Kumari Bank
Kumari Bank
Kumari Bank
INTRODUCTION
1.1 HISTORICAL BACKGROUND OF BANK
1.1.1
Introduction to Banking
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. Simply, 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. It deals with monetary transactions by accepting various types of deposits,
distributing various types of loans and rendering other financial services.
Different authors and scholars have several definitions of a bank. Some definitions are as
follows:
According to Kent, 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.
According to Crowther, The bankers business is to take the debts of other people to
offer his own in exchange, and thereby create money.
According to Dr. Hart, A banker of bank as a person or company carrying on the
business moneys and collecting drafts, for customers subject to the obligation of
honoring cheque drawn upon them from time to time by the customers to the extent of the
amounts available on their current accounts.
According to Alfred Marshall, In Greece, the temples of Delphi 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. Private 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.
1.1.2 History of Banking
The word Bank has been derived from Latin words Bancus or the French word
Bankeand the Italian word Banco, all of which mean their banking transaction in the
market. Yet another view point regarding origin of the word Bank refers a joint fund.
According to Geoffrey Crow, the merchants, the money lender and the goldsmiths are the
three ancestors of modern banking system. Modern banking started when The bank of
Venice in 1157 was established. It was the first public bank. Subsequently, Bank of
Barcelona and Bank of Genoa were established in 1401 & 1407 A.D. In 1693 A.D., The
Bank of England was established which is the first Central Bank in the world. Later, in
1844 A.D., the introduction of banking act 1833 in U.K. accelerated the growth of banks
as it allowed opening joint stock company banks.
1.1.3
The growth of banking in Nepal is not so long. Goldsmith and landlords used to perform
the work of banking in Nepal. The first institution of banking Tejarath Adda was
established in 1933 B.S., during the regime of Ranodip Singh. However, it did not collect
deposits from public but lent loans to employees and public against the deposit of gold
and silver. This Adda could not perform all the function of bank. Therefore, in 1994 B.S.,
Nepal Bank Limited was established.
Establishment of this commercial bank eliminated the hindrance caused by private money
lenders & it introduced other banking services to the public. In 2013 B.S., Nepal Rastra
Bank was found as a central bank for the development of banking system & to help the
government in formulating monetary policies. The existence of only one bank i.e. Nepal
Bank Limited, was functioning in the field of business but it was not interested to serve
the non-profitable sector of the country. Therefore, in 2022 B.S., Rastriya Banijya Bank, a
government commercial bank was established in order to meet such sectors. In 2024 B.S.,
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Depending on the nature of the banks, there are different kinds of banks. They are
central bank, agricultural development bank, industrial bank, saving bank, exchange
bank, indigenous bank, rural development bank, commercial bank.
Commercial banks are those financial intermediaries whose business is primarily to
accept deposits from the public & grant short term financial assistance against securities
to its customers. They also provide technical & administrative assistance to industries,
trade & business. In Nepal, the commercial bank performs the following functions:-
1.2
1.2.1
To accept deposits
To grant loans
Agency functions
Investment of funds
Credit creations
depositors to pay & to run the institution & these does not add value to that institution.
Lending, on the other hand provides service to the society. If this service is carried out
skillfully then the institution creates wealth for its shareholder & for society in general.
As loan is the main source of income of financial institutions, the loan portfolio is also
main source of risk. Care management and monitoring of cycle generates profitability
while maintaining risk at acceptable level. But the loan portfolio is a two edged sword. It
means the loan is that type of weapon which has an edge in both sides. Mishandling of the
loan may cause default risk and interest rate risk which is the two primary source of the
financial institution failure.
Thus, Loan 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.
1.2.2 Background of SCBNL
Standard Chartered Bank Nepal Limited has been in operation in Nepal
since 1987 when it was initially registered as a joint-venture operation. Today the Bank is
an integral part of Standard Chartered Group having an ownership of 75% in the company
with 25% shares owned by the Nepalese public. The Bank enjoys the status of being a
subsidiary of Standard Chartered Bank, which is one of the leading international banks in
the world.
Standard Chartered has a history of over 150 years in banking and operates in
many of the worlds fastest-growing markets with an extensive global network of over
1700 branches (including subsidiaries, associates and joint ventures) in over 70 countries
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and
the Americas. As one of the worlds most international banks, Standard Chartered
employs almost 80,000 people, representing over 115 nationalities, worldwide. This
diversity lies at the heart of the Banks values and supports the Banks growth as the
world increasingly becomes one market. With 19 points of representation, 23 ATMs
across the country and with more than 400 local staff, Standard Chartered Bank Nepal
Ltd. is in a position to serve its customers through an extensive domestic network. In
addition, the global network of Standard Chartered Group gives the Bank a unique
opportunity to provide truly international banking services in Nepal.
