A STUDY ON MOBILIZATION OF DEPOSIT

OF
HIMALAYAN BANK LTD

By
SARITA MAHARJAN
Shankar Dev Campus
T.U. Registration No. 10996- 93
Campus Roll No.: 937/058

Submitted To:
Office of the Dean
Faculty of Management
Tribhuvan University

In Partial Fulfillment of the Requirements

For
Masters in Business Studies (M.B.S.)

Kathmandu, Nepal
April, 2008
 RECOMMENDATION
This is to certify that the thesis:

Submitted by:
SARITA MAHARJAN

Entitled:

A Study on Mobilization of Deposit of Himalayan Bank Limited

has been prepared as approved by this Department in the prescribed format of

Faculty of Management. This thesis is forwarded for examination.

…………………………
Yamesh Man Singh
Supervisor ……….…………….....

Dr. Kamal Deep Dhakal

Campus Chief
Shanker Dev Campus
 TABLE OF CONTENTS

Recommendation
Viva-Voce Sheet
Declaration
Acknowledgement
Table of Contents
List of Table
List of Diagram
Abbreviation

Page
CHAPTER – I INTRODUCTION 1-13
1.1 General Background 1
1.2 Importance of Financial Institution 2
1.3 Origin of Banking 3
1.4 Banking in Nepalese Perspective 4
1.5 Introduction of Himalayan Bank Ltd 6
1.5.1 Introduction 6
1.5.2 Progress as per the strategies and policies of
Himalayan Bank Limited. 8
1.5.3 Major Financial Achievements of HBL 8
1.6 Statement of the problem 9
1.7 Objectives of the study 11
1.9 Limitation of the study 11
1.10 Significance of the study 12
1.11 Organization of the study 13
CHAPTER – II LITERATURE REVIEW 14-44
2.1 Conceptual Review 14
2.1.1 Meaning of Deposit 15
2.1.2 Types of Deposit 16
2.1.3 Deposit Mobilization 18
2.1.4 Needs for Deposit Mobilization 20
2.1.5 Advantage of Deposit Mobilization 22
2.2 Investment, Investment Policy, and Its Principles 24
2.2.1 Investment 24
2.2.2 Investment policy 25
2.2.3 Principles of sound Investment Policy 25
2.3 Review of Books 26
2.3.1 Review of Journals and Books 26
3.3.2 Review of Articles 28
3.3.3 Review of the previous thesis 32
2.4 Research Gap 43

CHAPTER - III RESEARCH METHODOLOGY 45-56

3.1 Research Design 45
3.2 Population and sample 45
3.3 Research Data Collection Technique 45
3.4 Tools and Technique used 46
3.4.1 Financial Tools 46
3.4.1.1 Ratio Analysis 46
3.4.2 Statistical Tools 54
3.4.3 Trend Analysis 56

CHAPTER - IV DATA PRESENTATION AND ANALYSIS 57-85

4.1 Deposit position of HBL 57
4.2 Credit Position of HBL 59
4.3 Credit deposit ratio 60
4.4 Return on Total deposit ratio 61
4.5 Return on Total Credit ratio 63
4.6 Interest earned to credit and analysis 64
4.7 Non performing loan to credit & advance ratio 65
4.8 Performing loan to credit & advance ratio 66
4.9 Current deposit position 66
4.10 Saving deposit position 68
4.11 Fixed deposit position 69
4.12 Growth ratio of HBL 70
4.12.1 Growth ratio of total deposit 70
4.12.2 Growth ratio of total credit 72
4.13 Trend Analysis 73
4.13.1 Trend analysis of total deposit 74
4.13.2 Trend analysis of total credit 75
4.13.3 Trend analysis of Net Profit 76
4.14 Coefficient of Correlation 78
4.14.1 Correlation Coefficient between total deposits
& total credit 79
4.15 Investment and credit of HBL 80
4.16 Major finding 82
CHAPTER – V SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 86
5.2 Conclusion 88
5.3 Recommendation 91

Bibliography
Annex
 CHAPTER - I
INTRODUCTION

1.1 General Background

Nepal is one of the developing countries in the economic scenarios of the world. A
landlocked with 147,181 sq. km. is situated between two giant countries India and
China. With a population of 23.21 million and having a growth rate of 2.27%,
more than 30% of the people are below the poverty line. Its average annual per
capita income is $ 240 and GDP growth rate at producer’s price of 6.2% (10th Plan
– 2059 to 2064 B.S and recent formal report 2004).

Being a developing country it needs to attract investor in capital market for

economic development. Economic development refers to the process where the
real national income of a country increases. Therefore, after the revolution of
democracy of 2051 in Nepal, with economic liberalization policy, a number of
financial institutions, banks, insurance companies originated in a short span of
time.

Due to low economic growth rate, the economic condition for development is
sluggish compared to other developing and developed countries. In spite of being
rich in natural resources it is lagging behind from development because of lack of
proper management, investment, inadequate capital and improper utilization of
resources.

Economic standard and growth, of any nations determines the lifestyle of the
people. Hence, Nepal must pay attention to uplift the economic estate of affairs for
prosperous progress and advancement of the country.
Nepal has god-gifted natural resources. Nepal is adapting a planned economic
policy since four decade ago. To attend the economic development of the country,
the environment for establishing corporation is needed for efficient utilization of
resources.

The development of economy basically depends upon the development of

financial sectors. Banking is one of the main financial sectors, which helps to
formulate capital by collecting scattered amount from people. Banking sector can
be taken as a platform through which the scattered saving and scares resources can
be transferred from idle sector into productive sectors that ultimately helps in the
economic growth rate of the country.

1.2 Importance of Financial Institutions

Every country has to give an emphasis on stable and sustainable growth of
economy. Until and unless a nation mobilizes its own domestic resources, it
cannot achieve economic growth. Transfer of scattered capital funds from various
small savers to productive sectors is the major function of financial market.
Financial market consists of financial institutions including financial
intermediaries using various financial Instruments and linking savers and users of
funds.

Financial institutions can be considered as the catalyst to the economic growth of a

country. The development process of a country involves in the mobilization and
deployment of resource and financial institutions can play the role of financial
intermediary. In the present economic context, the financial institutions have
become more significant than ever. Their activities like lending towards priority
sector, deprived sector and thereby helping in income generating activities for the
poor can be considered as the major role played by them for the endeavor toward
poverty alleviation.
In Nepal, there are several kinds of financial institutions such as Commercial
Banks, Development Banks, Rural Development Banks, Finance Companies, Co-
operatives involving in savings and credit activities etc. The financial institutions
are required to follow the regulation of Nepal Rastra Bank (NRB), the Central
Bank of Nepal.

1.3 Origin of Banking

There was an economic crisis in Venice in 1171 A.D. In order to over come from
the crisis, the government collected compulsory loan from its citizens at 1 % rate
of their property for 5% rate of interest. This money was called Monte in Italy.
Therefore the word Bank was originated from Italian word ‘Banco’ which means
‘bench’.

Banking has come to the present advance form after many reforms and
developments.

According to Drof Kinley “Bank is an establishment, which notes to individuals

such as advance of money as may be required and safety made to and to which
individuals entrusts money when and required by them for use”
According to Geoffrey Crowther “Merchant, Goldsmiths and Money Lenders are a
storey of modern banking.”

According to World Bank, “Banks are financial institution that accepts funds in
the form of deposit repayable on demand or in short notice”.

Many of today’s banking services were first practice in ancient Lydia, Phoenicia,
China and Greece where trade & commerce were flourished. The temples in
Babylon were made with loans taken from their treasuries in early 2000 BC. The
temples of ancient Greece served as safe-deposit values for the valuable
worshippers. Also the Greeks wined the money and developed the system of
credit. The Roman Empire had a highly developed Banking system with the
bankers accepting deposits of money, loans and mortgages, with this banking
declined in Europe.
The history of modern Banking system was started from England with the
establishment of Bank of England. For more than 300 years on the European
continent was in the hands of powerful statement and wealthy private Bankers.

Before 1848 B.C. the Goldsmith used to store people’s gold and other valuable
goods and charge nominal charges against the deposit. That time people used to
deposit their gold and valuable goods for the sake of security rather than earning
interest. Broadly speaking, bank collects surplus money from the people who are
not using it at present and hoarding for future and supplies loan to those who are in
the position to use it for productive purpose.

Basically banks perform various types of services like collection of deposits from
the public, supply loans to those investors who want to invest in business, industry
and other sectors, overdraft, letter of credit, bills discounting, promissory notes,
selling of other shares to general public, agency function of tasks guarantee
against any disable of payment (guarantee services) etc.

1.4 Banking in Nepalese Perspective

The history of modern banking system in Nepal began in 1994 B.S. with the
establishment of Nepal Bank Ltd. as the first commercial bank of Nepal. The bank
was established to render services to the people and for the economic development
of the country. Prior to the establishment of Nepal Rastra Bank, it has played the
vital role as a central bank also. With establishment of NRB in 2013, the
development of the financial system took a momentum realizing the importance of
industrial development. Then HMG/N and NRB established the Nepal Industrial
Development Corporation (NIDC) in 2013.

The move towards the financial liberalization encouraged the entry of joint
venture commercial banks. The Nepal Arab Bank Limited (recent name NABIL
Bank Ltd), the first joint venture commercial bank of Nepal was established in
2041 under the Commercial Bank Act of 2031. At present the number of
commercial banks in the country has reached to 18 including Himalayan Bank
Ltd.
List of commercial banks and their branches in Nepal:
S.N. Commercial Banks Operation Head Office
Established  Date
Date 
1. Nepal Bank Ltd 1994-7-30 1994-7-30 Kathmandu
2. Rastriya Banijya Bank 2022-10-10 2022-10-10 Kathmandu
3. NABIL Bank Ltd. 2041-03-29 2041-03-29 Kathmandu
4. Nepal Investment Bank 2041-11-16 2042-11-16 Kathmandu
Ltd.
5. Standard Chartered Bank 2043-10-16 2043-10-16 Kathmandu
Nepal Ltd.
6. Himalayan Bank Ltd. 2049-10-05 2049-10-05 Kathmandu
7. Nepal SBI Bank Ltd. 2050-03-23 2050-03-23 Kathmandu
8. Nepal Bangladesh Bank 2050-02-23 2050-02-23 Kathmandu
Ltd.
9. Everest Bank Ltd. 2051-07-01 2051-07-01 Kathmandu
10. Bank of Kathmandu Ltd. 2051-11-28 2051-11-28 Kathmandu
11. Nepal Credit and 2053-06-28 2053-06-28 Siddhartha
Commerce Bank Ltd. Nagar
12 Lumbini Bank Ltd. 2055-04-01 2055-04-01 Narayangadh
13. Nepal Industrial and 2055-04-05 2055-04-05 Biratnagar
Commercial Bank Ltd
14. Machhapuchhre Bank Ltd. 2057-06-17 2057-06-17 Pokhara
15. Kumari Bank Ltd. 2056-08-24 2056-12-21 Kathmandu
16. Laxmi Bank Ltd. 2058-06-11 2058-12-21 Birgunj
17. Siddhartha Bank Ltd. 2058-06-12 2058-09-09 Kathmandu
18. Globle Bank Ltd. 2062-05-08 2063-09-08 Kathmandu
Source: Nepal Rostra Bank, Financial Report 2006

1.5 Introduction of Himalayan Bank Limilted.

1.5.1 Introduction
Himalayan Bank was established in 1993 A.D. in joint venture with Habib Bank
Limited of Pakistan. Despite the cutthroat competition in the Nepalese Banking
sector, Himalayan Bank has been able to maintain a lead in the primary banking
activities- Loans and Deposits.

Legacy of Himalayan lives on in an institution that's known throughout Nepal for

its innovative approaches to merchandising and customer service. Products such as
Premium Savings Account, HBL Proprietary Card and Millionaire Deposit
Scheme besides services such as ATMs and Tele-banking were first introduced by
HBL. Other financial institutions in the country have been following the lead of
HBL introducing similar products and services.

Therefore, HBL stand for the innovations that bring about in this country to help
Customers besides modernizing the banking sector. With the highest deposit base
and loan portfolio amongst private sector banks and extending guarantees to
correspondent banks covering exposure of other local banks under credit standing
with foreign correspondent banks, HBL obviously has lead the banking sector of
Nepal. The most recent rating of HBL by Bankers’ Almanac as countries number
1 Bank easily confirms the claim.

All Branches of HBL are integrated into Globus (developed by Temenos), the
single Banking software where the Bank has made substantial investments. This
has helped the Bank provide services like ‘Any Branch Banking Facility’, Internet
Banking and SMS Banking. Living up to the expectations and aspirations of the
Customers and other stakeholders of being innovative, HBL very recently
introduced several new products and services.
Millionaire Deposit Scheme, Small Business Enterprises Loan, Pre-paid Visa
Card, International Travel Quota Credit Card, Consumer Finance through Credit
Card and online TOEFL, SAT, IELTS, etc. fee payment facility are the few
products and services.
HBL also has a dedicated offsite ‘Disaster Recovery Management System’.
Looking at the number of Nepalese workers abroad and their need for formal
money transfer channel; HBL has developed exclusive and proprietary online
money transfer software- Himal Remit TM. By deputing staff with technical tie-
ups with local exchange houses and banks, in the Middle East and Gulf region,
HBL is the biggest inward remittance-handling Bank in Nepal. All this only
reflects that HBL has an outside-in rather than inside-out approach where
Customers’ needs and wants stand first.

Corporate Social Responsibility (CSR) holds one of the very important aspects of
HBL. Being one of the corporate citizens of the country, HBL has always
promoted social activities. Many activities that do a common good to the society
have been undertaken by HBL in the past and this happens as HBL on an ongoing
basis. Significant portion of the sponsorship budget of the Bank is committed
towards activities that assist the society at large.

Himalayan Bank Limited holds of a vision to become a Leading Bank of the

country by providing premium products and services to the customers, thus
ensuring attractive and substantial returns to the stakeholders of the Bank.

The Bank’s mission is to become preferred provider of quality financial services in

the country. There are two components in the mission of the Bank; Preferred
Provider and Quality Financial Services; therefore HBL believes that the
mission will be accomplished only by satisfying these two important components
with the Customer at focus. The Bank always strives positioning itself in the heart
and mind of the customers.

1.5.2 Progress as per the Strategies and Policies of Himalayan

1. The Himalayan Bank successfully inaugurated its 15th branch in Rupandehi,
Butwal during the year 2063 B.S.
2. With the view of establishing environment- friendly banking system, the
bank office situated at Thamel increased its flat.
3. To make the banking transactions easier and faster the bank united the
branches of Globule Banking software situated in the capital as well as
other districts.
4. With the objective of reducing bad debts and internal expenses, the bank
altered its regulations and procedures regarding loan.
5. To make the general public aware of new services and products, the bank
developed “Millionaire deposit scheme” and “small business enterprise
scheme” in cheaper interest rate.

