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Granting quality loans and

safe Guarding the loans












Authorized valuator for inside valley

 Singh Consult

 Pashupati Engineering and Promotion Pvt Ltd

 Annu Engineering

 Nepa- Tech


Eligible Criteria for the Loan Regarding the
Valuation Report
Fair Market VAULE . MAXIMUM FINANCING 60% OF Fair market
VALUE(For Individual)

 Loan grants upto 80% of Distress Value for the Institution.

 In case of Home Loan Financing will be restricted to 80% of the total

cost of construction / purchase price of the house / apartment
(Distress value or Rajinama value). Cost of construction shall mean the
aggregate of cost of land (Distress value) and cost of construction of
house to be built on that land.

 Financing in excess of 80% may be considered if the borrower provides

Fixed Deposit and/or HMG bonds as security covering the balance 20
%. If the balance 20% is not covered by Fixed Deposit and / or HMG
bonds, it has to go to the CEO for approval.
 Financing of Home Loan categories in real Estate (A) Financing will be
restricted to 2/3 of the total cost of construction / purchase price of
the house / apartment (Distress value or Rajinama value). Loan above 10
Million PAN number is mandatory of the client.



 Provision regarding Working Capital above 10 Million (for new and

 Take Self declaration annexure 19.2 and match with CIB report (no limit for
WC for this purpose)
 If there is existing of Multiple banking, Pari passu should be done. (specify
the Proportionate of the limit, security, Proportionate charge on the
 Proportionate of the limit is based on Stock and Receivable.
 Take NOC from other BFIS if the limit is below 10 Million where the
borrower is enjoying working capital Type loan.

Credit Facility Request (CFR) Preparation

 Concern RO/RM prepare credit facility request (CFR) which

must be justified with the stipulated request/ demanded.

 According the nature of Loan and the repayment source

provided by the client repayment mode should be customized.

 CFR Includes, facility types, nature of the loan, Justification,

security details, risk /Analysis mitigation, Banking Relationship,
Financial Highlights, Market segmentation, Demand and supply,
Account profitability, Swot Analysis, Control mechanism,
Disbursement criteria and so on.


 For Without Report (No transaction Report) : Rs. 250 per search

 For With Report (transaction Report) : Rs. 550 per search

 For Blacklist/released from Blacklist : Rs. 250 per search

Valuation charge prescribed by the bank

Rate Amount Remark

 0- Rs 3,500,000/- 0.25% or Rs 5000 Whichever is higher

 Rs 3,500,001 to Rs 5,000,000/- 0.20% or Rs 7,500 Whichever is higher

 Rs 5,000,001to Rs 10,000,000/- 0.15% or Rs 10,000 Whichever is higher

 Above Rs 10,000000/- - Min Rs 10,000 & Max Rs 25,000

Documentation parts
 Documents are segregate into three parts

1. General Documents ( Including KYC Details)

2. Standard Documents

3. Legal Related Documents

General Documents
That comprises the following documents:
 Application/Request Letter
 Copy of citizenship
 Photos
 Salary sheet/Draw down request
 other income source
 Account Opening procedure
 Identity if the client is the employer of any organization.

Standard Documents
That Compromises the following Documents:
 Credit Facility Request(CFR) (MEMO)
 Sanction Letter/offer letter
 Promissory notes
 Letter of Continuity
 Letter of Set Off
 Insurance
 Wealth statement
 General Counter Guarantee
 Lease Rent agreement/Rental Agreement

 Valuation Report dated……….

 General Letter of Lien

 Multiple banking Declaration

 Letter of indemnity

 Hire Purchase Agreement

 fresh CIB MOA/AOA/

 Shareholding Pattern

 Drawdown request

 Renewal Request

 Parapashu Charge

 Registration of Firm

 PAN/VAT/IRD Receipts

 Renewal of the Firm

 Partnership Deed

 Corporate Guarantee

Legal related Documents
That Compromises the following Documents:
 Lal purga
 Napi/Naksa/Trace
 Four wall Boundary
 Tax Receipts
 Halsabik
 Consents from Legal Heirs
 Loan deed
 Mortgage Deed
 Board resolution
 Special AGM Board
 Minutes Personal
 Guarantee
Nature of Loan Proposal and Facility
 Newly approved loan

 Renewal loan

 Additional Loan

 Enhancement of loan

 Renewal with Enhancement

 Additional With Enhancement

 Renewal , Enhancement with additional Loan

 Limit Reduction

 Limit Settlement

 Partial Settlement

 Limit held

 Limit freeze

Credit Inquiry and Information








Purpose of CIB Taken

Limit approval authority
 2 M TO 7.5M - AGM
 7.5 M to 30M - CEO
 30M to 50 m - Risk Management committee

Promissory Notes and Letter of Continuity
and legal Documents





 Mgmt fee
 Valuation fee (debit client a/c credit valuators a/c)
 Service charges if mentioned any where
 Cib charges (debit client a/c credit cib charge payable a/c)
 Insurance (debit client a/c credit insurance co. A/c)
 Documentations fee
 Renewal charge
 Mortgage charge
 Security release charge

Input of the NRB Codes and
bank code
Basel code b
Industrial code I
Security grade L and M

Penal Interest Calculation Modulus
Interest on Interest
Mode of Calculated additional interest rate
Matured interest_____ 2%
Formula : Matured interest*(Normal Int + Additional interest)/365 * No. of due days
Penal Interest
Mode of Calculated additional interest rate
Matured principle_____ 2
Formula : Matured Principal*(Additional interest)/365 * No. of due days
In Pumori IV AIR includes overdue interest and penal interest

AIR Overdue Int On Int Penal Amt
Overdue Int
(Interest Loan (Fine on (Fine on
Balance (Matured/Due Total
for the (Matured Overdue Overdue
Time) Principle) Interest) Principle)

2,734,797.67 109,118.99 212,320.58 104,173.85 385.55 305.19 2,844,607.40

Matured Overdraft Interest Calculation
 If the client default to pay the interest of overdraft loan, additional 2%
of interest will be charged as form of Charges/penal /fine annually.
 Formula: Matured Interest* (Normal Interest rate +Penal Interest
rate)/365* no. of dues days.

Difference between Overdraft Loan and
other Normal Loan
The Main Difference Between Normal Loan and OD Loan is Normal loan account have to be separately open
as on Loan product categories. i. e if Hire Purchase loan is going to sanction, separate HP loan a/c should
open. Loan a/c is being Established. This Types of loan is One Off Basis.
In case of Overdraft Loan existing Current a/c or new current a/c is treated as nominee a/c where the
prescribed limit is maintain and the client can deposit and withdraw so many time as he/she/they need
within Stipulated Time. Overdraft is Revolving types of loan . Once the loan is settled this can be reinstate
by the same amount.
Mode of Interest Payment varies from facility to Facility.
Renewal and Settlement case.
Prepayment Case.
Accruals and Amortization Case
Penal Calculations.

Types of Interest
Deposit Lending
Cost Income

Normal interest is the interest rate which is derived by the market charged in the
loan (Lending) amount in a agreed Ratio. Higher the Spread Rate of Interest(Lending
Rate- Deposit), higher the rate Higher the profit is possible.

Mode of charge creation
 Mortgage –for land and Building (Trf of ownership)
 Pledge- locked the inventory in godown (Key hold by bank and the client each)
 Hypothecation (insurance) - for Inventory (quarterly Inspection)
 Lien- for Fixed Receipt, shares, other instrument (NSB, DB, Provident fund
 Assignment- For account receivable, Debtors
 Personal Guarantee
 Institutional Guarantee

Types of Lending
 Funded and Non funded.
 Funded (Wholesale and Retail Lending)- Through Mediator or directly
 Approved fund directly goes to the client nominee account and the loan account is
 Cash outflow of the bank
 Liabilities shifted to client itself for the principle, interest and penal.
 Payment schedule are fixed
 Bank earn Interest and the commission through this account
 Margin is maintain through the drawing power of the property.
 After the settlement of the loan mortgage property is released

 Non Funded
 Guaranteed amount maintain with guarantee account
 There is no cash outflow of the bank. Bank just assure the undertaking to the client
 Margin is maintain in the margin account (i.e 5% , 10%)
 Liabilities shifted to bank if the client fails to perform the guarantee covenant.

 Bank just earn the commission only
 No other payment schedule
 After the Completion of the contract guarantee will be

Types of the client
 Individual
 Joint Client
 Proprietorship
 Partnership
 Pvt Ltd
 Ltd
 Co-operative
 Clubs
 Foreign Institution
 Guthi/Ngo and Ingo's

Types of Loan (wholesale and Retail lending)
 Overdraft Loan (For Working Capital Assessment, To maintain the stock, etc,
Revolving Nature)
 Term Loan (For Capital Investment on Fixed assets)
 Time Loan (One off Basis, for short term period i.e upto 1 years, Non Revolving nature)
 Hire Purchase Loan (To invest in Vehicles/ Transportation)
 Home Equity Loan/No Jhanjhat Loan (Security against land and Building, to meet
personal purpose Bank Product)
 Mortgage Loan ( Security against land only, to meet personal purpose bank Product)
 Home Loan (To purchase/construction/renovation of the house)
 Margin Loan (To invest in capital Market, shares, secondary market)
 Education Loan ( To invest in education sector)
 Deprived sector / Priority Sector Loan ( To invest in deprived sector in order to
uplifted the living standard of poor, scatters peoples, backwards women , tribe ,
handicapped people as directed by the NRB)
 Wholesale Lending is such lending where banks grant its loan through the
intermediately to the client and verse verse.

Financial Analysis
• Balance Sheet Analysis
• Profit and loss analysis/Income Statement
• Trading account analysis
• Ratio Analysis
• Cash flow Analysis
• Capital Budgeting Analysis
• Leverage Analysis
• Cost-volume profit analysis

Credit Administration Job Description
 Monthly NRB Reporting
 Quarterly NRB Reporting
 Online credit Query
 Online CIB Reporting (Quarterly)
 Prepare offer letter
 Documentation parts
 Manage for the final disbursement
 Past due follow up, different types of letter sent, 35 days legal notice publication etc
 Loan registry, settlement, limit reduction, enhancement, restructuring and
 Quarter End Preparation
 Vehicle Registration of client preparation (Release and registration)
 Margin lending related job (Share lien, confirmation regarding the borrowers, know
your customer, Promoters shares confirmation, weekly review of the share price,
margin call follow up and adjustment)
 Interest revision letter preparation and adjustment and make the new schedule)
 Blacklisting procedure

 Loan write off Process
 Valuatators agreement process
 Orientation class for the new staff related to credit and credit admin.
 Letter sent to malpot in connection to napi naksha, trace, four wall boundary.
 File and Filling
 Insurance Handling
 Co-ordinate with Internal audit, External Audit and NRB audit.
 Co-ordinate with RO and RM for the client
 Prepare credit report weekly, bi -weekly and Monthly as demanded by the
concern party.
 Prepare credit report as demanded by the NRB and other institutions
 Co-ordinate with new branch regarding credit material
 Finalize the Bank Guarantee issuance
 Co-ordinate with legal department for the necessary legal action
 NPA Management

Control Mechanism For the Margin Loan
 Weekly review of share prices and the trend of the market. Loan limit also be
revised accordingly.
 Margin will be called if the market value of the of the shares fall below to Rs. ……
of average of average of last 180 days of ordinary shares and closing value of
promoters shares. Or the value quote for the initial valuation falls below 10%
 Margin call letter sent to the borrower immediately.
 Make the endeavor for deposit the margin amount.
 Borrower gives the consent to the bank to sell the pledge shares in the capital
Market in case of default.
 Transaction for trading of the pledged shares is to be stopped at the stock
 Confirmation regarding promoters shares held and pledge.(As per the NRB circular
if the said borrower is a promoter and holds more than 1% of promoters shares only
50% of remaining shares will be consider for the eligible shares valuations.
 This is in the court procedure until the court make its verdict.
 Confirmation regarding Lien /pledge on shares. (As per the NRB directives
confirmation in writing by share issuing company whether the said client,
shareholder(s), borrower(s), guarantor(s), or any member of the entity under their
control are director, chief executive, auditor, secretary, or involved in management
of finance of account departments of the issuing company and these and their
family members and any one entity(s) has left the company within a year from the
date of this matter.
 Share Consent of the borrower
 Letter of consent/ Consent/ Authority Letter to transfer the ownership of the
shares in the name of the bank.
 Know your customer form annexure 12
 Lien over the shares
Promoters Shares Valuation Procedure

 Average of average closing price of 180 days-O : 194.79/2 (i. e 97.395)

 Closing Price of last Trading -P : 150
 No. of shares (P) : 108,180
 Eligible no of shares : 89,250
 Total market value of shares(iv*i) : 8,692,503.75
 Eligible loan amount as per NRB Rules : 5,215,502.25 (60% of
market value
 Based on weighted average of average Price of S i.e. Rs. 194.79/2.00)
 Average of average closing price of 180 days of ordinary shares or present price of
promoter’s shares whichever is lower *60%
 * 60% is not the mandatory ratio. This could be upto 100% if the bank feels relief

Ordinary Shares Valuation Procedure

 Average closing price of 180 days-S : 194.79

 Closing Price of last Trading -S : 150
 No. of shares (P) : 108,180
 Eligible no of shares (All Shares) : 89,250
 Total market value of shares(iv*i) : 8,692,503.75
 Eligible loan amount as per NRB Rules : 5,215,502.25 (50% of
market value
 Based on weighted average Price of S i.e. Rs. 194.79/2.00)

Average Closing Price of Last 180 days of Present price OR Today whichever is lower
* 50% is not the mandatory ratio. This could be upto 100% if the bank feels relief

Hire Purchase Loan Documents needed
1. Quotation/Invoice Price
2. Undertaking to concern parties
3. Transfer of the assets in favor of Bank
4. Copy of Bill Book, Insurance Ownership Transfer (Comprehensive Insurance )
5. Separate Hire Purchase deed
6. Documentations
7. Issue the Managers Cheque if the vendor have-not any account or whatsoever.
8. Annual renewal of the Bluebook and Submit the same to the bank.
9. Manjurinima from the borrower

Provision related to ML

Banks and financial institutions may advance such loan only to the amount of its
core capital in maximum. Moreover, while advancing such loan, Banks or
financial institutions may advance loan only up to 25 percent of its core capital in
case of shares of one listed companies
 i.e Margin Lending Exposure = 25% of Its Core Capital
 For ……..Banks share = 10% of Its Core Capital

Share Valuation Method as Illustrated by SEBON for Promoter share

 DP= 5 times of Book value or average of Present closing price which ever lower
* 60%

Criteria to Extend Margin Lending Loan

(a) The banks and financial institutions having not maintained capital fund ratio
according to Directives of this Bank and BFI is declared as Troubled bank by NRB
(b) The institutions having negative net worth;
(c) The institutions delisted by the Nepal Stock Exchange Market Limited,
(d) The institutions not having conducted the final auditing even after
completion of one year of a fiscal year.

Margin call Provision

Provided that it is not necessary to make margin call in the event where price
of the shares pledged as security has fallen down by 20 percent in maximum and or
if the total borrowing power of the borrower is 1.5 times greater than total loan

Repayment Schedule Customization
1. EMI/EQI- Amortization based
2. Interest payment-Monthly & Principle PMT- Quarterly- Normal Based
3. Interest payment-Quarterly & Principle PMT Half yearly -Normal Based
4. Interest payment-Quarterly & Principle PMT Yearly – Normal Based
* This is based upon the payment basis i.e Accured basis and Amortization basis.
Accured basis are those where the client has to pay only the interest. Principle should
not be deduct. Principle should be annual review or settlement one-off basis.

Rescheduling Case to case
 In case of Interest revision from time to time (Increase or Decrease)
 Partial Settlement/ Prepayment of the loan of the principle (Either Principle deduct of
downsize the expiry)
 If the management has to decide to reschedule of restructure the loan becoming the
problematic for the bank.

* Please base on the present o/s

 Definition of Rescheduling" means the process of extending the time limit of
repayment of the loan availed by the customer.

 Restructuring" means the process of changing the nature or terms and conditions of
altering the restrictions on or changing the time limit of the credit facilities.
 Due to change in the rate of interest having regard to the market situation, the
duration of the loan and installment amount has been changed. In this context, if the
rate of interest is increased and thereby by the duration and installment amount is
increased, the installment amount determined at the time of sanctioning the loan is not
allowed to be decreased. Similarly, if the rate of interest is decreased and thereby
the duration and number of installment are decreased, the installment amount
determined at the time of sanctioning the loan is not allowed to be decreased

Past due follow up Process
 Sent the First past due Letter
 Sent the Second time Past due letter
 Sent the third time Past due Letter
 Sent the 35 days legal notice
 Give the borrower publication copy
 Sent the 15 days legal notice
 Sent the 7 days legal notice
 Public the legal notice in the national daily (1 time and 2 time as per the nature)
 Auction Process and Auction notice in national daily
 Representative from CDO, IRD, VDC or ward, bank legal department, Valuator.
 If there is no bidding for the auction Bank itself can take the property (NBA)
 NBA (this has to be dispose within 7 years. Provision is classify)
 Sue in the court (DRT) (Court Process if Necessary)
 Write off the Loan
 Blacklisting Process

Conditions for Inclusion in the Blacklist
 If the payment of the principal or any installment thereof or the interest is overdue
by 12 months (where the customer is enjoying facilities of various credits/facilities,
then overdue in payment of any of the loans).
 If misuse of the loan/facility is proved,
 If misuse of the goods placed in collateral security is proved;
 If the borrower disappears
 If the borrower is declared to be bankrupt according to existing law.
 If the licensed institution has filed a lawsuit against the borrower in a court of law.
 If involved in deceiving through use of counterfeit documents and instruments like
cheque, draft, foreign currency, Credit/Debit card, bills. Similarly, convicted by a
court to have committed such offence;
 If any individual, firm, company or corporate body is proved to have been involved in
offences relating to financial matters.
 A situation in which any individual, firm, company, an institution failed to repay the loan
amount from a licensed institution without the time limit stipulated in the deed of loan
and the bank and financial institution has taken action pursuant to Section 57 of the
Banks and Financial Institutions Act, 2006.
 In the event where the licensed institution has to write off a loan;
 If a cheque is issued in a situation where it would not be cashed or there is no
sufficient balance in the account;

Parties to be included in Blacklist
 (a) The borrower individual, firm, company or corporate body utilizing thecredit
 (b) Proprietor of a proprietorship firm;
 (c) Partners of a partnership firm;
 (d) The individual, firm, company or corporate body that has provided guarantee for
extension of such credit facility to any individual, firm, company or corporate body;
Provided that, prior to including the guarantor in the black list, the licensed institution
shall serve the guarantor a notice of 35 days for settlement of the guaranteed
amount. The guarantor shall be included in the black list if the transaction is not
regularized within such notified period.
 (e) Directors of a company, corporate body;
 (f) Following persons of Public or Private Companies-
 (1) Directors,
 (2) Shareholders holding 15 percent or more share ownership, Provided that, this shall
not prohibit the bank and financial institution to place on blacklist the shareholders of
private and public companies holding less than 15 percent shares if such shareholders
have financial interest in the company through any means.
 (3) Person, firm, company or corporate body having the right to nominate Director.

 (g) Where the blacklisted individual or organization owns individually or institutionally
15 percent or more shares in any other firm/company/corporate body, the Director
and Chief Executive of such firm, company, corporate body. Provided that, this shall
not be deemed to have hindered the bank and financial institution to place on blacklist
the individual, firm, company falling under the same group that holds less than 15
percent shares but collectively hold share investment of more than 15 percent.
 (h) Where the representative of a blacklisted individual or institution is Director in
any non-government firm/company/corporate body, institution; such firm/ company/
corporate body. Provided that in case of fulfillment of all of the following conditions,
such non-government firm/ company /corporate body, in which the representative of a
blacklisted individual or institution is Director, need not be required to be placed in
the blacklist.
 (1) The share of a Director in the non-government firm/ company/corporate body in
which the representative of the blacklisted individual or institution is the Director,
has to be less than 15 percent;
 (2) The non-government firm/company /corporate body in which the representative of
the blacklisted individual or institution is a Director, has been regular in paying
principal and/or interest to the licensed institution on time or before due dates; and
 (3) The individual representing as a Director of the blacklisted individual or institution
has resigned from the directorship or such individual is removed from the post of the

 (i) The individual, firm, company or corporate body falling under one group having inter-
relationship according to the Directives of this Bank.
 (j) Individual, firm, company or corporate body providing guarantee to the customer.
Provided that in the case of guarantee or partial guarantee, where the guarantor has
settled the guaranteed amount, this provision shall not be applicable for other
outstanding due of the borrower.
 (k) In case of death of the borrower, the licensed institution may, by assigning the
liability to the individuals who receives the assets of the deceased, provide suitable
time period to the individuals assuming such liability. Where assumption of liability is
denied or failed to pay or regularize the loan within the time period thus provided,
such individuals shall also be included in the blacklist.
 (l) In case a borrower has not been included in the blacklist even after the loan is
overdue by a period of more than two years, explanation thereof shall be submitted to
this Bank within one month of completion of each fiscal year.

Loan Account Type
AC Type Loan type
37 Time loan
4E Term Loan
38 Home Equity loan
4C Mortgage loan
34 Home Loan
35 Vehicle Loan
33 Hire Purchase Loan
50 Consumer Loan
4F Bridge Gap
30 Staff Social Loan
7W Staff OD
90 Bank Guarantee a/c

NMB Loan type

Debit Posting of the Client
 Debit the Client Account (Current, Saving or other specify account)
 Credit the respect account i.e
 Insurance company (Current account/Saving or other specify account)
 Valuators account
 Loan Management fee a/c 953003002
 CIB Charge Payable account 915101002
 Service Charge account 953003001

Client Account Dr.
To Respect Party a/c Cr.

