i

SOURCES AND FUNDS IN KUMARI BANKLIMITED A

Project Work Report

Submitted By:
Dipendra Sharma
P. U. Regd.No: 2017-2-03-1963
Exam Roll no: 18030074

Imperial Business College

Submitted To:
The Faculty of Management
Pokhara University

In Partial Fulfillment of the Requirements for the Degree of BACHELOR OF

BUSINESS ADMINISTRATION (BBA)

Hattisar, Kamaladi, Kathmandu

Date: August 19, 2021
ii

DECLARATION

I hereby declare that the project work report entitled SOURCES AND USES OFFUNDSIN KUMARI
BANK LIMITED submitted for the BBA is my original workandtheproject work report has not formed
the basis for the award of any degree, diploma, orother similar titles.

……………………..
Dipendra sharma
iii

Certificate from the supervisor

iv

ACKNOWLEDGEMENT

In the accomplishment of this report successfully many people have best owneduponustheir
blessings and the heart pledged support, this time we are utilizing all the peoplewhohave been
concerned with this report.
I would like to express my special thanks of gratitude to our principal Prajit K. Timalsinaand my
supervisor Pratap Raj Sakhya as well as and who gave me the golden opportunityto do this wonderful
project on the topic SOURCES AND USES OF FUNDSINKUMARI BANK LIMITED which also
helped me doing a lot of research and I cametoknow about so many new things. I am really thankful to
them.
Secondly, I would also like to thank my friends who helped me a lot in finalizing this project
within limited time frame.

Thank You
Dipendra sharma
v

TABLE OF CONTENTS

Title Page i Declaration ii Supervisor’ s Recommendation iii Acknowledgement iv

Table of Contents vList of Tables vi List of Figures vii Abbreviations viii

CHAPTER I: INTRODUCTION 11.1Background ______1

1.2Profile of Organization 2

1.3Statement of the Problems 3

1.4Objectives of the study 3

1.5Rationale of the study 3

1.6Review of literature 4-91.7Research Methods 10- 141.8Limitations 14

CHAPTER II: RESULTS AND ANALYSIS 15-312.1Data Presentation and Analysis

of Results 15-312.2Findings 31

vi

CHAPTER III: SUMMARY AND CONCLUSIONS 32-333.1Summary

323.2Conclusions and Implication.. 33

BIBILOGRAPHY 34APPENDICES 35-41

vii

LIST OF TABLES

Table no. Table Name PageNo.

1 Deposit in current A/C 152 Deposit in Saving A/C 173 Deposit in Fixed A/C

184 Deposit Position of Kumari Bank Ltd. 195 Credit position of Kumari Bank
 Ltd 206 Credit to deposit ratio analysis 227 Total investment to total deposit

ratio 238 Cash and bank balance to total deposit ratio 259 Interest payout

ratio 2610 Return on credit and advance ratio 29s

viii

LIST OF FIGURES

Figure no. Figure Name PageNo.

1 Current A/C Deposits 162 Saving A/C Deposits 173 Fixed A/C Deposits 194

Deposit Position of Kumari Bank Ltd. 205 Credit position of Kumari Bank Ltd.

216 Credit to deposit ratio analysis 227 Total investment to total deposit ratio

248 Cash and bank balance to total deposit ratio 269 Interest payout ratio

2710 Return on credit and advance 28

ix

ABBREVIATIONS

A/C : Account

BOK : Bank of Kathmandu

B/S : Balance sheet

EBL : Everest Bank Limited

FY : Fiscal Year

LTD : Limited

NIBL : Nabil Investment Bank Limited

NRB : Nepal Rastra Bank

P/L : Profit / Loss

1
 CHAPTER I
INTRODUCTION

1.1 Background of the Study

A bank is a financial institution which is licensed to accept deposits and make loans. Furthermore, it
accepts the loan from public and at the same time mobilizes the deposit asloans thereby making profit.
They also provide many financial services like wealthmanagement, currency exchange and safe deposit
boxes. The modern society is backedup by the functionality of the bank and it also contributes in the
economic development of the country. At present, there are many banks operating in the country.
Theunderstanding of how they accumulate funds and use them is vital for people. Throughdeposit and
lending, banks facilitate the flow of goods and services fromproducerstoconsumers. Hence, deposit is
considered as the major source of fund and lendingthemajor use of fund.

Kent has defined the bank as ‘ An organization whose principal operations are concernedwith the
accumulation of the temporarily idle money of the general public for the purposeof advancing to
others for expenditure.”

Bank can be categorized as:

1. Central Banks
2. Commercial Banks

Apart from this, development banks are also in operation.

The central bank is the monetary, regulatory and supervisory authority of banks andfinancial
institutions. It controls the entire currency and credit of the country. Nepal Rastra Bank is the central
bank of Nepal. Likewise, commercial banks performs numberof functions like accepting deposits,
granting credits, capital formation, remittances, foreign exchange and so on. Their functions are
centered on fulfilling the needofcustomers. Commercial banks are recognized as the A class banks in
Nepal. In thesame
2

way, development banks are focused on the development of the certain sectors of theeconomy.
However, overall operations are similar to that of the commercial banks.

In Nepalese context, it is very difficult to trace out the chronological order on the originof banking
system. The history of banking system is not too old. ‘ Tejarath Adda’ wasestablished during the Prime
minister ship of Ranodip Singh in 1877. It providedcredit facilities to the general public at a very low
interest rate under the security of gold, silverand other valuables.

After this, banking in Nepal took a significant step with the establishment of Nepal BankLimited in
1994 B.S. (1937 A.D.) with the paid up capital of 0.824 million. It tooktheresponsibility of Tejarath
Adda too. However, an urgent need of central bank was felt dueto dual currency system and unstable
exchange rates. Hence, Nepal Rastra Bankwasestablished in 195f6 A.D. for the development of banking
and finance and to promotetrade and industry.