1.5.3 Major Financial Achievements of Himalayan Bank

The detail financial position of the bank is cited as per the financial statement
(Balance Sheet and Profit & Loss A/C 2063 Ashad). The following are as the
major financial achievement of the bank:

1. Total assets of the bank have increased to 3,656 million in the year
2062/063 which is a growth of approximately 12.56% as compared to the
same of the preceding year.
2. Deposit mobilized by the bank has increased to Rs. 2,542 million in the
year 2062/058, which is a growth of approx 10.17% than the preceding
year.
3. Total outstanding LDO has grown by Rs 1,561 million during the fiscal
year 2062/063 which a growth of 10.48% from the same of the preceding
year.
4. The income from interest has grown by Rs. 180 million during the fiscal
year 2062/063, which is 12.45% increment than the immediate previous
year.
5. Other income than interest has grown by Rs. 160.145 million in the fiscal
year 2062/063, which is growth by 50.96% than the preceding year.
6. The interest expense has increased by Rs. 86.88 million showing by
15.46% during the fiscal year 2062/063 than the preceding year.
7. Expenses other than interest have increased by Rs. 108.32 million with by
23.38% in the year 2062/063 than the preceding year.
8. Rs. 141.18 million, which records 48.39% growth than the previous year
2062/63, has increased net profit after tax during the fiscal year 2062/063.
9. Total capital fund of the Bank has grown by Rs. 128.7 million with a
growth by 20% than that of preceding year. (www.himalayanbank.com)

1.6 Statement of the Problem

Nepal’s development efforts enhanced only after 2046 B.S. when the people’s
movement reinstated the democracy. After the reinstatement of democracy, the
government took the free market economy policy, which induced the joint venture
banks in the country.

Capital plays important role for infrastructure building. It is required from the
promotional stage up to the end of a banking sector. No banking transactions can
be operated without capital. So the capital is labeled as ‘life blood’ of banking
sector. The capital can be collected from the various sources. The various sources
are shares, debentures, public deposits, bank loan etc. Generally, there are various
sources of accumulating capital internally and externally. Under external sources,
aid, grants, and loans are the main sources. In internal sources of accumulating
capital are taxes, public enterprises, and public debt. But due to under
development, poverty and lack of banking knowledge, the desired capital for the
development of the country can’t be accumulated from those internal sources.

The investment policies of Nepalese commercial banks are unorganized in

manner, due to its insufficient formulation amongst them. The implementations of
these policies are in effective. Due to the present growing need, the credit
extended by the commercial banks to agriculture and industrial sector has not been
able to satisfy its proper mobilization. There is Nepotism and political pressure
which have affected the investment decision of the commercial banks granting
loan against insufficient deposit, overvaluation of goods pledged, and building
mortgaged, risk averting decision regarding loan recovery and negligence in
recovery of overdue loan is some of the basic loopholes and the result of unsound
investment policy sighted in the banks.

The corruptions made by the top-level management, negligence, over staffing are
the some reasons that are facing by the Nepalese state-owned commercial banks.
The other common problems for both joint venture banks and state-owned
commercial banks are the cutthroat competition. New entry of banks and financial
companies has made the tough competitions between them. Most people of Nepal
are illiterate and people are unaware about the banking system. These commercial
banks are active only in urban sector because they see great opportunity for the
maximization of profit. Rural area is being neglected. There are only 5 rural
development banks operating in Nepal. The problems specially related to deposit
mobilization of commercial banks in Nepal have been presented as under and the
study has attempted to answer the following questions:

1. Is Himalayan Bank following the proper deposit mobilization?

2. Are there the effective mobilization and other resources at optimum cost?
3. Due to imbalance in the growth of banking in the country, are people
deprived of the banking facilities?
4. What is the relationship between loan loss provision and total loan and
advance?
5. How far Himalayan Bank has been efficient in its operation?

1.7 Objectives of the Study

The study on any subject matter would not be fruitful without objectives. The
central objective of this study is to evaluate the efficiency of Himalayan Bank,
appropriately for the application of comprehensive deposit mobilization Policy.
Therefore, the major objectives are as follows:
1. To analyze the trend of deposit mobilization of Himalayan Bank.
2. To evaluate the current deposit policy of the Himalayan Bank and its
effectiveness.
3. To examine and analyze the various deposit services offered by Himalayan
bank.
4. To study the strength of the existing deposit policy and relationship of
deposit and loans and advances of Himalayan Bank.
5. To study the performing and non- performing loan of Himalayan Bank.
6. To identify the relationship of interest of deposits with the interest of loan
of Himalayan Bank.
7. To provide suggestions and recommendations for improvement of the
deposited mobilization of the bank.

1.8 Limitations of the Study

The study is based on different assumptions and suppositions. So, this study
however is not free from the restraints. The following are the limitations of the
study:
1. Primarily, the study is based on the secondary data.
2. The study covers the deposit and credit position of HB based on the reveals
made by the financial position of the bank.
3. The study covers the related data of the Bank from the F/Y 2058/059 to
2062/063 only.
4. The accuracy of this study is based on the data available from the
management of Himalayan Bank and the various published documents of
the Bank and the response made by the respondents during the informal
talk.

1.9 Significance of the Study

In developing countries, for the rapid development of the economy, there should
be proper utilization of resources. Commercial banks play important role in
mobilizing the resources in any developing countries by developing the banking
habit among the people who helps to collecting the small-scattered resources in
one bulk and utilizing them in further productive purposes and rendering other
valuable services to the community. Thus, commercial banks are the main
institutions, which are meant for collection and utilization of small-scattered
savings of the people.

This research study is concerned with the problems of deposits mobilization and
proper utilization of HB. This study consists of the study of deposits, deposit
growth in HB, deposit mix of HB. The study deals with efficiency of HB in
deposit mobilization. Therefore the main focus of the study, whether the HB is
able to utilize the scattered resources and mobilizing them efficiently.

This research study may be helpful for future researchers as a reference material
for those who want to know the investors, customers (depositors, loan takers.) and

personnel of bank to take various decisions regarding deposits of Himalayan Bank.

1.10 Organization of the Study

Every study needs different stages and procedures to develop in the form of report.
The study is organized in the following chapters in order to make the study easy to
understand.
Chapter 1: Introduction
It deals with introduction of the main topic of the study like general background,
importance of financial institution, origin of Banking, study of the problem,
objectives of the study, limitations of the study, significance of the study.
Chapter 2: Review of Literature
It is concerned with review of literature. This contains conceptual framework,
review of books, and review of research papers and published and unpublished
master’s thesis of T.U.
Chapter 3: Research Methodology
It is concerned with methodology of the study. For this purpose various financial
tool and statistical tool would be defined to relate with the analysis of the data.
Chapter 4: Presentation and Analysis of Data
It deals with presentation, analysis and interpretation of relevant data through
definite courses of research methodology with focuses on financial and statistical
analysis related to investment and fund mobilization with performing and non-
performing loan of HBL. This also contains the major findings stained out of
analysis of data.
Chapter 5: Summary, Conclusion and Recommendations
It contains the summary of the study, conclusion recommendations and
suggestions on the basis of the study.

CHAPTER­II 
REVIEW OF LITERATURE

2.1 Conceptual Review

It is basically concerned with the theoretical aspect relevant to the topic. Under
this heading the concept and meaning of some of the terms used in the study have
been discussed.

“Commercial banks deal with other people’s money. They have to find ways of
keeping their assets liquid so that they could meet the demands of their customers.
In this anxiety to make profit the bank can’t afford to lock up their funds in assets,
which are not easily releasable.
The depositors must be made to understand that the bank is fully solvent. The
depositor’s confidence could be secured only have the bank is able to meet the
demand for cash promptly and fully. The banker has to keep adequate cash for this
purpose. Cash is an idle asset and the bankers can’t afford to keep a large
possession of his assets in the form of cash. Cash brings in no income to the bank.
Therefore the bankers have to distribute his assets in such a way that he can have
adequate profits without sacrificing liquidity’’ (Radhaswamy, 1979: 27)

Commercial Bank Act 2031 B.S. of Nepal has defines that “ A commercial bank is
one which exchange money, deposits money, accepts deposits, grants loan and
performs commercial banking function and which is not a bank meant for co-
operative, agriculture, industries or for such specific purpose.” (Commercial Bank
Act 2031 B.S.

Investment Policy of Commercial Bank

The main objective or the target of Commercial Bank is to earn profit. Thus the
goal of commercial bank is to earn profit so there are many reasons after the goal
of gaining profit. A bank is a legal person, which is independent. It cannot do
anything alone. The only individual bank without aim of gaining profit is the
central bank. Other banks are established with a view to earn profit by granting
loan. It is inspired with the object of earning profit from the financial sectors and
also helps in the economic development of the country and also takes the social
responsibilities. Therefore the commercial banks should have the ability to use the
policy of banking investment and to implement it much more carefully otherwise
the result of the banking may be unsuccessful in fulfilling its goal.

Non-performing Loans
In general sense, a non-performing loan is that type of loan where it is in default or
close to being in default. Many loans become non-performing after being in
default for 3 months, but this can depend on the contract terms. According to IMF
“a loan is nonperforming when payments of interest and principals are past due by
90 days more, or at least 90 days of interest payments have been capitalized,
refinanced or delayed by agreement, or payments are more than 90 days overdue,
but there are other good reasons to doubt that payments will be made in full”

Performing Loans  
Performing Loans are those loans that repay principal and interest timely to the
bank form the cash flow it generates. In the context of Nepal, the loans classified
as pass category is termed as per performing loan.

2.1.1 Meaning of Deposit

Bank deposits arise in two ways. The first is when the banker receives cash and
credits customer’s account. It is known as a primary or a simple deposit. Such
primary deposit is made from the initiative of depositors. The second, when the
bank advances loans, discounts bills, provides overdraft facilities and makes
investments through bonds and securities. This is called derived deposit of
derivative deposit. They add to the supply of money. Banks actively create such
deposits (The Encyclopedia Britanica, 1981: 700)

It is important that the commercial bank’s deposit policy is the most essential
policy for its existence. The growth of bank primarily depends upon the growth of
its existence. The volume of fund that management will use for creating income,
through loans and investment, is determined largely by the bank’s policy
governing deposits. In other words, when the policy is restrictive, the growth of
bank is restarted of accelerated with the liberalization in the deposit policy. In
banking business, the volume of credit extension much depends upon the deposit
base of a bank. The deposits creating powers of the banks forces to raise the assets
along with the liabilities side of the balance sheet. In other words, assets give rise
to liabilities. Traditionally, the deposit structure of a commercial bank was thought
to be determined by the depositors and not by the bank’s management. There are
regular changes in this view in the modern banking industry. Thus, the banks have
evolved from relatively passive acceptors of deposits to achieve bidders for funds.
Deposit is one of the aspects of the bank liabilities that management has been
influencing through deliberate action (Vaidya, 1999: 68).

2.1.2 Types of Deposit

At the outset, it is necessary to know what a deposit is. Commercial Bank Act
2063, defines deposits is the amounts deposited in a current, saving or fixed
accounts of a bank of financial institution. People in general, the businessman, the
industrialists, and other individual’s deposit in a bank accepts three types of
deposits. They are current, saving, and fixed. But in other countries, Can be found
more than three deposits. In Nepal, the bank grants permission to their customers
to open three types of accounts under financial basis. Therefore, deposits of the
bank are classified on the following basis:

i. Demand Deposit: The deposit in which an amount is immediately paid at

the time of the holder’s demand is called demand deposit. In other words, it can
also be called current account. Current account means an account of amount in a
bank, which may be drawn at any time on demand. Its transaction is continual and
such deposits cannot be invested in productive sector. So, such type of amount
remains as stock in the bank. Though the bank cannot gain profit by investing it in
new sector after taking from the customer, this facility is given to the customers.
Therefore, the bank does not give interest on this account. From such deposit, the
merchants and traders are benefited more than the individuals. The bank should
pay as many times as the cheque is forwarded until there is deposit in the account.
The bank can’t impose any conditions and restrictions in demand deposit. An
institution or an individual, who usually needs money daily, precedes acts and
transactions through such deposit. The current account is very important for the
customers of the bank. Who need money frequently.
ii. Saving Deposit: The bank can collect capital through the saving deposit as
well. This deposit is also important and its necessity and scope is not negligible.
According to the Commercial Bank Act 2063, saving account means an account of
amounts deposited in a bank for saving purposes. This account is suitable and
appropriate for the people of middle class, farmers, and the labors having low
income, officials, and small businessmen. This saving deposit bears the features of
both the current and fixed period deposits. Generally, most accounts are opened on
saving deposit in a bank. Therefore, this deposit is popular in people in general.
According to internal rules of banks, some banks demand a small amount and
some demand a great deal of money to open saving account. Banks give interest
on it.
iii. Fixed Deposit: Under the Commercial Bank Act 2063, fixed account
means an account of amounts deposited in a bank for a certain period of time. The
customers opening such account deposit their money in this account for a fixed
period. In other word, it is called time deposit because this amount is deposited for
a certain period. Usually, only the person or the institution that wants to gain more
interest opens such type of account.

The period of time can be 3 months, 6 months, 9 months, 1 year, 2 years, 3 years,
etc. More interest rate is payable in this deposit than other deposits. Both parties,
the bank and the customers, can take benefit from this deposit. The bank invests
this money on the productive sector gaining profit thereby and the customers too
can make his financial transaction stronger by getting more interest fr0m this
deposit. The amount collected in the fixed deposit must be returned to the
customer after the date is expired. The amount can’t be withdrawn before the fixed
time (Bhandari, 2003: 73-76).
2.1.3 Deposit Mobilization
Deposit refers to saving of a capital were as utilizing of the capital in certain sector
is mobilization. Therefore deposit mobilization is the utilization of a certain sum
of saving of depositors to increase the income of the depositors. Collecting
scattered small amount of capital through deferent medias and investing the
deposited or collected fund in productive sector with a view to increase the income
from the amount received from of the depositors is meant deposit mobilization. It
also supports to increase the saving through the investment of extra amount (NRB,
Bankers Prakashan, 1984: 12).

When deposit mobilization is concerned then it is concerned with increasing

income of the low income group of people and to make them able to save more
and to invest again the collected amount in the development activities (NRB,
Bankers Prakashan, 1984: 10).

The main objective of the deposit mobilization is to covert the idle saving into
active saving (Nepal Bank Patrika, 2037: 7).

In developing countries, there is always the shortage of capital for the

developmental activities. There is the need of development in all the sectors. It is
not possible to handle and develop all the sectors by the government alone at a
time. Private people also can’t undertake large business because the per capita
income of the people is very low and their propensity to consume is very high.
Due to the low income, their saving is very low and capital formation is also very
low. So, their saving is not sufficient for carrying out developmental works. Also
due to the low raw materials and not utilizing the natural resources it has become a
difficult task to increase the developmental activities.

To achieve the higher rate of growth and per capita income, economic
development should be accelerated. Economic development may be defined in a
very broad sense as process of rising income per head through the accumulation of
capital (Johnson, 1985: 11). But how capital can be accumulated in the developing
countries? There are two ways of capital accumulation in the developing country,
which are external and internal sources. In the first group, foreign aid, loans and
grants are the main, while in the later, financial institutions operating within the
country play a dominant role. In the context of Nepal, commercial banks are the
main financial institutions, which can play very important role in the resource
mobilization for the economic development. Trade, industry, agriculture, and
commerce should be development for the economic development.

Capital formation is possible through collecting scattered unproductive and small

savings from the people. This collected fund can be utilized in productive sectors
to increase employment and national productivity. Deposit mobilization is the
most important source of the capital formation (RBB, Upahar, 2055: 14).