Accounting Entry of Loan (Procedure)
A. Loan disbursement
Loan account Dr.
Cash/Bank/Cashier cheque or Customer account Cr
B. To collect loan fee and charge
Cash/Bank/Customer account Dr.
Loan Management fee a/c Cr.
Service Charge a/c Cr.
C. Accured Interest
Interest Receivable- Loan Dr.
Interest Suspense-Loan Cr.
D. Loan Repayment
When received from the borrower
Cash/Bank/Customer account Dr.
Interest Receivable- Loan Cr.
Loan Cr.
Interest Suspense Dr.
Interest Income Cr.

If Late Payment fee is assessed (Charged)
Cash/Bank/Customer account Dr.
Penal interest/Misc Cr.

Provision for possible loss

Provision for possible loan loss Dr.
Allowances for loan loss Cr.

Loan Concentration
 Single Borrower limit (Funded and Non Funded)- 25% of Core Capital (Last Quarter)
 Sector Wise Loan (Up to 100% of Core Capital i.e need to be duly monitor) if exceed
Board has to approved.
 Loan will be grants upto 100% of core capital on one sector and the 25% of core capital
to the single entity. i.e if the capital merchant shares are pledge only 25% of core
capital for this institution shares to be pledged but the loan for ( Margin loan ) is 100%
of core Capital.

Ratio Analysis
A ratio is a mathematical relation between one quantity and another. Suppose you have 200 apples
and 100 oranges. The ratio of apples to oranges is 200 / 100, which we can more conveniently
express as 2:1 or 2. A financial ratio is a comparison between one bit of financial information and
another. Consider the ratio of current assets to current liabilities, which we refer to as the current
ratio. This ratio is a comparison between assets that can be readily turned into cash -- current assets
and the obligations that are due in the near future -- current liabilities. A current ratio of 2:1 or 2
means that we have twice as much in current assets as we need to satisfy obligations due in the near
Ratios can be classified according to the way they are constructed and their general characteristics.
By construction, ratios can be classified as a coverage ratio, a return ratio, a turnover ratio, or a
component percentage:

1. A coverage ratio is a measure of a company's ability to satisfy (meet) particular

2. A return ratio is a measure of the net benefit, relative to the resources expended.
3. A turnover ratio is a measure of the gross benefit, relative to the resources expended.
4. A component percentage is the ratio of a component of an item to the item.
When we assess a company's operating performance, we want to know if it is applying its assets in
an efficient and profitable manner. When we assess a company's financial condition, we want to
know if it is able to meet its financial obligations.
There are six aspects of operating performance and financial condition we can evaluate from financial
1. A liquidity ratio provides information on a company's ability to meet its short−term,
immediate obligations.
2. A profitability ratio provides information on the amount of income from each dollar of
3. An activity ratio relates information on a company's ability to manage its resources
(that is, its assets) efficiently.
4. A financial leverage ratio provides information on the degree of a company's fixed
financing obligations and its ability to satisfy these financing obligations.
5. A shareholder ratio describes the company's financial condition in terms of amounts
per share of stock.
6. A return on investment ratio provides information on the amount of profit, relative
to the assets employed to produce that profit.

Liquidity Ratios

Liquidity reflects the ability of a company to meet its short-term obligations using
assets that are most readily converted into cash. Assets that may be converted into
cash in a short period of time are referred to as liquid assets; they are listed in
financial statements as current assets. Current assets are often referred to as
working capital because these assets represent the resources needed for the day-to-
day operations of the company's long-term, capital investments. Current assets are
used to satisfy short-term obligations, or current liabilities. The amount by which
current assets exceed current liabilities is referred to as the net working capital.

The role of the operating cycle
How much liquidity a company needs depends on its operating cycle. The operating cycle
is the duration between the time cash is invested in goods and services to the time that
investment produces cash. For example, a company that produces and sells goods has an
operating cycle comprising four phases:
(1) purchase raw material and produce goods, investing in inventory
(2) sell goods, generating sales, which may or may not be for cash
(3) extend credit, creating accounts receivables, and
(4) collect accounts receivables, generating cash.
The operating cycle is the length of time it takes to convert an investment of cash in
inventory back into cash (through collections of sales). The net operating cycle is the
length of time it takes to convert an investment of cash in inventory and back into cash
considering that some purchases are made on credit.
The number of days a company ties up funds in inventory is determine by:
(1) the total amount of money represented in inventory, and
(2) the average day's cost of goods sold.
The current investment in inventory -- that is, the money "tied up" in inventory -- is the
ending balance of inventory on the balance sheet. The average day's cost of goods sold is
the cost of goods sold on an average day in the year, which can be estimated by dividing
the cost of goods sold Found on the income statement by the number of days in the
year. We compute the number of days of inventory by calculating the ratio of the amount
of inventory on hand (in dollars) to the average day's Cost of Goods Sold (in dollars per

Number of days inventory = Inventory = Inventory
Average day' s cost of goods sold Cost of goods sold / 365

Number of days receivables = Accounts receivable = Accounts receivable

Average day's sales on credit Sales on credit / 365

Number of days payables = Accounts payable = Accounts payable

Average day's purchases Purchases / 365

Operating cycle = Number of days + Number of days

of inventory of receivables

Net operating cycle = Operating Cycle - Number of days of purchases

Net operating cycle = Number of days + Number of days Number of days

of inventory of receivables of purchases

The current ratio is the ratio of current assets to current liabilities; Indicates a
company's ability to satisfy its current liabilities with its current assets:
Current ratio = Current assets
Current liabilities
The quick ratio is the ratio of quick assets (generally current assets less inventory) to
current liabilities; Indicates a company's ability to satisfy current liabilities with its
liquid assets
Quick ratio = Current assets - Inventory
Current liabilities
The net working capital to sales ratio is the ratio of net working capital (current assets
minus current liabilities) to sales; Indicates a company's liquid assets (after meeting
short−term obligations) relative to its need for liquidity (represented by sales)
Net working capital to sales ratio = Current assets - Current liabilities
The gross profit margin is the ratio of gross income or profit to sales. This ratio
indicates how much of every dollar of sales is left after costs of goods sold:

Gross profit margin = Gross income


The operating profit margin is the ratio of operating profit (a.k.a. EBIT, operating
income, income before interest and taxes) to sales. This is a ratio that indicates how
much of each dollar of sales is left over after operating expenses:

Operating profit margin = Operating income


The net profit margin is the ratio of net income (a.k.a. net profit) to sales, and indicates
how much of each dollar of sales is left over after all expenses:

Net profit margin = Net income


Activity ratios
Activity ratios are measures of how well assets are used. Activity ratios which are, for
the most part, turnover ratios -- can be used to evaluate the benefits produced by
specific assets, such as inventory or accounts receivable. Or they can be use to
evaluate the benefits produced by all a company's assets collectively. These measures
help us gauge how effectively the company is at putting its investment to work. A
company will invest in assets – e.g., inventory or plant and equipment – and then use
these assets to generate revenues. The greater the turnover, the more effectively
the company is at producing a benefit from its investment in assets.
1. Inventory turnover is the ratio of cost of goods sold to inventory. This ratio indicates
how many times inventory is created and sold during the period:

Inventory turnover = Cost of goods sold

2. Accounts receivable turnover is the ratio of net credit sales to accounts receivable.
This ratio indicates how many times in the period credit sales have been created and
collected on:

Accounts receivable turnover = Sales on credit

Accounts receivable

3. Total asset turnover is the ratio of sales to total assets. This ratio indicates the
extent that the investment in total assets results in sales.

Total asset turnover = Sales

Total assets

4. Fixed asset turnover is the ratio of sales to fixed assets. This ratio indicates the
ability of the company’s management to put the fixed assets to work to generate sales:

Fixed asset turnover = Sales

Fixed assets

Turnovers and numbers of days

You may have noticed that there is a relation between the measures of the operating
cycle and activity ratios. This is because they use the same information and look at this
information from different angles. Consider the number of days inventory and the
inventory turnover:


Number of days inventory = Inventory
Average day's cost of goods sold

Inventory turnover = Cost of goods sold


The number of days inventory is how long the inventory stays with the company, whereas
the inventory turnover is the number of times that the inventory comes and leaves – the
complete cycle – within a period. So if the number of days inventory is 30 days, this means
that the turnover within the year is 365 / 30 = 12.167 times. In other words,

Inventory turnover = 365 = 365 = Cost of goods sold

Number of days inventory Inventory Inventory
Cost of goods sold/365

Financial leverage ratios
A company can finance its assets either with equity or debt. Financing through debt involves risk
because debt legally obligates the company to pay interest and to repay the principal as promised.
Equity financing does not obligate the company to pay anything -- dividends are paid at the
discretion of the board of directors. There is always some risk, which we refer to as business risk,
inherent in any operating segment of a business. But how a company chooses to finance its
operations -- the particular mix of debt and equity -- may add financial risk on top of business risk
Financial risk is the extent that debt financing is used relative to equity.
Financial leverage ratios are used to assess how much financial risk the company has taken on. There
are two types of financial leverage ratios: component percentages and coverage ratios. Component
percentages compare a company's debt with either its total capital (debt plus equity) or its equity
capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest,
principal repayment, or lease payments.
Component-percentage financial leverage ratios
The component-percentage financial leverage ratios convey how reliant a company is on debt
financing. These ratios compare the amount of debt to either the total capital of the company or to
the equity capital.

The total debt to assets ratio indicates the proportion of assets that are financed with
debt (both short−term and long−term debt):

Total debt to assets ratio = Total debt

Total assets

Remember from your study of accounting that total assets are equal to the sum of total
debt and equity. This is the familiar accounting identity: assets = liabilities + equity.

The long−term debt to assets ratio indicates the proportion of the company's assets
that are financed with long−term debt.

Long - term debt to assets ratio = Long - term debt

Total assets

The debt to equity ratio (a.k.a. debt-equity ratio) indicates the relative uses of debt and
equity as sources of capital to finance the company's assets, evaluated using book values
Of the capital sources:

Total debt to equity ratio = Total debt

Total shareholders' equity

Note that the debt-equity ratio is related to the debt-to-total assets ratio because they
are both measures of the company’s capital structure. The capital structure is the mix of
debt and equity that the company uses to finance its assets. Let’s use short-hand notation
to demonstrate this relationship. Let D Represent total debt and E represent equity.
Therefore, total assets are equal to D+E.
If a company has a debt-equity ratio of 0.25, this means that is debt- to-asset ratio is
0.2. We calculate it by using the ratio relationships and Algebra.
D/E = 0.25
D = 0.25 E
Substituting 0.25 E for D in the debt-to-assets ratio D/(D+E):
D/(D+E) = 0.25 E / (0.25 E + E) = 0.25 E / 1.25 E = 0.2

In other words, a debt-equity ratio of 0.25 is equivalent to a debt-to- ratio of 0.2

This is a handy device: if you are given a debt-equity ratio and need debt-assets ratio,
D/(D+E) = (D/E) / (1 + D/E)
Why do we bother to show this? Because many financial analysts
discuss or report a company’s debt-equity ratio and you are left on
your own to determine what this means in terms of the proportion of debt in the
company’s capital structure.

 Coverage financial leverage ratios

In addition to the leverage ratios that use information about how debt is related to either
assets or equity, there are a number of financial leverage ratios that capture the ability of the
company to satisfy its debt obligations. There are many ratios that accomplish this, but the two
most common ratios are the times interest coverage ratio and the fixed charge coverage ratio.
The times-interest-coverage ratio, also referred to as the interest coverage ratio, compares
The earnings available to meet the interest obligation with the interest obligation:

Times - interest - coverage ratio = Earnings before interest and taxes

The fixed charge coverage ratio expands on the obligations covered and can be specified to
Include any fixed charges, such as lease payments and preferred dividends. For example, to
gauge a company’s ability to cover its interest and lease payments, you could use the following
Fixed - charge coverage ratio = Earnings before interest and taxes + Lease payment
Interest + Lease payment

Coverage ratios are often used in debt covenants to help protect the creditors.

Shareholder ratios
The ratios we have explained to this point deal with the performance and financial condition of the
company. These ratios provide information for managers (who are interested in evaluating the
performance of the company) and for creditors (who are interested in the company's ability to pay its
obligations). We will now take a look at ratios that focus on the interests of the owners -- shareholder
ratios. These ratios translate the overall results of operations so that they can be compared in terms
of a share of stock:
Earnings per share (EPS) is the amount of income earned during a period per share of common

Earnings per share = Net income available to shareholders

Number of shares outstanding

As we learned earlier in the study of Financial Statement Information, two numbers of earnings per
share are currently disclosed in financial reports: basic and diluted. These numbers differ with respect
to the definition of available net income and the number of shares outstanding. Basic earnings per
share are computed using reported earnings and the average number of shares outstanding.
Diluted earnings per share are computed assuming that all potentially dilutive securities are
issued. That means we look at a “worst case” scenario in terms of the dilution of earnings from
factors such as executive stock options, convertible bonds, convertible preferred stock, and warrants

As an example, consider Yahoo!'s earnings per share reported in their 2004 annual report:

Item 2003 2004

Basic EPS $0.19 $0.62
Diluted EPS $0.18 $0.58
The difference between the basic and diluted earnings per share in Yahoo!'s case is attributable to its
extensive use of stock options in compensation programs.
Book value equity per share is the amount of the book value (a.k.a. carrying value) of common
equity per share of common stock, calculated by dividing the book value of shareholders’ equity by
the number of shares of stock outstanding. As we discussed earlier, the book value of equity may
differ from the market value of equity. The market value per share, if available, is a much better
indicator of the investment of shareholders in the company.

Book value = Sum of paid up capital +all reserve

The price−earnings ratio (P/E or PE ratio) is the ratio of the price per share of common stock to
the earnings per share of common stock:

Price-earnings ratio = Market price per share

Earnings per share
0-10: doubtful
10-20: Safe
More than 20: Risky

Though earnings per share are reported in the income statement, the market price per share of stock
is not reported in the financial statements and must be obtained from financial news sources. The

PB ratio: Difference between Book value and Market value

0-5= Safe share
More than 5 : Risky share

P/E ratio is sometimes used as a proxy for investors' assessment of the company's ability to
Generate cash flows in the future. Historically, P/E ratios for U.S. companies tend to fall in
the 10-25 range, but in recent periods (e.g., 2000-2001) P/E ratios have reached much higher.
Examples of P/E ratios (P/E ratios at the end of 2004):

Company P/E Ratio 57
Time Warner Inc. 29
IBM 21
Coca-Cola 22
Microsoft 36
Yahoo! 98
3M Co. 23
General Electric 24
We are often interested in the returns to shareholders in the form of cash dividends. Cash
dividends are payments made by the company directly to its owners. There is no requirement that
a company pay dividends to its shareholders, but many companies pay regular quarterly or annual
dividends to the owners. The decision to pay a dividend is made by the company’s board of
directors. Note that not all companies pay dividends.

Dividends per share (DPS) is the dollar amount of cash dividends paid during a period, per share
of common stock:

Dividends per share = Dividends paid to shareholders

Number of shares outstanding

The dividend payout ratio is the ratio of cash dividends paid to earnings for a period:
Dividend payout ratio =Dividends
The complement to the dividend payout ratio is the retention ratio or the plowback ratio:

Retention ratio = Earnings - Dividends

We can also convey information about dividends in the form of a yield, in which we compare the
dividends per share with the market price per share:

Dividend yield = Dividends per share

Market price per share

Balance sheet Item
Current Assets
1. Cash in hand
2. Cash at bank
3. Sundry debtors
4. Bills Receivable
5. Account Receivables
6. Stock (Inventory)
7. Marketable Securities
8. Short Term Loan
9. Pre Paid Expenses
10 Accured Income
11. Advances
Current Liabilities
1. Bills Payable
2. Sundry Creditors
3. Bank Overdraft
4. Short-term Loan
5. Cash Credit
6. Reserve for doubtful debt
7. Outstanding Expenses
8. Proposed Dividend
9. Provision for Tax.

Non Current Assets
Fixed Assets
1. Land and Building
2. Plant and Machinery
3. Furniture and Fixture
4. Equipment
5. Investment- Loan Term
6. Goodwill
7. Trade Mark
8. Patent Right
9. Profit and loss Debit balance
10. Preliminary Expenses
11. Other Deferred Expenses
12. Discount on Issue of shares
13. Discount on Issue of Debenture

Non Current Liabilities

Share Capital
1. Preference share capital
2. Equity Share Capital
3. Debenture
4. Long term Loan

5. Share Premium Account
6. Share Forfeited Account
7. Capital Reserve
8. Profit and Loss Account
9. Provision for Depreciation
10. Capital Redemption Reserve
11. General Reserve
12. Dividend Equalization Fund
13. Provision for Taxation
14. Proposed Dividend

Working Capital Assessment
Particulars 2067/68
12 months
Bills Receivable
Sundry Debtors
Advances Payment ,if any other
A. Total
Bills Payable
Other Bank Loan
Outstanding expenses
B. Total
Working Capital Cap ( A – B )
Add: Provision for Contingencies
Total Working Capital
Bank Financing
% of Financing by ACE

Cash Flow Assessment
Cash Flow Statement Particulars Projected
Sources of Fund 2067/68
Net profit before Interest & Taxes
+ Non cash exp. (depreciation, write off)
+ Non operating expenses (loss on sale of assets)
- Non operating income (profit on sale of assets)
(Funds from operation)
Cash from operation
Uses of Funds
Bank Charges
EMI of Other Loan
Purchase of Machinery/Assets
Total financial charges
Closing cash balance after financial charges

Risk Weighted Assets (RWA)
A. On Balance Sheet Item
Item Risk Weight
Cash Balance, Gold (Tradable), Balance with NRB
Investment in Nepal government securities, Investment in
DB/NRB Bonds, Fully secured loan against OWN FDR and 0
Government securities, Accrued interest on Government securities,
Amount deposited in government account for the considerable purpose

Balance with domestic Bank/FI/Claim against FDR, Fully secured

loan against Other bank FDR, Balance with foreign Bank, Money at call
Loan against the guarantee of internationally rated bank , Other Investment 20
with internationally rated bank, Inter Bank Loan.

Investment on shares, Debenture and bonds, other investment,

Loan advances and Bill purchase/Discount, Fixed assets, Accured Interest (Total 100
accured interest-accured interest on government bonds-interest suspense),
All other assets (Except Prepaid Tax)

Real Estate/Home in excess limit 150

Total A

B. Off Balance Sheet Item
Bills Collection 0

Forward foreign, Exchange Contract 10

LC with maturity < 6 months (Full Value), Guarantee against the 20

Counter guarantee of internally related bank.

LC with maturity > 6 months (Full Value), Bid Bond, Performance

Bond and underwriting commitments, sale of credit with condition of 50

APG, Financial and other Guarantee, Irrevocable Loan commitment, 100

Contingent Liability on income Tax, All other Contingent Liabilities
including Acceptances

Unpaid Guarantee Claims 200

Total B.

Total RWA A+B

Capital Fund = Core Capital +Supplementary c Capital

Total RWA
Capital Fund 11% Maintain
Core Capital 5% Maintain

Short Fall in Capital Adequacy
 Forbid declaring and distributions dividends
 Forbid establishment new branches
 Hold the refinance facility of NRB
 Forbid extending loans
 Forbid accepting deposits by opening new accounts
 NRB can take any action under NRB act 2012 section 32.

Core Capital Item (Capital Adequacy)
 Paid Up Capital
 Proposed Bonus shares
 Share Premium
 Non- Redeemable Preference share
 General Reserve
 Cumulative P/L account
 Current years profit shown in balance sheet
 Capital Refund reserve fund
 Capital Adjustment fund
 Calls in advance
 Other free reserve
 Deductable Item
 Goodwill
 investment in shares & Securities in excess of prescribe Limit
 Investment on financial interest company
 Facetious Assets
 Investment in L& B for the purpose of own use not complying NRB
 Loan for construction for residential building of own use not
Complying NRB Directives.
 Underwritting shares not disposed within Prescribed time limit.
 Loan and Facilities provided to person/Groups prohibited under
existing Laws.

