kumari bank

8/18/2019 Kumari Bank

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CHAPTER 1

INTRODUCTION

1.1 HISTORICAL BACKGROUND OF BANK

1.1.1 Introduction to Bankin

Bank is an institution that accepts the deposit from the public subject to

withdrawal on demand and advancing loans by creating credit and other financial

activities. A bank generally collects deposits from different individuals and institutions.

The collected deposits are utilized for advancing loans to different industries and

commercial banks. With those activities, a bank performs payments, remittance, and other

financial activities. imply, a bank is a financial institution! it will keep their money safe

but investing in acceptable risk area only, it will give their money back as desired by

deposits. "t deals with monetary transactions by accepting various types of deposits,

distributing various types of loans and rendering other financial services.

#ifferent authors and scholars have several definitions of a bank. ome definitions are as

follows$

Accordin to K!nt" “A bank is an organization whose principle operations are

concerned with the accumulation for the temporarily idle money for the general public

for the purpose of advancing to other for expenditure.”

Accordin to Cro#t$!r" “The banker’s business is to take the debts of other people to

offer his own in exchange and thereby create money.”

Accordin to Dr. Hart" “A banker of bank as a person or company carrying on the

business moneys and collecting drafts for customers sub!ect to the obligation of

honoring che"ue drawn upon them from time to time by the customers to the extent of the

amounts available on their current accounts.”

Accordin to A%&r!d 'ar($a%%" “#n $reece the temples of %elphi and other safer acted

as store house for the precious metals before the days of coinage and in later times they

lent out to public for the private purpose at interest. &rivate money changers began with

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the task of reducing money metallic currency more or less exactly to a common unit of

value and went on to accept money on deposits at interest and lend it out at higher

interest permitting mean while drafts to be drawn on them.”

Therefore, summarizing the above, banks are those financial institutions that offer

the widest range of financial service and perform the widest range of financial functions

of any business firm in the economy.

1.1.) Hi(tor* o& Bankin

The word &Bank' has been derived from (atin words '(ancus’ or the )rench word

'(anke’ and the "talian word '(anco’ , all of which mean their banking transaction in the

market. *et another view point regarding origin of the word &Bank' refers a joint fund.

According to +eoffrey row, the merchants, the money lender and the goldsmiths are the

three ancestors of modern banking system. -odern banking started when &The bank of

enice' in %%/0 was established. "t was the first public bank. ubse1uently, Bank of

Barcelona and Bank of +enoa were established in %23% 4 %230 A.#. "n %567 A.#., The

Bank of 8ngland was established which is the first entral Bank in the world. (ater, in

%922 A.#., the introduction of banking act %977 in :.;. accelerated the growth of banks

as it allowed opening joint stock company banks.

1.1.+ Oriin o& Bank in N!,a%

The growth of banking in


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&Agricultural #evelopment Bank' was established to replace the e@isting traditional

farming system with a more efficient 4 scientific method.

"n ?32% B.., the first joint investment bank,


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depositors to pay 4 to run the institution 4 these does not add value to that institution.

(ending, on the other hand provides service to the society. "f this service is carried out

skillfully then the institution creates wealth for its shareholder 4 for society in general.

As loan is the main source of income of financial institutions, the loan portfolio is also

main source of risk. are management and monitoring of cycle generates profitability

while maintaining risk at acceptable level. But the loan portfolio is a two edged sword. "t

means the loan is that type of weapon which has an edge in both sides. -ishandling of the

loan may cause default risk and interest rate risk which is the two primary source of the

financial institution failure.

Thus, (oan management is crucial function of financial institution which must be

managed efficiently and effectively to compete in this globalized world and to make

profit to the stakeholder as well as for the development of the country.