Banking transaction refers to the acceptance of deposit from the people for
granting loan and advances, and returning the accepted deposit at demand or after
the expiry of the certain period according to the banking rules and regulations.
This definition clearly states that deposit mobilization is the starting point of
banking transactions. Banking activities can be increased as well as the
accumulated deposit can be mobilized effectively (NRB, Nepal Bank Patrika,
2037: 7).

A commercial bank changes the scattered unproductive small savings into loan
able and active savings. The bank not collects saving, but also provides incentives
to the savers and helps them to be able to save more (RBB, Uphahar, 2055: 15).

Commercial banks are set up with a view to mobilize national resources. The first
condition of national economic development is to be able to collect more and more
deposits. In this context, the yearly increasing rate of commercial banks deposit
clearly shows the satisfactory progress of deposit mobilization (RBB, Yhahar,
2055: 20).

2.1.4 Needs for Deposit Mobilization

The following are the reasons for why deposit mobilization is needed in a
developing country like Nepal. Workshop report “Deposit Mobilization why and
how” states the following points as the needs for deposit mobilization:

i. Capital in needed for the development of any sector of the country. The
objective of deposit mobilization is to collect the scattered capital in
different forms within the country.
ii. It is much more important to canalize the collected deposit in the priority
sectors of a country. In our developing country, we have to promote our
business and other sectors by investing the accumulated capital towards
productive sectors.
iii. The need for deposit mobilization is felt to control unnecessary
expenditure. If there is no saving, the extra money that the people have, can
be forwarded buying unnecessary and luxury goods. So, the government
also should help to collect more deposit, steeping legal procedures to
control unnecessary expenditures.
iv. Commercial banks are playing a vital role for national development.
Deposit mobilization is necessary to increase their activities. Commercial
banks are granting loan not only in productive sectors, but also in other
sectors like food grains, gold and silver, etc. though these loans are
traditional in nature and are not helpful to increase productivity, but it
helps, to some extent, to mobilize bank’s deposits.
v. To increase saving is to mobilize deposit. It is because if the production of
agriculture and industrial products increases, it gives additional income,
which helps to save more, and ultimately, it plays a good role in deposit
mobilization (NRB, Banker’s Prakashan, Group A, 1984: 10). Low national
 income, low per capita income, lack of technical know-how, vicious cycle
of poverty, lack of irrigation and fertilizers, pressure of population increase,
geographical condition, etc. are the main problems to bring economic
development in a under development country like Nepal. Deposit
mobilization helps in capital formation and thereby plays a vital role in
economic development of a country.

2.1.5 Advantages of Deposit Mobilization

The workshop report on “Deposit Mobilization” Group “B” states the following
points as the advantages of deposit mobilization:

i. Circulation of idle money: Deposit mobilization helps to circulate the idle

money. The meaning of deposit mobilization is to convert idle saving into active
saving, it helps the depositor’s habit of saving on one side, and it also helps to
circulate the idle saving in productive sector on the other. This helps to create
incentives to the depositors. Again, investment in productive sector helps directly
in country’s economic development, and also increases investor’s income.
ii. To support in fiscal and monetary policy: Fiscal policy of the
government and monetary policy of the central bank for economic development of
a country can be supported by deposit mobilization. It helps to canalize idle money
in productive sectors. Again, it helps in money supply, which saves the country
from deflation and helps central bank in achieving the objective of monetary
policy.
iii. To promote cottage industries: Deposit mobilization is needed to
facilitate cottage industries located in rural and urban areas. If the bank utilizes the
collected deposit in the same rural or urban sector for the development of cottage
industries, it is helpful not only to promote cottage industries in the area, but also
supports in the development of the locality as a whole, increasing employment and
income of the local people.
iv. Capital formation: Capital plays a vital role for the development of
industries. But in an underdeveloped country, there is always lack of capital to
support such industries. Capital formation and industrialization is possible through
deposit mobilization.
v. Developing of banking habit: One of the important sides of economic
developing country is to increase banking habit in the people. Deposit
mobilization helps in this aspect. If there is proper deposit mobilization, people
believe bank and banking habit develops in people.
vi. To check the miss utilization of money: Mostly our customs and habits
are supported by social and religious beliefs. There is also tendency of copying
others and to show their superiority buying unnecessary and luxury items in our
society. In such society, deposit mobilization proves a tool to check the miss
utilization of money.
vii. To support government development projects: Every underdeveloped
country’s government needs a huge amount of money for development projects.
The deposit collected by the banks can fulfill to some extent the need of money of
the people.
viii. Co-ordination between different sectors: Deposit mobilization helps to
collect capital from surplus and capital herding sectors. The fund can be invested
for the needy sectors. Thus, it helps to fulfill the gap between these two different
sectors. Earning interest in their deposit and the needy sector receiving loan and
advances benefits the surplus and hoarding sectors. Thus, it helps to keep good co-
ordination between different sectors.
ix. Others: Deposit Mobilization supports small savers by earning interests,
helps to the development of rural economy, protects villagers from being
exploitation of indigenous bankers investment incentives, provides facilities to the
small farmers to purchase tools and fertilizers, etc (NRB, Banker’s Prakashan,
Group B, 1984:12-14).

On this same report, Group “C” views that:

Capital is needed for the economic development of a country. External sources are
not dependable sources of capital. So, mobilization of internal resources has a
great significance. This is the only way of receiving capital continuously for a long
time.

Group “C” further states that there are various institution, which mobilize internal
resources. These are commercial banks, insurance companies, post offices, etc.
among them, commercial banks are the effective and dependable sources
mobilizing internal resources. This is due to the fact that commercial bank’s
branches are scattered all over the country. Deposit mobilization not only helps in
country’ economic development, it is also helpful to the depositor himself. The
interest earned in the amount helps to raise the standard of living on one side and
on the other, the depositor had right to draw the deposited amount at the time need
(NRB, Banker’s Prakashan, Group C, 1984: 17).

So, commercial banks play an important role for the economic development not
only in a developed country, but also in a developing country.

2.2 Investment, Investment Policy, and Its Principles

2.2.1 Investment
Investment is simply defined as the sacrifice of current consumption for future
consumption whose objective is to increase future wealth. In other words
investment refers to put or give away the current consumption for the future needs.
The sacrifices of current consumption take place at present with certainty and the
investor expects desired level of wealth at the end of his investment horizon. The
general principle is that the investment can be retired when cash is needed. The
decision to invest now is a most crucial decision as the future level of wealth is not
certain. Time and risk are the two conflicting attributes involved in the investment
decision. Broadly, investment alternatives fall into two categories: real assets and
financial assets. Real assets are tangible while financial assets involve contracts
written on pieces of papers such as common stocks, bonds and debentures.
Financial assts are bought and sold in organized security markets.

2.2.2 Investment Policy

Policy refers to certain objectives of certain sector, whereas investment policy is
the policy, which has the objectives of the investors mainly performed by the
banks. The investment policy is the most important strategy performed by the
banks. The profit and the growth of the bank totally depend upon the decision
taken by the banks to grant the loan. Investment policy involves determining the
investor’s objectives and the amount of his/hr inventible wealth. Because there is a
positive relationship between risk and return for sensible investment strategies, it
is not appropriate for an investor to say that his/her objectives to “make a lot of
money”. What is appropriate for an investor in this situation is to state that the
objective is to attempt to make a lot of money while recognizing that there is some
chance that large lose may be incurred. Investment objectives should be stated in
terms of both risk and return (Francis, 1983: 10).

2.2.3 Principles of Sound Investment Policy

The principles of sound investment policy, i.e. the features of sound lending policy
are explained below:

i. Safety and security: a bank should be very careful while planning the
investment procedure and setting policy thereto. It should always be able to avoid
investing in too much volatility because a little alteration may cause great loos. It
must not invest its funs without careful analysis of the proposal of the borrower. A
bank must not invest funds in the speculative business. Such business may cause
bankrupt at once and earn millions in a minute. Only commercial, durable,
marketable, and high marked valued securities are good for investment to the
commercial banks.
ii. Profitability: There must be profit prospect in the project to make
investment decision. It should select the most profitable investment area so that it
can be able to maximize the shareholders” wealth. The profits of the commercial
banks depend on the interest rate, volume of loan provide, maturity period, and the
nature of investment.
iii. Liquidity: Liquidity is the ability of the bank pay cash in exchange of
deposit. People deposit their hard earned money in the bank making in the main
that they will withdraw it when they need it. So, a bank should always try to
maintain the liquidity position. It should not invest all the money seeing the
uncertain future profit. Once it losses the trust of the customers, the bank may be
in the shortage of the funds in future. So to have the customers” faith, banks
should always maintain the liquidity.
iv. Purpose of loan: Before sanctioning the loan to the customers, banks
should learn the purpose of taking loan by the customers. If the seems to be for
unproductive project which may yield nothing for the customers or the customers
misuse the then he/she can never repay it on time. Therefore, banks nee the detail
intention of the customers before granting loan.
v. Diversification: Diversification of the investment will reduce the risk. It
can diversify the risk by investing in various sectors so that loss on one can be
compensated by the profit of other. It should not lay all its eggs on the same
basket.
vi. Legality: All the commercial banks are required to follow the directions
given by NRB for the investment. Illegal method of investment seems good on
short term but it will consequently hamper
the bank leading towards bankruptcy as well. (Panday, 2007:19 to28).

2.3 Review of Books

2.3.1 Review of Journals and Books
Banks are those types of institutions, which deals in money and substitute for
money. They deal with credit and credit instruments. The most important thing for
the bank is good circulation of credit. Fluctuated flow of credit and week decision
harms the whole economy and the bank as well. Thus to collect fund effectively,
its utilization is the very challenging task for the bank. The decision of an
investment of fund may be the question of life and death for the bank.

According to I.M Pandey, “Investment decision expenditure benefits should be

measured in cash. In investment analysis, cash flow is more important than
accounting profit. It may also be pointed out of that investment decision affects the
firm’s value will increase in investments are profitable and add to the shareholders
wealth. Thus, investment should be evaluated on the basis of a criterion, which is
compatible with the objectives of the shareholder’s fund maximization.
Investments will add to the shareholder’s wealth if it yields benefits in excess of
the minimum benefits as per the opportunity cost of capital. (Pandey, I.M, 1999:
407).

When funds are plentiful, market rate generally tend to decline, banks seek an
aggressively and therefore lower their rates induce marginal borrower to come into
the market. When funds are scare, banks raise their rates and come potential
borrowers may differ the use of credit or seek it elsewhere (Crosse, 1963: 63).

The fulfillment of credit needs of various sectors, which insures investment. The
investment lending policy of commercial bank is based on the profit maximization
as well as the economic enhancement of the country (Shrestha, 2058: 31-32).

The investment objective is to increase systematically the individual’s wealth

defined as assets minus liabilities. The higher the level of desired wealth the
higher the return must be received (Cheney and Moses, 1991: 23).

Investors seeking higher return must be willing to face higher level of risk.
Finance company being only a financial inter me diary, we will not be able to
make any profit unless we mobilize funds suitably. It is from out of the interest,
finance company earns on loan and advance, further he has to pay interest on
deposit meet liquidity of cash balance. Meet establishment expenses keep some
balance for reserve and pay dividend to the shareholders.

Investment in its broadest sense means the sacrifice of certain present value for
future value (Sharpe and Alexander, 1994: 39).

Investment is the commitment of funds to one or more assets that will be held over
some future time period. Investment is concerned with the management of an
investor’s wealth, which is the sum of current income and present value of all
future income (Charles, 1993: 97).

An investment may be defined as the current commitment of funds for a period of

time to derive a future follow of funds that will compensate the investing unit for
the time the funds are committed for the expected rate of inflation and also for the
uncertainty involved in the future follow of funds (Reilly, 1991: 3.)

Investment policy is defined responsibility for the investment disposition of the

banks assets in terms of allocating funds for investment and loan, and establishing
responsibility for day-today management of these assets (Beslay, 1973: 17).

2.3.2 Review of Articles

Business Manager (on Nov 2002, Vol 2: 6): It has depicted that the adoption of
market economy gave the birth of the no. of commercial banks in the country.
These banks are performing well, with the slow down in the economy the interest
rate are falling down all the banks are flushed with the funds and looking for the
safe and profitable investment. The strength of the commercial banks can be judge
by the no. of parameters they are total equity employed, total asset hold, total
deposits mobilized. Where as performance can be measure with the operating
profit ratio. Deposit to advance ratio, growth in advances deposits and operating
profits. P/E ratio shows the confidence of the investors in the stock of an
individual bank and so on. The performance of individual bank against this
parameter has been ascertained to know their bank ability.

Bajracharya, Bodhi B. (2047), in this article, “Monetary Policy and Deposit

Mobilization in Nepal” has concluded that the mobilization of domestic saving is
one of the monetary policies in Nepal. For this purpose, commercial banks stood
as the vital and active financial intermediary for generating resources in the form
of deposit of the private sector so for providing credit to the investor’s in different
aspects of the economy.

Shrestha, R.L.(1988), in his article, “A study on deposit and credit of commercial

banks in Nepal” (Conclude that the credit deposit ratio would be 51.30, other
things remaining the same. In Nepal, which was the lowest under the period of
review. Therefore, he had strongly recommended that the joint venture banks
should try to give more credit entering new field as far as possible, otherwise they
might not be able to absorb even the total expenses.

Pradhan, S.B. (2053), in his article “Deposit Mobilization, Its Problem and
Prospects” has present that deposit is the life-blood of very financial institution
like commercial bank, finance company, co-operative or non-government
organization. He further adds consider the most of banks and finance companies
that the latest figure does produce a strong feeling that serious review must be
made on problems and prospects of deposit sector. Leaving few joint venture
banks, other organizations rely heavily on the business deposit and credit
disbursement.

The writer has highlighted following problems of Deposit Mobilization in

Nepalese Context:
i. Most of the Nepalese do not go for saving in institutional manner, because
of lack of good knowledge. However, they are very much used of saving in
the form of cash or ornaments. Their reluctance to deal with institutional
system is governed by the lower level of understanding about financial
organization process, withdrawn system, and availability of deposing
facilities and so on.
ii. There is unavailability of the institution services in rural areas.
iii. Due to lesser office hours of banking system people prefer holding cash in
the personal possession.
iv. There this no more mobilization and improvement of the employment of
deposits and loan sectors.
v. The writer has also recommended the following points for the prosperity of
deposit mobilization which are as follows:
vi. By providing sufficient institutional services in the rural areas. By adding
service hours system to bank.
vii. Nepal Rastra Bank should organize training program, to develop skilled
manpower.
viii. By spreading co-operative to the rural areas development mini branch
services.

Sharma (2000), on his title, “Banking future on competition” fund that all the
commercial banks are establishing and operating in urban areas. His achievements
are as follows:

1. Commercial banking are charging rate of interest on lending.

2. Commercial banks are establishing and providing their services in urban
areas only. They do not have interest to establish in rural areas. Only the
RBB and NBL have branches in rural areas.
3. They do not properly analyze the credit system. The researcher further
states that private commercial banks have mushroomed only in urban areas
where large volume of banking transaction and activities are possible.