Supplementary Item
 Loans and provision (For Good Loan )
 Assets Revaluation Reserve (Not excess than 2%)
 Hybrid Capital Instrument
 Unsecured Subordinate Term Debt
 Exchange Equalization Reserve
 Assets Revaluation Reserve
 Investment Adjustment Reserve

Major Indices (Specimen)
1. Net Profit/Total Income %
2. Earning Per Share NRs
3. Market Price Per Share NRs.
4. PE Ratio Ratio
5. Stock Dividend per Share %
6. Cash Dividend per Share %
7. Interest Income/ Loan & Advance %
8. Staff Expense/ Total Operating Expenses %
9. Interest Expenses on Deposit & Borrowing %
10. Exchange Gain & Loss/ Total Income %
11. Staff Bonus/ Total Employee Expenses %
12. Net Profit/ Loan Advances %
13. Net Profit/ Total Assets Ratio
14. Credit-Deposit Ratio %
15.Total Operating Expenses/ Total Assets %
16. Capital Adequacy Ratio on Total Capital Fund %
A. Core Capital %
B. Supplementary Capital %
C. Total Capital Fund %
17. Cash Reserve Ratio Ratio
18. Non Performing Assets/ Total Loan %
19. Weighted Average Interest Rate Spread -
20. Networth Per Share NRs
21 Total Outstanding Shares No
22.Total no. of Staffs No
23. Others -

Key Financial Highlights as on 2009/2010 (Specimen)
Financial Indicators ACE Industry Average
Core Capital to RWA (% 18.03 21.67
Capital Fund to RWA (%) 18.83 22.60
RWA to TA (%) 60.20 73.68
Financial Resource Mobilization to 6.18 4.91
Last Quarter’s Core Capital (times)
Deprived Sector Loan to Loans & Advances of 2.52 3.05
2 Quarters Earlier(%)
Max. Loan in a Single Sector to Core Capital (%) 91.83 135.82
Max. Loan to a Single Borrower to 17.48 150.55
Last Quarter’s Core Capital (%)
Credit to Deposit Ratio (%) 82.71 84.85
Credit to Financial Resources Mobilization Ratio (%) 63.15 80.45
Credit to Deposits & Core Capital (%) 67.69 69.85
Non Performing Loan to Total Loan (%) 0.03 1.67
Total Loan Loss Provision to Total Loan (%) 1.01 2.92
Liquid Assets to Total Deposits (%) 67.92 36.62
Investment in Shares/Debentures to Core Capital (%) 10.95 4.49
Non Banking Assets to Total Assets (%) - -
Provision for NBA to NBA (%) - -
Return on Assets (ROA) (%) 1.15 2.01
Return on Equity (ROE) (%) 10.62 14.57

Balance sheet Analysis
 Liabilities
Share Capital : (Paid Up Capital, Promoters and Ordinary in forms of Initial
Investment right share issue and Bonus shares (Capital Structure
Owners Equity 51% and General Public 49%)
Authorized Capital
Issued Capital
Paid Up capital
Proposed for Bonus share
Calls in Advance
Share Capital details
Domestic Ownership
Nepal Government
Foreign Stakes
Category “A” Licensed Institute
Other Licensed Institutions
Other Institutions
Foreign Ownership

Reserve and Surplus ; General Reserve Fund, Capital Adjustment fund, Capital
Redemption Reserve, Capital Adhustment Reserve fund, Other Reserve fund (
Contingent reserve, Institutional development reserve, Dividend Equalization fund,
Special reserve fund, Assets revaluation reserve, differed tax reserve, other free
fund, investment adjustment reserve), Accumulate profit and loss and Exchange
fluctuation reserve .
Debenture and Bond : Issued Long term debenture/Bond if any.
(%.............NRS………Issued on………..with maturity (Total redemption reserve NRs…)
Borrowing : Local Borrowing and Foreign Borrowing
Inter Bank /Financial Institutional Borrowing
Nepal Government
NRB (Repo or Refinancing or any)
Repo Obligation
Other Institution
Foreign Banks and others

Deposit Liabilities : Non Interest Bearing
1. Currency Deposit
Local Currency : Nepal Government
“A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
Foreign Currency : Nepal Government
“A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
2. Margin Deposit : Employee guarantee
Guarantee margin
Letter of credit margin
3. Other
Local Currency Financial Institutions
Other Organized Institutions

Foreign Currency Financial Institutions

Other Organized Institutions

 Interest Bearing Accounts
A. Saving Account
Local Currency : Organized Institutions
Foreign Currency : Organized Institutions
B. Fixed
Local Currency : Organized Institutions
Foreign Currency : Organized Institutions
Others Deposit
C. Call Deposit
Local Currency “A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution

Foreign Currency “A” Class Licensed Institution
Other Licensed Institutions
Other organized Institution
D. Certificate of Deposit Organized Institution

Bills Payable : (Local Currency and Foreign Currency)+

Proposed Dividend ; Dividend is declared for the share owner if any

Income Tax Liability NET : Certain % of tax from the net income
Other Liabilities ; Pension/gratuity funds, employee Provident fund,
Employee Welfare Fund, Provision for staff bonus, Interest payable on deposit, interest payable on
borrowing, unearned discount and commission, sundry creditors, branch adjustment account,
deferred taxes, unpaid dividend, other.

Balance Sheet Analysis
1. Cash
Local Currency Including Coins
Foreign Currency ; Indian, US, Euro, Australian Dollar, Canadian Dollar, Singapore
Dollar, Japanese Yen Etc
2. Balance With NRB: Current Account and Other Account
3. Balance with Banks/Financial Institutions
Local Licensed Institutions
a. Current account
b. Other account
Foreign Banks
a. Current Account
b. Other Account
4. Money at call and Short Notice ; 7 days maturity period and 48 hours short notice to
get back that money invested
5. Investment : Investment made by the Company
a. Treasure Bills
b. Saving Bonds
C Other Bonds
D. NRB Bonds
E. Foreign banks

F. Local Licensed Institutions
G. Foreign banks
I Corporate Shares
J Corporate Bonds and debenture
K Other investment
Land Development
Less Provision
Net Investment
 Investment in shares, Debenture and Bonds (Shares , Debenture Investment)
 Held for trading Investment (Shares Investment on Different Institutions)
 Held for maturity Investments (Development Bond and Treasury Bills
 Available for sale Investment
6. Loans advances and Bills Purchased
1. Performing Loans
a. Pass
B. Restructures loan
2. Non Performing Loan
a. Sub-Standard
B. Doubt Full
C. Bad Loan
Total Loan

 Loan Loss Provision
1. Pass Loan (1%)
2. Watch list 5%
2. Restructures Loan (12.5%)
3. Sub Standard (25%)
4. Doubt Full (50%)
5 Bad Loss (100%)

Total Loan Provision ******

Provision upto Precious Year
Sub Standard
Bad Loan
Total Previous Year Provision *********

Write Back Provision for the possible Loss ******

Additional Provision this Year *********
Additional this Year ********
Net Loan ***********

Loan loss provision

General Loan Loss provision For pass Loan
Specific Loan Loss provision For Sub Standard, Doubtful and Bad Loan

7. Fixed assets : Land and Building, Vehicles, Computer and Machinery, office Equipment and
1. At Cost
A. Previous Year Balance
B. + Additional during this year
C. +Revaluation/Write back during this year
D. - Sold
E. -This Year Write off
Total Gross Value
2. Depreciation
a. Previous Year Balance
b. Depreciation during this year
c. Revaluation/Write back during this year
d. Total depreciation on sold/Written off Assets
Total Depreciation A+B-C

Remaining Book Value (WDV*(1-2) (Written Down Value)

+Book Value +Land or construction and or Leasehold Assets

8. Non Banking Assets:
9. Other Assets : Gold Stock, Income receivable on Investment Less interest
suspense account, Receivable commission, sundry debtors, Staff loans and advances, prepayments,
cash in transit, Other transit Item (Including Cheque), draft paid without notice, expenses not write
off, branches adjustment account, deferred taxes (Assets), Other assets (Accured interest on
Loans, Drafts paid without notice, Branch Adjustment accounts, Local/Foreign agency accounts

Margin Call Provision
 Margin call will be made when the quoted shares prices falls below the 10% .
 Margin Call letter issue within the 7 days of margin call suffer.
 Margin will be maintain within 35 days of the margin letter issue.

Loan Against FDR
 Loan up to grants 90% of the face value of the FD. (According to CPG). Drawing power is
95% of the face Value. 90%
 Interest will be charged FR rate +2% additional Charge
 FD certificate will be surrendered by the client and the same will be lien
 Interest will be paid quarterly and interest will be charged quarterly.
 Within the maturity of the FD, either the client has to settled the loan or to liquidate the
 Letter off Set up is necessary (agreement) by the client.
 In case of FD issue by the other Bank, according to the NRB regulation, there is no
change of acceptance for the loan purpose.

Government Securities
 Bond/Debenture and Treasury Bills
Loan Against Bond and Debenture
1. Loan against HMG/ NRB Bonds shall not exceed 95% of the face value of the bond.
2. Face value is shown in the top of the certificate
3. There is the clause in the certificate that this can be pledge and takes the loan.
4. Fully secured against pledge of debenture /bonds and certificate shall be lodged.
5. Interest rate is coupon rate. +3% (Need to be finalized)

Bridge Gap Loan
 in corporate finance, interim financing covering the time lag between redemption of a
bond or commercial paper issue, and replacement by a new one. Bridge loans, commonly
replacing short-term debt with longer term financing, are an integral part of corporate
restructurings, mergers, and leveraged buy-outs. Banks and insurance companies supply
funds to pay off old debts before proceeds are raised from new debt or issuance of
stock. Also known as gap financing or swing loan.

Project Appraisal
Different Aspects of Project Appraisal
1. Technical Aspects
2. Marketing Aspects
3. Management and Organization Aspects
a. Character
b. Capacity
c. Capital
D. Collateral
E. Conditions
F. Compliance
4. Legal Aspects
5. Financial Aspects

Banking Risks
 Concentration Risks
 Liquidity Risks
 Exchange rate Risk
 Operation Risk
 Environment Risk
 Security risk
 Management risk
 Interest Rate risk
 Counterparty Risks
 Competitor Risk

Borrower Information

Status report

Credit Enquiry/CIB report

Loan Application
Market report
Study of the account
Financial Statements
Other Sources
Personal Interview

Principle of Lending
 Seven Principle of Good Lending
 Safety
 Liquidity
 Purpose
 Profitability
 Spread
 Security
 National Interest, Suitability
 Technical Competence
 Economic Viability
 Marketability
 Management Ability
 Quantum of Finance
 Quality of Credit
 Two ways Out
 Integrity of the borrower
 Paradox of Spread
 The business cycle is inevitable
 Quick Answer
 Local Banks should be participant in the lending to local borrower
 First thought for the bank
 Understanding the business
 Common scenes and good Judgment

Safe Guarding of Problem Loan
 Preventive Measure
1. Good Corporate Governance
2. Capital Adequacy
3. Formulate and Implement CPG
4. Prudent Loan classification and Provision
5. Concentration of Risk
6. Proper System of Collection of Interest and Principle
7. Discourage to invest against risky assets
8. Rehabilitation of sick Industries
9. Reschedule and Restructure Loans
10. CRA
Remedial Measures
1. Blacklisting (35 days legal notice publication)
2. Resort to other legal Remedies
3. DRT
4. Take over the credit
5. Compel the PG
6. AMC

Provision for Loan Against First Class Securities
Pass 1%
Substandard 1%
Doubtful 1%
Loss 1%

Provision Against Priority Sector Credit (If Insured by DICGC)

Pass 0.25%
Substandard 6.25%
Doubtful 12.5%
Loss 25%

Rescheduling and Restructuring of Loans (if regulized for 2 years convert to 1% 25%
interest have to settled)
Pass 12.5%
Substandard 25%+12.5
Doubtful 50%+12.5
Loss 100%

Recovery Measures
1. Loan Call Back Notice
2. Dispose Primary Security of the borrower
3. Auction The Collateral Security
4. Loan Write off
5. Take over the management
6. Create Special NPA Cells
7. Formulate and Adopt Special Recovery Policies
8. Formulate National Credit Restructuring CELL (NCRC) to restructure loans

Loan Classification and Provision (rule base)
 Normal Loan
Pass 1% (No overdue or overdue up to 3 months)
Substandard 25%(overdue More than 3 months and Upto 6 Months)
Doubtful 50%(overdue More than 6 months and Upto 1 years)
Loss 100% (overdue More than 1 Year)

Provision for Contingent Liability

Pass 1%
Substandard 25%
Doubtful 50%
Loss 100%

Loan Against PG (Additional 20%)

Pass 21%
Substandard 45%
Doubtful 70%
Loss 100%

In case of Rescheduling or restructure of Insured of guarantee prioity sector credit
Pass 3.125%
Substandard 0%
Doubtful 0%
Loss 0%

In Case of Sick Industries with evidence of approval by HMG for the restructure and
rescheduling( Minimum 12% of interest repaid)

Pass 25%
Substandard 0%
Doubtful 0%
Loss 0%
If fails to paid 12% of the Interest
Pass 1%
Substandard 25%
Doubtful 50%
Loss 100%
For this separate loan loss provision account should be maintain

Features of NPA
 Loan ceases to earn income or is about to stop earning
 The maturity date of the loan is expired.
 Full Payment of the principle and interest is anticipated no Longer
 Payment of Installment of principle and the Interest is due by 90 days or more
 Loans is classified to sub- Standard, Doubtful or Loss Category
 Increase of NPA demands more Provision affecting profit Level adversely.
 Bank With high level of NPA is Considered weak and loose credibility Internationally.

Warning Signals of the Problem Loans

1. Borrowers delays submitting regular financial statement, stock report and lists of
account receivable to avoid providing adverse information of the Bank.
2. Borrower regularly fails in payment terms
3. Borrower starts to maintain distance from the banker.
4. Credit inquires receives from another Banks or CIB should be taken as evidence of his
5. Account receivables starts declining and Payable starts rising
6. Regularly drawn round up cheque and frequently bounces

 The borrower frequently requests for overdrawn his account.
 Borrowers starts discounting post dated cheques with Money Lenders.
 Factory visit shown reduced operational activities.
 Unfavorable market report of the borrower is received.
 Borrower regularly deposits cash only on the day clearing cheques are presented
 Unexpected request for mid- term renewal for enhancement or new Loan
 Sudden rise in trade payable and repaid or slow inventory turnover.
 Frequent labor strikes or development of a hostile relation with the laborer.
 Borrower becomes a victim of natural disaster of disaster invited by the people
 Borrower cancels insurance Policy indicating cash Shortages.

Provision for NBA
25% for the year of Acquisition , Then
First Year 50%
Second Year 75%
third Year 100%
It Should be sold within 7 years from the date of Procurements

Loan classification Based on Security
Secured Risk Loan
loan is secured by 100% cash Margin
instrument equivalent to cash as FD, Foreign Currency deposits, saving deposits, provident fund
account held in the own account.
Sovereign Risk Loan
National Saving Bonds, Development Bond TB issued by NRB, government guarantee.
Bank Risk Loan
Fund is held in some other Bank, FD other bank, Loan against guarantee, Stand By LC issued by local
or foreign Bank, Loan against funds places at call with local or foreign bank.

Unsecured or Normal Business Risk Loan

Borrower’s Account Receivable, inventory, Fixed assets, Personal Guarantee or promissory notes,

Casual Risk Loan

Purchase of cheques, draft, bill (Purchase)

Clean Risk Loan

Loans and Overdraft provided without any security

Credit Card Risk Loan

Advances Provided to credit card holders.

NRB Codes
 9.3 Sector Wise

 Crop and Crop Services 1.1 Agriculture & Forestry (1)

 Tea /Coffee 1.2
 Tobacco 1.3
 Jute 1.4
 Livestock /Livestock Services 1.5
 Forestry 1.6
 Irrigation 1.7
 Other Agriculture & Agro-Services 1.8
 Fishery 2 Fishery (2)
 Metals and Ore (Iron, Lead etc.) 3.1 Mining (3)
 Coal 3.2
 Limestone 3.3
 Magnetite 3.4
 Chalks (Talc) 3.5
 Oil and Gas Extraction 3.6
 Other Mining and Quarrying 3.7
 Food Production (Packing, Processing) 4.1 Manufacturing (4)
 Agriculture & Forest Production 4.2
 Sugar 4.2.1
 Tobacco Processing 4.2.2
 Lumber and Wood Products /Furniture 4.2.3
 Others 4.2.4
 Beverages (Bear, Liquor, Soda etc.) 4.3
 Alcoholic 4.3.1

 Non-Alcoholic 4.3.2
 Handicraft 4.4
 Textile Products and Readymade Garments 4.5
 Paper and allied products 4.6
 Printing & Publishing 4.7
 Medicine 4.8
 Refined Oil and Coal Products 4.9
 Rosin and Turpentine 4.10
 Rubber Tire 4.11
 Leather 4.12
 Plastics 4.13
 Cement 4.14
 Stone, Clay and Glass Products 4.15
 Other Construction Material 4.16
 Metal- basic Iron and Steel Foundries 4.17
 Metal- Other Plant /Workshop 4.18
 Miscellaneous Manufacturing 4.19

Residential (Household Purpose) 5.1 Construction (5)

Non-Residential (Business Purpose) 5.2
Heavy Construction (Highways, Bridges etc.) 5.3

Electricity Services 6.1 Electricity, Gas and Water (6)

Gas and Gas Pipeline services 6.2

 Fabricated Metal Products 7.1 Metal Products, Machinery & Electronics Equipment &
Asssem. (7)
 Machine Tools 7.2
 Machinery- Agriculture 7.3
 Machinery- Construction, Oil field, Mining etc. 7.4
 Machinery- Office and Computing 7.5
 Machinery- All Others 7.6
 Electric Equipment 7.7
 Household Appliances and Other Durables 7.8
 Communication Equipment 7.9
 Electronic Components 7.10
 Medical Equipment 7.11
 Generators 7.12
 Turbines 7.13
 Motor vehicle, Parts and Accessories 8.1 Transport Storage & Communication (8)
 Jet Boats /Water Transports 8.2
 Aircraft and Aircraft Parts 8.3
 Transport Related Other Products 8.4
 Railways and Passengers Transport Vehicles 8.5
 Truck Services and godown Arrangement 8.6
 Others All Services 8.7
 Wholesale Trade- Durable Goods 9.1 Wholesalers & Retailer (9)
 Wholesale Trade- Non-Durable Goods 9.2
 Automotive Dealer /Franchises 9.3
 Other Retail Establishments 9.4
 Import Trade 9.5
 Export Trade 9.6

 "A" Class licensed Institutions 10.1 Finance, Insurance & Real estate (10)
 "B" Class licensed Institutions 10.2
 "C" Class licensed Institutions 10.3
 "D" Class licensed Institutions 10.4
 Saving Lending Cooperatives 10.5
 Pension Fund and Life Insurance 10.6
 Other Financial Institutions 10.7
 Non-Financial Government Institutions 10.8
 Private Non Financial Institutions 10.9
 Other Investment Intuitions 10.10
 Real State 10.11
 Tourism Services (Trekking, Mountaineering, Resort 11.1 Hotel & Restaurant (11)
 Hotel (Including Other Services) 11.2
 Entertainment, Recreation, Motion Pictures 11.3
 Advertisement Services 12.1 Other Services (12)
 Automotive Services 12.2
 All Other Service Companies 12.3
 Hospitals, Clinics etc. 12.4
 Educational Services 12.5
 Gold and Silver Loan 13.1 Consumer Loan (13)
 Fixed Deposit Receipt 13.2
 Securities Instruments 13.3
 Credit Card Loan 13.4
 Hire Purchase (Personal Consumer loan) 13.5
 Local Government 14 Local Government (14)
 Other Loan 15 Others (15)

Security wise 9.4
 Gold & Silver 1 Gold & Silver (1)
 Government Securites 2 Govt. Guarantee (2)
 Non-Governmental Securities 3 Non-Govt Securites (3)
 FDR Own 4.1 Fixed Deposit Receipt (4)
 FDR Other Licensed Institutions 4.2
 Real Estate (Land And Building) 5.1.1 Collateral of properties (5)
 Machinery and Equipment 5.1.2
 Furniture and Fixture 5.1.3
 Vehicles 5.1.4
 Other Fixed Assets 5.1.5
 Rice and Paddy
 Jute
 Other Agricultural Products
 Raw Materials
 Semi-finished Products
 Finished Product
 Salt, Sugar, Ghee, Edible Oil
 Cloths
 Other Goods
 Domestic Bill 6.1 Against Security of Bills (6)
 Import Bills and Letter od Credits 6.2.1
 Export Bills 6.2.2
 Against Security of Export Bills 6.2.3
 Other Foreign Bills 6.2.4

 Collective Guarantee 7.1 Against Guarantee (7)
 Institutional Guarantee 7.2
 Personal Guarantee 7.3
 Collective Guarantee 7.4
 International Rated Foreign Bank's Guarantee 7.5
 Other Guarantee 7.6
 Credit/Debit Card 8. Credit/Debit Card (8)
 Others 9. Other (9)

Product Wise 9.3 Ka
 TERM Industrial Organization 1.1 Term Loan (1)
 TERM Business Organization 1.2
 TERM Service Organization 1.3
 TERM Others 1.4
 OD Industrial Organizaton 2.1 Overdraft (2)
 OD Business Organization 2.2
 OD Service Organization 2.3
 OD Others 2.4
 TRUST Industrial Organizaton 3.1 Trust Receipt (3)
 TRUST Business Organization 3.2
 TRUST Service Organization 3.3
 TRUST Others 3.4
 TIME Industrial Organization 4.1 Time Loan (4)
 TIME Business Organization 4.2
 TIME Service Organization 4.3
 TIME Others 4.4
 Home Loan 5 Home Loan (5)
 Home Loan Others (above 100 lakhs) 6.1
 Real Estate Loan (6) Business Complex & Residential Apartment Loan 6.2
 Income Generating Business Complex Loan 6.3
 Land Acquisition & Plotting Loan 6.4.A
 Personal Mortgage Loan Flexi Loan >=50 Lakhs 6.4.B
 Others 6.4.C
 MARGIN Loan 7 Margin Loan (7)

 HIRE Business Purpose 8.1 Hire Purchase Loan (8)
 HIRE Individual Purpose 8.2
 Deprived Loan 9 Deprived Loan (9)
 Bills Purchase 10 Bills Purchase (10)
 OTHER Credit Card 11.1 Other Products (11)
 OTHER Education Loan 11.2
 OTHER Small Loan 11.3
 OTHER Loan Against FD 11.4
 OTHER Loan Against NSB 11.5
 OTHER Consumable Loan 11.6

Saving Deposit/Loan Int rate & Schemes Specimen
 Deposit Interest Rate
 Saving Deposits
 Ace Special SA 10.25
 ACE Ahbibhawak Bachar Khata 9.25
 Ace Saving Deposit 8.25

Fixed Deposit
3 Months 8.50
6 Months 10
1-5 year 11.5
More than 5 years Negotiable
Bulk Deposit 12-13

Call Accounts 4-12

Foreign Currency deposit 0.25-2

 Loans and Advances Int Rate
 Overdraft 14-17
 Term Loan 14-16
 Housing Loan 15-18
 Real Estate Loan 16-18
 Mortgage Loan 15-18
 Personal Loan 15-18
 Hire Purchase Loan
 Personal 15-17
 Commercial 16-17

 Construction/Heavy Equipment Bank 16-18

 Loans against FDR 11% of Additional 2 % (Higher)
 Education Loan 15-16
 Project Loan 15-17
 Bridge Gap Loan 15-17
 Loan Against Shares 15-18
 Deprived Sector Loan 7-14
 Other Loan 15-19

Overdraft Overdrawn Case
 In case of overdraft loan is overdrawn , within 30 days overdrawn amount should be
maintain ( Settled) with overdraft account.
 In case of the overdrawn cheque is present this should be bounce my the concern

Reasons for the cheque Bounce/dishonor
 Countermanding (Drawer bank not to honor a particular Cheque)
 Upon receipt of Notice of a death of a customer
 Upon Receipt of Notice of Insolvency
 Upon Receipt of Notice of Insanity
 Upon Receipt of Notice of Garnishee Order
 Upon Receipt of Notice of Assignment
 Defective Title
 Miscellaneous Grounds
 Dishonor a cheque if it is a Conditional one
 If it is a stale Cheque
 A post dated cheque
 A mutilated cheque
 Drawn on a paper other than the printed form
 Drawn on some other Branch
 Presentation is made during non Banking Hours
 Signature is forged
 Not sufficient fund
 Endorsement is irregular
 Cross cheque is presented at the Counter and if amount in words and figures differ.