Standard Chartered Bank Nepal Limited offers a full range of banking products
and services in Consumer Banking, Wholesale and SME Banking catering to a wide
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range
of
customers
encompassing
individuals,
mid-market
local
corporates,
Rs. 2,000,000,000.00
Rs. 1,610,168,000.00
Source: - Annual Report of SCBNL 2010/11
borrowers proposals, refine them, research for additional information, and understand the
market conditions for loan mobilization. SCBNL provides different types of loan
following the standard procedure as specified by SCBNL. The loan mobilization include
the following steps:-
1.2.7
Receiving application
Proposal evaluation
Conducting interview
Collateral analysis
Loan 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 requires the design of a system for handling
the process and the quality or process is often an important part.
1.2.7.5 Account maintenance
Account maintenance is the process of receiving payments and maintaining
records. Every financial institution or other institution has to maintain their account. This
is a very important process in the field of loan management. Efficient account
maintenance can greatly affect the probability of loans. In other words, we can say that
the profit from loan depends on the account maintaining process of any financial
institution
1.2.7.6 Collection
A carefully designed loan policy involves the acceptance of some credit risk.
There always exists some risk after disbursement of loan amount even after analyzing
about the borrowers that they are good customers. Collection function occurs only when
borrowers repay as promised within the given period. The first step in the collection effort
is to turn delinquent customers (the customer who fail to repay the amount) back into a
current customer who will be profitable customers in the future. When this effort fails, the
next 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. Cost
effectiveness must be viewed in a larger context than a single loan.
1.2.7.7 Monitoring
Monitoring of loan performance on a continual basis is important for the
institution to remain safe and profitable. Monitoring can be carried out using a number of
ratios that focus on loan quality and the cushion with which unexpected losses can be
absorbed. Risk management is a particularly important aspect of monitoring. Financial
institutions that dont keep a constant eye on the quality of their loan portfolio can get
into serious difficulty quickly.
1.2.8
Types of Loan
A financial institution chooses its loan portfolio structure in light of its liability
sources and customers need. Loans 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:
1) Consumer Finance:
purchase of electronic goods, for health, for education, etc. Generally banks are focuses
in home loan rather than others.
2) Hire purchase loan: The loan, which is providing on automobile, is known as hire
purchase loan. Mainly bank focuses on heavy automobile like truck, tractor, bus, etc.
3) Long term: Loan for more than a year to finance capital expenditure. The loan to be
secured by first charged on fixed assets. Ideal for acquiring fixed assets i.e. plant and
machinery, construction of factory building, purchase of equipment, etc.
4) Short term: Loan up to one year to finance working capital requirements is regarded
as short term loan this loan is primarily secured by first charge on current assets
acceptable to the bank.
5) Bill Discount: Banks purchase / discount your checks/ bills and provide you cash
immediately. You should not worry about waiting a long time for realization of bills/
checks proceeds.
6) Export Credit
a. Pre-shipment Credit: Pre-shipment credit is offered to exporters to facilitate them
to
purchase /import raw materials for the goods meant for export. This facility is for
In Fact, it is a very sensitive subject that what sort of credit policy a bank should have.
So, 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.
Regarding loan policy, it should make clear to its policy and view. In fact the bank should
follow the credit policy, which should match the economic policy of NRB or country to
gain more and more profit. Otherwise, the bank cant achieve its goal.
Hence the bank always should pay its attention to make its investment wide and to
lead the bank towards the way of economic consolidation by creating the good
environment to recover the amount invested with the interest.
1.2.9
Principle of Liquidity
Principle of Security
Principle of Profitability
Principle of Spread
For 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 debtors file that is in the bank. In 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:a)
Whether the application of the debtor for the renewal of the loan is as per law or
not.
b)
Whether it is against the policy and instruction given by the central bank.
c)
and
policy permit to renew the loan for the debtors industry, and business or not.
d)
Whether there is liquidity in the bank to renew the loan of the debtor or
not.
e)
Whether any difficult situation has risen to the bank to renew the
loan or not.
f)
In this way, after studying and analyzing above mentioned matters, a bank should deeply
study all aspects of the debtor, if the bank doesnt see any problem to move the process
ahead. The bank should come to a conclusion by making a reasonable examination on the
basis of evaluating following subjects matters:-
a)
b)
Whether there are reasonable cause and grounds to renew the loan
or not.
c)
Whether the financial record of debtors company and business is related with the
company act and the other concerned regulation and legislation and based on the principle
of account or not.
d)
Whether the loan was properly used or utilized in the purpose for which the debtor
Whether the debtor has paid the installment of the interest that he took from the
bank or not.
f)
Whether there will be some difficulties to the recover the loan with the interest
g)
Whether the policy and direction given by the bank from time to time from the
Whether there is condition which warrants extra security to renew the loan of the
debtor or not.