Kafle (1990), conducted researching the topic of “monetary and financial reports
in Nepal” states that consolidation and liberalization of interest rate measure is
initiated with a view to provide more option to commercial banks in the
mobilization of saving and portfolio management through market determined
interest and lending rates.

Willamson (1998), conducted research in the topic of “Personal Saving in

Developing Nations” found that saving and investment decisions are highly
interdependent in Asia sectors interest rate. Mostly household people try to save
money for short period. Its influence is less in the long run saving decisions.

Morris (1980), in his discussion paper “Latin America’s banking system in the
1980’s” has concluded that most of banks concentrated on compliance with central
bank’s rule on resource requirement, credit allocation, and interest rates. While
analyzing loan portfolio quality, operating efficiency and soundness of bank
investment management has largely, operating efficiency and soundness of bank
investment management has largely been overlooked, the huge loses are found in
the bank’s portfolio in many developing countries and testimony to the poor
quality of this ever sight investment function

The writer adds that mismanagement in financial institution has involved

inadequate and over optimistic loan appraisal, tax loan recovery, high risk
diversification of lending and investment, high risk concentration connected and
insider lending, loan mismatching. This has led many banks of developing
countries to the failure in 1980’s.
2.3.3 Review of the Previous Thesis
Phuyal, D.P. (2035), Conducted research on the topic of “A Study on the Deposits
and Loans and Advances of NBL’’ has tried to examine relationship between
deposits and interest rates and to find out the causes of decrease in the loans and
advances of the bank. Data ware used for five years from the year 2028 B.S to
2033 B.S only secondary data are used. Coefficient of correlation has been applied
in order to calculate the loans and advances and deposits.

In the thesis, the writer has found that to increase the loan and advances, the bank
should not only consider the security of its borrowers. When bank provides loan
without security then the person can utilize in one sense and borrowing is
benefited in other way. Bank also should invest its resources to the technicians to
import their technical tools. Loan and advances has been decreased due to high
rate of interest. So, interest rate is decreased to increase investment of the bank.

Karmacharya, M.N. (1978), conducted research on the topic of “A Study on the

Deposit Mobilization of NBL” has tried to examine the role of NBL in the
deposits accumulation and to see how far the bank is able to utilize the collected
deposits. This study covers 8 years data from the year 1970 to 1977 and based on
secondary data. Correlation, percentage and ratio analytical tools of statistics are
used for the analysis and interpretation of data.

The writer found that the deposit credit ratio is only 52% on average, which shows
unutilized resources are increasing. The security-marketing corporation, which is
recent established, can play an active role for utilization of unutilized resources.
The writer further found that NBL should not only concentrate in the extension of
short-term credit only. Bank should increase the level on priority sector and extent
its branches to meet growing needs of the country.
Pradhan, N. M. (2037), conducted research on the topic of “A Study on
Investment Policy of NBL” has tried to find out to what extent NBL has able to
utilize mobilized deposits. This study is concerned only from 2029 B.S to 2034
B.S and mainly based on secondary data. Various statistical tools: coefficient of
correlation for testing the relationship between the deposits and loan and advances,
ratio analysis to compare different factor like loan and advances and deposit,
bank’s liquidity position, profitability condition etc.

The writer found that there is a grater relationship between deposits and loans and
advances. Increase in deposits leads to increase in the loan advances but when
immense increase in the deposit leads to little bit increase in loan and advances.
The writer also found that it could invest only 2.98% on the priority sector in 2034
B.S. bank could not mobilize its resources. In the thesis, the writer recommended
that the bank should invest more on agriculture sector and further says the bank
should make clear-cut policy to provide the loan. The bank should invest on risky
sector to earn more profit and increase the rate of interest in deposit side and
decrease in loan and advances.

Shrestha, S. (2042), conducted research on the topics of “A Study on Deposit

Mobilization and Utilization of Commercial Banks with Reference to NBL” with
the objectives is:
1. To sketch the deposit mobilization of NBL.
2. To analyze the impact of interest rate in deposit mobilization.
3. To analyze the impact of branch expansion on the deposit mobilization.

This study covers ten years data from the year 2013 B.S. to 2040 B.S. it is limited
to deposits and loans and advances only. The study is primarily based on
secondary data. In this study, statically tools like percentage changes, correlation
test is done and to test its significance analysis, probable error test is carried out.
On the thesis, the writer found that NBL has been much sufficient in collection of
resources from the people in both urban and rural areas of the country, but in the
process of utilization, the bank is still behind. The interest rate has played
important role in mobilizing and utilizing the resources of the bank. So, the
structure of interest rate should be changed according to the need of nation. It is
also suggested that to expand availability of banking services, branch expansions
policy should be continued to mobilize resources as well as accelerate lending to
productive sector.

Neupane, M. (1986), conducted research on the topic of “Deposit Mobilization of

Commercial Banks in Nepal, Comparative Study of RBB and NBL, Kirtipur
Branch” with the objectives of:

1. To examine whether RBB, Kirtipur branch is successful to complete with

NBL, Kirtipur branch in relation to deposit and loan advanced.
2. To examine how for RBB, Kirtipur branch is successful to provide door-to-
door services to its customers in the collection of more deposits.
3. To examine how far the deposits of RBB, Kirtipur branch have been
efficiently mobilized.

This study covers deposit and credit during the year from mid July 1976 to mid
July 1985 of RBB and NBL Kirtipur branch. The study is based on both primary
and secondary data. Karl’s person’s formula of coefficient correlation has been
used to compare various variables.
In thesis research, the writer has found that a comparative study of deposit
between the two bank branches shows a good position of NBL branch’s deposit
comparison to RBB branch as well as credit position. The writer has also
mentioned that the activities of the branch for mobilizing deposits seem to be idle.
The branch has taken no steps for collecting more deposits or advancing more
loans except the customers they knock the door of the branch. Lastly the
researcher found that RBB Kirtipur branch is not successful to collect maximum
deposit form the area it covers.

So, the researcher has recommended that local staff can play an active role in
deposit mobilization. For so, at least four local staffs are suggested to appoint in
the RBB branch out of 8 staff in deposit counter. He has further suggested that
there should be a certain budget to the branch for advertisement about its activities
and interest rates must be revised.

Karki, K.B. ((2001), Conducted research on the topic of “ An Analysis of

Deposit Mobilization of RBB, Lahan Branch” has tried to see the impact of
interest rate on deposit mobilization also to know the efficient utilization of the
accumulate deposit. This study is mainly concern with the RBB Lahan Branch.
The data presentation analysis of deposits and loan advances is limited to the
period of then year from the year mid July 1990 to Mid- July 1999. Most of data
are secondary type and applied the correlation coefficient as statistical tool. In the
study, the researcher has found that RBB Lahan Branch is less successful to
collect maximum deposit and also the deposits cannot efficiently utilized and there
is negative correlation exists between interest rates and total credits.

For so, the researcher has recommended that bank should extend long term credit,
the bank should not very much conscious about its security. The person, who has
skill but not security, does not get loan from the bank. The bank should decrease
interest on credit side and staffs should be trained. Finally, the researcher has
suggested that there should be frequently businessman.

Agrawal, A. (2002), Conducted research on the topic of “A Study on Deposit and

Investment Position of Yeti Finance Company Limited” has tried to examine the
trend the deposit position and investment position of the Yeti Finance Company.
That study was conducted on the basis of secondary data and used various
financial tools to analyze the data. Study just covered only period of 5 years (i.e.
FY 1996/97 to 2000/2001). The researcher has found that the deposit policy is not
stable but has highly fluctuating trend and investment is gradually in increasing
trend. The researcher found there is highly positively correlation between total
deposit and total investment. The researcher concluded that finance companies
have been found profit oriented, ignoring the social responsibility, which is not a
fair a strategy to sustain in long run. Therefore, it is suggested the company should
involve in social program which helps the deprive people who are depended helps
in agriculture. Agriculture is the paramount of Nepalese economy so that any
finance company should not forget to invest in this sector. In order to do so, they
must open their branches in remote area with an objective of providing cheaper
financing services.

The minimum amount to open accounts and interest rate on credit should be
reduced which ultimately intensify the profit and goodwill of the company in
future. But in his research there is not clearly mentioned the effect of interest in
deposit collection as well as in investment.

Roy, R. (2003), Conducted research on the topic of “ An Investment Analysis of

Rastriya Banijya Bank” has tried to analyze relationship of loan and advance, and
total investment with total deposit and to compare it with that of NBL and to
compare loan and advance, total deposit and net profit of RBB and compare it
with of NBL. That study was based on secondary data covering five years period
from FY 1992/93 to 1996/97. The researcher used most of financial tools and
coefficient of variation (C.V.) as statistical tools.

The researcher has found that RBB has good deposit collection, loan and advances
and small investment in government securities. It also found that profitability
position of RBB is the worth. RBB needs immediate step to increase its
profitability. It also further found that RBB has more low quality of loan and
advances.

The researcher has recommended that RBB should enhance its investment in
securities. Small amount investment in securities of good company brings better
income that large amount investment in securities of worse companies. So, RBB
needs to conduct proper pre-analysis before such investment. He also
recommended that RBB should decrease loan loss by decreasing its poor quality of
loan and advance. It needs to revise credit collection policy. He further suggested
that RBB should decrease interest expenses and unnecessary fixed assets expenses
and administration expenses and unnecessary fixed assets expenses and
administration expenses should be controlled. Moreover RBB should enhance its
off-balance sheet operation, remittance in order to increase its earnings.

Gupta, B. (2003), Conducted research on the topic of “Deposits and Reinvestment

Problems of Nepalese Commercial Banks” said that strengthening and the
institutionalization of the commercial banks is very important to have a
meaningful relationship between commercial banks and national development
through shift of credit to the productive industrial sectors. At the same time the
series of reforms is also needed such as consolidation of commercial banks,
directing attention to venture capital financing, appropriate risk return trade of by
linking credit to timely repayment schedules, avoiding imperfection, allowing
flexibility in lending, one window service from NRB, need of strong supervision
and monitoring from NRB, diversity scope of activities for commercial banks,
professional culture within commercial banks, etc. all these are necessary to
ensure better future performance of commercial banks that have already been
established and growing in Nepal.

The commercial banks in Nepal must work hard to prove that they are really
efficient and viable agencies for mobilization of saving and its canalization into
productive sectors, are professionally manage and competent enough to ensure
adequate rate of return on investment and are strategically well planned to be
competitive.

Maharjan, N. (2004), in his thesis entitled, “Deposit Mobilization of RBB,

Kirtipur Branch” with the following objectives:
• To examine relationship between the amount of total deposit and amount of
total credit granted by the RBB Kirtipur branch.
• To see the impact of interest rates of loan on the credit extended by RBB
with special case study of Kirtipur branch.
• To stydy the increasing or decreasing trend of deposit mobiliszation of
RBB, Kirtipur branch.

This study covers 10 years study period i.e. from 2050 B.S. to 2060 B.S. This
study was conducted both on primary as well as secondary data. In this study
financial tools, coefficient of correlation and trend analysis are used.

The researcher found that the commercial banks in Nepal are doing well but they
are not giving satisfactory results due to some internal and external factors. He
also found that RBB, Kirtipur Branch is successful to collect deposit but it is
facing the problem of utilization of its found. Bank has good deposit collection but
it has maintained low investment policy on loan and advances. So, there is very
much wider gap between total deposit and total credit. The researcher further fund
that the bank has not tried to find out the new sectors of investment and he also
found that the control office has not also given authority to the branch manage to
invest in government securities.

The researcher recommended that the bank should try to do different activities to
collect more deposit. Deposit interest rate should be more attractive to fight with
other banks. He also suggested that bank should decrease in minimum bank
balance for promoting and mobilizing small investors fund and proper evaluation
of the performance of he staffs should be done in timely and continuously in order
to increase the efficiency of the bank. (Shaseela Manandhar, Sep. 2006: 39)

 
Panday, Pramita (2007), Conducted research on the topic of “A Study on the
Liquidity Mobilization of Joint Venture of NABIL, SCBNL, and HBL” has tried
to examine the liquidity positions of all the banks, which were strong, and enough
to meet this immediate needs of cash and short-term obligations. Data is used for
five years from the year 2001 to 2005. Only secondary data are used. Coefficient
of correlation has been applied in order to calculate the Loans and advance and
deposits.

In this thesis, the researcher has fund the ways of utilizing the surplus deposit and
the right reinvestment for the economic development of a country. The specific
objectives of the study are as follows:
• To analyze the deposit position of the banks under study.
• To analyze the reinvestment position of the banks.
• To analyze the gap between deposits and loan and advances.
• To provide suggestions for the improvement on the basis of findings.

Following suggestions can be made to the sampled banks:

• NABIL, SCBNL and HBL should minimize their existing level of excess
liquidity by investing in more profitable sectors. Idle assets of theirs in
form of excess cash or equivalents should be diverted in various investment
opportunities available in the market. Those less risky investment sectors
should be identified.
• NABIL, SCBNL and HBL need to bring in newer schemes to mobilize
their higher amount of deposits in extending credit.
• All the banks should have to make effort in order to minimize their non-
performing credits. HBL especially, must be more conscious on this part.
Making credit policy more transparent, standard and less risky should
increase the quality of the credit.
• All the banks should try to increase their profitability by investing in more
profitable sectors, and by increasing the quality of their extended credits.
They should have to investigate thoroughly the wide rage of investment
opportunities in the market in order to improve their profitability situation.
Especially, HBL should immediately be more conscious on this part as it is
having continuous less profit over the years.
• As formation of price is a very complex process, some extremely
outstanding sectors such as management efficiency, profitability status,
future perspective, bank’s investment strategy, etc should be improved.
HBL must have to follow this scheme immediately.

Karmacharya, M.N. (1978), conducted research on the topic of “A Study on the

Deposit Mobilization of NBL” has tried to examine the role of NBL in the
deposits accumulation and to see how far the bank is able to utilize the collected
deposits. This study covers 8 years data from the year 1970 to 1977 and based on
secondary data. Correlation, percentage and ratio analytical tools of statistics are
used for the analysis and interpretation of data.
The writer found that the deposit credit ratio is only 52% on average, which shows
unutilized resources are increasing. The security-marketing corporation, which is
recent established, can play an active role for utilization of unutilized resources.
The writer further found that NBL should not only concentrate in the extension of
short-term credit only. Bank should increase the level on priority sector and extent
its branches to meet growing needs of the country.

Manandhar, Shaseela (2006), conducted research on the topic of “A Study on the

Deposit Mobilization of RBB” has tried to examine the role of RBL in the deposits
accumulation and to see how far the bank is able to utilize the collected deposits.
This study covers 10 years data from the year 2052 to 12061 and based on
secondary data. Correlation, percentage and ratio analytical tools of statistics are
used for the analysis and interpretation of data.

This study tries to analyze relationship between the amount of the total deposit and
amount of total credit granted by RBB.
The specific objectives of the study are as follows:
• To examine and analyze the various deposit services offered by RBB.
• To evaluate the effectiveness of current RBB deposit Policy.
• To study the strength and flows for the existing deposit policy and
relationship of deposit and loans and advances of RBB.
• Identification of RBB interest rates of deposits has positive relationship
with the deposit collection of RBB.
• To analyze and examine the deposited fund position of RBB.