As the monetary transactions started to rise, Nepal Rastra Bank suggestedthegovernment to establish
other commercial banks. With the formulation of Commercial Bank Act in 2031, Rastriya Banijya
Bank was established. As time passed, manyotherbanks were established to cope with the changing
banking and financial sector of thecountry.

1.2 Profile of Kumari Bank Limited

Kumari Bank Limited, came into existence as the fifteenth commercial bank of Nepal by starting its
banking operations from Chaitra 21, 2057 B.S (April 03, 2001) withanobjective of providing
competitive and modern banking services in the Nepalese financial market. Its paid up capital is Rs.
3,265,991,503. Out of this, 51%is contributedbypromoter and rest by public.

It has been providing wide - range of modern banking services through 76 pointsofrepresentations
located in various urban and semi urban part of the country, 74 branchesoutside and inside the valley;
and 2 extension counters.
3

1.3 Statement of Problem

This research is conducted to identify how the commercial banks in Nepal has beenacquiring its fund
and how are they being mobilized to gain profit and survive. For thisKumari Bank Limited is taken as
sample.

∙ What are the sources of funds of Kumari Bank Limited? ∙ How Kumari Bank
Limited uses its fund?

∙ What is the profitability of bank to deposit and lending? ∙ What is the relationship
between sources and uses of funds?

1.4 Objectives of the Study

The study is mainly related to the mobilization and utilization of funds of commercial banks. The main
objectives of study are:

∙ To analyze the determination of sources and uses of funds in the sample bank. ∙ To examine the
profitability of bank with respect to deposit and lending. ∙ To analyze the relationship between
deposit and credit, investments andcredit,
cash and bank balance to total deposit for liquidity, and loans and relationshipbetween
expenses and income of the sample bank.

1.5 Rationale of the Study

Commercial banks are financial institutions that mainly interact with the people, institutions, firm,
companies and industries for its day to day operation. As the funds that they have collected are used to
carry out its functions, the remaining of the fundisutilized in a much safer and proper way. The funds
are collected at a lowcost andareused into various sources to generate maximum profit.

Thus, the significance of this research work lies in the fact that understandingof thesources of fund and
its uses is of prime importance and hence, it attempts to playtherolein giving descriptive information
about the sources and uses of fund in the commercial bank of Nepal.
4

1.6 Review of the Literature

Review of the literature means review of the past data and studies relatingtotheconcerned topic of
research. It helps to identify the research carried out in the concernedfield so that any gap or
deficiencies can be identified. It also helps in the formulationofresearch methodology, avoid
duplication or replication in the data and interpret thefindings in a logical and concise way. Through
the review of literature, an attempt hasbeen made to study the articles, periodicals and journals that
help in conductingtheresearch.

A literature review of the sample bank is carried out to identify the true and relevant factsregarding
the study. A detail study of the financial statement and annual report is made. Similarly, the journals
and books that are relevant in the research are studied.

1.6.1 Conceptual Review

1.6.1.1 Concept of Commercial Bank

Commercial Banks are the ‘ A’ class banks as classified by NRB. They performdifferent types of
banking functions like accepting deposits, credit creation, advancingcredit, agency function, issuance
of bonds, letter of credit etc. Its functions include off balancesheet and on balance sheet functions.
Formation of capital and its use is closelyconnected to the function of commercial bank. The
commercial banks play the followingrole in development of economy:

∙ Formation of capital
∙ Transfer of funds from surplus unit to deficit unit
∙ Encourage trade and credit through credit facility
∙ Expansion of businesses

The commercial banks acquire the funds from various sources. It uses those acquiredfunds into
profitable investments to generate returns and conduct day-to-day operations. The uses of fund are
briefly discussed below;
5

1.6.1.2 Sources of fund

a) Owned funds/Equity Capital

It includes

∙ Ordinary Share: The money is raised from selling of shares to the publicbyadopting some rules
and regulations.

∙ Preference Share: They are those shares that have preference over commonequity during
the time of liquidation or bankruptcy.

∙ Retained Earnings: It is the amount of profit retained by the bank whichcanbeused in the
profitable investments. Retained earnings are the amounts that arenot paid out as dividends
by the core units of the business to reinvest or topaydebt.

∙ Reserve fund: It is also called statutory reserve. It is appropriated as per theorders of the
regulatory institutions. It can be used only with the permissionof regulatory authority.

b) Borrowed Funds

The sources of borrowed funds are:

Deposits

The bank attracts deposit from the public. Different types of deposits are:

∙ Current deposit
It is also called demand deposit. It can be withdrawn at the wish of depositor. Individual,
joint, business firms, corporation among others can use this deposit.

∙ Saving deposit
6

In this account, money can be deposited in the accounts as per thewishof depositor. It is meant
for non-trading customers who have the potential forsaving but do not have numerous
transactions. The lower and middleclasssalaried people, small traders or farmers use this
account.

∙ Fixed Deposit
In this account, when an amount is deposited, it cannot be withdrawnuntil theexpiry of a stated
time limit or without giving notice of withdrawal. Banks arealso not required to keep greater
deposits for such account.

c) Loan from Central Bank

The loan granted by central bank is called the Bank capital. The funds can be obtainedbyfollowing
the rules and regulations.

d) Loan from financial institution

Commercial banks can also obtain funds from other financial institutions in the formofloan.

e) Loan from other commercial banks

1.6.1.3 Uses of funds

Banks should utilize the funds in useful and profitable sector. The banks generallymobilize the
acquired fund as:

a) Liquid funds: It is the volume of cash kept as liquid funds. It can be ∙ Cash in hand

∙ Balance with NRB

∙ Balance with domestic bank
 ∙ Call money
7

b) Investment
It includes investment of banks in the shares and debentures, government securities, NRB bond,
joint venture.

c) Loans and advance

Banks also mobilize funds through loans and advances.

d) Fixed Assets Purchase

Fixed assets of a bank usually includes the land and building. Banks canalsouse its fund
to buy furniture, vehicle, computer and other commercial activitiesthat are concerned
with the banking activities.

e) Administration and miscellaneous expenses

It includes expenses in the form of salary, allowance, income tax, commission,
advertisement, printing and stationary and so on.