1.).) Backround o& SCBNL

tandard hartered Bank


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range of customers encompassing individuals, midmarket local corporates,

multinationals, large public sector companies, government corporations, airlines, hotels as

well as the #C segment comprising of embassies, aid agencies,


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=eceiving application

Groposal evaluation

onducting interview

=isk and return analysis ollateral analysis

Greparing credit report

ompleting the process

1.).5 Proc!(( o& Loan 'ana!!nt

There are some processes of loan management which must be followed while

doing the loan management. They are mentioned below$

1.).5.1 Loan ,roduct D!(in

Grofitability management of loan begins with the product design state in which the

institution attempts to develop a competitive advantage by designing loan products that

will provide increased satisfaction to customer. Grofitability analysis is based in cash flow

re1uired for and generated by the products.

"n the modern era, product design has become an efficient method of specializedmarketing which provides wide range of facilities that customers will prefer and are

willing to pay for. This process involves strategic analysis, creative design, market

research and profitability analysis.

1.).5.) 'ark!tin

-arketing plays a vital role in any financial institution because there is too much

competition in market and institutions have to design many loan and this process helps toknow the success of that loan in market and also helps to manage the loan. We will leave

the development of marketing plans to the marketing staffs.

1.).5.+ Cr!dit D!ci(ion

redit decisions are based on the fives 's$ character, capacity, capital, collateral

and credit information. These have been e@plained in the ne@t heading.

1.).5.- Loan ,roc!((in

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(oan processing begins with completion of the application and ends with

disbursement of the money to the customer. The credit decision is the part of loan

processing. The design of a new loan product re1uires the design of a system for handling

the process and the 1uality or process is often an important part.

1.).5. Account aint!nanc!

Account maintenance is the process of receiving payments and maintaining

records. 8very financial institution or other institution has to maintain their account. This

is a very important process in the field of loan management. 8fficient account

maintenance can greatly affect the probability of loans. "n other words, we can say that

the profit from loan depends on the account maintaining process of any financial

institution

1.).5.2 Co%%!ction

A carefully designed loan policy involves the acceptance of some credit risk.

There always e@ists some risk after disbursement of loan amount even after analyzing

about the borrowers that they are good customers. ollection function occurs only when

borrowers repay as promised within the given period. The first step in the collection effort

is to turn delin1uent customers Ethe customer who fail to repay the amountF back into a

current customer who will be profitable customers in the future. When this effort fails, the

ne@t effort is to recover what can be effectively recovered. As with other activities, the

objective is to carry out this function as efficiently and effectively as possible. ost

effectiveness must be viewed in a larger conte@t than a single loan.

1.).5.5 'onitorin

-onitoring of loan performance on a continual basis is important for theinstitution to remain safe and profitable. -onitoring can be carried out using a number of

ratios that focus on loan 1uality and the cushion with which une@pected losses can be

absorbed. =isk management is a particularly important aspect of monitoring. )inancial

institutions that don't keep a constant eye on the 1uality of their loan portfolio can get

into serious difficulty 1uickly.

1.).6 T*,!( o& Loan

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A financial institution chooses its loan portfolio structure in light of its liability

sources and customers need. (oans can be classified according to type of borrower use of

loan$ people loan and business loan. There is various type of loan which is mentioned

below$

17 Con(u!r Financ!/ Banks provide the loan to consumer to build a home, for

purchase of electronic goods, for health, for education, etc. +enerally banks are focuses

in home loan rather than others.

)7 Hir! ,urc$a(! %oan/ The loan, which is providing on automobile, is known as hire

purchase loan. -ainly bank focuses on heavy automobile like truck, tractor, bus, etc.

+7 Lon t!r/ (oan for more than a year to finance capital e@penditure. The loan to be

secured by first charged on fi@ed assets. "deal for ac1uiring fi@ed assets i.e. plant and

machinery, construction of factory building, purchase of e1uipment, etc.

-7 S$ort t!r/ (oan up to one year to finance working capital re1uirements is regarded

as short term loan this loan is primarily secured by first charge on current assets

acceptable to the bank.