Ante Dating and Stale Cheques and Post Dated
 Cheque Bearing a date before the date of Issue is said to be ante dated. According to
banking Customer if a cheque is not presented within 6 months if its issuance date, it
is Considerable Stale. (valid date is expired) out of date cheque
 A Cheque that bears a date yet to come is a post dated Cheque. It is not considered a
valid cheque till the date of Maturity. Is is also called Bill of Exchange till the date
written on it. (issue date is prior than today)
 A Banker could not pay a post dated cheque before the maturity and if pays, he will
have to bear any loss that result from his action.

Nostro/ Vostro/lore Account
Account with other bank is called Nostro Account
Other Bank Account with own Bank is called Vostro Account.
Account Maintain with NRB by Own and Other Bank is called Lore Account.

Charged in registration Mortgaged Rajasho
Amount Prescribed By the IRD Registration Charge
0-100,000 Rs. 500
100,001-500,000 Rs. 700
500,001-1,000,000 Rs. 1,200
1,000,001-2,000,000 Rs. 1,800
2,000,001-5,000,000 Rs. 3,000
5000,001-10,000,000 Rs. 10,000
10,000,001-20,000,000 Rs. 15,000
Above 20,000,001 Rs. 30,000

Additional Rs. 200 added if the property is in Municipality

Registration charge on following

1. Rajinama 4%
2. Bakash Patra 3%
3. Ansha Banda 3%

Different Between Rokka/Dristi Bandak and Dhito Bandak
 Rokka Refers only the rokka over the said property through Paper.
 Rokka Consists only Rs 9,99,999 Rupee for one property .
 Without or with the presence of the client rokka will be done.
 Borrower has not any right to sold that rokka property until and Unless the bank
release any documents for that.

 Dhito Bandak and Dristi Bandak are the same.

 Mortgage is done when with the presence of the client.
 The Specific value of the property is mention Covering the full amount of loan.
 The Instrument by which the transfer of Ownership for the Immovable property in
order to safeguard the loan.
 Until and Unless the full consent given by the Bank to release the property the client
can’t do anything to sold that property or do anything.
 The value Consider in Form of Fair Market Value of Distress Value. At Least to cover
the Loan Amount.
 If the amount excess than 9,99,999 bank have to do Mortgage

Loan Documentations
 Promissory Notes
 This is a documents containing a promise signed by the borrower to pay the amount of loan when
demanded by the bank along with interest at a specified rate.
 Offer Letter
It is a letter issued to the customer mentioning all types of credit facilities offered along with
terms and condition with interest rates , charges, margin and Commission.

Assignments of A/R
Assignments means transfer of an existing or future right on property of a debt by the
borrower to the banker through which the banks gets right authority and the right to recover
title and Interest from the borrower’s debtor. This documents also denotes the borrower’s
acceptance not to sell, transfer title or right of such bills and accounts receivable to any other

Power of Attorney
The borrower appoint the bank as the attorney for the specified facility and assigns the bank
the right to collect fund due to borrower by way of its debtors through this documents.

Letter of Continuity
Through this documents, the borrower declares that the property given as security will
continue to secure the advance, which may create or fluctuate by way of debit of account from
time to time.

The Initial Loan amount may increase or decrease in the future, but the property
offered as security keeps securing the loan.

General Letter of Hypothecations

This documents specially declares the bank’s equitable charges on the security. In
other words , it is an arrgement by the borrower permitting the bank to sell or seize
the collateral( Inventories, fixed assets) pledge to secure the loan, in case of failure
to honor their obligations in maturity.

Supplementary Agreements
The Securities pledge to the bank are specified in this account and in forms the
integral parts of the letter of Hypothecations.

General Letter of Trust Receipt

It is an acknowledgement of the receipt of the documents by the client and permits
the bank to maintain a legal lien over the goods covered by the Bills of Lading under
the condition that the bank could legally take the possession of the goods and the
proceeds of the sale if the account party does not repay the loan.

Letter of the Guarantee

Directors, president or a person related to the company who has high reputation and
the financial standing in the market is asked to execute this document as an additional
security to oblige towards the bank’s Loan.

A personal guarantee is taken as a secondary security. It is in fact a contract to perform the
promise or discharge the liability of a third person, in case of his default. Guarantee can be
categorized into Specific guarantee where only a single transaction is covered and continuing
guarantee which covers a series of transaction. A Continuing guarantee secures the loan
though the amount may fluctuate from time to time.

Cross Guarantee
A Cross guarantee is taken as a security. It is a contract to perform the promise or
discharge the liability of a sister concern in case of the firm’s default. Normally when there
is a group lending and there is the possibility of the facility being interchanged by the sister
concern, then in such situation it would be advisable to take cross guarantee of the sister

Letter of Indemnity
An Indemnity letter is a promise made by one party to save the other from any losses due to
his own conduct or by the conduct of someone else.

Wealth Statement
Wealth Statement is a document mentioning the entire property details of the personal

General Counter Guarantee

When a customer is provided credit facility for the issuance of the guarantee or Indemnity ,
through this document, the customer undertakes to indemnity and keep the bank harmless
from any liability arising thereof and authorize the bank to debit their account or undertake
to reimburse any amount the bank has paid or may incur against the guarantee issued on
their behalf.

 Letter of Set off
Through this documents the borrower assigns the right to the bank to liquidate and
settled its due from the proceed of pledged instrument or such held amount, in case
the borrower does not pay his/her obligation on the due date.

Loan deed
This is non registered security documents executed by the borrower giving evidence
of its acceptance of the bank loan sanctioned. It Establish the borrower’s acceptance
to pay interest charges, and commission against the facility it shall avail from the
bank. The details of the facilities including the loan amount, rate of the interest,
charges to be paid, and the time for the repayment. The details of the additional
collateral secured to the bank are also cleared mention in this documents.

Mortgage Deed
The Instrument by which the transfer of an interest/ownership in specific immovable
property for the security of money advanced is called Mortgage deed. This is the
registered documents and executed at land revenue office in favor of the bank.

Non Standard Documents

These are the documents which are generally prepared as per the requirement of the
bank incorporating details of all credit beings forwarded by it to the customer. Non
standard documents mention the securities through which the bank covers its
exposure in case of dishonor by the customer

 Standard Documents
Standard Documents are pre-printed forms, which are obtained by the banks from all
its borrowing customer and filling the details on the blank.

Board Resolution
Every Private or Public limited company must be first authorized by its board
establishing borrowing relationship with the bank and through this paper appoints
officials who are authorized to negotiate with the bank and operate the loan account.
there are some specific for in the board resolution i.e
No of meeting held
Place the meeting was conducted
Name of the Bank for taking the loan and amount
Authorized person the account conduct.
Attendance %

Special AGM
When the company is taking the loan higher then its paid up capital, at that time this
decision should be authenticated by its Special General meeting. Please note that the
attendance % should be as prescribed in the AOA/MOA

Business Falling Under Priority Credit
 Agriculture and afro Based Business
Cereal and cash crops, vegetable and fruit cultivation, floriculture and herbs
Live stock, birds, fishery and insect keeping
Irrigation and irrigation Equipment
Agriculture tools and Machinery
Forest Development, pasturing and other related activities
Land Development and Protection
Cottage and Small Industries
All traditional and modern technology industries defined as cottage and small
Industries under the Industrial Enterprise Act.
Agriculture and forest based Industries.
Assembling industries with at least 20% value addition
Hydro- Electricity, wind and solar power and or bio-gas industries.
Information technology related computer software and hardware Industries.
Industries that help to keep clean Environment through minimizing
environmental pollution
Mineral Industries
Except those production items prohibited by the law, all other cottage and small
Industries mentioned in Industrial Enterprise Act.

Service Center
 housing and Consumption credit provided to deprived sector
 Child care center and other business relating to health service
 trading business in animal feed, clinical and medicines.
 Trading center, technical school, providing skill and employment oriented
training as well as training fees payable by trainees fro skill training.
 Business related to computer, photocopy, transport and communication service
 All service business relating to tourism
 Service business, which helps increase agriculture and industrial Production
 trading business relating to daily consumable items, educational materials, and
health related medicine and material, distributions of drinking water, cleaning
service, legal and technical consoling service and self employment oriented
other service Business.

Credit Limit

 NRB has directed to extend credit under priority sector credit programme and
Deprived sector. The present existing provision is as follows.
 For Priority Loan - 10% for Class A Including 3% on deprived
sector Loan (Class B is free to extend
credit on Priority Sector Loan)
 For Deprived sector Loan - 3% for Class A and 2.5% for class B

Deprived Sector Credit Defined
 Deprived Sector includes low income and particularly socially backwards women, tribes,
lower caste, blind, hearing impaired and physically handicapped person and squatters
 All the credits extended for the operation of self- Employment oriented micro
Enterprises for the upliftment of economic and the social status of deprived sector up
to the limit prescribed by NRB is termed as Deprived Sector Credit.

Difference between consortium Loan Loose Consortium and Syndication

 When more than one bank joins hands together to meet the demand of a single
borrower, it is called consortium Loan. In other loans consortium financing is loans and
facilities provided to any customer, firm, company or project by two or more licensed
institutions on the basis of mutual understanding and agreement. Once the consortium
group is formed, no new members are admitted without approval of the group.

 In consortium financing, all the agreement are done by the lead bank on behalf of all
the participant Bank. The borrower can’t make independent agreement with the various
participating members banks. The interest rates, service charges, commission remains
uniform with all participating member. The principle and interest recovered from the
borrower by the lead institution, is distributed proportionately amongst the
participating members.
 In loan syndication, more of the greatest advantage is that each participating bank can
have separate negotiation in terms if interest rate, payment schedule with the

Loan Write off
 When any loan or a portion or its is considered uncollectable, it should be charged off
immediately. The concern RO with the details of reason and justification must process
loan charges off. The concerned Credit Manager must forward the charge off request
letter for recommendation to the head office for board approval. A separate board
presentation will be prepared from HO and submit it to the board for the due
approval. After the board approval, the same should be notified to the concern
branches or HO. All charges off requires approval of the BOD.

 Write off means to remove the loss loan from its balance sheet. This frees the banker
from the interference of non- performing loans in its daily operational activities to
concentrate more on its core business.
 Reasons for the Write off
 There is some possibility in the future for the recovery
 The amount recovered from the legal action is less than the due amount
 The amount expenses by the bank to recover the due is greater than the amount is to
be recovered.

Sources of Bank Liquidity
 Primary Deposit: Banks accept deposit from customer in cash, cheques and
remittances from various banks. This increase the bank’s cash in hand or deposit with
other banks, which is an increase in the bank liquidity
 Capital; By issuance of shares, liquidity is supplied to the bank.
 Loans : Borrowing made by the banks from the money market, corresponding banks and
from center bank under refinance facility increase bank’s liquidity
 Miscellaneous Sources:
 Cheques sent on collection
 Fund transfer from other banks
 Received on guarantee and LC issued etc
 Sales of asset also brings inflow of cash.

 A Draft is an order like a cheque but draw by a bank instead of an account holder to
its some other branch or head office or to its corresponding bank’s branch to pay a
certain sum of money to the person named in the instrument.
 Draft is provided to anyone
 The drawer and the drawee of a draft can be the same bank
 Draft is always drawn only payable to order
 Bank can’t put a stop payment except at the request of the applicant
 Draft can’t be dishonored
 Draft is normally used top effect payment in two different locations

Manager’s/Banker’s Cheque
 A cheque drawn by a banker upon himself is a banker’s cheque, which is also called MC.
Such cheques are issued on behalf of its customer’s and non customer for facilitating
local payments only. All the MC and BC are payable at the issuing branch only.

Documents Checklist
 For Individual
 Loan Application Firm
 Name of the a Borrower
 Approved Limit
 Present Outstanding
 Snaps of the borrower and the other PG (Three generation is needed)
 Family Member of the borrower
 Name of the Land Owner, property Location and the value of the property)
 Witness from the other legal heirs
 Original la Purja
 Four Wall Boundary
 Napi, Naksha and Trace
 Property tax Clearance Certificate Tax Receipt
 If Third Party Collateral ( Not Accepted)
 Loan Deed (Signed and thumb print by the authorized person of the borrower /self)
 Internal loan deed (First party/Third party as applicable)
 Legal Heir Documents (letter from Local ward office certifying legal heirs (Nata Pramanit) and no
objection certificate of legal heirs. Also Consent from the Legal Heirs)
 Property Title Deed along with copy of source of property transfer
 Mortgage Deed
 Property Sharing Deed (Ansha Banda)
 Mortgage amount
 Promissory Notes
 Letter of Continuity

 In case of Property Exchange (variation Memo) other supplementary agreement
 Copy of Citizenship including borrower and the other Guarantors
 Fresh CIB with no overdue of without report)
 In case of 6 months 31 days not across , make sure for the Considerable Value
(Rajinama Value only consider)
 In case of the property belongs to Guthi, 1/3 of the Fair Market Value is considered
or not
 Consent Letter from the Guthi for to take the loan.
 Full amount covered the loan (Pass amount in Malpot) in distress value or Loan amount
 In Mortgage deed witness from the borrower legal heirs /Co- Legal heirs
 Rajinama Copy
 In case of Institution Guarantee , take board resolution and authorization for the
 Insurance Policy if Building is mentioned
 Lease Rent agreement/Rental Agreement

 For Institutions (Above same)
 Additional Documents Needed
 Firm Registration
 PAN/VAT or IRD registration
 For the Partnership firm both partner have to sighed in all the documents
 Partnership deed/Joint Venture agreement
 Board Minute (in prescribed format duly singed/ stamped), Partnership Resolution, and
Authorization Letter for signing Loan document. (According to the AOA/MOA % of present
of the director for the minutes and Special AGM should be Justify)
 If there is cross collateral for the sister concern Cross Guarantee is needed and the board
minutes have to also govern for the same.
 Renewed/ valid Registration Document (For Proprietor and Partnership firm)
 Copy of citizenship of all Directors/Promoters and Guarantors
 Audited Financial Statements (last 3 years)
 Valuation/ re-valuation report with cadastral map and blue print. Approval sheet of valuation.
 No objection Certificate in case of third Party Collateral
 Fresh share holding Pattern authenticated from the office of the Company registered
 Multiple Banking Declaration
 Renewal request
 Special AGM is needed is the loan amount is exceed than the paid up capital of the firm
 Guarantee Acknowledgement (Make sure for the three Generation of the Guarantors)
 Company seal in the all related documents
 Offer letter

Verification with the documents
 Property (Owner, Plot No , area , Location)
 Verification of the Land with Naksha, Four Wall Boundary, Ward Safaris and the
Collateral Site Visit Report)
 Value of the Property with Valuation report)
 Loan deed, Mortgage deed and offer Letter with the Borrowers Three generation
Information and the registration of the firm and PAN No)
 Verification of the Personal Guarantors and the Witness
 Verification of the Official Stamp of the Company)
 Verification of the document Documentations
 Verification of the Board minutes with the Shareholding Pattern Authenticated by the
office of the company Registered.
 Certified Verification of the Legal heirs
 Verification of the Personal guarantors and the Dhito Jamani Diney
 Verification of the limit and the Outstanding with the System
 Verification of the Insurance policy and the Insured amount.
 Verification of the Mortgaged deed with Loan deed and the registration transfer
 Verification whether the loan is approved by the concern Authority or not.
 Verification if the director holds more than 15% of shares and his credit Information

Bank Guarantee
 A Guarantee is an undertaking on behalf of the third party to make payment or fulfill the
contractual obligation in case of his default. In other words, a guarantee can be defined as an
undertaking by a surety (Guarantor/ Bank) on behalf of debtor (Applicant/agent/Contractor)
to the creditors( beneficiary) for payment upto a certain amount within a stipulated period
for beach of contract or non- fulfillment of obligation by the debtor.
 Parties In Guarantee
There are three party involved in a guarantee namely surety or the guarantor who is the
person or entity, providing guarantee.
Another Party is the applicant or the debtor, the person who is obliged to fulfill the contract
and on whose behalf the guarantee is being provided.
The Third is the creditor to whom the contract is to be fulfilled and the guarantee is being
Types of the Guarantee
Bid Bond (Tender Bond)
Performance Bond
Advance Payment Bond
Retention Money guarantee
Maintenance Bond
Counter Guarantee

Specimen of loan file verification
Original shares certificate Available
No of Shares Certificate 1
Identity No 12
Share Certificate No 212170
Total No Of Shares 92,866
Lien Over the Shares Available
Promoters Confirmation (Holding more than 1%) Not Available
Borrowers Confirmation according to Ba. Bi 29/64/65 Not Available
Letter of Consent from the borrower Not Available
Buying and Selling Form (Transfer) Available (for
122,879 kittas of
shares) *
Signature Verify Available
Know Your Customer (NRB Annex 12) available
Legal Document Available
Offer Letter Available
Letter of Continuity Available
Promissory Notes Available
PG Available from his Spouse
Rita Malla and Dambar Bahadur Malla Himself
Note *
The client has previously lien over as on 2067/03/24 the shares kittas of 122,879 with a
serial no of 8545514 to 8668392. In the mean time as on 2067/12/14) the client has partially
release of 30,013 kittas of shares. Along this in the same date the bank also request the
letter to release 28,000 kittas of shares. But there is no other evidence for the release The
New share no of shares to pledge is 92,866 kittas of shares with a same serial number where
as no Buying and selling form for the same is taken.

 Loan deed (4,000,000) Available
 Mortgage Deed (4,000,000) Available
 Personal Guarantee deed (4,000,000) Available
 Borrowers Proprietor Spouse (Bina Maharjan)
 And Rajesh Maharjan (Proprietor of the firm)
 Four Wall Boundary Available
 East - way (6 meter wide gravel road)
 West - Nagar development Land
 North - 1021
 South - way (4 meter wide gravel road
 Trace/Blue Print/Naksa as on 2067/2/18 Available
 Road Access yes
 High-tension line if any No
 Original Lal Purja Mr. Rajesh Maharjan Available
 Rokka/ Mortgage copy with Ra. No (4,000,000) and date Available
 As on 2067/03/16 Expired, 7708 ka (Rokka no)
 Rajinama copy date as on 2065-12-20 Available
 Letter of Continuity available
 Promissory Notes Available
 Offer letter available
 Tax receipt (3/16/2067) Available
 Witness (Not Available of Spouse on Mortgage Deed) Available
 Company Stamp Available
 Insurance (Stock) as on 30/06/2010 to 29/06/2011 Expired
 Letter of Charge over stock and goods Available
 Assignment of Bills and receivable Available
 Manjurinama form the borrower Spouse Not Available

Remarks : There is no official stamp in mortgage deed though the loan is given to the
R.A Electrical and electronics center and the Land Owner is the Proprietor of the R.A
Electrical and electronic Center.

Observation of the Files
 Name of the Client : Bima Maharjan
 Type of Loan : Education Loan
 Address : ward no 15, Satdobato
 Activities : House Wife
 Limit : Rs. 3,000,000
 O/s : Rs. 1,999,000
 Interest Rate : 16%
 Expiry : 24 Installments (16/09/2012)
 Purpose : To finance the Education Cost of the Applicant Son, Ujjal
Maharjan in Medical Sciences at medical College Bharatpur.
Security Assessment
 Plot No : 1047
 Location : Ward No.15, Satdobato
 Area : 0-4-0-0
 Owner : Bima Maharjan
 Type : Land and Building
 Commercial Value : Rs. 8,614 K
 Fair market value : Rs. 6,614 K
 Distress value ; Rs. 4,648K

 Income Sources
 Loanee Husband working at Reliance Finance at California since July 2007 Draws $ 5,300 monthly.
 Loanee Brother in Law working at ABM Engineering, California Draws $ 6,000 Monthly
 Loanee turnover/Conduction /Performance
 According to the Current statement Installment Servicing Timely and the good account Performance.

