhre Bank to mobilize the fund properly.

- The percentage of saving deposit out of total deposit is very low therefore, it is
recommended to Machhapuchchhre Bank to formulate different plans and policies in order to
attract more depositors towards saving deposit.

The percentage of saving deposit out of total deposit in the beginning year is not
satisfactory which indicates Machhapuchchhre Bank is not able to attract the General Public
towards saving deposit. This is due to the lack confidence among General Public on its
performance. However the ratio of saving deposit to total deposit is increasing year by year
which shows the success of Machhapuchchhre Bank to attract more people towards saving
deposit year by year and to create a reputed image among General Public. The upward slope of
the trend line of saving deposit from left to right indicates that more people are attracting in
saving deposit. It further indicates that the customers of Machhapuchchhre Bank are keeping
their amount for long time and the banking habit of General Public is increasing year by year.

The Co- efficient of Correlation between saving deposit and investment made by
Machhapuchchhre Bank is 0.88 which indicates that there is a nearly prefect Correlation
between saving deposit and investment. It ensures

19
 CHAPTER – III
3. SUMMARY, CONCLUSION AND RECOMMENDATIONS

3.1. Summary

A field work report has been undertaken to make a thorough study and analysis on the
performance of Machhapuchchhre Bank which was established on 1st Kartik 2051 B.S. by
issuing 30% share to General Public. Later on, it was collaborated with Punjab National Bank
Limited, India in 1995 which hold 20% share of Machhapuchchhre Bank. For the study the
annual report of 5 years from the fiscal year 2061/62 to 2066/67 have been analyzed properly.
The study is mainly based on the balance sheet prepared by Machhapuchchhre Bank at the end of
fiscal year and necessary adjustment, where ever it is necessary has been undertake with
consolation of management personnel of Machhapuchchhre Bank. In this study, different
financial as well as statistical tools are used to analyze on the performance of Machhapuchchhre
Bank. The main concentration area of the study is only on saving deposit.

Every commercial bank is required to maintain at least 10 % CRR of its total deposit to
meet unanticipated demand of cash from the clients as per rules and regulation of NRB
However; Machhapuchchhre Bank has maintained 18.43% CRR of its total deposit in average
which is more than legal requirement. It is quite protectable from the view point of risk as it
makes easily available of cash to meet the demand on unanticipated calls of different deposits. In
other hand holding more amount as idle will be harmful for commercial bank from the view
point of profitability as it decreases the fund of bank to invest in productive sectors which
ensures regular amount of interest as revenue.

3.2 Conclusion

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 As per regulation of NRB, there is a legal provision for a commercial bank to maintain its
balance with NRB at least 10% in average out of its total deposit. At this prospect
Machhapuchchhre Bank seems to work hard as it has maintain only 8.42% in average balance
with NRB of its total deposit which is not enough to fulfill the legal requirement.
Machhapuchchhre Bank has maintained above 10% balance of its total deposit only in the year
1997/98 and 2006/07. The efficiency of commercial bank highly depends on its capacity to
mobilize its available funds into productive sector which ensures to secure interest regularly and
recoverable of interest amount on mature date. So far saving deposit of is concerned; it has
managed successfully to invest into productive sector in the beginning year. In the fiscal year
2061/62 Machhapuchchhre Bank has extended the ratio of investment to saving deposit is
decreasing in the next three years which is not a good result for future, but it manages to increase
it in this current year 2061/62 to 2066/67 from 29.17% to 65.15. Which indicates that it may
goes on nice in the coming years. However the average ration of investment to saving deposit is
88.99%.

The percentage of saving deposit out of total deposit in the beginning year is not
satisfactory which indicates Machhapuchchhre Bank is not able to attract the General Public
towards saving deposit. This is due to the lack confidence among General Public on its
performance. However the ratio of saving deposit to total deposit is increasing year by year
which shows the success of Machhapuchchhre Bank to attract more people towards saving
deposit year by year and to create a reputed image among General Public. The upward slope of
the trend line of saving deposit from left to right indicates that more people are attracting in
saving deposit. It further indicates that the customers of Machhapuchchhre Bank are keeping
their amount for long time and the banking habit of General Public is increasing year by year.

The Co- efficient of Correlation between saving deposit and investment made by
Machhapuchchhre Bank is 0.88 which indicates that there is a nearly prefect Correlation
between saving deposit and investment. It ensures that any act of increasing saving deposit
simultaneously increases the quantity of investment.

3.3 Recommendations

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 The study discloses some weakness of Machhapuchchhre Bank therefore the following
recommendations are submitted.

Like as other joint venture commercial banks the main concentration area of
Machhapuchchhre Bank is limited to Kathmandu valley and major other cities. The major part
of Nepalese people are living in villager where they are highly exploited by Shau and Mahajan'
by charging high interest. Compounded interest and even by manipulating principal amount. The
overall economic development of the country is almost impossible until and unless the programs
are matched with those people requirement. Therefore, it is suggested to Machhapuchchhre
Bank to expand its branches in rural areas for the economic up liftmen of poor people who live
villages.

Machhapuchchhre Bank has maintained 18.43% CRR in average which is much high
then the legal requirement. The excess of CRR indicates that Machhapuchchhre Bank fund
remains idle and has not been managed properly. Therefore, it is suggested to Machhapuchchhre
Bank to reduce CRR ratio about 10% in future and investment amount into productive sector.

The services provided by Machhapuchchhre Bank are similar to those provided by other
commercial banks. Therefore, it is recommended to Machhapuchchhre Bank to formulate
different new schemes through which it can serve more people as well as to generate required
profit to survive in highly competitive market.

- The decreasing ratio of investment to other deposit indicates that Machhapuchchhre

Bank has not been able to mobilize its available fund properly therefore, it is suggested to
Machhapuchchhre Bank to mobilize the fund properly.

- The percentage of saving deposit out of total deposit is very low therefore, it is
recommended to Machhapuchchhre Bank to formulate different plans and policies in order to
attract more depositors towards saving deposit.

- Being a part of society, it has a great responsibility in the social development; therefore it
is recommended to Machhapuchchhre Bank to participate in social events such as in education
health program environment protection etc.

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