7 Bi%% Di(count/ Banks purchase J discount your checksJ bills and provide you cash

immediately. *ou should not worry about waiting a long time for realization of billsJ

checks proceeds.

27 E8,ort Cr!dit

a. Pr!9($i,!nt Cr!dit/ Greshipment credit is offered to e@porters to facilitate them

to purchase Jimport raw materials for the goods meant for e@port. This facility is for

e@porter to enable them meet their e@port commitment in time.

3. Po(t9($i,!nt cr!dit/ Gostshipment credit is offered to e@porter to finance e@portsales receivable after the date of shipment of goods till the date of realization of e@port

proceeds.

57 I,ort cr!dit/ "mport credit facility or trust receipt loan is to meet importer funding

re1uirement from the port of discharge until sale of goods in the local market within a

reasonable period.

1.).6 Cr!dit Po%ic*

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"n )act, it is a very sensitive subject that what sort of credit policy a bank should have.

o, it should pay more attention to the loan, and advance that it provides. The deposits are

deposited in a bank, from many sectors such as, persons, organization and institutions,

which make the banks more responsible for their functions. The commercial banks are

inspired with the motive of gaining profit .To fulfill these objectives, they should widely

manage and improve its banking sector. They must pay more attention to the flow of loan.

=egarding loan policy, it should make clear to its policy and view. "n fact the bank should

follow the credit policy, which should match the economic policy of


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)or renewal of loan, at first, the debtor should give an application for the renewal to the

bank. After presenting the application for renewal, the bank moves the process ahead. The

bank studies the debtor's file that is in the bank. "n addition to it, the bank can make field

visit too if the bank feels necessary and if there is no difficult situations the bank starts the

process. Before giving the final decision of the loan, it should pay attention to the

following internal and legal matters$

aF Whether the application of the debtor for the renewal of the loan is as per law or

not.

bF Whether it is against the policy and instruction given by the central bank.

cF Whether the bank's own regulations, memorandum, article of association and

policy permit to renew the loan for the debtor's industry, and business or not.

dF Whether there is li1uidity in the bank to renew the loan of the debtor or

not.

eF Whether any difficult situation has risen to the bank to renew the

loan or not.

fF Whether there e@ists any problem to renew the loan, or not.

"n this way, after studying and analyzing above mentioned matters, a bank should deeply

study all aspects of the debtor, if the bank doesn't see any problem to move the process

ahead. The bank should come to a conclusion by making a reasonable e@amination on the

basis of evaluating following subjects matters$

aF The bank should see very activities of the debtor.

bF Whether there are reasonable cause and grounds to renew the loan

or not.

cF Whether the financial record of debtor's company and business is related with thecompany act and the other concerned regulation and legislation and based on the principle

of account or not.

dF Whether the loan was properly used or utilized in the purpose for which the debtor

had taken the loan or not.

eF Whether the debtor has paid the installment of the interest that he took from the

bank or not.

fF Whether there will be some difficulties to the recover the loan with the interestafter the renewal of the loan or not.

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gF Whether the policy and direction given by the bank from time to time from the

side of the debtor or not.

hF Whether there is condition which warrants e@tra security to renew the loan of the

debtor or not.

"f, after the study of above mentioned things, the bank is satisfied, it can accept the

re1uest of the debtor. The terms and condition of the loan deed can be added and modified

too. Whatever terms and conditions the bank imposes the debtor should comply with. "n

this way, the renewal of the loan can be made.

1.+ PURPOSE OF THE STUD<

The objectives of this field work, apart from re1uirement of BBA are covered the point

mentioned below$

i. To have practical on the banking system.

ii. To know the management system of ;umari bank.

iii. To attract the number of customer from view point of 1uantity and 1uality

i=. To analyze the trend line of credit in ;umari Bank.

=. To know about the various credit scheme of ;umari Bank.

=i. To know about the credit policy of ;umari Bank.