1.6.2. Review of Previous Works

This part consists of the presentation of past studies by other researchers whicharerelevant to the
topic.

1.6.2.1 Review of Journals

Rixtel, Adrain Van and Gbriele Gasperini. “Financial Crisis and Bank Funding: Recent Experience in
the Euro Area.” 406th ser. (2013): 1. Web. states that there are bothretail and wholesale source of
financial instruments that the bank uses for funding. Theretail source includes customer deposits
mainly from households. The latter consists of funding
from private markets and these supplements the former source. It includes interbankloans, repurchase
agreements, commercial papers and certificate of deposit. Thebankalso issue bonds and medium term
notes. Also, bank opts for equity to access central bank liquidity and raise capital.
8

In the Mid - July 2015, total deposit of commercial bank increased by 21.5percent compare to 18 percent
growth in the Mid - July 2014. As of Mid - July 2015, it reachedtoRs. 14,62,896.12 million from Rs.
12,04,463.4 million in the Mid - July 2014. Amongthecomponent of deposit, current deposit increased
by 22.8 percent compared to15.1percent of increase in last year. Similarly, saving & fixed deposit
increased by24.2percent and 15.0 percent. In the Mid - July 2015, the loans and
advances(includingBillsPurchase and Loan against Collected Bills) increased by 22.3 percent compare
to19.1percent in Mid - July 2014. By the end of Mid - July 2015, the total outstandingamount of loans
and advances including Bills Purchase and Loan against Collected Billsofcommercial banks reached to
Rs. 1103153.25 million. It was Rs. 902162.01 millioninMid - July 2014. (Nepal Rastra Bank, Banking
and Financial Statistics, 61(2015), p. 5)

1.6.2.2. Review of Articles

Bhattarai (2017) in his article “Monetary policy and deposit mobilization in Nepal”, hasstated that the
mobilization of domestic saving is one of the major objectives of themonetary policy in Nepal. For this
purpose, commercial bank acted as the activeandimportant financial intermediary for generating
resource in form of deposit of the privatesector. He says that commercial banks have also played an
important role to mobilizethenational savings. However, in the present context other financial
institutions likecooperatives, finance companies among others have also been established
activelytomobilize deposits in the proper sectors to generate return from investment.

Subedi (2018) in his article, “Deposit mobilization, its problems and prospects”hasconcluded that
people in Nepal are less informative regarding the financial organizational process; deposit and
withdrawal. Also, due to various reasons financial institutions donot want to operate in the rural parts in
Nepal. In this regard, suggestions have been givenoncollection of deposit and thus, extending the
services in rural areas as well. The deposit can be mobilized to extend various services as well.
9

1.6.2.3 Review of Thesis

Aryal (2017) has stated in his thesis paper “A study on fund collection and mobilizationof
commercial banks” that the major finding of the study laid an emphasis onthecollection of deposit
from public and hence, it should be carried out so that funds canbe
invested. Also, the research concluded that the liquidity position of the bank is affectedby internal and
external factors. These factors include interest rates, demand andsupplyposition of credit, saving and
investment situation, government regulation, capabilityofmanagement and fund flow situation. The
study recommended to make more investment on shares and debentures as well.

Paudel (2015) in his thesis paper “A study of fund accumulation and mobilizationcapacity of
commercial bank” has made a comparative study of three banks EBL, BOKand NIBL to evaluate and
analyze the accumulation and mobilization capacityofcommercial banks. He has concluded that
deposits act as oxygen for the commercial banks without which it cannot function. Also, after deposit
collection, its mobilizationina competitive market remains a significant challenge. He has
recommendedthat commercial banks should work to identify the potential investors and use
promotional tools for this.

1.6.2.4 Review of Books

Y.P. Panta in his book “Banking and Development” (Asmita books and publisher, 1971)says that banks
should attract more non-interest-bearing amount deposit for increasingprofit margin. Fixed deposits
cover a large portion of deposits. The bookhasrecommended to reduce its fixed deposit. They also need
to invest in other sectors as well. Also, several measures regarding audit and regulations should be
followed so that cost iscontrolled, and unnecessary expenses are controlled and reduced.

Lyn M. Fraser & Allien Ormiston in their book “Understanding Financial

Statements”(New Delhi: Prentice Hall of India, 6
th
edition, 2002) analyzed the behavior andfuture
prospects of mobilization of fund in the financial institution. There are many factors that affect the
sources and uses of fund of any institution. Liquidity needs and the provisionofinstitution for such
needs, effectiveness of the management policies, utilization of human
10

and non-human resources, ability to control expenses are some of the factors that affect the riskiness of
loans and advance made.

Peter Rose in her book “Commercial Bank Management” (McGrewHill, 4 th Edition

1999), says that the investment policy of banks depends on several factors. There shouldbe careful use
debts as opposed to the shareholders equity. Also, the proportions of fixedcost input that the bank uses
to boost its operating earnings before taxes as bankoutput grows should be taken into account. Assets
portfolio should be maintained to meet theliquidity needs as well as to seek higher return. There should
be control of the bank’ sexposure to risk as well.

1.7 Research Methods

Research methods refer to the various steps to be adopted by researcher in studyingaproblem by

keeping the research objective in mind. This chapter describes the methodsand process applied in the
entire subject of study. It is a technique to solve researchproblem in a systematic way. It is a guideline
for achieving the set objectives. Reliability
and validity is facilitated by research methodology.

1.7.1. Types of Research

Financial and statistical tools have also been applied to examine facts and techniques andevaluate the
deposit sector of Nepal. Analytical research makes a thorough analysisofgathered facts and information
and critically evaluate them.

1.7.2. Population and Sample

This research has made an attempt to analyze the sources and uses of fundinthecommercial bank
of Nepal. Kumari Bank Limited is taken as a sample bankamongtwenty eight commercial banks
that are operating in Nepal in the present scenario.