The Researcher found that the deposit credit ratio is only 76.55% on average,
which is satisfactory. The position of deposit collection is increasing. But the
utilization of these deposits is not in favorable condition. This average credit
deposit ratio shows that the RBB has to be improve to mobilize its collected fund
better and better in future. It is also observed the total credit including Loan and
advances and bill discount.

Trend values of total deposit & total credits are in increasing trend in two expected
year 2062 & 2063.

Researcher tries to recommend that bank have to focus on promoting short-term

loans and trade finance products. Interest rate cuts are envisaged in light of severe
competition and reduction in deposit interest rates.
Banking with poor (BWP)is an important and development oriented program to
eliminate the absolute poverty of the country. The program should launched under
the priority sector credit program.

RBB can’t be an exception to the growing need to embrace the latest information
technology. The bank has been lagging behind in terms of automation of its
operations and access to the latest banking technology.

Computerizing the branches is the biggest challenge faced by the bank. More than
half the accounts maintained at RBB belong to uneducated people who use their
fingerprints rather than signature. They are uncomfortable with modern banking
system due to their reluctance to change. RBB has a lack of computer literate
employees.

To attract new customer the bank have to come up with new and innovative
products matching international standards like new products debit card, mobile
banking, internet banking, home banking, any branch banking etc.

Once the political situation of the country stabilized and peace is restored the
demand for deposits will increase with the increase in demand for investment by
the industries and thus the competition for deposit will intensity. Bank should
make transparent in service charge and interest rate. Should be minimum charge
acceptable by customers.

It will be more informative if bank provide all the detail information in the website
so that if anybody needs information

2.4 Research Gap

All the above research reviewed studies focused on some common major points.
The research has studied about Deposit mobilization and its re investment
position. All of the previous researchers have pointed out, no proper planning
system and they have recommended for the effective implementation of proper
deposit mobilization system in their respected productive sector.

Most of them pointed these common points like: only Bank has good deposit
collection but it has maintained low investment policy on loan and advances. So,
there is very much wider gap between total deposit and total credit and further
fund that the bank has not tried to find out the new sectors of investment and also
found that the control office has not also given authority to the branch manager to
invest in government securities and other investment sector.

Due to urbanization many banks have been established under urban area but in
rural areas there are only few banks established. Only two or three types of bank
named with “Gramin Bikash Bank”, Rastrya Banijya Bank and Nepal Bank Ltd.
have been established with a view to provide service to the public people in rural
areas which do not show proper functioning of Banks in our country.

Since, there is large number of people in villages. If the banks had utilized the
deposit in villages and made people easier in rural areas it would had become
easier for banks to develop as well as for country in economic development.

This research is focusing only on Deposit mobilization. It emphasizes on a study

of Deposit mobilization of "Himalayan Bank Limited” and its contribution to the
developing country like Nepal.
CHAPTER –III 

RESEARCH METHODOLOGY 

3.1 Research Design

The study depends on the secondary data containing various financial parameters
an effective research techniques are applied to evaluate the deposit mobilization of
the bank. The main objective of this study is to analyze deposit mobilization of
Himalayan Banks. The deposit mobilization of the banks were analyzed by using
data obtained from the five-year end and internally generated accounting records
maintained by the sampled banks.

3.2 Population and Sample

Population and sample is an example of the indicator showing the same nature of
the industries and its services with product in general. In this study the population
is Himalayan Bank Limited.

However, the population sample of Himalayan Bank Limited is generating with

the deposit mobilization.

3.3 Sources and Data Collection Techniques

The nature of the study needs secondary data. The investment, deposit, loan and
advances, and profit needed for the study were directly obtained from the balance
sheet and profit and loss account of the concerned bank. For the purpose of the
study, various information ware collected from number of institutions like Nepal
Rastra Bank, Ministry of Finance, National Planning Commission, Banking and
Financial Statistics Economic Reports, Annual Report’s of Himalayan Bank
Limited etc along with Economic survey and various related books, booklets,
magazine, journals, newspaper and related thesis. Besides necessary suggestions
were taken from various experts both inside and outside the bank whenever
required.

3.4 Tools and Techniques used

Various financial and statistical tools were used to achieve the objective of the
study. The analysis of data was done according to the pattern of data available.
Various tools applied in this study were presented in the form of graph,
percentage, Karl Person’s coefficient of correlation. The method of least square
was adopted in this study. Similarly, some strong accounting tools such as ratio
analysis were for analysis

a) Financial Tools
b) Statistical Tools

3.4.1 Financial Tools

Deposit mobilization was analyzed through the use of two important tools. The
basic tools used were ratio analysis. Besides it total deposit, total investment and
total income analysis were used.

3.4.1.1 Ratio Analysis

Ratio is an arithmetical relationship between number and values of the financial
statement i.e., income statement or balance sheet. The relationship may be
expressed as the quotient of one number divided by another. The information
given in financial statement merely doesn’t give any meaning. Thus, ratio analysis
can be defined as a financial tool to express the items of the financial statement in
meaningful and logical form. In other words, it is the process of establishing
relationship between two figures or set of figures of financial statements.
The large number of ratios can be generated from the components of profit and
loss account and balance sheet. They are sound reasons for selecting different
kinds of ratios for different types of situations. For this study, ratios are
categorized into the following major headings:

A. Liquidity Ratio:
Liquidity means to the ability of a firm to meet its short-period obligations
generally for one year. So liquidity ratios are used to measure the ability of a firm
to meet its short-term obligations and from them the present cash solvency as well
as ability to remain solvent in the event of adversities of the same can be examined
(Van Horne, 1997:147).
Inadequate liquidity can lead to unexpected cash short falls that must be covered at
inordinate costs, thus reducing profitability. In the worst case, inadequate liquidity
can lead to the liquidity insolvency of the institution. On the other hand, excessive
liquidity can lead to low asset yields and contribute to poor earnings performance
(Scott, 1991:13).

The main objectives of computing the liquidity ratio are to measure the ability of
the firm to meet its short-term obligations and reflect the short-term financial
strength of a firm. To find-out the ability of banks to meet their short-term
obligations, likely to mature in the short period, these ratios were calculated. The
following ratios were used under the liquidity ratios to identify the liquidity
position:

i. Cash and bank balance to total deposit ratio

It is must important ratio for measuring the short-term solvency position of the
commercial banks. The ratio indicates the strong liquid position of the bank to
meet the immediate cash requirement of the customers and creditors. This ratio
needs the total cash with the bank itself and at bank

Cash & bank balance

Cash and bank balance to total deposit =
Total Deposit

ii. Cash and bank balance to current assets ratio

The ratio measures the extent of the portion of the cash and bank balance over
total current assets maintained by the bank. It also gives a good indicator of liquid
assets in a bank. A moderate ratio is desirable for banks because too high ratio
indicates the excess idle funds and too low ratio signifies the shortage of short-
term funds of the bank. However, there is lack of perfect standard regarding this
ratio. It is calculated by using the following formula.
 Cash & Bank Balance
Cash and bank balance to total current assets =
Current Assets

B. Leverage Ratios
This ratio is also called solvency ratio. These ratios are used to measure the
presence of financial risk in a firm due to use of debt capital in its financial
structure. If there is a trend of profit, use of leverage in capital structure stimulates
the earnings per share of the firms. But if there is trend of loss, it will worsen and
intensify the loss of the firms. Therefore; the main objectives of computing the
leverage ratio is to judge the effectiveness of the long-term financial policy of the
business and to establish the relative proportion of debt and equity in financing the
assets of the firm. The major ratios calculated in this part are:

i. Debt Ratio
Debt ratio is used to measure the extent of the use of total debt including both long
term and short-term debt in financing total assets of the banks. The higher the
amount of total assets financed with debt capital, the higher will be the financial
risk and vice versa. Debt ratio is calculated by using the following formula:

Total Debt
Debt Ratio =
Total Assets

ii. Debt to Equity Ratio

This ratio provides information regarding the amount of debt part the can be
covered through ownership capital. This ratio establishes the relationship between
long-term debt and shareholder’s equity (owners’ equity). A ratio of 1.0 or more
than 100% is considered of having higher degree of financial risk. Because if debt
part is used more in financing assets than equity, it will lead to higher risk of
default and interest. It is calculated by using the following formula:

Total Debt
Debt-Equity Ratio =
Total Equity

C. Turnover Ratios
Turnover ratios indicate the extent of the utilization of the total assets of the bank
in credit lending schemes. In simple words, these ratios are used to detect the level
of mobilization of deposits collected in lucrative sector. The main objective of
computing turnover ratio is to measure the effectiveness of the firm to utilize its
available resource in term of sales. The main purpose of bank is to collect/accept
various kinds of deposits and to mobilize them safely in profit generating sectors.

i. Total Deposit Turnover Ratio

This ratio is calculated to identify how effectively the total deposits are mobilized
in the bank. Higher ratio is desirable for all commercial banks. It is calculated by
dividing the total credit (loans) and advances by total deposits as:

Credit & Advances

Total Deposit Turnover Ratio =
Total Deposits

ii. Credit and advances to total assets ratio

The entire funds obtained through various sources are invested in banks in the
form of various assets. In other words, these are the sectors where the funds
collected using various sources are employed or mobilized so as to get respective
returns. Higher and higher ratio is desirable for commercial banks. However, such
lending must be safe, transparent, and performing. It indicates the efficiency of the
business firm to utilize total assets for generating sales in operation. This ratio is
calculated as:

Credit & Advannces

Credit and Advances to Total Assets =
Total Assets

D. Profitability Ratios
Profitability ratios are used to measure the bank’s overall effectiveness of
operation. It is calculated to measure the operating efficiency of the firm.
Profitability refers to the ability of a business to earn profit. Thus, these ratios
measure the profit earning capacity of the firm. The ratios used in this part are one
of the good indicators of best performances. These ratios are used to indicate the
profitability per unit with regards to various areas of the investment and sources of
funds. The major ratios that we consider in this section are:

I. Return on Total Assets Ratio

Return on total assets measures the profitability of the total investment of a firm.
Its shows the relationship between net profit and total assets of the business firm.
The ratio is useful to measure how well management uses all the assets in the
business to generate an operating surplus. Higher the ratio indicated the higher
efficiency in the utilization of total assets and vice-versa. The ratio is low due to
low profit. In other words, it is low utilization of bank assets and over use of
higher interest bearing amount of debt and vice-versa. In this study, net profit/loss
to total assets ratio is examined to measure the profitability of all the financial
resources in bank-assets and is calculated by applying the following formula:

Net Pr ofit
Net Profit to Total Assets =
Total Assets

II. Return on Fixed Assets Ratio

This ratio measures the effectiveness of banks in generating profits through the
usage of available fixed assets. It judges whether the firm is generating adequate
profit for the investment in fixed assets or not. This ratio is calculated by dividing
the net profit after taxes by net fixed assets of the banks as:

Net Pr ofit
Return on Fixed Assets =
Total Credit & Advances

III. Return on Total Credit Ratio

This ratio measures the overall effectiveness of credit and advances (loans and
advances) in generating profit. This ratio indicates how the management has
utilized the credit and advances (funds) supplied by the creditors and owners for
maximization of profit. Higher ratio is desirable for banks. The banks having
higher ratio is considered of having sound credit performance and with lower bad
debts. This ratio is measured by dividing the net profit after taxes by total credit
and advances as:

Net Pr ofit
Returned on Total Credit =
Total Credit & Advances

IV. Earnings per Share (EPS)

EPS is one of the most widely quoted statistics when there is a discussion of a
company’s performance or share value. It is the profit after tax figure that is
divided by the number of common shares to calculate the value of earnings per
share. This figure tells us what profit the common shareholders earned for every
share held. A company can decide whether to increase or reduce the number of
shares on issue. This decision will automatically affect the earnings per share. The
profits available to the ordinary shareholders are represented by net profit after
taxed and preference dividend. Symbolic expression of EPS is given below:
 Earning Available to Shareholders
EPS =
Total no. of Common Stocks Outs tan ding

V. Interest Earned to Credit and Advances Ratio

Credit and advances refer to the major part of sales of the banking services. Sound
credit policy with minimal amount of non-performing credit reveals the success of
banks in having better performance. In return, the banks charge interest on their
amount of lending. Thus, a higher ratio is desirable for all kinds of financial
institutions.

Interest Income
Interest income to credit and advances =
Total Credit & Advances

VI. Non-performing Credit to Credit and Advances Ratio

This ratio used to identify the share of bad or useless credits in the total credit and
advances of banks. In other words, this is the share or credits, which are failed to
generate regular earnings. It is always expressed in percentage. Lower and lower
ratio is desirable for banks. It is calculated as:

Non − Perfor min g Credit

Non-performing credit to credit and advances =
Total Credit & Advances

VII. Du-Pont Equation Analysis

This du-pont equation is known as the overall summarized form of ratio analysis.
The profit margin times the total assets turnover gives the return on assets, and this
equation is known as du-pont equation.

Return on Assets (ROA) = Profit margin x Total assets turnover

 Net Pr ofit Sales ( Net )
= x
Sales ( Net ) Total Assets

E. Market Indicator ratio:

Market indicator ratios or market value ratios are useful in detecting the position
or value of the banks in the market. Under it, following ratios have been
calculated:

a) Market Price per Share (MPS)

Market price of share is determined on the basis of demand and supply of shares in
the secondary market. Various factors affect on the formation of share prices.
Those factors may be both the intrinsic (company specific) factors and external
factors including international economic scenarios or trends. Higher price is
desirable for banks. It is also known as market value per share.

Book Net Worth

Book Value per Share =
Total no. of Common Stocks Ous tan ding

b) Price-Earnings Ratio (P/E ratio)

It indicates the performance (efficient utilization of funds collected) of the CBs. It
indicates the number of times the earnings are turnover with respect to price in the
market. Higher ratio is desirable since increase in earnings is associated with the
increase (growth) in stock’s price. However, the high ratio obtained by dividing
the low price by very low earning is not considered good at any cost. The validity
of higher P/E ratio lies only when both the market price and earnings are growing.

Market Pr ice per Share ( MPS )

Price- Earnings Ratio =
Earning Per Share ( EPS )

3.4.2 Statistical Tools

For Supporting the study, statistical tool such as Mean, Standard Deviation,
Coefficient of Variation, Correlation, Trend Analysis and diagrammatic cum
pictorial tools have been used under it.

i. Arithmetic Mean ( X )
Averages are statistical constants, which enable us to comprehend in a single
effort of the whole (Gupta, 2000: 87). It represents the entire data by a single
value. It provides the gist and gives the bird’s eye view of the huge mass of
unwieldy numerical data. It is calculated as:

∑X
X =
N

Where,
∑ X = Sum of observations
N = Number of observations

a. Standard Deviation (S.D.)

The standard deviation is the square root of mean squared deviations form the
arithmetic mean and is denoted by S.D. or σ (Shrestha, 1991: 43). It is used as
absolute measure of dispersion or variability. It is calculated as:

2
∑X2 ⎛∑X ⎞
σ = − ⎜ ⎟
N ⎝ N ⎠

ii. Coefficient of Variation (C.V.)