Cost of Goods Sold
Cost of goods sold is usually the largest expense on the income statement of a company selling products or
goods. Cost of
Goods Sold is a general ledger account under the perpetual inventory system.
Under the periodic inventory system there will not be an account entitled Cost of Goods Sold. Instead, the cost
of goods
sold is computed as follows: cost of beginning inventory + cost of goods purchased (net of any returns or
allowances) +
freight-in - cost of ending inventory. This account or this calculation matches the cost of the goods sold with
the sales.
A retailer's inventory is its merchandise that has not yet been sold. The cost of the inventory is reported on the
balance sheet as a current asset. When merchandise is sold, the cost of the items sold is reported on the income
statement as the cost of goods sold. The formula for the retailer's cost of goods sold is the cost of its net
purchases minus the increase in inventory, or its cost of net purchases plus the decrease in inventory. This
formula assures the matching of costs with revenues.
A manufacturer reports three inventory amounts: raw materials (at cost), work-in-process (at cost), and unsold
finished goods (at cost). The cost of these three inventories is reported on the balance sheet as a current
asset. The cost of the finished goods that were sold in the current period is reported on the income statement
as the cost of goods sold. The formula for a manufacturer's cost of goods sold is the cost of goods
manufactured minus the increase in the finished goods inventory, or the cost of goods manufactured plus the
decrease in finished goods inventory. Again, this formula assists in the matching of costs with revenues.
Costs for inventory include all costs that were necessary to get the items into inventory and ready for sale. For
a retailer, the cost of a product is the vendor's invoice amount plus any freight-in on goods purchased FOB
shipping point. A manufacturer's cost of finished goods and work-in-process will be the cost of direct material,
direct labor, and manufacturing overhead.
When costs of items are increasing, one must decide which costs will be reported as inventory and which costs
will be reported as the cost of goods sold. Under the first-in, first-out (FIFO) cost flow assumption, the older
(lower) costs will be leaving inventory first and the most recent costs will remain in inventory. The last-in, first-
out (LIFO) cost flow assumption has the recent higher costs flowing out of inventory first (and will become the
cost of goods sold). The older lower costs will remain in inventory (unless the quantity is drastically reduced).
The LIFO cost flow can be different from the physical movement of goods. In other words, a company can
diligently rotate its stock by moving the oldest goods to customers and yet flow the most recent costs to the
cost of goods sold on its income statement.
Prime Cost = Direct Materials Cost + Direct Labor Cost
Total Factory Cost or Manufacturing Cost = Direct Materials + Direct Labor Cost +
Factory Overhead
Conversion Cost = Direct Labor Cost + Factory Overhead Cost
Cost of Goods Manufactured (COGM) = Total Factory Cost + Opening Work in
Process Inventory - Ending Work in Process Inventory
Cost of Goods manufactured = Direct materials cost + Direct labor cost + Factory
overhead cost + Opening work in process inventory - Ending work in process
Cost of goods sold (COGS) = Cost of goods manufactured + Opening finished goods
inventory - Ending finished goods inventory
Cost of goods sold = Direct materials cost + Direct labor cost + Factory overhead
cost + Opening work in process inventory - Ending work in process inventory +
Opening finished goods inventory - Ending finished goods inventory
Number of units manufactured = Units sold + Ending Finished Goods units - Opening
finished goods units
Per unit cost of goods manufactured = Cost of goods manufactured / Units
Materials used or consumed = Opening inventory or materials + Net purchases of
materials - Ending inventory of materials

Income Statement formula
 Gross profit = Net sales - Cost of goods sold
 Operating profit = Gross profit - Operating expenses
 Operating or commercial expenses = Selling or marketing expenses + General or
administrative expenses
 Per unit gross profit = Gross profit / No. of units sold
 Per unit net profit = Net profit / No. of units sold
 Percentage of GP to sales = (Gross profit / Net sales) × 100
 Percentage of net profit to sales = (Net profit / Net sales) × 100

Format of Profit and loss statement
 To Gross Loss By gross profit
 To Salaries By interest received
 To Rent By Dividend Discount
 To Rent and Rates By Commission Received
 To Discount Allowed By other Receipts
 To Commission Allowed By ETC
 To Insurance By Net Loss (Transferred to capital
account to the trader
 To Bank Charges
 To Legal Charges
 To Repairs
 To Advertising
 To Trade Expenses
 To Office Expenses
 To Bad Debts
 To Traveling Expenses
 To Etc., Etc.

 To Net Profit (transferred to capital account of the trader)

Trading and Profit and Loss Account/Income Statement
For the year ended 31st December, 199-----
 Income From Sales:
Sales ------
Less: Sales return ------
Sales discount ------ ------
Net Sales ------
Cost of Goods Sold
Merchandise is stock on 1st January ------
Purchases ------
Less: Purchases returns ------ ------
Net purchases ------
Cost of goods available for sale ------
Less merchandise in stock on 31st December ------
Cost of goods sold ------

Operating Expenses:

Selling Expenses:
Sales salaries ------
Advertising expenses ------
Insurance expense – selling ------
Store supplies expenses ------
Sundry selling expenses ------
B.Total selling expenses ------

General Expenses:
Office salaries ------
Taxes ------
Insurance expenses general ------
Office supplies expenses ------
Sundry general expenses ------
C. Total general expenses ------
B+C Total operating expenses ------
D=A-( B+C) Net profit from operations -----
Other Income:
E. Rent income ------

Other Expenses:
F. Interest expenses ------


P/L account of Financial Institution
1. Interest Income
2. Interest Expenses
Net Interest Income
3. Commission and Discount
4. Other Operating Income
5. Exchange Fluctuation Profit
Total Operating Income
6. Staff Expenses
7. Other Operating Expenses
8. Exchange Fluctuation Loss
Operating Profit Before Provision for Possible Losses
9. Provision for Possible Losses
Operating Profit
10. Non-Operating Income/ Loss
11. Loan Loss Provision Written Back
Profit from Regular Operations
12. Profit/ Loss from extra-ordinary activities
Net Profit after considering all activities
13. Provision for Staff Bonus
14. Income Tax Provision
- Current Year
- Upto Previous Year
- Deferred Tax

P/L appropriate account
1. Accumulated Profit up to last year
2.This year’s Profit
3. Exchange Fluctuation Reserve
1. Accumulated Loss up to last year
2.This year’s Loss
3. General Reserve Fund
4. Contingent Reserve
5. Institutional Development Fund
6. Dividend Equalization Fund
7. Employees Related Funds
8. Proposed Dividend
9. Proposed Issue of Bonus Shares
10. Special Reserve Fund
11. Exchange Fluctuation Reserve
12. Capital Adjustment Fund
13. Debenture Redemption Fund
14. Investment Adjustment Fund
15. Accumulated Profit/ Loss

Cash Flow Statement
(a) Cash Flow from Operating Activities
1. Cash Receipts
1.1 Interest Income
1.2 Commission and Discount Income
1.3 Exchange Gain
1.4 Recovery of Loan Written Off
1.5 Other Income
2. Cash Payments
2.1 Interest Expenses
2.2 Staff Expenses (Including Bonus)
2.3 Office Overhead Expenses (Excluding Depreciation and Amortization)
2.4 Income Tax Paid
2.5 Other Expenses
Cash Flow Before Changes in Working Capital
(Increase)/Decrease of Current Assets
1. (Increase)/Decrease in Money at Call and Short Notice
2. (Increase)/Decrease in Short-term Investment
3. (Increase)/Decrease in Loan and Bills Purchase
4. (Increase)/Decrease in Other Assets
Increase/(Decrease) of Current Liabilities
1. Increase/(Decrease) in Deposits
2. Increase/(Decrease) in Certificate of Deposits
3. Increase/(Decrease) in Short-Term Borrowings
4. Increase/(Decrease) in Other Liabilities
(b) Cash Flow from Investing Activities
1. (Increase)/Decrease in Long-term Investment
2. (Increase)/Decrease in Fixed Assets
3. Interest from Long-term Investment
4. Dividend Income
5. Others

(c) Cash Flow from Financial Activities
1. Increase/(Decrease) in Long-term Borrowings ( Bond, Debentures etc.)
2. Increase/(Decrease) in Share Capital
3. Increase/(Decrease) in Other Liabilities
4. Increase/(Decrease) in Refinance/Facilities received from NRB
(d) Income/Loss from change in exchange rate in cash and bank balances
(e) Current Year’s Cash Flow from All Activities (a+b+c)
(f) Opening Balance of Cash and Bank Balances
(g) Closing Balance of Cash and Bank Balances

Share Capital and ownership
1. General Reserve Fund ****
2. Capital Adjustment Fund ****
3. Capital Redemption Reserve ****
4. Capital Adjustment Reserve Fund ****
5. Other Reserve Fund ****
a. Contingent Reserve ****
b. Institution Development Reserve ****
c. Dividend Equalization Fund ****
d. Special Reserve Fund ****
e. Asset Revaluation Reserve ****
f. Deferred Tax Reserve ****
g. Other Free Fund ****
h. Investment Adjustment Fund ****
6. Accumulated Profit/Loss ****
7.Exchange Fluctuation Reserve ****

Rescheduling on case to case
When Partial Settlement of the loan
With Interest Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When Partial Settlement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When additional disbursement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not
When additional Disbursement of the loan
With Interest not Post
Initial Amount
Sanction Date
Schedule Interest Adjustment yes/no
Due Interest on Repayment Adjust/not

 When Interest revision
 On Due date on installment date
 With Interest not Post (AIR)
 Initial Amount
 Sanction Date
 Schedule Interest Adjustment yes/no
 Due Interest on Repayment Adjust/not
 When Interest revision
 On Due date on Mid Way
 With Interest Post (AIR)
 Initial Amount
 Sanction Date
 Schedule Interest Adjustment yes/no
 Due Interest on Repayment Adjust/not
 When interest revision on mid way
 On Due date on Installment date
 With Interest Post
 Initial Amount
 Sanction Date
 Schedule Interest Adjustment yes/no
 Due Interest on Repayment Adjust/not
 When Interest revision on mid way
 On Due date on Mid date
 With Interest not Post
 Initial Amount
 Sanction Date
 Schedule Interest Adjustment yes/no
 Due Interest on Repayment Adjust/not

7 Categories
of Financial Ratios
A. Profitability Ratios
B. Return Ratios
C. Liquidity Ratios
D. Asset Utilization Ratios
E. Gearing
F. Investor Ratios
G. Debt Utilization Ratios
 Profitability ratios measure the firm's use of its assets and control of its
expenses to generate an acceptable rate of return.
 The ratios are:
 1. Gross Profit Margin
 2. Operating Profit Margin
 3. Net Profit Margin
 4. Other Profit ratios

1. Gross Profit Margin = Gross Profit / Net Sales
Gross profit = Net sales –Cost of Sales
The gross profit margin ratio tells us the profit a business makes on its
cost of sales (Cost of goods sold). It tells us how much gross profit per
$1.00 of sales the business is earning.
2. Operating Profit Margin = Operating Profit / Net Sales
Operating Profit (profit before interest and tax)
= Gross profit –Operating expenses
The operating profit margin ratio tells us the amount of operating profit
per $1 of turnover a business has earned. That is after taking account
of the cost of sales, the administration costs, the selling and
distributions costs and all other costs, the operating profit is the profit
that is left, out of which they will pay interest, tax, dividends and so on.

3. Net Profit Margin = Net Profit / Net Sales
 Net Profit: Earnings after Interest and Tax
 Net Profit = Operating Profit –Interest –Tax
It tells us how much Net profit per $ 1.00 of sales the business is earning
4. Other Ratios:
 PBT ratio = Profit Before Tax / Net sales
 Administration cost % = Administration costs / Net sales
 Interest cost % = Interest costs / Net sales
 Overhead costs % = Total overhead costs / Net Sales

 Return Ratios
 Return ratios measure the firm's ability to generate earnings from its
 •The ratios are:
 1. Return on Assets (ROA) [investments]
 2. Return on Equity (ROE) [common shareholders]

 Return Ratios:
 1. Return On Asset (ROA)
 -ROA = Net Income / Total Asset
 -Measures the firm’s overall efficiency in the use of capital

 2. Return On Equity (ROE)

 -ROE = Net Income / Shareholder’s Equity
 Liquidity Ratios
 1. Current Ratio (Working Capital Ratio)
 2. Quick Ratio
 3. Debt Service Coverage Ratio

1. Current Ratio (Working Capital Ratio)
= Current Asset / Current Liabilities
2. Quick Ratio (The Acid Test Ratio)
= (Current Asset –Inventory) / Current Liabilities
3. Debt Service Coverage Ratio
= Net Operating Income / Total Debt Service
(In corporate finance, it is the amount of cash flow available to meet annual interest
and principal payments on debt, including sinking fund payments.)

 D. Asset Utilization Ratios

 The assessment of asset usage is important as it helps us to understand the
overall level of efficiency at which a business is performing.
 The basic equations for this section are:
 1. Total Asset Turnover
 2. Inventory Turnover
 3. Account Receivable Turnover (Debtors’ Turnover)
 4. Account Payable Turnover (Creditors’ Turnover)

1. Total Asset Turnover = Sales / Total Assets
-Compares the sales with the assets that the business has used to generate that
-In its simplest terms, we are just saying for every $1 of assets, the sales is $x
Advanced Asset turnover ratios:
-Fixed Asset Turnover = Sales / Fixed Assets
-Current Asset Turnover = Sales / Current Assets
-Working Capital Turnover = Sales / Working Capital

2. Inventory turnover = Cost of Goods Sold / Inventory

3. Receivables turnover = Credit Sales / Account Receivables
4. Payables turnover = Cost of Goods Sold / Account Payables
These three ratios are concerned with spending and saving money in the right
1) Too much stock and we waste money on buying it and keeping it.
2) Too much money loaned to our debtors and it's money we can't use for something
3) Too much money in the form of creditors and we might have a problem that no
one else will give us credit for anything else because they think we can't afford
it, and, if we suddenly have a cash problem, we might not be able to pay our

 E. Gearing
 Gearing is concerned with the relationship between the long terms liabilities that
a business has and its capital employed. The idea is that this relationship ought to
be in balance, with the shareholders' funds being significantly larger than the
long term liabilities.
 The basic equation for this section is:
 1. Gearing Ratio =
 Long Term Liabilities / Shareholders’ Equity
 F. Investor Ratios
 Investor ratios are ratios used by investors to assess the performance of a
business to help determine if investment is warranted.
 The ratios are:
 1. Earnings per Share
 2. Dividends per Share
 3. Dividend Yield
 4. Dividend Cover
 5. Price/Earnings (P/E) Ratio

Basic Equations:
1. Earnings per share =Earnings available to equity shareholders / Average number
of issued equity shares
2. Dividends per share =Dividends paid to equity shareholders / Average number of
issued equity shares
3. Dividend yield =Latest annual dividends / current market share price
4. Dividend cover =Net earnings available to equity shareholders / Dividends paid to
equity shareholders
5. Price/Earnings (P/E) ratio =Current market share price / Earnings per share

1. Earnings per share: use to calculate average amount of profits earned per
ordinary share issued.
EPS shows what shareholders earned by way of profit for a period
2. Dividends per share: shows how much the shareholders were actually paid by way
of dividends.
3. Dividend yield: allows investors to compare the latest dividend they received with
the current market value of the share as an indictor of the return they are
earning on their shares.
4. Dividend cover: tells us how easily a business can pay its dividend from profits

5. Price/Earnings (P/E) ratio:
The P/E ratio is a vital ratio for investors. Basically, it gives us an indication of the
confidence that
investors have in the future prosperity of the business. A P/E ratio of 1 shows very little
in that business whereas a P/E ratio of 20 expresses a great deal of optimism about the
future of a

 Interest coverage ratio: tells us the safety margin of the business, in terms of
being able to meet its interest obligations. That is, a high interest cover ratio
means that the business is easily able to meet its interest obligations from

 Interest Coverage ratio: Net Earning Before Interest

Interest Paid

G. Debt Utilization Ratios
 Debt utilization ratios measure the prudence of the debt management policies of the
firm, and show how well a company is managing or using debt
1. Debt to total assets = Total debt / Total assets
 Debt to equity =Total Debt/Shareholder’s Equity

 Significance of Using Ratios

 The significance of a ratio can only truly be
 appreciated when:
 It is compared with other ratios in the same set of financial statements.
 It is compared with the same ratio in previous financial statements (trend analysis).
 It is compared with a standard of performance (industry average). Such a standard
may be either the ratio which represents the typical performance of the trade or
industry, or the ratio which represents the target set by management as desirable for
the business.

Industry Average Ratio
 Compare with Industry Average Financial Ratios:
 -The industry average financial ratios are designed to serve as financial performance
benchmarks against which individual firms and industries can be compared. It allows
firms to precisely position themselves within their peer group
 Sources to Find Industry Average Financial Ratios:
 1) Bankers who can tell you what ratio values are used by the bank
 2) Local Board of Trade / Local Chamber of commerce
 3) Industry Association
 4) Statistics Canada ($24.95 per sector)

 Solvency Ratio
Solvency Ratio = after tax net profit+ depreciation
Long term liability +short term liability

Total Expenses Ratio (TER) : Total Fund Costs

Total Fund Assets

Sacrifice Ratio ; Rs. cost of production losses

Percentage change in inflation

Return on Sales : Net income (before interest and tax)

Price-to –sales ratio-price/sales : P/E ratio
Projected Earning growth rate and Dividend yield

Net Liquid Assets ; Liquid financial assets – current liabilities

Interest Coverage ratio : EBIT
Interest Expenses

 Front-End Ratio : Monthly Expenses
Monthly income

Debt to capital Ratio : Debt

Shareholders equity +debt

Days to cover ; Current short interest

Average daily sales volumn

Security against Consortium Financing

 First Legal Charge by way of registered mortgage/pledge/hypothecation over the entire

present and future fixed assets created with or without financing owned by the Borrower on
pari-passu basis in favor of Participating Banks.
 First Charge over entire current assets of the project including receivables from Nepal
Electricity Authority to the consortium on pari-passu basis.
 Authorized charge on the Power Purchase Agreement signed between Nepal Electricity
Authority and the Borrower for supply and delivery of energy (electricity) produced by the
Borrower from its Mai Hydropower Project at Mai Khola.
 Corporate Guarantee of Sanima Hydropower Pvt. Ltd. in favor of the Participating Banks.
 Personal Guarantee of Dr. Upendra Mahato, Mr. Jiba Nath Lamichhane, Mr. Niraj Govinda
Shrestha, Mr. Tek Raj Niraula, Mr. Arun Kumar Ojha, Mr. Tuk Prasad Paudel, Dr. Subarna Das
Shrestha, Dr. Jugal Bhurtel, Mr. Sonam Gyachho, Mr. Harendra Jaiswal, Dr. Amrit Tiwari,
Mr. Rajan Prasad Amatya, Mr. Bhawan Bhatta and Mr. Pawan Kumar Bhimseria each in favour
of the Participating Banks.
 Pledge of entire shares owned by the promoters of the Borrower in favor of Participating
 Assignment of Project Guarantees.
 Personal and corporate guarantee will be obtained to the extent of the guarantors’
shareholdings in the company. However, the total amount of guarantee shall not be less than
the loan exposure with the consortium. Release of the personal and corporate guarantee will
be considered upon satisfactory operation of the project atleast for two years.

Profitability Ratio
Gross Profit Margin
Sales $3,074,000
Cost of Goods Sold $2,088,000
The gross profit margin is: 32.1%

Primary and secondary collateral
 If the bank has the first charge on the collateral is the primary collateral viz

Promoters shares
If the promoters of the bank of financial institutions wishes to sell or pledge the shares
held in his or her name after 5 years from the date of commencement of financial
transactions by the bank or financial institutions he, or she sell of pledge such shares ,
subject to the condition prescribed by NRB

Stress testing components
 1. Credit shocks
 2. Market shocks (Interest rate shocks, Exchange rate shocks and
Equity Price shocks
 3. Liquidity shocks

Base Rate Calculation components
Cost of Fund +
CRR Cost
SLR Cost +
Operating Cost +
Return on Assets +
Base Rate

CRR is the current account balance maintained at NRB

SLR is the sum of CRR balance + Vault Cash +Investment in government securities
 NLA Formula = Liquid Assets –Borrowing Payable upto 90 days
 Cash (9.1)
 Bank Balance (9.1)
 Money at call and short notice (9.1)
 Investments in Government Securities (9.1)
 Placement upto 90 days
 Total Deposit and Borrowing

Mode of Transport in LC
1. Airway Bills- Air Shipment
2. Railway Receipt-Rail Shipment
3. Road Consignment Note/Truck receipt – Road shipment
4. Bills of Lading- sea shipment

Basel II
 Approach Three Pillar
 Minimum Capital Requirement, Supervisor Review Process, Disclosure.
SSA (simplified Standardized Approach
Risk Classification
1. Credit Risk
2. Market Risk
3. Operational Risk

Credit Risk Segregation

1. Claims on Government and Central bank
2. Claims on other official Entities
3. Claims on Banks
4. Claims on corporate and Securities Firms 100%
5. Claims on regulatory retails portfolio 75 (four criteria)
6. Claims secured by residential properties 60% past due 100 and Non fully secured
7. Claims secured by commercial real estate 100%
8. Past due claims 150% except 6 no clause
9. High risk claims 6 point (150%)
10. Other assets
11. Off balance sheet item

Review Process

• ICAAO (Internal capital Adequacy Assessment process

Credit Risk, Market Risk and Operational Risk
• Supervisory Review Process (This discuss the key principle of
supervisory review, supervisory transparency and accountability, risk
management guidance produced by the committee. Guidance relating to
among other things the treatment of interest rate risk, Credit Risk
(Stress testing, definition of default, residual risk and credit
concentration risk), operational risk, enhanced cross boarder
communication and cooperation and securitization.
• Develop better risk management technique in monitoring.
• Disclosure

Credit Risk
• Credit Risk is the Major Risk that banks are exposed in during the
normal course of lending and underwriting.
• Credit risk is the possible losses from the non – payment of interest and
or principle by the borrower’s/debtors as per the agreed terms of
credit sanction.
• In order to ensure sound CRMS,CRMC in NMB shared to four distinct
• Credit Relationship Management
• Credit Risk Management
• Credit Administration
• Loan recovery

• Credit related issued are review by internal Control and Compliance or CRMC.