If, after the study of above mentioned things, the bank is satisfied, it can accept the
request 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. In
this way, the renewal of the loan can be made.
1.3 PURPOSE OF THE STUDY
The objectives of this field work, apart from requirement of BBA are covered the point
mentioned below:i.
ii.
iii. To attract the number of customer from view point of quantity and quality
iv. To analyze the trend line of credit in Kumari Bank.
v.
vi.
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
Management
System
By using the advertisement policy or by establishing a Sound Public Relation
Department and Marketing Department in Nepalese Banking Sector, it helps to beautify the
image of the organization and industry.
Firstly, I studied the text book & some papers on loan management to understand the
underlying concepts & process of loan management. In the process of gathering data I
visited KBL for primary data. The questions asked based on my understanding. I have
mostly used secondary data. The secondary data are used annual reports, official
documents, and newspaper articles about KBL.
1.8 STUDY LIMITATIONS
Even 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. Some specific points that
limited the study are:
1.
2.
3.
Data for loan management was not easily available and KBLs preferences
4.
5.
6.
Individual knowledge & judgment abilities & on the basis of data provided, &
other published & unpublished sources. So, it may lack the professional standard of
analysis and interpretation.
7.
8.
9.
10.
The data presentation and analysis is the deep intent of my knowledge. I have
gone through the following steps to present an analyze 5 years data and facts:
2.1.1
The interest income exercised by SCBNL. in the five years is given in the table below as
the data provided by the bank.
Table- 1.1
YEAR
2006/07
2007/08
2008/09
2009/10
2010/11
Source: Annual report of SCBNL F.Y. 2006-2011
INTEREST INCOME
1,411,981,867
1,591,195,526
1,887,221,257
2,042,109,322
2,718,698,856
The above table can be explained by the following figure as given in the figure below:
In the above chart, we can see gradually increasing interest income in the year 2006/07 to
2010/11. The interest income is at pick level in the year 2010/11.
2.1.2 Interest Expenses of Kumari Bank Limited .from its Deposit
The interest expenses exercised by Kumari bank Ltd. In the last five years are given in the
table below as the data provided by the bank.
Table- 1.2
Rs. In million
14
Year
2061/062
2062/063
2063/064
2064/065
2065/066
Interest expenses
92.95
471,729,700
543,786,600
575,740,660
1,003,100,293
In the above Chart, we can see that interest expenses are gradually increasing in the year
2061/062 to 2065/066.
2.1.3
The difference between the interest income and interest expenses provide by the bank for
the last five years is given below.
Table- 1.3
Rs in million
15
Years
Loan position
2105.736
3649.005
4017.76
2514.00
16
2065/066
2129.7
Source: Annual Report of Kumari Bank Ltd. F.Y. 2065/2066
The above table can be explained by the following figure as given in the figure below:
From the figure we can see that Loan & advances provided by the KBL is gradually
increased in the years 2061/062 to 2063/064. And decreasing from the years 2063/064 to
2065/066 respectively.
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In the figure, we can see a gradual increase in the deposit collection of Kumari Bank Ltd.
from the year 2061/062 to 2065/066.
2.1.6 Difference between Loan and Deposit
Difference 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.
Table-1.6
Rs in million
Year
2061/062
2062/063
2063/064
2064/065
2065/066
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In the above Chart the difference between Loan & Deposit has increased in the
years2061/062 to 2065/066 respectively.