1.7.3. Types of Data

There are two main types of data i.e. primary data and secondary data. In the courseofpreparation of
report, secondary data has been used mainly. These data is derivedfrom
11

annual report of sample bank, various websites, books, journals, articles and previousthesis works.

1.7.4. Data Collection Procedure

With the aim of identifying the major source of funding in the commercial banks andhow they have
been mobilized, this research is carried out. Hence, the researchisprimarily based on secondary data.
They refer to those set of data that havebeencollected and published by others previously. It includes the
balance sheet, profit andlossstatement and literature concerned with the sample bank. Also, the
followingarethesources of data;

∙ Annual Report of the Sample Bank

∙ Published and unpublished reports and journals of the sample bank ∙ Various internet
websites

∙ Nepal Stock Exchange Bulletins and reports

∙ Journals of the Nepal Rastra Bank

To fulfill the objectives of the research work, the data are compiled, processedandtabulated.
Also the reliability of the data is taken into account through the compilationofannual reports of
the auditors.

1.7.5 Instruments
For making the research work more reliable, valid and understandable various statistical and financial
tools have been used.

1.7.6 Technique of Analysis

1.7.6.1 Financial Analysis;

It analyses the financial statement and thus, establishes the relationship betweenthevarious
components of balance sheet and profit and loss account. For this, ratioanalysisis considered as the
basic tool.
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1.7.6.1.1 Ratio Analysis

Ratio analysis is the quantitative analysis of information that are containedinthefinancial statements. It is
helpful in analyzing the various aspects of company’ s operatingand financial performance like
efficiency, liquidity, profitability and solvency. It is thesystematic use of ratios to interpret financial
statements so that strength and weaknessareidentified. It acts as a benchmark for evaluating the activities
of a firm.

The ratios can be further categorized as;

1.7.6.1.1.1 Asset Management Ratios

As companies acquire funds in the mix of debt and equity, leverage ratio accesses howmuch the fund is
generated from debt. It highlights the long termfinancial health, debt/servicing capacity along with the
strength and weakness of the firm. Followingratios are calculated under this:

∙ Total credit to total deposit ratio: When a bank raises fund, it does not invest all in the
profitable sector or in loans and advances. It apportions a part of it forliquidity purpose as
well. Thus, this ratio analyses the proportion of deploymentof total deposit in loans and
advances.

Total credit to deposit ratio =

∙ Total investment to total deposit ratio: It shows the investment of firmintheform of various
securities or assets, share in Subsidy Company, share inothercompanies and other investments.

Total investment to total deposit ratio=

1.7.6.1.1.2 Liquidity ratio
Liquidity ratios are widely used to measure the firm’ s ability to meet its short termobligations
and the ability to maintain solvency. They are:

∙ Cash and Bank balance to Total Deposit ratio

13

It shows whether the bank has immediate cash to cover their deposit. It iscalculated as:

Cash and bank balance to total deposit ratio=

1.7.6.1.1.3 Income expense Ratio

The bank has a number of sources of income. In the same way, it incurs expenses undernumber of
headings. Through income expense ratio, the ratio of income and expenseareanalyzed:

∙ Interest Payout Ratio

As the major function of bank is to collect deposit and advance credit, itgenerates income
from advancing credit and incur expenses on deposits. It alsogains income through
investments and call deposits. Also, it pays interestsonborrowing. It is calculated as:

Interest Payout Ratio =

1.7.6.1.1.4 Profitability Ratio

This ratio is concerned with the profit situation which is the excess of revenueoverexpenses. It
shows the managerial and overall efficiency of the concernedfirm/organization. Following ratio is
analyzed under profitability ratio:

∙ Return on credit and advance ratio

It shows how efficiently the banks have utilized their resource to earn good returnfromthe loan and
advance provided. It is calculated as:

Return on credit and advance ratio=

1.7.6.2 Statistical Analysis

Following statistical analysis has been used to support the research.

14

∙ Mean of total deposit and total credit

 ∙ Correlation between total deposit and total credit
∙ Standard deviation
∙ Variance

For this, following items are taken into account

X= Mean of Total Deposit

Y= Mean of Total Credit

N= Number of year

D= Deposit

C=Credit

Variance (Deposit) =

Variance (Credit) =

Standard Deviation =

Coefficient of Correlation (PDC) =

1.8. Limitations of Study

Despite the utmost effort to minimize the limitations, the report shall includethefollowing
limitations:

∙ Findings shall be based on the data from fiscal year 2071/72 to 2075/76. ∙ The research is
mostly based on the secondary data published and processedbythe respective commercial
bank. The information other than providedthrough
15

secondary data shall be collected from the Nepal Rastra Bank that regulates thecommercial
banks.

∙ There shall be sample bank whose data shall be included here andall thecommercial banks of
Nepal may not be covered through this. ∙ Limitation in the use of statistical tool and area of
 study is focusedontheKathmandu Valley only.
16

CHAPTER II
RESULTS AND ANALYSIS

The preceding chapter discussed the relevance of past studies, journals, books andarticlesfor the
purpose of research. Also, several methodology for collection and analysis of datawas discussed. In this
chapter, an emphasis will be laid on the presentation, analysis andinterpretation of the collected data. To
accomplish the objective measuring the sourcesand uses of fund, relevant are extracted and are
presented in graphical and tabular form.

2.1. Data Presentation and Analysis of deposit

Deposit constitutes one of the major source of funds in the commercial bank of Nepal. Athorough
study and analysis of deposits is made that are in the formof current deposits, saving deposits and
fixed deposits.