Credit Risk Forms
• Direct Lending
• G’tee or LC - Funds may not be fourth coming from the constitutes
upon crystallization of the liability.
• Treasury Operation
• Securities/Trading Business
• Cross-Boarder Exposure

Credit Risk Mitigation

• Minimum Condition for Eligibility
• Eligible Collateral
• Methodology for using CRM
• Legal certainty
• Low Correlation with Exposure
• Maturity Mismatch
• Currency mismatch
• Qualifying criteria for Guarantees
• RM
Operational Risk
• Operational risk is the process of loss resulting from inadequate internal process,
people and system or from external events, breach of laid down procedure,
incapable people and failure of system or adverse external disaster.
• It is itself not a new concept. Well known banks have addressing it in their
internal control and corporate governance structure however applying an explicit
regulatory capital change against operational risk is a relatively new and evolving
• Basel II requires banks to hold capital against the risk of unexpected losses that
could arise from the failure of operational risk.

NMB is equipped with primary and secondary server working automatically if any
function fails.
It has also maintain oversight where real time data is transferred alternative site
where data is transferred within 5 minutes of each transaction taken place.

Operational Risk Measures
 Well defined operational risk manuals and guidelines covering each types of
activities, traning the people, check and balance of authority delegation,
comprehensive internal audit and follow up on audit remarks and business continuity
plan for possible external digester.
 Operational issues are review by OPMC

Market Risk
 Market risk is defined as the risk of losses in on balance sheet position arising
from adverse movements in market price.
 It is the possible losses resulting from the change in interest rate, change in
foreign exchange rate or price of commodity or investment.
 Market risks are arisen from rapidly changing external factors, so it is highly
sensitive in banking.
 It is review by ALMC.

Market Risk Components

 Interest rate related instrument
 Foreign exchange risk (Including gold position) throughout the bank
 Investment in equities and commodity

Risk Weight Exposure
Risk weighted exposure is the maximum amount of risk attached to a portfolio or a
transaction or underlying assets. It is the sum of risk weight for credit risk, market
risk, operational risk and any supervisory adjustments on such risk weigh.

What approaches are selected to assess different types of risk?

 Credit risk: Simplified Standardize Approach
 Operational risk: Basic Indicators approach
 Market risk: Standardized approach (Net open position)

What is ECA Rating ?
ECA stands for export credit agency, an agency of OECD. The ECA generates
consensus country risk score for any country in the world, which is useful to identify
the country business environment and risk of cross border business with the
particular country. Under the simplified standardized approach this country risk
score is considered as basis for risk weight in new capital standard. In order to
identify the exact country risk score banks are required to download updated
version of country risk score available in the websites

Out of the 11 categories, which products are provided special
priority for minimum risk weight?
Under NCAF some of the credit products shall have incentives compare to others.
Among the various loan products, the claim secured by residential mortgage shall
receive special incentives, as it has to be risk weighted only at 60%. Other products
are retail products with specified eligibility criteria that will be risk weighted at
Among the various types of security used in banking industry, the residential
property is considered to be comparatively safe due to the sentimental attachment
of borrower towards the residential property. At the same time the home loan
product are more covered by reliable fixed source of income to repay the loan. In
this way the claims secured by residential mortgage is risk weighted at a lower rate.
In order to honor its low risk feature following conditions are laid down in the

Out of the 11 categories, which products are provided special
priority for minimum risk weight?

 Separate product paper approved by BOD and notified to Nepal Rastra Bank,
 The property occupied (or rented) by Borrower.
 The loan having adequate margin of security.
 Security valued in strict criteria.

What are the minimum criteria for Claims on Regulatory Retail portfolio?
Following criteria should be fulfilled for this category.
 Separate product paper approved by BOD and notified to Nepal Rastra Bank
 Orientation criteria:
The loan should be granted to an individual or the small business enterprises. If a
loan is provided to a member of group borrower or the member of corporate or to a
big corporate, such loan shall not fulfill these orientation criteria. SME loan, cottage
industry loan, personal loan not mentioned in negative list etc could be the example
of orientation criteria.
 Product criteria
Identified products such as,
Revolving credit lines of credit
Term loans and leases
Small business facilities and commitments
Deprived sector loan up to threshold.
 Granularity criteria
No aggregate exposure to one counterpart can exceed 0.5% of the overall
regulatory retail portfolio

What are the minimum criteria for Claims on Regulatory Retail portfolio?
 Low Value individual criteria
The aggregated exposure to one counterpart (defined by NRB directives) can not
exceeded an absolute threshold of upto Rs. 10 million.
 Notes:
The total exposure of individual party including all other bank and FIs, should be
monitored thorough self declaration of borrower. It
can be observed by CIC report
whether it is applicable.

What types of personal loans are not eligible for Regulatory Retail portfolio?

 Margin type lending which is basically collateralized by the stock and securities
whether listed or not.
 Credit card receivables and Other personal loan exceeding prescribed threshold
(Rs 10 Million) limit

 What would be the risk weight for claims on NGO?

If it is licensed by NRB for financial services as FINGO, it comes under "claims on
banks" otherwise it comes under "other assets".

What types of security and collaterals are eligible to claim CRM ?

 Cash deposit(as well as certificates of deposit or fixed deposits or other

deposits) with the bank.
 Fixed Deposit Receipts/Certificates of deposits/other deposits of other Banks,
who fulfill the capital adequacy requirements, subject to a 20%supervisory
 Gold Securities issued by the Government of Nepal and Nepal Rastra Bank.
Guarantee of the Government of Nepal
 Financial guarantee/counter guarantee of domestic banks who meet the minimum
capital adequacy requirements subject to a haircut of 20%.
 Securities/Financial guarantee/Counter guarantee issued by sovereigns.
Securities/Financial guarantee/Counter guarantee issued by MDBs in the list
specified in 3.3 b (3 & 4, CAF)
 Securities/Financial guarantee/Counter guarantee issued by banks with ECA
 rating 2 or better. The supervisory haircut shall be 20% and 50% for the banks
with ECA rating of 0-1 and 2 respectively

What does this supervisory haircuts mean?

 A supervisory adjustment on exposure or on collateral is referred as supervisory

hair cuts.

01 Cash Balance 02 Balance With Nepal Rastra Bank 03 Gold 04 Investment in
Nepalese Government Securities 05 All Claims on Government of Nepal 06
Investment in Nepal Rastra Bank securities 07 All claims on Nepal Rastra Bank 08
Claims on Foreign Government and Central Bank 09 Claims on Foreign Government
and Central Bank 10 Claims on Foreign Government and Central Bank 11 Claims on
Foreign Government and Central Bank 12 Claims on Foreign Government and Central
Bank 13 Claims On BIS, IMF, ECB, EC and on Multilateral D 14 Claims on Other
Multilateral Development Banks 15 Claims on Public Sector Entity (ECA 0-1) 16
Claims on Public Sector Entity (ECA 2) 17 Claims on Public Sector Entity (ECA 3-6)
18 Claims on Public Sector Entity (ECA 7) 19 Claims on domestic banks that meet
capital adequacy 20 Claims on domestic banks that do not meet capital 21 Claims on
foreign bank (ECA Rating 0-1) 22 Claims on foreign bank (ECA Rating 2) 23 Claims
on foreign bank (ECA Rating 3-6) 24 Claims on foreign bank (ECA Rating 7) 25
Claims on foreign bank incorporated in SAARC regi 26 Claims on Domestic Corporates
27 Claims on Foreign Corporate (ECA 0-1) 28 Claims on Foreign Corporates (ECA 2)
29 Claims on Foreign Corporates (ECA 3-6) 30 Claims on Foreign Corporates (ECA 7)
31 Regulatory Retail Portfolio (Not Overdue) 32 Claims fulfilling all criterion of
regulator 33 Claims secured by residential properties 34 Claims not fully secured by
residential properties 35 Claims secured by residential properties (Overdue 36
Claims secured by Commercial real estate 37 Past due claims (except for claim
secured by residential 38 High Risk claims 39 Investments in equity and other
capital instrument 40 Investments in equity and other capital instrument.

cib inquiry criteria for Sole Proprietorship, Partnership and
Individual/Joint Individuals and Pvt Ltd

1. The borrower individual/s, firm, company or corporate body utilizing the credit
2. The individual, firm, company or corporate body that has provided guarantee for
extension of such credit facility to any individual, firm, company or corporate
3. Proprietor of a proprietorship firm
4. Partners of a partnership firm;
5. Directors of a company, corporate body;
6. The borrower firm, company or corporate body utilizing the credit facility.
7. All Directors.
8. Shareholders holding 15 percent or more share ownership.
9. Person, firm, company or corporate body having the right to nominate director.
10. The individual, firm, company or corporate body falling under one group having
inter-relationship according to the Directives of this Bank.
11. Individual, firm, company or corporate body providing guarantee (both personal
and corporate) to the customer.

Process and Documentation for Physical share pledge

 Physical shares
 Signature verify form/Buying and selling form
 Manjurinima Provided by share owner
 Bank letter to RTS/Issuing company
 Pledge letter received from RTA/Issuing company

Control Mechanism
 Weekly share Monitoring and trend analysis
 Margin call and deficit adjustment within stipulated time
 Sell the pledge share if margin call is not maintained and blacklist the borrower

Demat share Pledge process

Process of already Pledged Share/new demat share in Demat Account

 Existing pledge should be released
 Physical share should be surrounded to company
 Clinet should open a DMAT account through authorized depository participants
 Demat Request Copy should be provided .
 Summary of Statement of Account as on …………….. should be submitted to the
Bank to confirm Current Balance/Free Balance.
 Bank request Client DP to set up pledge
 Clinet DP shall Set up Pledge and forward to bank
 Bank DP shall approved the pledge set up and confirmation provided to Bank
 Statement of share pledge shall provided by client DP to bank
Documents required for Demat shares
 Summary of free balance shall be provided by client to bank
 Annexure 18 and 19 shall be filled by client and Bank respectively
 DIS shall be in procession with bank after the demat share is pledged


 It is extremely important to insure that money earned through illegal activities

within a country and abroad are not run through the financial systems in the
country for the benefit of those criminals, irrespective of where the crime was
committed. Money laundering , the source of illegal obtained funds, is obscured
through a succession of transfer and deals in order that those same funds can be
eventually be made to appear as a legitimate income. Through ML sometimes large
amount of illegally not obtained money is given the appearance of having
originated from legitimate source.
 It is not necessary that the illegally earned money transformed as clean is called
ML. legally earned money exchanging hands for the purpose of financing for
illegally activities at the beginning or the end can be marked at ML. Banks should
not be involved in helping ,concealing, transformation, transfer, burring the
origination source, or misrepresentation of such illegally earned money
 Illegally earned money does not only compromise the source of money from drug
trafficking, prostitution, illegally, arms dealing and terrorist activities, but also
includes money collected from through corruption, tax evasion, and other sources
where the possessor can not disclose the organization source of the funds such
as theft, where they require to clean the money as it has been earned as a
legitimate source.


1. To protect from discredit, to end financial catastrophe, bank should not have
any kind of, either consciously or unintentionally, association with the criminals
or to facilitate them in handling the proceeds of crime.
2. To protect from the criminals as involvement with the criminals will put the bank
at risk of being itself the target of fraud.
3. To build a good image of the banks accepts customers whose source of wealth
and funds can be reasonably established to be legitimate and who do not pose an
operational or reputation risk.
 Possible ML channels/Technique
1. Possible ML via electronic Banking Services- Structuring transaction, A/c
2. Possible ML via Customer Accounts- Payable trade a/c, loan back agreement,
credit and debit cards, Forex Money Changer, Business related transaction,
Lawyer, INGO, and Professionals.
3. Possible ML via Secured and Unsecured Loans
4. Possible ML via Cash Transaction
5. Possible ML via Invested related Transaction
6. Possible ML via international Banking and financial transaction

 Identification/ Reorganization of suspicious transaction
 Suspicious should be aroused from example by transaction that do not make good
commercial scene.
 Activities that appear inconsistent with the customers declared expected
 Activities that may be indicative of drug trafficking, terrorism.
 The structuring of transaction to obscure audit trails, evade identification or
obstruct record keeping.
In case of suspicious
 Refusing to receive the transfer and return it
 Freezing the transferred amount or not carrying out- beneficiary instruction
 Closing down the customer's a/c to which the transfer is made.

Process for Money Laundering
 Placement (Structuring, Smuff, Connected account, Family Member account
open, loan transaction)
 Immersion or seeking physical disposal of bulk case proceeds derived from illegal
 Deposits of large amount of cash in numerous small amount
 Setting up a cash business as a cover for banking large amount of money.
 Investing in Shares and other investment products.
 Mingling of illegal cash with deposit from legitimate business e.g. car and antiques
 Layering (Account transfer, bank transfer, movement, complex system, create)
 Soaping/scrubbing. The separations of illicit proceed from their source by
creating complex layering of financial transaction. These disguise the audit trail
and provide anonymity.
 A Company passes money through its account under cover of bogus invoices, merely to
generate additional transaction.
 A Customer raises a loan on the security of a deposit (from illegal business) in another
bank to help break the connection with illegal funds.
 A Customer incurs large credit cards debt from an account

 Integration (Withdrawal, and invest in various assets, activities) repartiation or
spin dry
 Reinjection proceeds into economy so that that reentered in financial system as
normal business. Provide an opportunity legitimate explanation to criminally
desired wealth.
 Suspicious transactions
 Large cash deposit in same a/c
 Substantial increase in turnover in a journal a/c
 Reluctance to provide normal information.
 Receipt and payment of large cash with no obvious purpose
 Sudden increase in cash deposit with no justification
 Large cash withdrawals in active a/c or a/c with unexpected large credit from
 Providing misleading information
 Gives rise to a reasonable ground of suspicious that it may involve the proceeds
of crime
 Appears is made in circumstances of unusual or unjustified complexity.

 Money Laundering Risk
 Reputation risk
 Legal Risk
 Operational Risk
 Concentration Risk

 Deposit structuring
 Connected Account
 Payable trade A/c
 Loan Back Arrangement
 Forex Money Changer
 Credit/Debit Cards
 Company Trading and Business activities
 Corresponding Banking
 Lawyer, accounting and INGO

Home Loan Product Paper
 A housing Loan is a credit to a customer for purchase or renovation of Purchase or
renovation (residential Type) immovable property he /she owns or aims to acquire secured by
residential mortgage or by tripartite agreement.
 Loan amount 0.5 million to 30 Million
 Loan to value ratio Maximum of 80% of cost of property estimate cost of
construction or 60 % of financing for pruchase of
apartment/duplex or 66.66% of fair Market Value
 Period 12 month to 300 month
 Security Land and Building/Apartment
 Processing fee 0.25% to 1%
 Portfolio control 25% of funded exposure
 First Drawdown Shall not exceed 60% of FMV or distress value
 Total repayment obligation 75% of NDI
 AGE Min 25 and Maximum 65

Personal Product Paper
 Personal loan means a structured funded credit facility extended for the purpose of fiancing
an individual personal needs
 Loan amount 0.5 million to 5 Million
 Loan to value ratio Maximum of 100% of distress value in case of real estate loan
and 95% in case lien over cash or near cash backed assets
 Period 8 years from date of first disbursement
 Security Land and Building
 Processing fee 0. 5% to 1%, prepayment 2%
 Portfolio control 20% of funded exposure
 Disbursement Maximum of three trench
 Total repayment obligation 75% of NDI
 AGE Min 18 and Maximum 65

Professional loan Product Paper
 Is Collateral free short term fiancne to meet the general emergency financial need of the
people to purchase of equipment , education expenses, furnishing and furbishing of house and
other needs
 Loan amount 200,000 to 1,00,000 (General and 1,500,000 professional)
 Target Segment Development orgn, Diplomatic mission, INGOs., NGO, UN
 Salaried staff Development orgn, Diplomatic mission, INGOs., NGO, UN
 Professional CA, Doctors, Engineers, Dentists, pilots

 Period Min 6 Month maximum 36 Month for professional 60 Month

 Security Land and Building
 Processing fee 1%
 Portfolio control 2% of funded exposure
 Disbursement Single Tranche
 Total repayment obligation 75% of NDI
 AGE Min 30 and Maximum 58
 Loan to value 70% of total value of the equipment of 1500k which ever is

Educational loan Product Paper
 Means a structured funded credit facility extended for the purpose of facilitation a
student to enroll into higher studies with or without sponsor
 Loan amount 0.5 million to 5 Million
 Loan to value ratio Maximum of 90% of the cost of the course including travel and
living expenses
 Period 8 years from date of first disbursement
 Security Land and Building
 Processing fee 0. 25% to 1%, prepayment 2%
 Portfolio control 25% of funded exposure
 Disbursement Maximum of three trench
 Total repayment obligation 75% of NDI
 AGE Min 18 and Maximum 40

Auto loan Product Paper
 Means buying of vehicles/heavy equipment against a hire purchase.
 Loan amount 0.5 million to 5 Million (for private use) (90%)
 Loan amount 0.3 million to 2 Million (for commercial use)(70%)-90% cost of
 Loan to value ratio Maximum of 90% of the cost of vehicle
 Period 6 years and 5 years for used vehicle
 Security Land and Building
 Processing fee 0. 25% to 1%, prepayment 2%
 Portfolio control 25% of funded exposure
 Disbursement Maximum of three trench
 Total repayment obligation 75% of NDI
 AGE Min 20 and Maximum 65
 Used Vehicle 5 years from date of manufactured- Max 70% of the purchase
price. For above 5 years 60 % of Purchase price

Land purchase loan Product Paper
 A loan for Land purchase is a credit to a customer for the purchase of plot of Land
 Loan amount 0.5 million to 5 Million
 Loan to value ratio Maximum of 100% of distress value in case of real estate loan
and 95% in case lien over cash or near cash backed assets
 Period 12 Month to 180 Month
 Security Land
 Processing fee 1%, prepayment 2%
 Portfolio control 5% of funded exposure
 Disbursement In Single trench
 Total repayment obligation 75% of NDI

 Current Ratio ;
Firms ability to meet short term obligation using short term debt
Assets Management ratio/ Efficiency Ratio
Use of assets in generation sales
Leverage Ratio
Relation between debt and equity
Profitability ratio
Assess the firm ability to earn profit on sales, assets and equity.
Valuation ratio
Valuation of Stock

Capital Budgeting
CB is the process to analyze and ranking proposes project to determine which one of this is
deserving of an investment.
Cash Flow : is the net amount of cash and Cash equivalent moving into and out of a business.
Internal Rate of Retun : Internal rate of return is a discount rate that makes the net present
value (NPV) of all cash flows from a particular project equal to zero

Monetary policy consists of the actions of a central bank, currency board or other regulatory
committee that determine the size and rate of growth of the money supply, which in turn
affects interest rates. Monetary policy is maintained through actions such as modifying the
interest rate, buying or selling government bonds, and changing the amount of money banks
are required to keep in the vault (bank reserves).

Fiscal policy is government policy its spending level and tax rate to monitor and influence a
national economy.
Through fiscal policy, regulators attempt to improve unemployment rates, control inflation,
stabilize business cycles and influence interest rates in an effort to control the economy.


Bafia 2063 Company act 2063

• Provision related to Short title, • Preliminary

extension and commencement • Incorporation of Company
• Provision related to incorporating of • AOA/MOA and Prospects
Banks or Financial Institutions, and • Shares and debenture
securities thereof.
• Meeting of Company
• Provision concerning BOD and CEO
• Provision related to License
• Accounts and Records of Company
• Provision related to capital
• Audit
• Provision related to Operating of
• Calls For Explanation and Investigation
Financial Transaction
• Voluntary Liquidation of the Company
• Regulating, Inspection and Supervision
• Cancellation of registration of the
• Provision related to Supply and
recovery of credit.
• Protection of Shareholders
• Provision related to Accounts, records,
returns and reports. • Holding and Subsidiary Company
• Provision related to offense and • Special Provision related to PVT.
Punishment • Provision related to Single Shareholder
Capital Adequacy Ratio (car)
1. CAR measures how much capital banks has in terms of its Risk Assets
2 Percentage ratio of a banks tier 1 and Tier 2 capital to its risk assets
3 If the size of balance sheet increase, the CAR decrease (Provided the reserves and
Capital remain constant.

Components of Financial System
1. Financial Markets
2 Financial Intermediaries
3 Financial Instruments

1. 150% Of risk weighted shall be applied for venture Capital and private equity
2 Exposures on personal loans in excess of threshold of regulatory retail portfolio and
lending against securities (bonds and debenture) shall attract a risk weight of 150%.
Similarly, exposures on credit cards also warrant a risk weight of 150%
3 Investments in the equity and other capital instrument of institutions, which are not
listed in the stock exchange and have not been deducted from Tier 1 Capital, shall be
risk weighted at 150% net of provision.
4. Investments in the equity and other capital instrument of Institutions, which are
listed in the stock exchange and have not been deducted from tier 1 capital shall be
risk weighted at 100% net of provision. Investment in mutual funds shall also be risk
weighted at 100%
5. The claims which are not fully secured or are only backed up by personal guarantee
shall attract 150% risk weight
6. Where loan can’t be segregated/or identified as regulatory retail portfolio or
qualifying residential mortgage loan or under other categories, it shall be risk
weighted at 150%

Claims secured by Residential Properties
1. Lending to individuals meant for acquiring or developing residential property which are fully
secured by mortgages on residential property, that is or will be occupied by the borrower or
that is rented, will be risk weighted at 60%. However, banks should ensure the existence of
adequate margin of security over the amount of loan based on strict valuation rules.
2. Where the loan is not fully secured, such claims have to risk weighted at 150%
3. When claims secured by residential properties are or have been past due at any point of
time during the last two years, they shall be risk weighted at 100%, net of specific provision.