The Co-efficient of variation (C.V. ) Is the relative measure based on the standard
deviation and is defined as the ratio of the standard deviation to the mean
expressed in percentage (Shrestha, 1991: 45,). It is independent of units. Hence, it
is a suitable measure for comparing variability of two series with same or different
units. A series with smaller C.V. is said to be less variable or more consistent or
more homogeneous or more uniform or more stable than the others and vice versa.
It is calculated as:

iii. Correlation Analysis:

The popular method of statistical tool, Karl Pearson’s co-efficient of correlation
has been adopted to measure the significance of the investment and profit of
Himalayan Bank Ltd. The formula for computing the correlation coefficient (r)
using direct method is as follows:
Karl Pearson’s Co-efficient of Correlation (r) =
N ∑ xy − (∑ x).(∑ y )
N ∑ x 2 − (∑ x) 2 x N ∑ y 2 − (∑ y 2 )

Here,
N= Number of pairs of x and y observed
x= Values of Investment
y= Values of Profit
r= Karl Pearson’s co-efficient of correlation

3.4.3. Trend Analysis:

Trend analysis is the tools that are used to show increase and decrease of variable
in a period of time. With the help of tend analysis; the tendency of variables over
the period can be seen clearly. Here, trend analysis of deposit, investment and
profit were used.
 CHAPTER – IV

DATA PRESENTATION AND ANALYSIS 

4.1 Deposit Position of HBL

Deposit is the main source of commercial banks. The existence of commercial
banks basically depends upon the mobilization of deposits. It is important that
commercial bank’s deposit policy is the essential policy for its existence. The
growth of bank depends primarily upon the growth of its deposit. The commercial
banks may function when they have adequate deposits. Higher the volume of
deposit, higher will be the volume of lending and investment, which again
generate higher volume of profit. Banks earn profit by charging high rate of
interest on investment in comparison to interest on deposits. The deposit of banks
are invested. There is a great need of such deposit in developing countries. Banks
being the intermediate accepts such sort of money and helps to canalize this in
productive sector. So the importance of banks and financial intermediaries is big.
HBL bank provides banking services to the people and contributes in the
economic development of the country. The bank major activities include
collection of deposit. The deposit position of HBL is as follows.

Table:4.1
Deposit Position of HBL
(Rs. in ‘000)
Year Amount Total Percentage
Fixed Saving Current Change
2058/59 63,64,354 91,63,946 30,90,985 18,619,375 -
2059/60 62,46,863 1,08,70,542 38,89,974 2,10,07,379 12.83
2060/61 56,80,263 1,17,59,602 45,70,468 2,20,10,332 4.77
2061/62 63,30,393 1,28,52,415 56,31,204 2,48,14,012 12.74
2062/63 63,91,814 1,45,82,855 55,16,182 2,64,90,852 6.76
Source: Annual reports of HBL
 Figure: 4.1
Deposit Position of HBL

16000000
14000000
Amoutn in thousand

12000000
10000000 Fixed
8000000 Saving
6000000 Current
4000000
2000000
0
2058/59 2059/60 2060/61 2061/62 2062/63
Year

Source: Annual reports of HBL

The table no. 4.1 shows the status of total deposit position of HBL. In the fiscal
year 2058/59 the total deposit was 1,86,19,375. In the fiscal year 2059/60 the total
deposit amount increased by 23,88,004. The percentage was 12.83%. In this way,
the total deposit amount increased gradually 2058/59 to 2062/63.

The total deposit increased by 4.77% in the fiscal year 2060/61. In this year the
total deposit amount was Rs. 2,20,10,333 and amount increased by Rs. 10,02,954.
The total deposit increased to 12.74% in the year 2062. In this year the total
deposit amount was Rs. 24184012 and amount increased by Rs. 28,03,679.
Similarly the total deposit increased by 6.76% in the fiscal year 2062/63. In this
year the total deposit amount was Rs. 2,64,90,852 and amount increased by Rs.
16,76,840.

Here, the table no. 4.1 shows the status of total deposit collection of this bank the
table shows the increasing position of the in the fiscal years 2058/59 to 2062/63.
In comparison with other deposit amount, current deposit was less than saving and
fixed deposit. To earn more interest most of the people deposited their money in
fixed and saving accounts.

4.2 Credit position of HBL

The low interest rate attracts the people to take loan and advances from the bank.
Total credit is the amount of loans and advances and investment. Bank provides
loan by accepting different collateral of debtors. Commercial banks offer loan to
their clients for different purpose to different sectors like agriculture, industrial,
trade and miscellaneous.

Total credit is composed of, total credit including Loan and overdraft and bill
purchase and discount.

Table: 4.2
Credit Position of HBL
(Rs. in ‘000)
Year/Ashad Total Credit Percentage Change
2058/59 1,87,14,244 -
2059/60 2,10,20,034 12.32
2060/61 2,22,11,734 5.67
2061/62 2,51,43,510 13.20
2062/63 2,66,51,008 6.00
Source: Annual reports of HBL

Table no. 4.2 shows the credit position of HBL. It shows the Increasing trend by
credit position of HBL till the fiscal year 2062/63. The total credit increased by
12.32% in the fiscal year 2059/60. In this year the total credit amount was Rs. 2,
10, 20,034 and amount increased by Rs. 23, 05,790. Similarly the total credit
increased percentage by 5.67%, 13.20%, and 6.00% in the fical year 2060/61,
2061/62 and 2062/63 respectively. The total credit amount increased by Rs. 11,
91,700, 29,31,776 and 15,07,498.

4.3 Credit deposit Ratio

Credit and deposit are the major functions of commercial banks. The main features
of the commercial banks are to collect the deposit and granted loans and advances
to the needy people. Credit deposit ratio is used to find out the effective utilization
of available resources of the bank. The relationship between credit and deposit
shows the deficiency, ability and idle resources of commercial banks. The ratio of
credit and deposit shows the effective utilization of collected resources. Increase
of deposit leads to increase in credit.
Table: 4.3
Credit deposit Ratio of HBL
(Rs. ‘000’)
Year Total deposit Total Credit CD Ratio
2058/59 1,86,19,375 1,87,14,244 100.50
2059/60 2,10,07,379 2,10,20,034 100.06
2060/61 2,20,10,333 2,22,11,734 100.92
2061/62 2,48,14,012 2,51,43,510 101.33
2062/63 2,64,90,852 2,66,51,008 100.60
Source: Annual reports of HBL
Figure 4.2
Credit deposit Ratio of HBL

30000000

25000000

20000000
Total Deposit
15000000
Total Credit
10000000

5000000

0
2059 2060 2061 2062 2063

Source: Annual reports of HBL

Credit deposit ratio had showed highest in the fiscal year 2061/62 recording
101.92% and the lowest in the fiscal year 2059/60 with 100.06%. It indicates
effective mobilization of deposits In the fiscal year 2058/59 total credit was Rs.
1,87,14,244 and total deposit was Rs. 1,86,19,375 and CD ratio was 100.50. In
year 2059/60 total credit ratio decreased upto 100.06. During the fiscal year credit
amount was 2,10,20,034. but from the year 2060/61 to 2061/62 the credit deposit
ratio increased by 100.92 and 101.33 but in the fiscal year 2062/63 the CD ratio
decreased by 0.73 showing 101.33-100.60 in the fiscal year 2061/62 to 2061/63.
With deposit amount of Rs. 2,48,14,012 and 2,64,90,852. The decreasing trend of
CD ratio indicates the idle fund of bank.

From the above analysis it can be said that in the fiscal years 2058/59 to 2062/63
the ratio between deposits and loan and advances remarkable. Increase in deposits
leads to increase in loan and advance but tremendous increase in the deposit did
not follow by increase in loan and advances. The above analysis shows that HBL
was successful in mobilization of its resources. It shows the efficient utilization of
resources of bank.

4.4 Return on Total Deposit: This ratio measures the overall effectiveness of
deposit collection (Fixed A/C, Saving A/C and current A/C) in generating profit.
Higher ratio is desirable for banks. The bank having higher ratio is considered to
be sound credit performance and with lower bad debts. This ratio is measured by
dividing the net profit after taxes by total Deposit.

Table: 4.4
Return on Total Deposit Ratio of HBL
(Rs. ‘000’)
Year Net Profit Total Deposit Ratio
2058/59 2,35,023 1,86,19,375 1.26
2059/60 2,12,132 2,10,07,379 1.01
2060/61 2,63,052 2,20,10,333 1.20
2061/62 3,08,277 2,48,14,012 1.24
2062/63 4,57,458 2,64,90,852 1.73
Source: Annual reports of HBL

Return on deposit ratio had showed highest in the fiscal year 2062/63 recording
1.73% and the lowest in the fiscal year 2059/60 with 1.01%. And net profit
amount was 4,57,458 and total deposit was Rs. 2,64,90,852 in the fiscal 2062/63
respectively. In the fiscal year 2059/60 net profit amount was 2,12,132 and total
deposit amount was 2,10,07,379, But ratio was decrease by 1.01, which was
lowest ratio of the five fiscal year, In year 2060/61 net profit ratio increased upto
1.20% During the fiscal year deposit amount was 22,01,033 and net profit was
263052 From the year 2060/61 to 2062/63 the net profit ratio increased by 1.20%,
1.24% and 1.73%

From the above analysis it can be said that in the fiscal years 2058/59 to 2062/63
the ratio between profit and total deposit remarkable. Increase in deposits leads to
increase in the profit if resources are utilized. The above analysis shows that HBL
was successful in mobilization of its deposit. It shows that the profit was
increasing trend accept 2059/60.

4.5 Return on Total Credit:

This ratio measures the overall effectiveness of credit and advances (loans and
advances) in generating profit. Higher ratio is desirable for banks. The bank
having higher ratio is considered to be sound credit performance and with lower
bad debts. This ratio is measured by dividing the net profit after taxes by total
credit and advances as:

Net Pr ofit
Returned on total Credit =
Total Credit & Advance

Table: 4.5
Return on Loans and Advances Ratio
(Rs. ‘000’)
Year Net Profit Credit & Advance Ratio
2058/59 2,35,023 95,57,137 2.46 %
2059/60 2,12,132 1,08,44,599 1.96 %
2060/61 2,63,052 1,29,19,631 2.02 %
2061/62 3,08,277 1,34,,51,168 2.29 %
2062/63 4,57,458 1,57,61,977 2.90 %
Source: Annual reports of HBL

The table no. 5 shows the profit margin of listed over the past five fiscal years. the
figure depicted above represents the five-year trends of the banks. The ratios of
HBL were 2.46 %, 1.96 %, 2.02%, 2.29% and 2.90% in the years 2058/59,
2059/60, 2060/61, 2061/62 and respectively. The ratio for the bank remained
highest in the fiscal year 2062/63 and lowest in the fiscal year 2059/60.

5.6 Interest Earned to Credit and Advances

The credit and advances refer to the major portion of income of the banking
services. Sound credit policy with minimal amount of non-performing credit
reveals the success of banks in having better performance. In return, the banks
charges interest on their amount of lending. Thus, a higher ratio is desirable for all
kinds of financial institutions.

Interest Income
Interest Earned to Credit & Advance =
Total Credit & Advance

Table: 4.6
Interest income to credit and advances ratio
(Rs. ‘000’)
Year Interest Income Credit & Advance Ratio
2058/59 11,48,998 1,87,14,244 6.14
2059/60 12,01,233 2,10,20,034 5.71
2060/61 12,45,895 2,22,11,734 5.74
2061/62 14,43,468 2,51,43,510 5.74
2062/63 16,26,474 2,66,51,008 6.10
Source: Annual reports of HBL

The interest incomes earned by HBL were 6.14 %, 5.71 %, 5.74%, 5.74% and
6.10% in the fiscal year 2058/59, 2059/60, 2060/61, 2061/62 and 2062/63
respectively. The ratio of HBL also showed a decreasing trend as given in the
fiscal year 2058/59 to 2060/61. But in the fiscal year 2060/61 to 2061/62 were
content fiscal year 2062/63 it increased by 6.10%.

5.7 Non-Performing loan to Credit and Advances:

This ratio is used to identify the share of non-performing credits to the total credit
and advances of bank. In other words, this is the credits, which fails to generate
regular earnings. It is always expressed in percentage. Lower and lower ratio is
desirable for bank. It is calculated as follows:
 Non − Perfor min g Loan
Non Performing Loan to Credit & Advance =
Credit & Loan

Table: 4.7
Non-performing loan to credit and advances ratio
(Rs. ‘000’)
Year Non performing Loan Credit & Advance Ratio
2058/59 11,56,041 95,57,137 12.90 %
2059/60 10,92,839 1,08,44,599 10.08 %
2060/61 11,47,462 1,29,19,631 8.88 %
2061/62 10,01,347 1,34,51,168 7.44 %
2062/63 10,40,757 1,57,61,977 6.60 %
Source: Annual reports of HBL

The shares of non-performing loan on credit and advances of HBL were 12.90%,
10.08%, 8.88%, 7.44% and 6.60% in the fiscal years 2058/59, 2059/60, 2060/61,
2061/62 and 2061/63 respectively. On the basis of the above calculation and their
analysis it was found that the share of non-performing credit on total credit and
advances ratio of HBL were found even at decreasing trend in the last study
period.

5.8 Performing loan to Credit and Advances: This ratio is used to identify the
share of performing credits to the total credit and advances of bank. It is always
expressed in percentage. It is calculated as follows:

Perfor min g Loan

Performing Loan to Credit & Advance =
Credit & Advance

Table: 4.8
 Performing Loan to Credit & advance Ratio
(Rs. ‘000’)
Year Performing Loan Credit & advance Ratio
2058/59 84,01,096 95,57,137 87.90 %
2059/60 97,51,759 1,08,44,599 89.92 %
2060/61 1,17,72,168 1,29,19,631 91.12 %
2061/62 1,24,49,820 13,45,11,68 92.56 %
2062/63 1,47,21,218 15,761,977 93.39 %
Source: Annual reports of HBL

The shares of performing loan on credit and advances of HBL were 87.90%,
89.92%, 91.12%, 92.56% and 93.39% in the fiscal years 2058/59, 2059/60,
2060/61, 2061/62 and 2061/63 respectively. On the basis of the above calculation
and their analysis it was found that the share of non-performing credit on total
credit and advances ratio of HBL were found even at decreasing trend in the last
study period.

4.9 Current Deposit Position

Current deposit or account is also known as demand deposit. A customer can open
a current account by making an initial deposit. Any amount may be deposited in
this account, which may be drawn at any time on demand. This type of deposit
helps more to the merchant and traders than the individual. A bank should keep
enough balance because it should pay large amount at the time of account holder’s
demand. This type of deposit can’t be invested in the productive sector so, such
type of amount remains in liquid form in the bank. The bank does not give interest
on this account but the bank can deduct certain amount from the customer’s
account as handling charge.