2.1.1 Current Deposits

Current deposits are also called demand deposits. This money can be withdrawnat thedesire of
depositor. The analysis of current deposit of past 5 years is made as:

Table 1

Deposits In Current account

Fiscal year Amount (Rs. Million) 2071/72 1,666

2072/73 2,070

2073/74 2,179

2074/75 3,432

2075/76 6,088
Source: B/S of Kumari Bank Ltd. From 2071/72 to 2075/76
17

In the past five years, the deposits in the current account of Kumari Bank ltd. haveincreased. In
2071/72, current deposit constituted Rs. 1,666 million. In the same way, it had Rs. 2,070 million in FY
2072/73, Rs. 2,179 million in FY 2073/74, Rs. 3,432millionin FY 2074/73 and Rs. 6,088 million in FY
2075/76. The growth has been notedinthedeposits in current account over past five years.

The current deposit of KBL over five years has been presented hereunder:

Figure 1. Current Deposits A/c

18

2.1.2 Saving Deposit

Saving accounts can be opened by an individual, business firms or corporation. Thedepositor

can deposit and withdraw at his own wish. It is evident by a passbookbankstatement.

Table 2

Deposit in Savings A/C

Fiscal Year Amount (Rs. Million) 2071/72 8,005
2072/73 9,581
2073/74 13,393
2074/75 16,383
2075/76 18,137
 Source: B/S of Kumari Bank Ltd. From 2071/72 to 2075/76

From the Table 2, we can conclude that the saving deposits of Kumari Bank was Rs. 8,005 million in FY
2071/72. The gradual increment has been noted to Rs. 9,581millionin FY 2072/73, Rs. 13,393 in FY
2073/74, Rs. 16,383 in FY 2074/75 and Rs. 18,137inFY 2075/76.The deposit in saving accounts has
been presented hereunder:
19

Figure 2. Savings Deposit A/c

2.1.3 Fixed Deposits

This is also an important source for the accumulation of fund. The amount depositedinthis account
cannot be withdrawn without the expiry of a certain time period mentioned. If the depositors require
to withdraw, they can obtain loan from the bank on the securityof the deposit.

Table 3

Deposits in Fixed Account

Fiscal Year Amount (Rs. Million) 2071/72 14,470
2072/73 17,528
2073/74 28,223
2074/75 32,551
2075/76 45,565
Source: B/S of Kumari Bank Ltd. From 2071/72 to 2075/76
20
From the above table, we can conclude that the deposits in fixed account of Kumari Bankhas raised
significantly. The figure stood Rs. 14,470 million in the year 2071/72. It laterincreased to Rs.
17,528 million in FY 2072/73, Rs. 28,223 in FY 2073/74, Rs. 32,551inFY 2074/75 and Rs. 45,565
in FY 2075/76.

The fixed deposits account is presented in the figure as follows:

Figure 3. Fixed Deposit Accounts

2.2 Relation between Deposit Position

2.2.1 Deposit Position of Kumari Bank Limited

Table 4

Deposit Position of Kumari Bank Limited (Amount in Rs. Million) Fiscal Year Current

Savings
Fixed
Others Deposit Total Deposit
Deposit
Deposit
Deposit
2071/72 1,666 8,005 14,470 9,279 33,421 2072/73 2,070 9,581 17,528 8,771 37,951

21

2073/74 2,179 13,393 28,223 8,243 52,037 2074/75 3,432 16,383 32,551 17,285 69,651 2075/76 6,088
18,137 45,565 14,613 84,403 Note: B/S of Kumari Bank Ltd. From 2071/72 to 2075/76
Table 4 shows the total deposit position of Kumari Bank Limited fromFY2071/72toFY2075/76. The
deposits are shown in incremental trend. The total deposit of Rs. 33,421million as on FY 2071/72 has
increased to Rs. 37,951 million in FY 2072/73, Rs. 52,037million in FY 2073/74, Rs. 69,651 in FY
2074/75 and Rs. 84,403 million in FY2075/76.

It is presented in the figure here below:

Figure 4. Deposit Position of Kumari Bank Limited

2.3 Data Presentation and Analysis of Credit Position Table 5

Credit Position of Kumari Bank Limited (Amount in Rs. Million) Fiscal Year Loans and
Advances Investment Total Credit 2071/72 27,070 5,300 32,370
22

2072/73 30,111 7,743 37,854 2073/74 45,195 8,040 53,235 2074/75 62,741 9,023 71,764
2075/76 76,585 9,341 85,926 Source: B/S of Kumari Bank Ltd. From 2071/72 to 2075/76

We can analyze the credit position of Kumari Bank Limited fromTable 5. Thetotal credit position of
KBL was Rs. 32,370 in FY 2071/72. Later, the position increasedtoRs. 37,854 million in FY 2072/73,
Rs. 53,235 million in FY 2073/74, Rs. 71,764inFY2074/75 and Rs. 85,926 million in FY 2075/76.

The credit position is presented in the figure as follows:

Figure 5. Credit Position of Kumari Bank Limited
2.4 Asset Management Ratio
2.4.1 Total Credit to Total Deposit Ratio

The major source of bank is deposit and the major usage lies in credit. Hence, this ratioshows the
efficiency with which the resources are mobilized.
23

Table 6

Credit Deposit Ratio (Amount in Rs. Million) Fiscal Year Credit Deposit Ratio of Credit to
Deposit 2071/72 27,070 33,421 0.81 2072/73 30,111 37,951 0.79 2073/74 45,195 52,037 0.86
2074/75 62,741 69,651 0.90 2075/76 76,585 84,403 0.91 Source: B/S of Kumari Bank Ltd. From
2071/72 to 2075/76

Table 6 shows the ratio of credit to deposit in Kumari Bank Limited. The ratio of credit todeposit was
81% in FY 2071/72. The ratio has decreased to 79%in FY2072/73. Afterthe increment of such ration
up to 86% in FY 2073/74, the same has inclined to90%inFY 2074/75 and 91% in FY 2075/76.

The credit deposit position is presented in the figure as follows:

24

Figure 6. Credit Deposit Ratio

2.4.2 Total Investment to Total Deposit Ratio

The ratio of Total Investment to Total Deposit shows the efficiency with whichtheresources are
mobilized. The following table and figure shows the deposit collectionbybank and the investment in
each of the five fiscal years.