=ii. To have knowledge about purpose of loan.

=iii. To analyze the interest income, loan and advance.

1.- STATE'ENT OF PROBLE'

The topic entitled (oan -anagement, A comparative case study of ;umari Bank is

challenging and emerging issue in the present day librated banking scenario. "t has been agreat e@perience to work on the topic for fieldwork. -anaging a loan for the profitability is a

tough task to be discharged by the management of every business entity.

The investigator faces an awesome of difficult to get the documents and information on this

particular topic. The research problems are as follows$

i. "t is newly established bank so there is lack of sufficient data and

information about the research work.

ii. Cne of the main problems that bank offered a few loan products which is providing from decades by other banks.

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iii. There is lack of marketing efforts.

i=. They don't make risky loan and don't pay too much.

=. There is inefficiency of service provided by the bank.

=i. "nterest is not competitive as comparison to competitors.

1. SIGNIFICANCE>I'PORTANCE OF THE STUD<

As we know that the main importance of commercial Bank is ma@imization of profit and

minimization of cost as far possible by the mobilization of reserve they have. Thus, the

importance of this field work, apart from the re1uirement of BB program covered under the

point mentioned below$

i. To draw out the problems of the banks and give recommendation to these

banks.

ii. To draw the attention of concerned parties about the loan management

system though these days competition has been increased between Banks.

iii. To double the pace of economic growth through the sound Banking -anagement

ystem

By using the advertisement policy or by establishing a ound Gublic =elation

#epartment and -arketing #epartment in


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)irstly, " studied the te@t book 4 some papers on loan management to understand the

underlying concepts 4 process of loan management. "n the process of gathering data "

visited ;B( for primary data. The 1uestions asked based on my understanding. " have

mostly used secondary data. The secondary data are used annual reports, official

documents, and newspaper articles about ;B(.

1.6 STUD< LI'ITATIONS

8ven though the report is submitted to time, limitations on short time duration to study

the project have led to decrease in the scope of the project. ome specific points that

limited the study are$

%. There is no comparative study with any other commercial bank.

?. The study may not be applicable to the other commercial bank.

7. #ata for loan management was not easily available and ;B('s preferences

2. for loan management were not visible vividly on data sources.

/. The interpretation and conclusions were drawn within the limitation of

5. "ndividual knowledge 4 judgment abilities 4 on the basis of data provided, 4

other published 4 unpublished sources. o, it may lack the professional standard of

analysis and interpretation.

0. The study mainly depends upon secondary data.

9. This thesis is prepared for the partial fulfillment of BB

6. The study focus only on loan management system.

%3. The data are collected from year ?35%J35? to ?35/J355.

CHAPTER )

PRESENTATION AND ANAL


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The data presentation and analysis is the deep intent of my knowledge. " have

gone through the following steps to present an analyze *!ar( data and facts$

8diting the collected dates and verifying with the source.

lassification of data to present it in the research. Tabulating the data in tabular form

Analyzing the data

).1.1 Int!r!(t Inco! o& SCBNL Fro it@( Cr!dit and Loan(/(

The interest income e@ercised by B


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?357J352 543,786,600

?352J35/ /0/,023,553

?35/J355 1,003,100,293

ource$ Annual report of ;umari Bank (imited ).y.?35/J?355

The above table is shown through the graph chart below.

"n the above hart, we can see that interest e@penses are gradually increasing in the year ?35%J35? to ?35/J355.

).1.+ Di&&!r!nc! 3!t#!!n Int!r!(t Inco! Int!r!(t E8,!n(!(

The difference between the interest income and interest e@penses provide by the bank for

the last five years is given below.

Ta3%!9 1.+

=s in million

%/


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?35/J355 ?%?6.0ource$ Annual =eport of ;umari Bank (td. ).*. ?35/J?355

The above table can be e@plained by the following figure as given in the figure below$

)rom the figure we can see that (oan 4 advances provided by the ;B( is gradually

increased in the years ?35%J35? to ?357J352. And decreasing from the years ?357J352 to

?35/J355 respectively.