Table:4.9
Amount deposited in current A/C of HBL
 (Rs. In ‘000)
Year Current A/c Percentage Change
2058/59 30,90,985 -
2059/60 38,89,974 25.85
2060/61 45,70,468 17.49
2061/62 56,31,204 27.27
2062/63 55,16,182 -2.04
Source: Annual reports of HBL

The table no. 4.9 shows the status of current deposit of HBL. From the fiscal year
2058/59 to 2062/63 the current deposit raised continuously except in the fiscal
year 2062/63. The outstanding current deposit was Rs. 30,90,985 thousand in the
fiscal year 2058/59. The amount increase to Rs. 38,89,974 thousand in the fiscal
year 205960 and the percentage increased by 25.85%, and in the fiscal year
2060/61 the amount increased to Rs. 4,570,468 thousand which recorded 17.49%
increase. Again amount increased to Rs 56,31,204 in the fiscal year 2061/62 and
the percentage increased by 27.27% during the fiscal years 2058/59 to 2061/62 the
current deposit was in increasing trend. But in the fiscal year 2062/63 the amount
decreased to Rs. 55,16,182 thousand which was –2.04 lower than the fiscal year
2061/62.
Therefore, the current deposit amounts of HBL were in increasing trend except in
the fiscal year 2062/63. The continuous increase in current account in the fiscal
year 2058/59 to 2061/62 showed that the bank was successfully collected the
amount from traders and businessman.

4.10 Saving Deposit Position

The middle class, farmers and the labours that have low income, officials and
small businessman open saving account to earn some interest. Usually, the interest
is given every six months in the deposit. Any Nepali citizen with minimum
amount of Rs. 15,000/- balance can open the account in HBL. In saving deposit
there are restrictions on the maximum amount that can be withdrawn from the
account. The bank may not permit more than one or two withdrawal during a day.
The saving account holder does not have the same facility of withdrawing money
as the current account holder. The bank fixed the minimum and maximum amount
withdraw able through a cheque from this deposit.

Table: 4.10
Amount deposited in saving account of HBL
(Rs. In ‘000’)
Year Saving A/c Percentage Change
2058/59 9163946 -
2059/60 10870542 18.62
2060/61 11759602 8.18
2061/62 12852415 9.29
2062/63 14582855 13.46
Source: Annual reports of HBL

The above table no. 4.10 shows the amount deposit in saving account from the
fiscal year 2058/59 to 2063. It shows the increasing trend of saving deposits in the
fiscal years. The amount increased to Rs. 1,08,70,542 thousand in the fiscal year
2059/60 and percentage increase was 18.62%. Similarly, Rs. 1,17,59,602 amount
was deposited in the fiscal year 2060/61, and Rs. 1,28,52,415 in 2061/63 and Rs.
1,45,82,855 in the fiscal year 2062/63. The deposit amounts were increasing
gradually. Thus the continuous increase saving deposit shows the expansion of
economic activities as well as increase in the income of people with the lower
income.

4.11 Fixed Deposit Position

A fixed deposit is one where a customer is required to keep a fixed amount with
the bank for specific period. The amount from such deposit is not allowed to
withdraw before expiry of the period. The customers can renew the fixed deposit
after the expiry of the fixed time. The fixed account is called time deposit because
this amount is deposited for a certain period. Any Nepalese person can open fixed
account with minimum of Rs. 10,000/- in HBL. The rate of interest in the deposit
is higher than other deposit account.
Table: 4.11
Amount Deposited in Fixed Account of HBL
(Rs. In ‘000’)
Year Fixed A/c Percentage Change
2058/59 63,64,354 -
2059/60 62,46,863 -1.85
2060/61 56,80,263 -9.07
2061/62 63,30,393 11.45
2062/63 63,91,814 0.97
Source: Annual reports of HBL

The above table no. 4.11, decrease in deposit amount from the fiscal year 2058/59
to 2060/61. The total outstanding fixed deposit was Rs. 63,64,354 thousand in the
fiscal year 2058/59. It decreased to Rs. 62,46,893 thousand and percentage it
decreased by –1.85% in comparison to the previous fiscal year. It again decreased
to Rs. 56,80,263 thousand in the fiscal year 2060/61 and it was in –9.07% in
comparison to the fiscal year 2059/60 decreased with higher percentage than in the
fiscal year 2059/60. But it increased to Rs. 63,30,393 thousand in the fiscal year
2061/62 in term of percentage it was 11.45 compared to the previous fiscal year.
Again it was increased to Rs. 63,91,814 thousand in the fiscal year 2062/63, in
percentage it was 0.97% with comparison to the previous fiscal year.

Thus, the analysis showed that the fixed deposit did not increase during the three-
study period.
4.12 Growth Ratio of HBL
Growth ratio is calculated to find out how would the total deposit grows during the
study period. The high growth ratio shows grow performance and growth ratio
low, it indicates worse performance of the bank. Two growth ratios were studied
which were directly related to deposit mobilization bank.

For the calculation of growth rate, the following formula was used:
Dη = Do (1+g)n-1
Where, Dη = Total amount in nth year
Do = Total amount in initial year
G = Growth rate

n = Total no. of year during the study period

4.12.1 Growth Ratio of Total Deposit

The table no. 12 shows the total deposit and growth rate during the study period
from 2058/59 to 2062/63. (See Annex I)
Table: 4.12
Growth Ratio of Total Deposit
(Rs. In ‘000)
Year Total deposit
2058/59 1,86,19,375
2059/60 2,10,07,379
2060/61 2,20,10,333
2061/62 2,48,14,012
2062/63 2,64,90,852
Growth Ratio 9.22
Source: Annual reports of HBL
 Figure: 4.3
Growth Ratio of Total Deposit

30000000
Total deposit (in thousand)

25000000

20000000

15000000 Total Deposit

10000000

5000000

0
2058/59 2059/60 2060/61 2061/62 2062/63
Year

Source: Annual reports of HBL

It is found that the growth rate of total deposit of HBL is 9.22 percent. So it can be
said that HBL must improve its deposit collection. So, this bank should reform the
existing policy to attract its customers which might help increased the deposit of
its bank.
4.12.2 Growth Ratio of Total Credit
The growth ratio of total credit and its growth rate of study period 2058/59 to
2062/63 is given in the following table. (See Annex II).

Table: 4.13
Growth Ratio of Total Credit
(Rs. In ‘000)
Year/ Total Credit
2058/59 1,87,14,244
2059/60 2,10,20,034
2060/61 2,22,11,734
2061/62 2,51,43,510
2062/63 2,66,51,008
Growth Ratio 9.24
Source: Annual reports of HBL

Figure: 4.4
Growth Ratio of Total Credit
(Rs. In ‘000)
Total credit (in thousand)

30000000
25000000
20000000
15000000 Total Credit

10000000
5000000
0
2058/59 2059/60 2060/61 2061/62 2062/63
Year

It is found that the growth ratio of total credit is 9.24 percent during the study
period. it is high in comparison to the growth ratio of total deposit of HBL.

This shows that the bank is utilizing the deposit amount in response to the growth
rate of total deposit. So it can be concludes that the bank seems to be using to the
total deposit amount.

4.13 Trend Analysis

The Trend analysis shows the relationship between on variable with another
variable being time. It helps in future forecasting and planning with the help of
past and present data. The factors affecting them will make possible to forecast for
the future. The Trend analysis is an analysis of bank’s financial figure over time in
order to determine the improvement or deterioration or stability of its’ financial
situation.
In the context, the analysis trend of deposit collection and its’ utilization of HBL
were made for the period of five fiscal year 2062/59 to 2062/63. The objectives of
this trend analysis of deposits and loan and advances are to make forcast for next
two years.

The projections are based on the following assumptions:

1) The bank will run in present position.
2) Himalayan Bank Limited will not change its existing guidelines.
Simple linear trend line of the form y=a+bx is used where x and y are considering
variable. x denotes time. “b” measures the increased or decreased in the value of y
due to unit change in x.y denotes total deposit and total credit. Here method of
least square is used for trend analysis of deposit and credit of HBL.

4.13.1 Trend Analysis of Total Deposit.

The values of total deposit of HBL the fiscal year 2058/59 to 2062/63 were
calculated and forecasts for next years two fiscal year 2063/64 and 2064/65 the
following table presents the trend value of deposits. (See Annex III).

Table: 4.14
Trend Values of Total Deposit of HBL
(Rs. in‘000)
Year Actual Values Trend Values (YC) = 20633432+195496.X
2058/59 1,86,19,375 2,04,37,935
2059/60 2,10,07,379 2,06,33,432
2060/61 2,20,10,333 2,08,28,927
2061/62 2,48,14,012 2,10,24,424
2062/63 2,64,90,852 2,12,19,920
2063/64 - 2,14,15,416
2064/65 - 3,04,08,212
Source: Annual Reports of HBL

The table no. 4.14 shows the increasing trend of total deposit of HBL. Here, ‘yc’ is
the value of ‘y’.

Since, the calculated value ‘b’ is positive, it is found that the bank’s deposit is
increasing with time, it shows that the total deposit is increasing by Rs. 1,95,496
thousand every year. So the total deposit of the bank will be Rs. 2,14,15,416
thousand (expected) in the fiscal year 2063/64 and Rs. 3,04,08,212 thousand
(expected) in the fiscal year 2064/65.

The calculated trend value of total deposit of HBL is fitted in the trend line.

Figure: 4.5
Trend Value of Total Deposit of HBL
Total Deposit (in thousand)

30000000
25000000
20000000
Actual line
15000000
Trend line
10000000
5000000
0
2058/59 2059/60 2060/61 2061/62 2062/63
Year

4.13.2 Trend Analysis of Total Credit

The least square method was used to calculate trend value of total credit. The trend
values of total credit of HBL form the fiscal year 2058/59 to 2062/63 were
calculated and forecasted values of credit for next two fiscal year were made
2062/64 and 2064/65. The following table presents the trend value of credit. (See
Annex IV)
Table: 4.15
Trend Values of Total Credit of HBL
Year Actual Values Trend Values (YC) = 2751105+1999700.X
2058/59 1,87,14,244 7,51,405
2059/60 2,10,20,034 27,51,105
2060/61 2,22,11,734 47,50,806
2061/62 2,51,43,510 67,50,506
2062/63 2,66,51,008 87,50,206
2063/64 - 1,07,49,907
2064/65 - 1,27,49,607
Source: Annual reports of HBL
The table no. 4.15 shows the increasing trend of total credit of HBL. Here ‘yc’ is
trend value of total credit. ‘a’ is constant and ‘b’ indicate increase ‘a’ decrease in
the value ‘y’.

Since, the calculated value ‘b’ is positive, it is found that the bank’s credit is
increasing with time, it shows that the total credit is increasing by Rs. 19,99,700
thousand every year. So, the total credit of the bank will be Rs. 1,07,49,907
thousand (expected) in the fiscal year 2063/64 and Rs. 12,74,96,047 thousand
(expected) in the fiscal year 2064/65.

The calculated trend value of total credit of HBL is fitted in the trend line.

Figure: 4.6
 Trend Value of Total Credit of HBL

30000000
Total Deposit (in thousand)

25000000
20000000
Actual Line
15000000
Trend Line
10000000
5000000
0
2059 2060 2061 2062 2063
Year

4.13.3 Trend Analysis of Profit

The least square method was used to calculate trend value of profit. The trend
values of profit of HBL form the fiscal year 2058/59 to 2062/63 were calculated
and forecasted values of credit for the next two fiscal years 2062/64 and 2064/65
were made. The following table presents the trend value of credit. (See Annex V).
 Table: 4.16
Trend Values of Net Profit of HBL
Year Actual Values Trend Values (YC) = 194082+101106.X
2058/59 2,35,023 92,976
2059/60 2,12,132 1,94,082
2060/61 2,63,052 2,95,188
2061/62 3,08,277 3,96,294
2062/63 4,57,458 4,97,400
2063/64 - 5,98,506
2064/65 - 6,99,612
Source: Annual reports of HBL

The table no. 4.16 shows the increasing trend of profit of HBL. Here ‘yc’ is trend
value of total credit. ‘a’ is constant and ‘b’ indicate increase ‘a’ decrease in the
value ‘y’.

Since, the calculated value ‘b’ is positive, it is found that the bank’s profit is
increasing with time, it shows that the profit is increasing by Rs. 11,014 thousand
every year. So, the profit of the bank will be Rs. 5,98,506 thousand (expected) in
the fiscal year 2063/64 and Rs. 6,99,612 thousand (expected) in the fiscal year
2064/65.

The calculated trend value of total credit of HBL is fitted in the trend line.
 Figure: 4.7
Trend Values of Profit of HBL

600000
A m o u n ts in th o u san d

500000
400000
Actual Values
300000
Trend Values
200000
100000
0
2058/59 2059/60 2060/61 2061/62 2062/63
Year

4.14. Coefficient of Correlation

Coefficient of correlation is used to measure the relationship between two
variables. It helps to determine its correlation between two variables but it does
not tell about cause and effect. Karl Pearson’s coefficient of correlation is used to
find out the relationship. Correlation analysis is a measure of association that is
based on the numerical values of the two variables. It is preferred in this study to
determine whether.
• The correlation is significant or insignificant.
• Correlation is positive or negative or non-correlated.

The statistical tool, correlation analysis was used in this study to identify the
significance of relationship between variables.
For the purpose of decision making the interpretation are based on the following
terms
i. When, r = 1, there is perfect positive correlation.
ii. When, r = -1, there is perfect negative correlation.
iii. When, r = 0, there is no correlation.
iv. When, ‘r’ lies between –0.7 to 0.999, there is a high degree of positive
correlation.
v. When, ‘r’ lies between –07 to 0.999, there is high degree of negative
correlation.
vi. When ‘r’ lies between –0.5 to 0.6999, there is moderate degree of
correlation.
vii. When, ‘r’ is less than 0.5, there is low degree of correlation.

4.14.1 Correlation Coefficient between Total Deposit and Total Credit.

Correlation coefficient between total deposit and total credit measures the degree
of relationship between total deposit and total credit. Here, the total credit is the
amount of loans and advances and bill purchase. In correlation analysis the deposit
is an independent variable (x) while credit is dependent variable (y). (See Annex
VI).
Table: 4.17
Correlation between Deposit and Credit
Name r r2 P.Er 6P.Er Remarks
HBL 0.86504 0.74829 0.07590 0.4554 Significant
Source: Annual reports of HBL

The above table describes the relationship between deposit and credit during
period of 5 years.

The coefficient of correlation between total deposits and total credit is 0.86504.
This figure shows high degree of positive association between deposit and credit.
There higher degree of association between those two components.

The coefficient of determination (r2) is 0.74829. it shows that 74.83% of the

variation in the dependent variable (i.e. total credit has been explained by the
independent variable (i.e. total deposit).
The value of P.Er is 0.07590 and P.Er is 0.4554. The value of correlation
coefficient. (r) is too greater than 6 times probable error (6P.Er). Therefore, r is
significant. This reveals that there is significant relationship between the deposit
collection and credit extension.

There is positive relationship between total deposit and total credit. It shows that
by increase in the deposit well increase credit of the bank. Therefore, both the
deposit and credit are very mush interrelated. Thus it can be known that if more
and more deposit will make more credit.