Table 7

Total Investment to Total Deposit Ratio (Amount in Rs. Million) Fiscal Year Total Investment
Total Deposit Investment to Deposit Ratio2071/72 5,300 33,421 0.15 2072/73 7,743 37,951 0.16
2073/74 8,040 52,037 0.18 2074/75 9,022 69,651 0.14 2075/76 9,342 84,403 0.15 Source: B/S of
Kumari Bank Ltd. From 2071/72 to 2075/76

Table 7 shows the ratio of investment to deposit in Kumari Bank Limited. The ratioofcredit to deposit
was 15% in FY 2071/72. The ratio has increased to 0.16 in FY2072/73
25

and 0.18 in 2073/74. After the decrement of such ration up to 0.15 0.14 in 2074/75, thesame has
increased to 0.15 in FY 2075/76.

The investment-deposit position is presented in the figure as follows:

Figure 7. Total Investment to Total Deposit Ratio
2.5 Liquidity Ratio

The liquidity ratio is analyzed as follows:

2.5.1. Cash and Bank Balance to Total Deposit Ratio

This ratio indicates the liquid position of the commercial bank to meet the demandof thecustomers for
immediate cash.
26

Table 8

Cash and Bank Balance to Total Deposit Ratio (Amount in Rs. Million)

Fiscal
Cash/Bank
Total Deposit Cash and Bank Balance to Total Deposit
Year
Balance Ratio
2071/72 4,927.86 33,421 0.15 2072/73 6,111.20 37,951 0.16 2073/74 9668.74 52,037 0.19
2074/75 10,077.5 69,651 0.15 2075/76 12,788.79 84,403 0.17 Source: B/S of Kumari Bank
Ltd. From 2071/72 to 2075/76

Table 8 shows the ratio of cash and bank balance to deposit in Kumari Bank Limited. Theratio of
cash and bank balance to deposit was 0.15 or 15% in FY 2071/72. The ratiohasincreased to 0.16 in
FY 2072/73. After the increment of such ratio up to 0.19inFY2072/74, the same has decreased to
0.15 in FY 2074/75 and increment to 0.17inFY2075/76.

The ratio of cash and bank balance to deposit position is presented in the figureasfollows:
27

Figure 8. Cash and Bank Balance to Total Deposit Ratio 2.6 Income Expense
Ratio

The income expense ratio is analyzed as follows:

2.6.1 Interest Payout Ratio

One of the major sources of income of bank is the interest income. Also, interest expenseconstitutes
the major expense. The profitability is determined by the spread betweenthetwo. The analysis of
interest expenses and interest income is made as follows:

Table 9

Analysis of Interest Payout Ratio (Amount in Rs. Million) Fiscal Year Interest Expenses Interest
Income Interest Payout Ratio 2071/72 1,507.36 2,443.13 0.62 2072/73 1,517.06 2,692.49 0.56
2073/74 2,299.28 3,736.88 0.62 2074/75 4,771.33 6,804.01 0.70 2075/76 6,225.03 9,103.40 0.69
Source: P/L account of Kumari Bank Ltd. From 2071/72 to 2075/76
28

Table 9 shows the ratio of interest expenses to interest income in five fiscal yearsinKumari Bank
Limited. The interest payout ratio was 0.62 or 62%in FY2071/72. Theratio has decreased to 0.56 in FY
2072/73. After the increment of such ratio up to0.62inFY 2073/74 and 0.70 in 2074/75, the same has
decreased to 0.69 in FY2075/76.

The interest payout ratio is presented in the figure as follows:

Figure 9. Interest Payout Ratio

2.7 Profitability Ratio
2.7.1 Return on Credit and Advance

An analysis of effective deployment of credit and advance for profitability of the formispresented by
the Return in Credit and Advance.
29

Table 10

Return on Credit and Advance (Amount in Rs. Million) Fiscal Year Credit and
Net Profits Return on Credit and Advance
(%)
Advance
2071/72 27,070.39 394.79 1.46 2072/73 30,111.45 716.06 2.38 2073/74 45,195.17 660.74 1.46
2074/75 62,740.97 1,046.49 1.67 2075/76 76,584.77 1,230.37 1.61 Source: B/S and P/L account of
Kumari Bank Ltd. From 2071/72 to 2075/76

Table 10 shows the return on credit and advance for five fiscal years in Kumari BankLimited. The
return on credit and advance was 1.46% in FY 2071/72. The returnhasincreased to 2.38% in 2072/73.
The same has decreased to 1.46%in FY2073/74andagain increased to 1.67 in 2074/75. The return has
been noted to be decreased 2.38%inFY 2075/76.
The return on credit and advance is presented in the figure as follows:
30

Figure 10. Return on Credit and Advance

2.8 Correlation Analysis

2.8.1 Correlation Analysis between the Total Deposit and Total Credit of Kumari BankLtd.

Coefficient of Correlation (PDC) =

=
= 0.99

From the above calculation, we can conclude that there is positive correlationof 0.99between total
deposit and credit in the sample bank. It means that if there is anyincrement in total deposits, total
credits will also increase and vice versa.

Workings are presented below:

Here, X=Mean of Total Deposit

31

Y=Mean of Total Credit N=Number of Years

Fiscal Year Deposit (D) Credit(C) (D-X) 2 (C-Y)2 2071/72 33,421 27,070 487,173,184
452,412,9002072/73 37,951 30,111 307,721,764 332,296,4412073/74 52,037 45,195 11,943,936
9,891,0252074/75 69,651 62,741 200,448,964 2073,88,8012075/76 84,403 76,585 835,788,100
797,780,025Total 277,463 241,702 1,843,075,948 1,799,769,192Mean X=55,493 Y=48,340
32

