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CHAPTER I
INTRODUCTION

1.1 Background of the study:

Capital plays an important role in the firm. Every firm, whether big, medium or small,
needs capital to carry on its operations smoothly and to achieve its goal. No firms can be
operated without capital. As human beings needs blood, firm needs capital. It is possible
to finance a firm entirely with common equity. However most firms raise a substantial
portion of their capital as debt, and many also use preferred stock.

The capital structure is how a firm finances its overall operations and growth by using
different sources of funds. Capital structure is a mix of a company’s long-term debt,
specific short-term debt, common equity and preferred equity. Debt comes in the form of
bond issues or long-term notes payable, while equity is classified as common stock,
preferred stock or retained earnings. Short-term debt also known as current liabilities is
also considered to be a part of the capital structure. When people refer to capital structure
they are most likely referring to a firm’s debt-to equity ratio, which provides insight into
how risky a company is. Usually a company more heavily financed by debt poses greater
risk, as this firm is relatively highly levered.

Capital structure refers to the amount of debt and/or equity employed by a firm to fund its
operation and finance its assets. The structure is typically expressed as a debt-to-equity or
debt-to-capital ratio. Debt and equity capital are used to fund a business’s operations,
capital expenditures, acquisitions, and other investments. There are tradeoffs firms have
to make when they decide whether to raise debt or equity and managers will balance the
two try and find the optimal capital structure. The optimal capital structure of a firm is
often defined as the proportion of debt and equity that result in the lowest weighted
average cost of capital (WACC) for the firm. This technical definition is not always used
in practice, and firms often have a strategic or philosophical view of what the structure
should be. In order to optimize the structure, a firm will decide if it needs more debt or
equity and can issue whichever it requires. The new capital that’s issued may be used to
invest in new assets or may be used to repurchase debt/equity that’s currently outstanding
as a form or recapitalization.
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1.2 Profile of the organization

1.2.1 Introduction to Nepal SBI Bank Limited

Nepal SBI Bank Ltd. (NSBL) is the first Indo- Nepal joint venture in the financial sector
sponsored by three institutional promoters, namely State Bank of India, Employees
Provident Fund and Agricultural Development Bank of Nepal through a Memorandum of
Understanding signed on 17th July 1992. Nepal SBI Bank Ltd (NSBL) is a subsidiary of
State Bank of India (SBI) having 55 percent of ownership. The local partner viz.
Employee Provident Fund holds 15 % equity and General public 30%. In terms of the
Technical Services Agreement between SBI and NSBL, the former provides management
support to the bank through its expatriate officers including Managing Director who is
also the CEO of the Bank. Central Management Committee (CENMAC) , consisting of
the Managing Director and CEO, Chief Financial Officer, Chief Risk Officer and Chief
Credit Officer, exercise overall control function with the help of 3 regional officers and
oversee the operation of the Bank.
NSBL was established in July 1993 and has emerged as one of the leading banks of
Nepal, with 869 skilled and dedicated Nepalese employees working in a total of 83
outlets, which includes 72 branches, 7 extension counters, 3 Regional Offices and
Corporate office. With presence in 39 districts in Nepal, the Bank is providing value
added services to its customers through its wide network of 110 ATMs (including 2
mobile ATMs and 4 CRMs), internet banking, mobile wallet, SMS banking, IRCTC
Ticket Online Booking facility, etc. NSBL is one of the fastest growing Commercial
Banks of Nepal with more than 8.33 lakhs satisfied deposits customers and over 6.50
lakhs ATM / Debit cardholders. The Bank enjoys leading position in the country in terms
of penetration of technology products, viz. Mobile Banking, Internet Banking in Nepalese
Banking Industry with significant growth in Net Profit with very nominal NPA. As of 31 st
chaitra, 2074, the bank has deposits Rs. 74.05 billion, besides investment portfolio of Rs.
17.93 billion.
State Bank of India (SBI), with a 211 year history, is the largest Commercial Bank in
India in terms of assets, deposits, profits, branches, customers and employees. The
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Government of India is the majority stakeholder and has controlling stake in SBI, a
“Fortune 500” entity.
Our Parent state Bank of India has an extensive network, with over 24000 branches in
India and another 198 foreign officers in 37 countries across the world.
Nepal SBI Bank Ltd has also established its wholly owned merchant banking subsidiary
viz. Nepal SBI Merchant Banking Ltd in the year 2016.
The key focus of the bank is always center on serving unfulfilled needs of all classes of
customers located in various parts of the country by offering modern and competitive
banking products and services in their door step. The bank always prioritized the
priorities of the valued customers.

1.2.2 Vision and Mission

Vision
“Be the most preferred bank for a transforming Nepal.”
Mission
“To provide high quality, reliable and innovative financial solutions.”

1.2.3 Services Provided By Nepal SBI Bank Limited

The featured services provided by Nepal SBI Bank Limited are as follows:-
● Collection of Deposit
● Trading and Commercial loan
● Industrial loan
● Overdraft Loan Facilities
● Opening Letter of Credit
● Loan on collateral
● Issue of bank guarantee
● Discounting bills of exchange
● Foreign exchange transaction
● Acting as agent
● Accepting valuable material for safe custody
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● Providing safe deposit lockers

● Remittance of money
● Others