).1. D!,o(it Po(ition O& Kuari 3ank Ltd.The deposit collected by ;umari Bank limited. "n the last five years is given in the table

below as the data provide by the bank.

Ta3%!91.

=s in million

?357J352 5?59.6/?352J35/ 0059.65?35/J355 %3//0.2ource$ Annual =eport of ;umari Bank (imited ).*.?35/J355

The above table can be e@plained by the following figure as given in the figure below.

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"n the figure, we can see a gradual increase in the deposit collection of ;umari Bank (td.

from the year ?35%J35? to ?35/J355.

).1.2 Di&&!r!nc! 3!t#!!n Loan and D!,o(it

#ifference between deposit and loan amount of the bank in the last five years are given in

the table below as for the data provide by the bank.

Ta3%!91.2

=s in million

ource$ Annual =eport of kumari Bank (imited. ).*. ?35/J355

The above table is represented in the following hart$

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"n the above hart the difference between (oan 4 #eposit has increased in the

years?35%J35? to ?35/J355 respectively.

).1.5 Ba%anc! S$!!t A( on +1(t A($ad );2-" );2and );22

Ta3%!91.5

Ba%anc! S$!!t A( on +1(t A($ad );2-/

(iabilities And apital AmountE=sF Assets AmountE=sFhare apital /33,333,333 ash and bank balance %%%,?26,36/+eneral =eserves %2%,05?,070 Bank balance on


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(oan Gayable ?2%,233,333 -oney at call shareholder %2/,333,333#eposits 0,059,6/0,?05 "nvestment %,762,620,0/7Bills payable %%,6%9,97/ (oan4 Advance 5,96%,9//,2?5Cutstanding #ividend 5,/09,620 )i@ed assets 6%,67?,6/0"ncome ta@ liability ?65,727


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The # =atio for the ;umari Bank (td is calculated below$

For t$! *!ar( );21>;2)

# =atio K ?%3/.075

?/%7.%2

K 3.9706L %33D

K 97.06D

For t$! *!ar );2)>;2+

# =atio K 7526.339

2930.67

K 3.0/96 L %33D

K 0/.96D

For t$! *!ar );2+>;2-

# =atio K 23%0.05

5?59.6/

K 3.5239 L %33D

K 52.396D

For t$! *!ar( );2->;2

# =atio K ?/%2

0059.65

K 3.7?7/ L %33D

K 7?.7/D

For t$! *!ar );2>;22

# =atioK ?%?6.0 L%33D %3//0.2

K?3.%0D

)rom the above calculation of redit #eposit, we came to conclude that the bank

has invested more than 0/D of its deposit in every year. But the redit #eposit =atio has

decreased gradually from 97.06D to 0/.96D in the year ?35%J35? to ?35?J357 4 from

52.396D to 7?.7/D in the year ?35?J357 to ?352J35/4 ?352J35/ and finally it decreased

to ?3.%0 D in the year ?35/J355.

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).1.: Kar% P!r(on@( Corr!%ation Co!&&ici!nt

Cne of the most widely used mathematical methods of calculation of the selection that

lies between the two variables is the ;arl person's orrelation coefficient. "t is denoted by

HrI and is e@pressed as$

r K MMN@yMMMMMMMM

O N@?. O Ny?

The value of r always lies between P% to %. Where P% denotes the perfectly positive co

relation where as % denotes the perfectly negative corelation among the variables.