Now, Calculating Mean and Variance

Variance (Deposit) =

=
=368,615,189.6

Standard Deviation (Deposit) =

=19,199.35

Variance (Credit) =

=359,953,958.4

Standard Deviation (Credit) =

=18972.45

Calculation of Co-Variance between deposit and credit

Fiscal Year (D-X) (C-Y) (D-X)*(C-Y) 2071/72 (22,072) (21,270) 469,471,440 2072/73 (17,542)
(18,229) 319,773,118 2073/74 (3,456) (3,145) 10,869,120 2074/75 14,158 14,401 203,889,358
2075/76 28,910 28,245 816,562,950
33

Total 1820565,986
We know, Covariance=

=364,113,197.2

2.9 Major Findings

From the analysis, the major findings are presented as follows:

1) The major sources of fund is deposit. It’ s major use lies in advancing credit andinvestment in
profitable aspects.
2) As much as 91% of deposits are utilized for credit. Hence, total credit todepositratio is
higher.
3) Apart from this, the portion of deposit is also used in investment. 4) From investment and
advancing credit, the bank has been generating returnsaswell.
5) Bank has maintained liquidity in from of cash and deposits in various bankandfinancial
institutions.
6) There is positive correlation between deposit and credit. This means that whenthe deposit
increases, credit increases and vice versa.
34

CHAPTER III
SUMMARY AND CONCLUSION

3.1 Summary

The research study was carried out with the objective of identifying the sources andusesof fund in the
commercial bank of Nepal with Kumari Bank Ltd. as the sample bank. Also, the relationship between
various determinants of sources and uses i.e. deposit, credit, investment, profit/loss of fund was
analyzed. For the purpose of researchwork, the sources and uses of funds have been identifies using the
five years data from2071/72to 2075/76.

The study is mainly based on data from secondary sources. These data have beensourcedfrom the
official sit of NRB, Annual report if Kumari Bank Ltd., balance sheet, profit andloss account, related
books and journals and previous thesis. After the data havebeencollected the have been analyzed by
using the statistical and financial tool. Aproper anddetail analysis of deposit and credit condition is
made at the first place. After that useofratio is made for identifying the relationship between different
variables under the study. Asset management ratio is used to study the relationship between the total
deposit andcredit and total deposit and its investment. Liquidity ratio is used to measure cashandbank
balance to total deposit ratio. Similarly, interest payout ratio is calculated. Togetherwith it, profitability
ratio is calculated to find out the return on credit. Together withthefinancial tool, statistical tool is used
to analyze and interpret the finding. Mean, Variance, standard deviation and correlation between the
deposit and credit i.e. the sources andusesof fund is made. The data have been complied, processed and
tabulated alongwithnecessary figures and diagrams. However, the research study carried out contains
several limitations like limit on past years data, use of sample bank that is in Kathmanduvalleyand so
on.
35

3.2 Conclusion

On the basis of study, following can be about the sources and uses of
fundanditsdeterminants:

Deposit is considered the major source of fund. The deposit position of Kumari BankLtd. is high as all
the deposit i.e. current, saving and fixed deposits are in increasingtrend. With each passing year, the
total deposit is rising. However, the proportion of fixeddeposit is highest and current deposit is lowest in
the total deposits. This providesastrong base as to sources and accumulation of fund.

Credit constitutes an important use of fund. It includes loan and advance and investments. In the total
credit analysis, loans and advance constitutes the bigger proportion thantheinvestment. However, total
credit is also in increasing trend because the bank has fundsthat can be mobilized.

In the analysis of total credit to total deposit ratio, an efficiency with which the resourcesare used are
analyzed. On an average, 91% of the total deposit is used as credit. It showsthat the deposit have
been used to an utmost level to generate profit.

Next, analysis of total deposit for investment is made. It was found that 15%of thetotal deposit is used
for investment on an average. From the above analysis it is clear that morefunds are used in the credit
than the investment.

On the study of liquidity position, it is found out that the cash and bank balance areinaincreasing trend.
Thus the availability of cash to meet the demand of depositors is alsoincreasing as compared to the
rising deposits.
Also, the expenses and income are studied. In the study, it is found that ratio of expensesis more than
fifty percent of income on an average. It shows that more amount is usedinto expenditure.

At the end, the relative profitability of the bank through use of fund is studiedthroughreturn on credit
and advance. As much as 1.61% is a return that is generated fromusingthe fund credit and advances.
36

BIBILOGRAPHY

Aryal, J.N. (2017). A study on fund collection and mobilization of commercial banks withreference to
NABIL and SCBNL. Kathmandu: Shanker Dev Campus, FacultyofManagement, T.U.

Bhattarai, B.D. (2013). Monetary Policy and Deposit Mobilization, its problems andprospects,
Kathmandu: Arthik Dainik. 12,5, 642-655

Lyn, M.F. & Ormiston, A. (2002). Understanding Financial Statements. NewDelhi: Vikash Publishing
House Pvt. Ltd.

Nepal Rastra Bank. Banking and Financial Statistics 61 (2015): 5.

Retrievedfromhttps://nrb.org.np/bfr/statistics/bank_fina_statistics/Banking_and_Fi
nancial_Statistics--No_61%20July%202015.pdf

Pant, Y.P. (1971). Banking and Development. Kathmandu: Asmita Books and Publishers

Paudel, B. (2015). A study of fund accumulation and mobilization capacity of commercial banks with
reference to EBL, BOK and NIBL, Kathmandu: Shanker Dev Campus, Faculty of Management,
T.U.