4.15 Investment and Credit of HBL

The primary function of the Bank is to collect deposits from the public and
mobilize such deposits into productive credit portfolio and various investment
instruments. Each bank determines its investment policy giving due consideration
to the credit risks and liquidity risks. The major highlights of investment policy of
HBL are as follows:
• It defines and documents various activities covering Treasury Functions.
• It documents the policies governing various aspects of investments and
treasury functions in a precise manner.
• It defines different kinds of risks on various investment instruments and
mitigations of such risks.
• It defines short term and long term investment strategy of the bank.
• Stipulates the requirement of investment in Treasury Bills and Government
Bonds according to the Deposit Liability.
The structure of Deposit and its mobilization in Credit and Investment of HBL for
the last five yeas are as follows:
Table: 4.18
Investment & Credit of HBL
Year Investment Credit Deposit Investment Credit
 to Deposit Deposit
ratio ratio
2058/59 91,57,106 1,87,14,244 1,86,19,375 49.10% 100.51
2059/60 1,01,75,435 2,10,20,034 2,10,07,379 48.43% 100.06
2060/61 92,92,103 2,22,11,734 2,20,10,333 41.83% 100.92
2061/62 1,16,92,342 2,51,43,510 2,48,14,012 47.20% 101.33
2062/63 1,08,89,031 2,66,51,008 2,64,90,852 41.10% 100.60
Source: Annual reports of HBL

Due to Low Non performing Assets (Around 9.18%). HBL suffered with profit
during the fiscal year 2058/59 to 2062/63. Of the deposits and its mobilization into
investment and Credit of the Bank were remarkable. HBL needs to payback its
entire depositors.

The investment portfolio of HBL mainly consists of Treasury Bills and

government Bond. HBL has also made investment in share of few banks and other
financial institution. However, Central Bank has issued directives to all the
commercial banks divert its investment in any other financial institutions.

A present banking practice requires the commercial banks to invest around 4.57%
of its deposit liability into Treasury Bills, Government Bonds and similar quick
assets to manage liquidity risks.

In the fiscal year 2061/62 HBL has invested NPR 54,69,729 thousand into
Treasury Bills and other Government Bonds. The investment to Deposit ratio of
HBL during the fiscal year was 101.33%. The average ratio for the last five fiscal
years period however stood at 100%.

4.16 Major Findings

The five fiscal years data were taken into consideration to analysis the deposit
mobilization of HBL. Secondary data have been used for the study. The collected
data were analyzed. Several financial as well as statistical tools were used to
evaluate the entire position of deposit and credit of HLB.

The major finding, drawn out of the analysis of deposit and its mobilization of
HBL for the five fiscal years data rangers from 2058/59 to 2060/61.
Percentage Change ratio
• In the analysis of deposit position of HBL, it was observed that deposit
position percentage change was normal in the fiscal year 2058/59. Highest
percentage of change was in the fiscal year 2058/60 recording 12.83%.
• The analysis reveled that credit position of the bank was in increasing trend
during the study period.
• The analysis revealed that the current deposit of the banks was satisfactory.
It was stable during the study period. It was positive position during the
five years. The highest percentage of change was 27.27% in the fiscal year
2061/62.
• The percentage increase in saving deposit each year fluctuated during the
study period. The percentage increase of saving deposit was highest with
18.62 percent in the fiscal year 2059/60, and the lowest in the fiscal year
2061/61 was 8.18 percent.
• The percentage changes in fixed deposit for the four fiscal year from
2058/59 to 2060/61 were in decreasing trend. The highest percentage
change was in the fiscal year 2061/62 with 11.45%.

Growth Ratio
• The growth ratio of total deposit of HBL for 5 fiscal years period was 9.22
percent. The bank could able to maintain 9.22 percent growth rate. The
ratio measures the capacity of the bank to maintain the percentage of
 increase of total deposit. Since the growth ratio of total deposit was 9.22
percent.
• The growth ratio of total credit of HBL during the study period of 5 fiscal
years was 9.25 percent only.

Credit deposit ratio (CD ratio)

• The Credit ratio of HBL indicated the better utilization of its deposit in loan
and advances in even unfavorable condition. CD ratios were in fluctuating
trend. The imbalances of bank and its available resources mobilization were
due to the various internal and external problems. There was wider gap
between the deposits and credit making deposit amount idle.

Return on deposit ratio

Return on deposit ratio had showed highest in the fiscal year 2062/63 recording
1.73% and the lowest in the fiscal year 2059/60 with 1.01%.

Return on credit and advance ratio

The ratio for the bank remained highest in the fiscal year 2062/63 with 2.90% and
lowest in the fiscal year 2059/60 with 1.96%.

Interest income to credit and advance ratio.

• On the basis of findings of the five fiscal year the interest income to credit
and ratio was 6.10% in the fiscal year 2062/63. Which is lowest ratio and
highest ratio was 5.74% in the fiscal year 2060/61 and 2061/62.

Non-Performing Credit to credit and advance ratio

• During the fiscal year 2058/59 to 2062/63, highest ratio of non-performing
credit-to-credit and advance ratio was 12.90% in the fiscal year 2058/59
and lowest % was 6.60% in the fiscal year 2062/63.
Performing Credit to credit and advance ratio
• The performing credit to total credit and advance ratio were in increasing
trend during the five fiscal year. The highest ratio was 93.39% and lowest
ratio was 87.90%. In the fiscal year 2062/63 and 2058/59 respectively.

Trend Analysis
• The total deposit of HBL was found in increasing trend. The total deposit of
HBL will be Rs 21,415,416 thousand in for the fiscal year 2063/64 and Rs.
21,610,912 thousand for the fiscal year 2063/64 provided others things will
remain the same.
• The total credit of HBL was found in increasing trend. The total credit of
HBL will be Rs. 1,07,49,907 thousand for the fiscal year 2063/64 and Rs.
127,46,707 thousand for the fiscal year 2064/65. It other things remain
constant.
• The net profit of HBL was found in increasing trend. The net profit of HBL
will be Rs. 97,459 thousand for the fiscal year 2063/64 and Rs. 1,08,473
thousand for the fiscal year 2064/65. It other things remain constant.

Correlation Coefficient
• Correlation coefficient between total deposit and total credit of HBL
showed the positive relationship. Since r2 = 0.74829, it indicated that 74.83
percent of the variation in the total credit has been explained by the deposit.
Since r > 6P.Er, there is significant relationship between total deposit and
total credit. Where ‘r’ lies between total deposit and total credit. Where ‘r’
lies between 0.7 to 0.999. So, there was a high degree of positive
correlation.
 CHAPTER –V
SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary
In Nepal, Tejarath Adda was established during Ranadip Singh’s tenure as the
prime minister in 1933 B.S. This institution was established to grant loans to
employees and public against billions.

Modern banking started in Nepal after the establishment of Nepal Bank Limited in
1994 B.S. Later in 2031 B.S., Nepal Rastra Bank, the Central Bank of Nepal was
established under Nepal Rastra Bank Act 2012. It was established to promote
banking, circulated the Nepalese currency and abolish the dual currency system
prevalent at that time, facilitated government transactions, and maintain foreign
exchange reserves which were operated by the Reserve Bank of India at that time.

The Nepalese financial condition experienced and expansion both in the numbers
of institutions and service portfolio after the liberalization of the banking system in
1984 A.D. Nepal Arab Bank Limited (now Nabil Bank) was the first joint venture
bank of Nepal.

Commercial banks play an important role for economic development of a country

as they provide capital for the development of industry, trade and business by
investing the saving collected as deposits from public. They render various
services to their customer’s facilitation in their economic and their social life.
They are the most important ingredients for integrated and speedy development of
a country. Therefore a competitive and reliable banking system is essential to
every country to development.

Now a days there is very much competition in banking market. In this situation
joint venture banks can take initiation in search of new opportunities, so that they
can survive in the competitive market and earn profit.

Currently the economy of Nepal is witnessing historic changes in its structure,

both positively and negatively, and almost all sectors of the economy are facing
new issues and confronting new challenges of transformation by the introduction
of market economy in the country.

Commercial banks play a vital role in performing such base for financial and
economic development by way of deposit mobilization. It is true that strong
financial institution is the great need in the developing country like Nepal because
all the economic condition are based on the financial institutions and the
development of a country depends upon the active participation of the banks in the
different activities in the country.

Deposits are the obligation of the commercial banks. So, commercial banks must
allocate the form of different loan and advances. The main objective of the bank is
to examine the relationship between total deposits and total credits, the other
objective is to examine the trend of total deposit and total credit.

According to the balance sheet published by HBL, the total deposit position was
Rs. 18,619,375 thousand, which included Rs. 6,364,354 thousand in fixed deposit,
Rs. 9,163,946 thousand in saving deposit and Rs. 3,060,985 in current deposit in
the fiscal year 2058/59. In the fiscal year 2061/62 the total deposit was Rs.
2,48,14,012 thousand, which included Rs. 6,330,393 thousand in fixed deposit, Rs.
1,28,52,415 thousand in saving deposit and 56,31,204 thousand in current deposit.

But the credit position of the CD ratio was 101.33 % in the fiscal year 2061/62.
Which was highest CD ratio in the Fiscal years 2058/58 to 2062/63. The highest
deposit was collected in the fiscal year 2062/63 with Rs. 2,649,085 thousand. The
highest total credit was in the fiscal year 2062/63 with Rs. 26,651,008 thousand
and the highest CD ratio was 101.33 percentage in the fiscal year 2061/62. The
lowest CD ratio was 100.06 percentages in the fiscal year 2059/60. The lowest
total deposit and total credit were Rs. 21,007,379 thousand and Rs. 21,020,034
thousand during the fiscal year 2059/60.

Trend analysis of total deposit and total credit shows that that amount of deposit
and amount of credit were in increasing trend. So the expected two fiscal years of
total deposit and total credit would increase provided other things remain constant.
Trend analysis of profit shows that that amount of profit was in increasing trend.
So the expected two fiscal years profit would increase provided other things
remain constant.

In the study it was found that the correlation between total deposit total credits was
0.86504. Which showed the degree of association between these two was very
high. Here r 6PE (r ), which indicated that the relationship between total deposit
and the total credit was significant, it tells that increase in the deposit, will increase
the amount of credit.

5.2 Conclusion
The role of bank is significant not only in mobilizing saving but also in making
investment in the development of different sectors of economy. The role is
prominent for reducing poverty and increasing employment opportunities in the
country. Commercial banks are therefore called modern vehicle for the economic
development of the country.
HBL has made a substantial contribution in setting up different institution, for
speeding the economic development of the country. Bank has promoted the
institutions by injecting equity capital or by representation in management. Few
examples of such institution are Nepal Oil Corporation, Nepal investment bank
Ltd. Nepal housing and finance Ltd, Gramin development bank in all 5
developmental regions.

Before the liberalization of the financial sector in 1984 there were only 2
commercial banks in operation. There wasn’t much of competition during that
period. Since, the liberalization new joint venture commercial banks started to
come up and the number finally has reached to 18 till now. Due to this rapid
increase in the number of commercial banks in a short span of time the
competitiveness has intensified. In competition to capture more market share there
has been stiff competition between them. The ultimate winners of this competition
have been the consumers as they are getting more service variety, faster services,
easier accessibility etc. to attract new international standards. Since the beginning
of the new millennium, the joint venture banks have come up with new products
like debit card, mobile banking, internet banking, home banking, any branch
banking, credit card, ATM etc. which an average consumer has not even imagined
to have the services a decade back.

In order to increase the number of customers and depositors, the banks have
spread their network of branches to all the major cities and some rural areas
previously deprived of banking services.

Deposit is the major function of the commercial banks. Higher the deposit higher
will be the chances of mobilization of funds. The bank should be very careful
while granting loans and advances because loan is the life blood of the commercial
banks. Therefore there will be a great trouble to collect the loan in future which
may make the bank to become bankrupt.

In the analysis it shows that the HBL is successful to collect the deposits from the
depositors. The position of deposit collection is increasing with the utilization of
these deposits in favorable condition. The average CD ratio was found to be 100
%, making that satisfactory. This average credit deposit ratio shows that the HBL
has to improve to mobilize its collected fund better in future. It can be observed
the total credit including (loan & advance and bill discount) supplied by the bank
in average percentage within 5 year period, which is not bad in comparison to the
increment in the collection of deposits the same period. Business activities at
present, has rapid increased in the number of commercial banks in a short span of
time where as the competitiveness has intensified. To attract new customers the
banks are coming up with new and innovative products matching with
international standards.
The growth ratio of deposit and credit of HBL seems medium. Correlation and co-
efficient reveals that there is higher significant relationship between total deposit
and total credits.

Trend values of total deposit & total credits are in increasing trend in two expected
fiscal year 2063/64 and 2064/65. Bank is not able to maintain 12% interest rate
instructed by Nepal Rastra Bank (Central Bank of Nepal).

Therefore it can be concluded that the bank is in moderate condition during the
period of the study. It should try to work hard for mobilization of saving and its
diversification into different sectors, which should be professionally managed to
ensure adequate rate of return on investment, such action should be strategically
well planned to be competitive with other agencies and also should be trust
worthy.

5.3 Recommendations
The following suggestion or recommendations can be advanced to overcome the
weakness; inefficiency and to improve the present fund mobilization of
commercial bank.

The problem related to deposit mobilization has been already discussed. Now at
the end of the study the following recommendations can be advanced for the
improvement of the deposit mobilization of HBL:
1) Bank’s major activities include collection of deposits, investments in
government securities and company equities lending to commercial as well
as productive sector, foreign currency handling, remittances, merchant
banking correspondent banking etc. For these activities the bank should try
to carry out different schemes which may help to increase the deposit
collection of the bank to get success in the field of cut throat competition.
2) The bank must be committed towards the satisfaction of the valued
customers by providing modern banking facilities and tariffs.
3) The bank is equally committed to contribute to the economic growth and
development of the country. The bank’s efforts must be reached in rural and
urban corner of the country and develop the banking habit among people.
4) Increased loan recovery will have a strong positive effect on all the
financial indicators of the bank. So, different strategy must be held by HBL
such as to provide a guideline to overall loan recovery process. The new
LR/DR Manual has been designed. Restructuring, rescheduling of the
probable cases within the periphery of NRB directives and LR/DR manual
and strict monitoring and regular follow up.
5) Today the commercial banks in Nepal are facing heavy competition.
Domestic commercial banks are facing the most of competition due to the
nature of their work and responsibility. The bank should make continuous
efforts to explore new, competitive and high yielding investment
opportunities to optimize their investment portfolio.
6) To attract new customer the bank has to come up with new and innovative
products matching international standards like new products, debit card,
mobile banking, internet banking, home banking etc.
7) In order to increase the number of customers and depositors the banks
needs to spread their network of branches to all the major cities and some
rural areas previously deprived of banking services.
8) At present there are very few profitable investment opportunities for banks
so the competition on fixed deposits has declined. However there is a heavy
competition on current and saving deposit as the area has low cost deposit
which can be lent at lower rates for domestic consumption purposes. In
order to attract these low cost deposits, the bank needs to come up with
their new completion services like credit cards, debit cards and automated
teller machines in the major industrial and commercial cities.
9) Lending rates should be revised according to the bearing capacity of the
people. It should not be more than average rate of return. So, low interest
rate on credit is recommended.
10) To make very clear to the customer, bank should make their service charges
and interest rates transparent. Interest rates and service charges should be
minimum as per acceptable of the customers.
11) HBL launched the scheme of lottery of ten lacks for the public for the
attraction towards it but it did not get much satisfied result. Due to different
problems it didn’t get much attentive attraction from the consumers. It
became as gambling for public like in products of noodles.
12) HBL should extend its service for the public because its closing hour is
limited than the other banks therefore the companies do not want to deposit
their assets because it can neither take the deposit nor withdraw at time.
Had HBL extended its office hour it could have increased its current
deposit with the increment of saving and fixed deposit collection which will
help in mobilizing the deposit.
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