Ta3%! 1.6/ Ca%cu%ation o& corr!%ation co!&&ici!nt

Total

(oanELF

Total

#eposit

E*F

M

E@KLLF @? M

EyK **F y? @y

?%3/.075 ?/%7.%2 000./32 532/%?.20 7903.%75 %26006/?.55 7336325.??7526.33/ 2930.67 05/.05/ /95765.37/ %/0/.725 ?29%0%/.3? %?35722.9723%0.05 5?59.6/ %%72./? %?90%7/.57 %%2.7?5 %7303.272 %?603/.%7?/%2.33 0059.65 756.?2 %75779.%09 %79/.592 %6?3%?3.%29 /%%526.65?%?6.0 %3//0.2 0/7./2 /509??./7? 2%02.%?2 %02?77%%.%0 7%2/756.7NLK%22%

5.?3%

N*K7%6

%5.79

N@?K7%9??3

2.92/

Ny?K759%5%5

6.27

N@yKE

%6923?7.%3?F

Fro a3o=! ta3%!" #! $a=!

>N %22%5.?3% > )66+.)-;

Sii%ar%*"

2+6+.)52


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%6923?7.%3?

r 9999999999999999999999999999999999999999

7%9??32.92/ Q √759%5%56.27

%6923?7.%3?

99999999999999999999999999999999999

%097.90 @ 5350.57

K 3.%97

The above given calculation shows the coefficient of correlation that is rK 3.%97 by

plotting the respective value in the given formula, the value is appro@imately %, so we

can say that it isn't perfectly correlated. "t indicates that the degree of correlation between

the loan 4 #eposit isn't good position in ;B(. This implies that the increase in the Total

#eposit will not increase the loan accordingly.

).1.1; Conc%u(ion

A( seen in the above data presentation, it is seen that with the increment in loan and

advance the interest income also increases gradually. "t means that the overall

performance of ;umari bank ltd. "n (oan management, lending procedure is effective and

the bank is in good situation from the economic year ?352J35/ to ?35/J355. This shows

the surplus economic stability and economic situation of ;umari Bank (imited.

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?2


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CHAPTER9 +

Suar*" Conc%u(ion and R!co!ndation

+.1 Suar*

;umari Bank (imited is the one of the leading commercial bank established in


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1.) Conc%u(ion


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3.3 Recommendations

Cn the basis of the analysis, the following recommendations and suggestions have been

made for the improvement of lending activities of ;umari bank (imited.

1. (ending procedure of bank must be easier. Tedious and comple@ procedures

should be eliminated out.

). The process should be updated from time to time according to its need.

+. "t should give much more emphasis on priority sector and deprived sector

loans.

-. -any problems are arrogated with internal organization and management. o,

the bank should give first attention in this respect. Ctherwise improvement measures may

not be efficiently used unless poorest system cannot be improved.

. taffs are the assets of the bank. They should be motivated to the increase their

effectiveness and creativity. The smooth running of the banking business depends upon

the incentive provided to the staffs. "f the bank has not made the provision facilities to

them as compared to the other banks they will be frustrated and would not take interest in

their duties. o the bank should make some provision for the betterment of the staffs to

run its business activities smoothly.

2. Training and promotion should be provided to the staffs. =ight men should be

placed in right place according to their capacity and willingness to work.

5. "nterest rates affect both deposits and loan and advances. The interest rates

should be low to the loaners and time duration should be more according to the financial

condition of the loaner.

6. 8ffective schemes regarding loans should be lunched from time to time to

motivate the customers.

:. The bank should check from time to time whether the loan amount is properly

utilized in the respective sectors or not.1;. 8very branch should be well e1uipped with the new technologies such as

computers and other electronic devices. This leads to the rapid services to it customers.

11. Bank should be capable to provide high satisfaction to its customers, which

will encourage people to deposit their money and to borrow loans.

BIBLIOGRAPHY

?0


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%. Adhikari +.G E?333F, HGroposals and Thesis Writing.I

;athmandu, =atna pustak bhandar.

?. Bajracharya, B.. E?333F, Hbusiness tatistics and managementI

Third 8dition, ;athmandu.

7. ;othari, .G. E%66/F, HA hand book of =esearch methodology.I

econd 8dition,


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T>8 8

kumari bank

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