Rixtel, Adrian Van, and Gabriele Gasperini. “Financial Crisis and Bank Funding: recent Experience in
the Euro Area.: 406
th
ser. (2013): I. Web

Subedi. S. (2018). Deposit mobilization, its problems and prospects. Kathmandu: Nepal Bank Patrika,
Baisakh Masanta, 15:10-12.

www.nrb.org

www.kumaribank.com
37
Appendix-1
APPENDICES
Balancesheet of Kumari Bank ltd from 2073/74 to
2075/\6 Financial
Assets 2073/74
Due to Nepal Rastra 539,557,578
Cash and Cash Equivale
3,780,643,82 Derivative 6,111,249
0 FinancialInstruments

Due from Nepal R 5,582,760,819 Deposits from Customers 5

Placement with Fina Borrowings -

714,095,685
Current Tax Liabilities -
Derivative -
FinancialInstruments Provisions 2,231,750

Other Trading Ass

Loans and Advance BFIs

1,778,934,58
3

Loans and AdvancesCustomers

to60,596,575,81
7

Investment Securities
8,802,903,89
0

Current Tax Assets

Investment in Subsidiar -

Investment in Associat
54,656,79
7

Investment Property
134,171,00
3

Property and Equipment

Goodwill and Intangib Assets

110,453,429

Deferred Tax Asse

Other Assets 454,639,100

Total Assets 82,557,922,464

Iiabilities

Due to Bank andInstitutions 9,904,187,331

 Contingent Liabilities
Deferred Tax Liabiliti Commitments and28,659,217,3
20,755,14 90
7
Net Assets Value per sh 147.63
Other Liabilities 1,963,702,048

Debt Securities Issued -

38
Subordinated Liabiliti -

Total Liabilities 71,982,880,622

Equity

Share Capital 7,163,394,973

Share Premium 54,803,159

Retained Earnings 1,561,982,608

Reserves 1,794,861,101

Total Equity AttributableEquity to

Holders
10,575,041,
842

Non Controlling Inte

Total Equity 10,575,041,842

Total Liabilities an
82,557,922,46
4

Balance Sheet of Kumari Bank Ltd. From 2071/72 to 2072/73

Liability 2071/72 2072/73

Share 2699166532 3265991503

Capital

Reserve and 767602375

surplus 648149644

Debenture - -
and bonds
Borrowing 328000 Proposed 14078156 29786944
O/S dividend
payable
Deposit 334219
Liabilities Income tax 0
liabilities -

Other 350542543
23042340
Bills 327821 6
payable

Fixed assets 265414426

liabilities 259463477

Total 37374510 424165073 Non- -

liabilities Banking -
826 Assets

Other 579563253 410425877

Assets
Assets 2071/72 2072/73

Cash 829463812 861186377 Total 3737451086 42416507350

Balance

39
Balance 310448453
with
NRB3349001
322

Balance 545524722
with BFI
312509759

Money at 1600000000
Call andshor 436880592
notice

Investment 614296579
48625901
35

Loans,
294865056
advance and
bills 26246038
purchase 476
 40

Appendix-2
Profit and Loss Account of Kumari Bank ltd from 2073/74 to 2075/76
Particulars 2073/74 2074/7

Interest 3,736,879, 6,804,011,38

Income
3

Interest 2,299,277,4 4,771,333,23

Expense
4

Net 1,437,601, 2,032,678,14

InterestIncom
8

Fee 278,880,211 396,815,43

Commission and
Income

Fee 23,538,573 27,322,46

Commission and
Expense

Net 255,341,638 369,492,97

FeeCommissi and
on
Income

Net 1,692,943,517 2,402,171,11

Interest,Fee
Commission and
Income

Net 85,261,574 148,951,41

TradingIncom
 e

Other 61,126,449
Operating
Income

Total 1,839,331,539
Operating
Income

Impairment (56,011,027)
Charge/
(Reversal)

Expenses
for LoansOthe and Other 248,154,532 381,230,62
Losses Operating
Expenses
Net 1,895,342,566
OperatingInc
ome
Depreciation 45,947,101 79,214,26
Operating &
Expense Amortisation

Personnel 518,630,168
Operating 1,082,610, 1,357,054,52
Profit
764
41

Non 68,622,159 59,185,87

Operating
Income

Non - -
Operating
Expense

Profit 1,151,232,923 1,416,240,40

BeforeIncome Tax

Income Tax
Expense

Current 312,467,322 411,550,37

Tax
Deferred 45,622,607 Interest
Tax

Profit forPerio 793,142,994

the Profit forPerio 793,142,994 1,076,236,25
the
Profit
Attributable Earnings per
to: Share

Equity- 793,142,994 Basic 13.29 15.0

holders Earnings per
Bank of the Share

Non- -
Controlling

Diluted 13.29
Earnings per 42
Share

Profit and loss account of Kumari Bank Ltd from 2071/72 to 2072/73

Particulars 2071/72 2072/7

1. 24331309 269248
InterestIncom 20
e 8. -
Exchangefluct loss-
2.Interest 15 uation
Expenses
Profit 685239763 93235
Net 925 beforeprovision fo
InterestIncom losses
e
9. Provision fo 178027
3. Commissionan 15 possible 284491537
Discount 2 losses

4. 476 Operating 40748226 7549079

Otheroperatin Profit
g
income 10.
Non-operating (7020620) (3178234
5. 952 income/expens 7)
Exchangefluct e
uation
income 11. Loan loss 432018
provision 228688373
Total 123 back written
OperatingInco
me Profit 622415979 1155144
fromregular
6. Staff expen 2 activities

7. 253 12. Profit / -

Otheroperatin
g
expense

*Upto
7754559
from year previous
extraordinary -
activities

Net 115514 *Deferred tax 20175 (375434

profitconsideri 622415979
ng al Net Profit/loss 394788376 716064
activities

13. Provision f 10501343

staff bonus 56583271

14. Provision for 33406

17104433
inc

*Current Ye 33006
1690267
91
 44

Appendix-3

Deposit and Credit of Kumari Bank Ltd. from 20671/72-2075/76 Deposit (Rs. million)

Fiscal Y Cur Savings Fixed Others De Total Depos

Deposit Deposit Deposit

2071/72 1,666 8,005 14 9,279 33,421

2072/73 2,070 9,581 17 8,771 37,951

2073/74 2,179 13,393 2 8,243 52,037

2074/75 3,432 16,383 3 17,285 69,651

2075/76 6,088 18,137 4 14,613 84,403

Credit (Rs. million)

 Fiscal Yea Loans

2071/72 27,070

2072/73 30,111

2073/74 45,195

2074/75 62,741

2075/76 76,585