Claims on Corporate and Securities firm
1. The risk weight for claims on domestic corporate, including claims on insurance companies
and securities firm will be 100%. The domestic corporate includes all firms and companies
incorporated in Nepal as per prevailing Acts and regulations.
2. The Claims on foreign corporate shall be risk weighted as per the ECA country risk score
subject to the floor of 20% as follows.

Claims on Regulatory retail portfolio.

1. Claims that qualify all criteria listed below may be considered as regulatory retail portfolio
and risk weighted at 75%, except for the past due loans. Such claims however have to be
strict compliance with the product paper developed by the bank and aproved by their
respective BOD
a. Orientation Criteria
b. Product criteria
c. Granularity Criteria
d. Low Value Individual criteria

Claims secured by Residential properties
1. Lending to individuals meant for acquiring or developing residential property which are fully
secured by mortgage on residential property, that is or will be occupied by the borrower or
that is rented, will be risk- weighted at 60%. However, banks should ensure the existence of
adequate margin of security over the amount of loan based on strict valuation rules.
2. Where the loan is not fully secured, such claims have to risk weighted at 150%
3. When claims secured by residential properties are or have been past due at any point of
time during the last two years, they shall be risk- weighted at 100% net of specific

Small and Cottage Industries
1. These industries use local materials to produce varieties of things for our daily use
The main cottage industries that are found in Nepal are as follows:
1. Industries based on Agricultural product
2. Industries based on Vegetation
3. Industries based on Minerals
4. Industries based on Animal products

Definition of Liquidity ratio and leverage coverage ratio.
1. To meet short term liquidity crisis bank has to maintain at least >100% of highly liquid assets that can be
easily convert in cash.
2. The liquidity coverage ratio is an important part of the Basel Accords, as they define how much liquid
assets have to be held by financial institutions. Because banks are required to hold a certain level of highly
liquid assets, they are less able to lend out short-term debt.

1. Leverage Ratio
Leverage Ratio intentionally does not distinguish between safer or riskier assets; meaning that for
SLR a bank must hold the same minimum amount of capital against low risk assets (e.g. US Treasuries)
as higher risk assets. Highly Leverage banks have lower loss- absorption capacity and less resilient to
shocks. The non risk base leverage ratio including all off balance item which will serve as backstop to
risk base capital requirement

Defination of Interest rate corridor (ICR)
1. The range between the interest rate moves in the money market. The mechanism
which guides the short term interest rate
2. Can be determine through
a. Standing Liquidity facility rate- Highest point/Ceiling/upper band
b. Repo or Policy Rate- Middle Point
c. Reverse repo or 2 weeks term deposit rate

a. SLFR : NRB injects liquidity into banking sector whenever there is shortage of
fund. The rate has been fixed at 7% and its forms the upper band or ceiling
mops of the corridor.
b. Repo/Policy rate : NRB used this rate to inject liquidity into the markets for the
period of 2 weeks. This rate floats in the middle of the corridor. It is fixed by
adding 200 basis points or 2% point, to the weighted average inter bank rate of
commercial bank or two working days ago.
c. Term rate : This rate is used to absorb excess liquidity from the banking sector,
This rate forms the lower bound or floor mops of the corridor. It is fixed by
deducting 10 basis point or 0.10% point from the weighted average inter bank
rate of commercial bank or two working days ago.

Defination of Interest rate corridor (ICR)
When the corridor was first introduce the ceiling rate was stood
1. SLFR 7%
2. Repot2.4%
3. Term 0.3

Net spread was 6.7%

This allows the interest rate fluctuate between 7% to 0.3%

Basel III (component and Pillar
1. Components
a. Capital Ratio and Target
2. Risk weighted Assets
3. Liquidity Standards (Liquidity coverage ratio and Net Stable Funding Ratio
1. Pillar 1
1. Capital - Defination-Standards-Conservation buffer cycle-counter cycle buffer
2. Risk Coverage- Counterparties credit Risk-Bank exposure to central
counterparties-Trading Books and Securitization (Securitization is the process of
taking an illiquid asset, or group of assets, and through financial engineering,
transforming them into a security. A typical example of securitization is a
mortgage-backed security (MBS), which is a type of asset-backed security that is
secured by a collection of mortgages
3. Containing leverage
Pillar 2
1. Risk Management and Supervision.
Pillar 3
1. Market Discipline

Risk Weighted assets.

On Balance sheet Off balance Sheet

• Hints • Bills Collection 0%

• Cash, Balance, Investment in • Forward Exchange Contracts 10%
government securities, NBR bonds, • LC< 6 month, counter guarantee of
AIR on government instrument, international A rated co and 20%
own Fixed Deposit loan and • LC>6 months, Bind bond, Performance
government securities, balance bond and underwriting 50%
maintain for small and youth • Credit Re- Purchase, APG, Financial
program 0% and other guarantee, Irrevocable loan
• Investment on bond/shares, other Commitment, Contingent liability on
investment, loans @adv, AIR, other Income tax, Other Contingent liability
assets, NBA, fixed assets, 100% & unpaid portion of shares 100%
• Real estate other than limit • Unpaid guarantee claim 200%

Definition of LC
1. Maximum validity of LC is 180 days. (in this time all the procedure of LC are completed,
documentation and goods are arrived and except NEA, NTC and other big institute and
2. In sigh LC client has to paid the amount after the received of documents promptly. Then go
to the port for release of goods. This is like you go to the shop, pay the total amount of
goods and take the goods.
3. Usage LC. In this LC borrower is given sight period like 90 days or 120 days. This means
when the documents arrives to the bank, client take the doc from bank and release the doc
and sold the sold and pay the bank in stipulated time. This is like, You take the good in your
credit period given make payment the period you are provided.
4. DAP: All the process are same but there is no use of LC
5. LC is defined undertaking of issuing bank to honor or negotiate upon a comply presentation
of documents.
6. LC is a undertaking of payment given by the importer’s bank to exporter for a specific sum
provided the exporter ships out the goods and presented a required compliant documents by
a predetermine deadline.

Irrevocable letter of credit sample in Swift Format
17 October 2012 Wednesday
------------------ Instance Type and Transmission ----------------------
Original received from SWIFT
Priority/Delivery : Normal
Message Output Reference : 1225 121016XXXXXXXXX5657939061
Correspondent Input Reference : 1225 121016XXXXXXXXX1178375172

----------------------- Message Header ---------------------------------

Swift OUTPUT FIN 700 Issue of a Documentary Credit

----------------------- Message Text ----------------------------------
27: Sequence of Total
40A: Form of Documentary Credit
20: Documentary Credit Number
31C: Date of Issue
40E: Applicable Rules
31D: Date and Place of Expiry
50: Applicant
P.O. BOX 30000,
59: Beneficiary - Name & Address

Irrevocable letter of credit sample in Swift Format
32B: Currency Code, Amount
Currency : USD (US DOLLAR)
Amount : #310.000,00#
39B: Maximum Credit Amount
41A: Available With...By... - BIC
43P: Partial Shipments
43T: Transshipment
44E: Port of Loading/Airport of Departure
44F: Port of Discharge/Airport of Destination
44C: Latest Date of Shipment
45A: Description of Goods &/or Services
46A: Documents Required

Irrevocable letter of credit sample in Swift Format
47A: Additional Conditions


Irrevocable letter of credit sample in Swift Format
71B: Charges


48: Period for Presentation


49: Confirmation Instructions


53A: Reimbursing Bank - BIC


78: Instruction to Paying/Accepting/Negotiating Bank


57D: `Advise Through` Bank -Name&Addr


----------------------- Message Trailer ------------------------------


Definition of LC

Documents under Letter of Credit
1. Bills of exchange
2. Insurance policy
3. Commercial Invoice
4. Certificate of origin
5. Packing List
6. Weight Certificate
7. Inspection certificate
8. Transport Documents
1. Bills of lading (Transport document)
2. Road Consignment Notes
3. Airway Bill
4. Railway Receipt

Inco Terms (International Commercial Terms)
Rules for any mode or modes of Transport
EXW Ex Works
FAC Free Carries
CPT Carriage paid to
CIP Carriage and Insurance paid
DAT Delivered at Frontier
DAP Delivered Ex Ship
DDP Delivered Duty Paid

Rules for sea and Island water Transport

FAS Free Alongside Ship
FOB Free on Board
CFR Cost and Freight
CIF Cost, Insurance and freight

Inco Terms (International Commercial Terms)

Export Financing
1. Pre- Export Loan (Packing Credit Loan)
Is the loan allowed to the exporter to finance the purchase and /Or manufacturing of the
goods to be shipped by the client as well as other work related cost that may incur for
exporting the goods before shipment of the goods.
2. Post shipment loan
Is the loan allowed to the exporter to meet his/her working capital requirement after shipment is
done before realization of payment

Process for Negotiation of Export doc

Process for Documents Retirement

Difference between LC and Bank Guarantee and Mortgage backed
1. Positive and negative type of contract
2. Dealing with documents and performance
3. Import/export/services and performance, maintenance and retention.

Definition of Undertaking and Securitization
1. Undertaking is written promises of intention, that outlines the terms and condition between two
parties who are usually entering into a work related agreement.
2. Securitization is the process of taking an illiquid assets, through financial engineering, transforming
them into security.

लिखत पारितका प्रकृया
सामान्य हकमा २ प्रतितिखि िथा गुठीकाे हकमा िीन प्रति तिखि ियार गरी दहायका कागजाि सतहि कायाा ियमा पश गने क)
तकत्ताकाट गनुा नपने पाररि गने तिखिको साथ जग्गाधनी प्रमाण पुजाा , नागररकिाको प्रमाणपत्र, चािु आ.ब.को मािपोि बुझाएको
रतसद, करचुक्ता प्रमाण, सम्बन्धिि गा.ति.स. न.पा. को घरबाटोको तसफाररस, अन्य आिश्यक प्रमाण । ख) तकत्ताकाट गनुापने
पाररि गने तिखिको साथ जग्गाधनी प्रमाण पुजाा , नागररकिाको प्रमाण पत्र, चािु आ.ब.को मािपोि बुझाएको रतसद, करचुक्ता
प्रमाण, सम्बन्धिि गा.ति.स. , न.पा. को घरबाटोको तसफाररस, अन्य आिश्यक प्रमाण । २. मोठ, रोक्का तिडाउन, ३. सनाखि
गराउन, ४. टोकन िगाउन, ५. तकत्ताकाट िए नापी कायाा ियमा पठाउन, ६. मूल्ाां कन तिडाउन, ७. रतजष्टशन दस्तुर असुि गने ,
८. िहरररि पश िएको तिखि चक जाां च गरी पाररिको िातग अतधकृि समक्ष पश गने , ९. अतधकृिि रीिपु गको तिखि पाररि
गररतदन, १०. रतजष्टशन फाां टमा पाररि तिखि रतजष्टशन – दिाा गरी रतजष्ट्शन नम्बर तदई एक प्रति तिखि िामिी फाट र एक प्रति
मोठ फाटमा बुझाइ तदन, ११. पाररि तिखि अनुसार मोठ फाां टबाट श्रस्ता पुजाा ियार गरी जग्गाधनी दिाा प्रमाण पुजाा सम्बन्धिि
व्यन्धक्त िथा सांस्थािाई उपिब्ध गराउन .

ग) दाखखि खािे ज (दा.खा.) का प्रकृया

 लििाम दा.खा.
दा.खा. माग तनिदनको साथ
तििाम गने तनकायको तनणाय,
दा.खा. गरर तदन पत्र र आतधकारीक प्रतितनतध,
अन्य आिश्यक प्रमाण ।
 २. मोठ, रोक्का तिडाउन,
 ३. कागजािहरु रुजु गरी सनाखि गने,
 ४. दा.खा. को िातग िोतकएको फाां टबाट आिश्यक प्रतिया पूरा गरी तनणा यका िातग सम्बन्धिि मािपोि अतधकृि समक्ष फाइि पश गने,
 ५. दा.खा. तनणा य अनुसार मोठ फाां टबाट श्रस्ता पुजाा ियार गरी जग्गाधनी दिाा प्रमाण पुजाा सम्बन्धिि व्यन्धक्त िथा सां स्थािाई उपिब्ध गराउन,
 ६. तमतसि िामिी फाां टमा बु झाइ तदन

Definition of Interest Rate corridor

Interest rate corridor, or IRC, is a mechanism that guides short-term market rates and
helps keep all interest rates within certain band, reducing interest rate volatility. This
means introduction of IRC will provide clear signals to bankers, policymakers, borrowers
and depositors on how short-term interest rates will move in the market, enabling them
to make decisions accordingly.

Monetary targets
 Inflation – 7.5 per cent
 Money supply growth – 17 per cent
 Growth in lending to private sector – 20 per cent

Stylished Interest rate Corridor (The interest rate corridor uses three different
 Ceiling :lending rate or standing liquidity facility rate
 Repurchase (repo) or policy rate (Money market Rate)
 Floor: Term Deposit rate

Definition of Interest corridor
1. Standing liquidity facility (SLF) rate.
Using this rate, NRB injects liquidity into the banking sector whenever there is a
shortage of funds. This rate has been fixed at 7 percent, and it forms the upper bound,
or ceiling, of the corridor.
2. Repo or policy, rate
NRB uses this rate to inject liquidity into the market for a period of two weeks. This
rate floats in the middle of the corridor. It is fixed by adding 200 basis points, or 2
percentage points, to the weighted average interbank rate of commercial banks of two
working days ago.
3. Term deposit rate
This rate is used to absorb excess liquidity from the banking sector. This rate
forms the lower bound, or floor, of the corridor. It is fixed by deducting 10 basis
points, or 0.10 percentage point, from the weighted average interbank rate of
commercial banks of two working days ago.

When the corridor was first introduced, the ceiling rate stood at 7 percent, the repo
rate, which floats in the middle of the corridor, stood at 2.4 percent, while the floor
rate stood at 0.3 percent. This meant the interest spread in the corridor stood at 6.7
percent, which was pretty wide.

Company Act Main Provision 2063
1. Section 105 (About Loan taken and)
2. Section 176 (About Corporate Guarantee Provide)
3. Section 152 (About Sole Company)

Education Loan Provision
 Against Fixed Deposit
 Against FAC
 Against bank balance (Not related to bank)
 Process
 Application/Applicant/Co-applicant
 Offer Letter of University including all eligible cost
 Loan Process- CAP approval-Mortgage/Lien
 Documentation and offer letter provided
 Payment against COE received (Confirmation of Enrollment)
 Swift Transfer.
 10% deduction in case of return/not accepted
 All reserve in College
 Shall not have any condition for payment from bank side. Because offer
letter and COE may differ.

Documents required for Hydropower Financing
1. Syndicated Loan agreement
2. Pari-passu Mortgage deed
3. Assignment of Power generating license and PPA
4. Deed for Security on current assets, stock and inventories
5. Pledge deed of Plant and machinery
6. Assignment of Bills and receivable/Product License
7. Share Pledge deed
8. License From government authorizes for …….KW (clearly mention)
9. PPA
10. Approval IEE (Initial Environment Examination)- From Local authority and From
Ministry Level in case of Mega Project) EIA
11. Agreement with merchant banker acceptable to lead bank for IPO- This in the case of
before sanctioning of revolving loan for cash flow management)
12. Letter from NEA to make payment directly to lead bank
13. Purchase or Lease agreement.
14. Assignment of product license if any/Capacity enhancement
15. COD (Commercial Operation Date)
16. EPCF modality (Engineering, Procurement, Construction and Financing)

Documents required for Cement Udhyog
 Syndicate Loan agreement
 Pledge of Plant and machinery
 Assignment of Lease right- Bank deed and lease agreement, mines license
including area quote, and put rokka in department of mines and geology.
 IEE report- from local authority to set up business and ministry of environment
in case of mega project to be endorses
 Property transfer deed. Initially not value. Valuation is as per SLA. It may
process after 40% completion of project.

Difference between IEE and EIA
1. IEE (Initial Environmental Evaluation)
2. EIA (Environmental Impact Assessment)

Types of Rates
Policy Rates
1. CRR
2. Bank Rate
3. Refinance Rate (
Special Refinance
General Refinance
Export Credit in Nepalese Currency
Export Credit in Foreign Currency

4. Standing Liquidity Facility (SLF) Rate

What is Libor Rate ?
London Interbank Offered Rate is a benchmark rate, which some of the world’s
leading banks charge each other for short term loan. It stands for
Intercontinental Exchange London Interbank Offered Rate and serves as the
first step to calculating interest rates on various loans throughout the world.
Process of Loan Write Off
1. General Follow up
2. Issue minimum 3 repayment letter including 35 days notice format
3. publish 35 days notice in National Daily, if not settled then revaluation of property and
4. publish 15 days auction notice, if not settled or if bids were not received
5. published 7 days auction notice, if not settled or if bids were not received
6. process for NBA booking
7. After NBA booking if not settled entire loan then must write off within the same FY
8. Must be Blacklisting before Write off.
Accounting Entries
A. Loan disbursement
Loan account Dr.
Cash/Bank/Cashier Cheque or Customer account Cr
B. To collect loan fee and charge
Cash/Bank/Customer account Dr.
Loan Management fee a/c Cr.
Service Charge a/c Cr.
C. Accrued Interest
Interest Receivable- Loan Dr.
Interest Suspense-Loan Cr.
D. Loan Repayment
When received from the borrower

Cash/Bank/Customer account Dr.

Interest Suspense Dr.
Interest Receivable- Loan Cr.
Loan Cr.
Interest Income Cr.
Deferral Coding and tracking Mechanism












FDI in Nepal
Authority of Registration
FDI in Nepal
Approval Process
FDI in Nepal
Industries Permissible for Foreign Investment

Industry Category Maximum FDI Name of the Relevant Acts & Policies Remarks
Permissible competent

Manufacturing 100% Department of Industrial Enterprises Act, No additional procedures required

Industry 1992 except for certain industries which
required special permission

Financial Services/Banks and (20 to 85)% Nepal Rastra Bank Nepal Rastra Bank Act Approval of Nepal Rastra Bank
Finance Companies and Branch required thereafter, registration of
Office of a Foreign Bank Foreign Investment and the company is to be done and
Technology Transfer Act application filed for license to operate
(FITTA) a bank, or financial institution

Foreign Exchange
Regulation Act (FERA)

Airline Industry (49 to 95)% Civil Aviation The Aviation Policy 2063 FDI is permissible in domestic
Authority of Nepal (2006) airlines, international airlines, flying
schools and repair and maintenance
Civil Aviation Act, 2053, work
Civil Aviation Rules, 2052
FDI in Nepal
Telecommunications 80% Nepal Telecommunication Act Approval of Nepal Telecommunication
Telecommunication Authority is required to operate
Authority, Ministry services and obtain license prior to
of Information and operation
Roads, Ropeways, Cable car 100% Transport - -
Media & Advertising – TV, Radio 100% Ministry of The Nepal Broadcasting The MOCI and NTA provides license
and Newsprint Information and Regulation, 2052 (1995) for establishing media and
Communication broadcasting business in Nepal
National Broadcasting Act
2049 (1993)

Pharmaceutical & Chemical 100% Department of Industrial Enterprises Act Approval from the Department of
Industries Health Services Drug Act Drug Administration for setting up
the industry, manufacturing and
selling the drug is required
Textile and Garment 100% Department of Industrial Enterprises Act No specific requirements

Consultancy and Management 51% No Specific Foreign Investment and Accountancy, Engineering, Legal &
Services Technology Transfer Act Management Services not allowed
FDI in Nepal
Mining 100% Department of Mines Department of mines and License from the Department of Mines has to
Geology (Department) Act be obtained for mining activities in Nepal

Mines and Minerals Act, 2050


Mines and Minerals Regulations,

2056 (1999)

Hydro-Power Generation 100% Department of Electricity Act Approval from the DOED is required prior to
Electricity operation of the industry
Electricity Rules
Power Trade - Department of Electricity Act Export of power to India is permitted for
Electricity companies generating electricity
Electricity Rules
Transmission Lines 100% Department of Electricity Act -
Electricity Rules
Hotels, Resorts & Restaurant 100% Ministry of Tourism Tourism Policy, Tourism Act Approval from the Department of Tourism
required for operating restaurant, hotels,

IT & IT enabled (BPO, KPO) 100% Department of Science IT Act No specific requirements
and Technology

Vocational, Educational Training and 100% No specific Foreign Investment and Only Skill Training and Language allowed
Coaching Technology Transfer Act

Hospitals & other Medical Services 100% Ministry of Health & Nepal Health Professional Act, Approval from the Ministry of Health is
Population required for establishing hospitals and
providing medical services

Nepal Medical Council

FDI in Nepal
Recreational Health 100% Ministry of Health & Population - -

Solid Waste Disposal & 100% Ministry of Environment, Science and Environment Protection Act -
Management Technology

Film Industry 100% Cinema Board of Nepal Motion picture (Production, Film produced in the language if the nation
Exhibition and Distribution) Act not allowed (FITTA, 1992)
2026 (1969) and Rules
Cargo Industry 100% No specific - Domestic Cargo not permitted under FDI

Medical Education 100% Ministry of Education MoHP’s Directive on Establishment, Affiliation to a University has to be entered
Operation, Standards and into and approval from the Ministry of
Infrastructure of Private and Non- Education required
governmental Health Institution,
Engineering Education 100% Ministry of Education Technical Education Policy of Approval is granted under the Technical
Management Education 100% Ministry of Education Education Policy of Ministry of Education

Insurance & Re- Insurance Board Insurance Act and related directives Approval from the Insurance Board has to be
insurance obtained prior to commencement of business
in Nepal

Construction 100% No Specific Local Self Governance Act Approval from the Department of Road,
Transport and Physical Planning required

Thermal & Alternative/ 100% Ministry of Energy Electricity Act Allowed only in Energy Generation
Renewable energy
Foreign Company (Loan approval Process in Nepalese Fis)
Can foreign company take the loan from Nepalese Banks.?
In regard to foreign company, a company that has been incorporated outside Nepal cannot take loan
from the Nepalese Bank. However in context of a company that has been incorporated in Nepal by a
foreigner in the form of branch, subsidiary or joint venture Company, with a local party and will be
referred as ‘foreign investment company’
If yes? What are the Process?
As per Above, the process for a foreign investment company to take loan from Nepalese Bank are
as follows:
 Decision of the Board of Director of the company to take loan from the licensed banking institution,
the property that will be kept as security and authorize representative to act in behalf of company.
 If the loan amount exceed the company’s paid up capital and free reserve, special resolution to take
loan from the licensed banking institution for the period exceeding 6 month should be passed by 75
percent of the shareholder.
 The authorized person then shall act and negotiate with banking institution in accordance to the
decision of the company.

Which Law govern the foreign entity?

A foreign investment company is generally governed by Foreign Investment and Transfer
Technology Act 1992 (2049), Industrial Enterprise Act 2016 (2073), Companies Act 2006 (2063),
Foreign Exchange (Regulation) Act 1962 (2019) and guideline, bylaws and directive issued by the
regulatory authority. Please note that the above stated law are general ones. Various law may be
attracted in various condition, like Environment Protection Act 1997 (2054), Income Tax Act 2002
(2058) etc.
What is the role of NRB for Reparation of fund ? What approval is need from NRB
before commence of company?
Foreign Company (Loan approval Process in Nepalese Fis)
 Nepal Rastra Bank (NRB) – the central regulatory and monitory authority of Nepal is the main regulatory
authority in regard to repatriation of fund. The notice issued by NRB has imposed a mandatory obligation on
foreign investment company to obtain approval for foreign investment, record their investment and approval while
repatriating profit or proceeds of the company.
 A foreign investment company after obtaining approval of Department of Industries( DOI) shall register as a
company at Office of Company Registrar, then register as an industry at DOI, obtain PAN certificate, and then
needs to obtain approval of NRB for foreign investment approval. Only after obtaining foreign investment
approval from NRB, the company can bring investment from foreign jurisdiction.
What is the Types of Ownership? ( Holding Patter. All foreigner or at least some % of
Nepalese ?
Foreign investment in certain industries is subject to certain sectorial caps or limit prescribed under
sectorial policies. The foreign investor is allowed to hold up to the prescribed percentage of the investment.
Therefore the local participation is mandatory in such industries. The existing sectorial caps in some of the
industries are presented in the table below.

S.N. Sectors Percentage Relevant law

1 Telecommunication 80 Telecommunication Policy, 1999.
i. Domestic air passenger service 49
ii. International air passenger service 80 Aviation Policy, 2006

Consultancy works (such as:

3 accounting, legal service, management 51 FITTA
and engineering)

5 Casino Require Local Partners Casino Regulations 2013 (2070)

Note: The above list of sectorial caps (limit) is indicative and not exhaustive.
Foreign Company (Loan approval Process in Nepalese Fis)
 The following options are available for a foreign entity to make a business presence in Nepal.

 Foreign Equity investment in a new industry

A foreign company can register either a joint venture company or a fully owned
subsidiary company in Nepal. The general procedures of incorporation of a local
subsidiary are shown below.

1. Investment 2. Registration 3. Industry 4. Tax 5. Investment

Approval of a Company Registration Registration Approval
• DOI/ • Company • DOI • Inland • NRB
IIPB/IBN Registrar Revenue
Office Department
("OCR") ("IRD)

 Foreign investment in an existing industry by share transfer

Share transfer can be done in two ways, that is, by transferring the shares of
existing shareholder or by issuing new shares to a foreign partner, either from the
reserved shares or by increasing the issued capital of the company.
Difference between private company and public company
Cases of difference Private company Public company

Number of members It needs at least 1 member for its It needs at least 7 members for its formation. The maximum
formation. The maximum number can be number is not limited.

Invitation for capital It cannot invite the public to buy its It is free to invite the public to buy its shares
Commencement of business It can commence the business It can commence the business after receiving the certificate
immediately after the incorporation of commencement of business.
Issue of prospectus It does not need to issue prospectus It must issue prospectus

Statutory meeting It does not need to hold statutory meeting It must hold statutory meeting and file statutory report
and file statutory report.

Transfer of shares The transferability of share is not allowed The transferability of share is allowed and hence its
and hence its ownership cannot be ownership can be transferred
Use of word It must use the word Pvt. Ltd. at the end It must use the word Ltd. at the end of its name
of its name.
Company Act 2063 Features
Capital Adequacy Framework based on Basel III: An Overview

 Quality, consistency and transparency of Capital

 Tightening of capital ratios
 Buffer Capital requirement and non
 risk based leverage ratio
 Introduction of liquidity rules
 Objective of Capital Conservation and Countercyclical Buffer
 Liquidity requirement, leverage ratios and their objectives
 Summary of Capital Adequacy Framework Key Elements
Regulatory Capital, Its Component and Loss Absorbency
 Elements of Regulatory Capital
 Quality, consistency and transparency of Capital
 Loss Absorbency characteristic of element of capital: Going concern Vs Gone concern
 Buffer Capital requirement and its objective

Basel III: Global Liquidity Standard and Monitoring Exercise

 Liquidity coverage ratio , Net Stable Funding Ratio and Monitoring Tools
 High Quality Liquid Asset and Net outflow
 Available Stable Funding and Required Stable Funding
 Weight Factor
Leverage Ratio:
Introduction of Non Risk based Backstop Measure
 Leverage Ratio Requirement and Objective of Its Introduction
 Capital Measure
 Exposure Measure
 Reporting requirement, transitional period and Migration to Pillar 1

SIFI Measure under Basel III

 Domestic systematically important Financial Institutions

 Global systematically Important Financial Institutions
 Additional Capital Buffer for Systematically Financial Institutions
 Additional Liquidity Requirement for Systematically Important Financial Institutions
Basel III Overview
Brief History of Capital Accord
Brief History of Capital Accord
Home Loan Required Doc

1. gS;f kf;
2. c:yfoL O{hfht kq ( Plinth level)
3. :yfoL O{hfht kq (For Superstructure Level)
4. cf+lzs lgdf{)f ;DkGg (Upto ground Floor, eligibility for minimum rebitat)
5. lgdf{)f ;DkGg kq (As per Naksaa Pass)
6. gS;f ;?jf gfd;f/L (In case of house sold)

Home Loan can be disbursed Upto 90% of total construction cost of Building (Including
Progress report) or 50% of FMV of Land + total construction cost of Building (Including
Progress report) Whichever is Lower.
Basel Coding
Basel Code Balance Sheet Exposure Risk Weight %
5 All Claims on Government of Nepal 0
17 Claims on Public Sector Entity (ECA 3-6) 100
19 Claims on domestic banks that meet capital adequacy requirements 20
26 Claims on Domestic Corporates 100
31 Regulatory Retail Portfolio (Not Overdue) 75
33 Claims secured by residential properties 60
34 Claims not fully secured by residential properties 150
35 Claims secured by residential properties (Overdue) 100
36 Claims secured by Commercial real estate 100
37 Past due claims (except for claim secured by residential properties) 150

38 High Risk claims 150

Earthquake Victim refinancing Procedure doc required.
1. Application letter duly signed by customer
2. “Ka Barga” earthquake victim proof
3. VDC/MNC/MPC recommendation for the earthquake Victims.
4. Self Declaration that there is no other self owned house to live
5. Valuation of the property to be done by official valuator
6. Approved building drawing and certificate for house construction
7. Proof of discount provided by VDC/MNC/MPC on charge on (25% discount)
8. Bank’s offer letter with clause mentioning Normal rate and NRB refinance rate
9. Customer Liability report
10. Loan insurance
Earthquake Victim Home loan financing procedure
For the construction of residential building which has been affected by EQ 2072
a. Amount (0.5 M to 2.5 Mil, Inside valley) and 1.5 Mil to outside. Max financing 60% of
FMV or as specified by NRB from time to time whichever is lower
b. Tenure (Min 60 Month and Max 120 Month including moratorium period upto 1
years).Moratorium period will be given for HL for EQ victims construction case. For
Clients already availing loan from bank, if avails EQ victims loan can avail for 15 yrs.
c. Basic Criteria
d. Pricing (2%) no other fee
e. Types of Loans (EMI and EQI)
f. Loan to Value Ratio (Maximum of 80% of Cost of the property/estimate cost of
construction or upto 60% of FMV or DV whichever is lower in case self financing
g. Security Documentations Insurance
h. Loan Application and assessment process (Citizenship, Source of income, details of
i. Disbursement (Phase wise disbursement
a. First- Shall not exceed DV or 60% if FMV.
b. Second/Third/Fourth drawdown to be released after inspection of satisfactory construction
progress as certified by the bank’s approved valuator or Bank’s authorized official.
j. In case of drawdown has to be scheduled beyond for tranches, it needs to be specially
approved for maximum number upto 8.
Earthquake Victim Home loan financing procedure
c. Basic Criteria
a. Nepalese citizens
b. Min age 25 yrs
c. Max age 65 yrs (including the loan should be 65 years)
d. Stable and regular income
e. Repayment obligation not exceed 75% of NDI
f. Property should be within municipal bounder or residential location of adjacent VDC in case of
Ktm valley.
g. In case of all other location, the property should be in the place where the branch of the bank
is located. In all cases, unless specifically agreed otherwise in advance, the property the
property should be within municipal boundary.
h. The property should have an access road of minimum 10 ft.
i. Submit the approval of building construction with construction code and EQ resistance
j. Must hold EQ victims card issued by authorized government authority.
k. Applicant must submit a certificate from related authority of Nepal
a. EQ victims and house being damage
b. Immediate family do not have/owned any other residential building
Interest Capitalization approval process from NRB

1. Bank letter to NRB for interest capitalization (mention the NRB directive no 4/074
sub section 2 (7)
2. Loan agreement
3. Summary of the project.
4. Board Decision for Interest capitalization
5. Disbursement report (approved-disbursement)


1 2017/03/13 NPR 36,000,000.00
2. 2017/04/18 NPR 7,332,300.00
3 2017/06/21 NPR 4,107,700.00
Total Disbursed Amount NPR 47,440,000.00
Total Loan Amount NPR 53,000,000.00
Interest Capitalization NPR 2,647,558.66
Total Amount Yet to be NPR 5,560,000.00
Disbursed (Deducting
Interest Capitalization
Interest Capitalization approval process from NRB

Computation of NLA (Net Liquid Assets)


Full Figure
A Total Deposit and Borrowings 27,087,258,032
1. Total Deposits (as per NRB Ni Fa 9.1) 27,087,258,032
2. Total Borrowings ( as per NRB Ni Fa 9.1) -
B Liquid Assets 8,126,774,368
1. Cash (9.1) 497,747,548
2. Bank Balance (9.1) 4,070,988,593
3. Money at call and short notice (9.1) 294,029,184
4. Investments in Government Securities (9.1) 2,124,612,709
5. Placement upto 90 days 1,139,396,334
C Borrowings payable upto 90 days
D Net Liquid Assets (D ) = (B-C) 8,126,774,368

E Net Liquid Assets to Total Deposit 30.00

F Shortfall in Ratio
G Percentage of deposit to be added to RWE
H Amount to be added to Risk Weighted Exposures -
What is Basel Accord and Norms)
Basel Accord
1. The Basel accords are the three set of banking regulations (Basel I, II and III) set by
the BCBS, which provides recommendations on banking regulations in regard to capital
risk, market risk and Operation Risk.
2. The purpose of accord is to ensure FIS have enough capital on account to meet the
obligation and absorb unexpected losses.
3. BCBS maintains its secretariat at the BIS in Basel, Switzerland and the committee
normally meets there.
Basel Norms
1. Basel is a city in Switzerland. It is the headquarters of BIS (Banking for International
settlement) estd at 17 May 1930.

1. With a common goal of financial stability and common standards of banking
regulations (Domestic regulation by central bank of own country and globally
regulator by BIS)
2. Common standard
3. Procedure development
4. Financial stability
Background economics problem in the 1930 and Basel Accord
 Great depression -25% unemployment in US and 44% in German
 Collapse of International trade
 Rise of fascism in Europe
 WWII start
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Lost vehicle settlement process through insurance

 Doc Required
 Claim form from insurance
 Bank consent letter for claim process
 Blue book rokka in Yatayat office. (Bank letter, Original blue book, traffic/police report)
 Baggi Khanna report after 35 days of FIR
 Public notice in 2 national daily newspaper
 Final Report from Surveyor
 Driver Bayan (Opinion)
 Photos of vehicle lost place
 Road Tax Paid receipt
 Muchulkaa from police
 Tax invoice of Vehicle
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MT 700 Swift Message Field Specifications

The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of rules agreed by the International Chamber of Commerce, which
apply to finance institutions which issue Letters of Credit – financial instruments helping companies finance trade. Many banks and lenders are
subject to this regulation, which aims to standardize international trade, reduce the risks of trading goods and services, and govern trade.

An international regulations in carrying out import/export transactions through documentary credit which is applicable to all the banks in the world.
It is a uniform practice applied to buyer, seller, issuing bank and negotiating bank. It is also a mandatory to all the concerned of documentary credit
and staff of banks and financial institutions those working in trade finance, letter of credit and as relationship managers. All of them must be well
versed in every terms and conditions of UCPDC 600.

UCPDC 600 and its framework (Articles 1-5), Structure of and obligations under documentary credits (Articles 6-10), standard for examination of
documents; discrepant documents, waiver and notice; and other items (Articles 11-18), Transport and Insurance (Articles 19-28) and Transferable
credits and remaining issues (Articles 29-39).

UCP 600 is prepared by International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice. Its full name is 2007 Revision of
Uniform Customs and Practice for Documentary Credits, UCP 600, and (ICC Publication No. 600). The ICC Commission on Banking Technique and Practice
approved UCP 600 on 25 October 2006. The rules have been effective since 1 July 2007.

CP 500 was the rules that had been in implementation before UCP 600. There are several significant differences exist between UCP 600 and UCP
500. Some of these differences are as follows;
The number of articles reduced from 49 to 39 in UCP 600;
In order to reach a standard meaning of terms used in the rules and prevent unnecessary repetitions two new articles have been added to the UCP
600. These newly added articles are Article 2 “Definitions” and Article 3 “Interpretations”. These articles bring more clarity and precision in the
A definitive description of negotiation as “purchase” of drafts of documents;
New provisions, which allow for the discounting of deferred payment credits;
The replacement of the phrase “reasonable time” for acceptance or refusal of documents by a maximum period of five banking days.

History of UCP
First uniform rules published by ICC in 1933. Revised versions were issued in 1951, 1962, 1974, 1983 and 1993.
1933 – Uniform Customs and Practice for Commercial Documentary Credits
1951 Revision - Uniform Customs and Practice for Commercial Documentary Credits
1962 Revision - Uniform Customs and Practice for Documentary Credits
1974 Revision – Uniform Customs and Practice for Documentary Credits
1983 Revision – Uniform Customs and Practice for Documentary Credits
1993 Revision – Uniform Customs and Practice for Documentary Credits

Currently majority of letters of credit issued everyday is subject to latest version of the UCP. This widely acceptance is
the key sign that shows the importance of the UCP, which are the most successful private rules for trade ever developed.
Almost all of the presentations are being made in paper or traditional format still in today's letters of credit environment.
However, as telecommunication technology is expanding its borders, it is highly expected that in the very near future
traditional processes will be substituted with the electronic paperless transactions. In order to establish set of rules that
governs electronic presentations the ICC Banking Commission established a Working Group consisting of experts in the
UCP, electronic trade, legal issues and related industries, such as transport, to prepare the appropriate rules for electronic
and mixed presentations. Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic
Presentation or “EUCP" is the result of the efforts of this committee.

The EUCP is not a revision of the UCP. The UCP will continue to provide the industry with rules for paper letters of credit
for many years. The eUCP is a supplement to the UCP that, when used in conjunction with the UCP, will provide the
necessary rules for the presentation of the electronic equivalents of paper documents under letters of credit.
Summary of the UCP 600

1. Definition of key terms which are prevalent in international trade (e.g. honoring [of payments], applicants,
banking days, presentation)
2. How international trade documents (Letters of Credit) can be signed and acknowledged by all parties
3. The difference between documents, goods and services (and which parties deal with these)
4. Which parts of a Letter of Credit are negotiable and non-negotiable
5. How credit works, and how payment is made
6. How banks can communicate the confirmation of goods (tele transmission)
7. Transportation of the goods, modes of transport, and who bears responsibility
8. How to deal with discrepancies, waivers and giving notice
9. The provision of original documents or electronic copies
10. Bills of Lading
11. Insurance and covering the cost of goods
12. Loss of shipping documents in transit
A LC transaction generally happens as follows

1. An importer agrees to buy goods off an exporter – a purchase order (PO) is issued
2. The importer will approach an issuing bank (trade financier) who will issue an LC if it fulfils their
criteria (e.g. they are creditworthy)
3. The exporter will work with a confirming bank who will request the LC documents to be shipped
from the issuing bank of the importer
4. The confirming bank will then check the LC and if the terms are correct, the exporter can then
ship the goods
5. The exporter then sends the relevant shipping documents to the confirming bank, who will then
process the payment
6. Once the confirming bank has examined the shipping documents in strict compliance against the LC
terms from the issuing bank, they will forward these documents on to the issuing bank
7. The importer pays the issuing bank
8. The issuing bank then releases the shipping documents so that the importer can claim the goods
that were shipped
9. The issuing bank then transfers money to the confirming bank who will then transfer this money to
the exporter
Types of Letter of credit

Revocable and Irrevocable

The LC can be cancelled or changed at any time by the buyer or the issuing bank without notification. It is
important to note that in the latest version of the UCP 600, revocable LCs have been removed for any
transaction undertaken under their jurisdiction and The LC cannot be unilaterally reversed, unless all
parties (the issuing bank, confirming bank, buyer and seller agree)
Confirmed and Unconfirmed
The status of a LC is ‘confirmed’ once the confirming bank (of the exporter) has added its obligation to the
issuing bank. The obligation could be a guarantee or assurance of payment and An unconfirmed LC is guaranteed
only by the issuing bank (i.e., there is no confirmation by the advising bank). This type of confirmation is the most
common in LCs, although where a jurisdiction has economic instability or political unrest, payment could be at risk.
Transferrable and Un- transferrable
If the beneficiary is an intermediary for the real suppliers of goods or services, the payment will need to be
transferred to the actual suppliers and An un-transferrable LC prevents payments from being transferred to
third parties
Straight and Negotiable
Here, the issuing bank has to pay the beneficiary and The issuing bank is obligated to pay the beneficiary or any
bank nominated by the beneficiary.
Restricted and Unrestricted
In the case of a restricted LC only one nominated bank can be used for negotiation in relation to a letter of
credit. Therefore, the authorization of the issuing bank to make payment to the beneficiary is restricted to a
specific nominated bank and The bank is not specified, which means that the letter of credit can be negotiated
through any bank of the beneficiary’s choice.
Usance and Sight
Payment can be deferred in the case of a usance LC which gives time for the buyer to inspect or even sell the
goods and If a LC is at sight, it is payable as soon as the documents have been verified and presented.
INCOTERMS 2010 Classification
INCOTERMS 2010 Classification

EXW EX WORKS (... named place)

MODES OF TRANSPORT CPT CARRIAGE PAID TO (... named place of destination)
CIP CARRIAGE AND INSURANCE PAID TO (... named place of destination)
DDP DELIVERED DUTY PAID (... named place of destination)

WATERWAY TRANSPORT FOB FREE ON BOARD (... named port of shipment)
CFR COST AND FREIGHT (... named port of destination)
CIF COST, INSURANCE AND FREIGHT (... named port of destination)
Method of Payment in International Trade for export and Import

4 Methods of payment used in international trade.

1. Open Account
2. Advance Payment
3. Documentary collection
a. Documents against Payment (upon received of Documents)-(DAP)
b. Documents against Acceptance (say 90 days after acceptance of doc, or 90
days from Bills of landing, or 180 days from date of commercial invoice issue or –
4. Documentary credit
a. Sight LC
b. Usance LC
Bills of Exchange Definition and impact
Definition under section 5 if negotiable instrument act 1881. A bill of exchange in an instrument in writing
containing an unconditional order signed by a maker/creditor/drawer/seller/Payee, directing a certain
person (drawee/acceptor/debtors/payer/buyer) to pay a certain sum of a amount only to, or to the order
of, a certain person or to the bearer of the instrument.
This is a type of credit
Types : Demand Bill and Term Bill
How many rules defined in Incoterms 2000,

Incoterms 2000 defines 13 rules as given below.

Group E
EXW EX WORKS (... named place)

Group F

FCA FREE CARRIER (... named place)

FAS FREE ALONGSIDE SHIP (... named port of shipment)
FOB FREE ON BOARD (... named port of shipment)

Group C

CFR COST AND FREIGHT (... named port of destination)

CIF COST, INSURANCE AND FREIGHT (... named port of destination)
CPT CARRIAGE PAID TO (... named place of destination)
CIP CARRIAGE AND INSURANCE PAID TO (... named place of destination)

Group D


DES DELIVERED EX SHIP (... named port of destination)
DEQ DELIVERED EX QUAY (... named port of destination)
DDU DELIVERED DUTY UNPAID (... named place of destination)
DDP DELIVERED DUTY PAID (... named place of destination)
Transfer of Risk from seller to Buyer
Transfer of Risk from seller to Buyer