2.1.7 Balance Sheet As on 31st Ashad 2064, 2065and 2066
Table-1.7
Balance Sheet As on 31st Ashad 2064:
Liabilities And Capital
Share Capital
General Reserves
Debenture& bonds
Loan Payable
Deposits
Bills Payable
Outstanding dividend
Income tax Liability
Other liabilities
Total Liabilities and
Amount(Rs)
500,000,000
141,762,737
----------
Assets
Cash and bank balance
Bank balance on NRB
Balance
on
financial
Amount(Rs)
111,249,095
219,830,413
112,291,861
401,761,321
6,268,954,481
7,339,236
----------------108,485,436
7,428,303,218
institution
Money at call shareholder
Investment
Loan and Advance
Fixed Assets
Non banking assets
Others assets
Total Assets
90,000,000
1,190,271,012
5,584,637,111
82,984,150
----------37,039,576
7,428,303,218
capital
Source;- Annual Report of Kumari Bank Limited F.Y.2063/064
Amount(Rs)
625000,000
238,850,557
--------
Assets
Cash & bank balance
Bank balance
Balance On Financial
Institution
19
Amount(Rs )
135,794,991
210,552,637
43,282,117
Loan Payable
Deposits
Bills payable
Outstanding Dividend
Income tax liability
Other liabilities
Total
Liabilities
and
241,400,000
7,768,957,276
11,918,835
6,578,947
296,343
107,274,226
9,010,276,184
145,000,000
1,394,947,753
6,891,855,426
91,932,957
3,592,027
93,318,276
9,010,276,184
Capital
Source: - Annual Report of Kumari Bank Limited F.Y. 2064/065
Balance Sheet as on Asad 31st, 2066
Liabilities & Capital
Share Capital
General Reserves
Debenture & Bonds
Amount(Rs)
750,000,000
275,630,159
--------
Assets
Cash & bank balance
Bank balance
Balance On Financial
Loan Payable
212,970,000
Institution
Money
Deposits
Bills payable
Outstanding Dividend
Income tax liability
Other liabilities
Total
Liabilities
and
10,557,416,461
16,554,384
11,006,805
94733620
11,918,311,429
shareholder
Investment
Loan& Advance
Fixed assets
Non banking assets
Others assets
Total Assets
at
Amount(Rs )
190,748,210
384,844,510
98,520,231
call 372,215,000
1,679,418,415
8929013115
189,323,741
2,394,684
74833523
11,918,311,429
Capital
Source:- Annual Report of Kumari Bank Limited F. Y. 2065/066
From the above balance sheet, it shows that Share capital of KBL is Rs. 500,000,000 in
2064, Rs. 625,000,000 in 2065 and Rs. 750,000,000 in 2066 respectively. Share capital of
KBL is increasing in every year. This indicates that KBL is growing in the banking sector.
20
21
= __xy________
x2. y2
The value of r always lies between +1 to -1. Where +1 denotes the perfectly positive corelation where as -1 denotes the perfectly negative co-relation among the variables.
Total
Loan(X)
Deposit
(x=X-X) x2
(y= Y-Y)
y2
xy
2105.736
3649.005
4017.76
2514.00
2129.7
X=1441
(Y)
2513.14
4807.93
6268.95
7768.96
10557.4
Y=319
777.504
-765.765
-1134.52
369.24
753.54
3870.136
1575.346
114.326
-1385.684
-4174.124
14977952.66
2481715.02
13070.434
1920120.148
17423311.17
y2=3681616
3009046.22
-1206344.83
-129705.13
-511649.96
-3145369.3
xy=(-
6.201
16.38
9.43
1984023.102)
604512.47
586396.035
1287135.63
136338.178
567822.532
x2=318220
4.845
_
Y= Y/N = 31916.38/5 = 6383.276
Now,
22
-1984023.102
r = ---------------------------------------3182204.845 * 36816169.43
-1984023.102
= ----------------------------------1783.87 x 6067.63
= -0.183
The above given calculation shows the coefficient of correlation that is r= -0.183 by
plotting the respective value in the given formula, the value is approximately -1, so we
can say that it isnt perfectly correlated. It indicates that the degree of correlation between
the loan & Deposit isnt good position in KBL. This implies that the increase in the Total
Deposit will not increase the loan accordingly.
2.1.10
Conclusion
As seen in the above data presentation, it is seen that with the increment in loan and
advance the interest income also increases gradually. It means that the overall
performance of Kumari bank ltd. In Loan management, lending procedure is effective and
the bank is in good situation from the economic year 2064/065 to 2065/066. This shows
the surplus economic stability and economic situation of Kumari Bank Limited.
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CHAPTER- 3
Summary, Conclusion and Recommendation
3.1
Summary
Kumari Bank Limited is the one of the leading commercial bank established in Nepal. Its
main objective is to enhance the quality of Nepalese peoples life by providing loan
facility to those who want to do some work but doesnt have enough money and also to
earn profit. Its main function is to accept deposit and provide loan. Along with this it has
been providing different types of loan. It is known that the nature of loan differs. So the
procedure of lending and the documentation also varies according to the nature of loan.
Kumari Bank Limited appraises the documents by considering the five factors (5 Cs) of
the borrower, which are collateral, condition, capacity, capital and character. Kumari
Bank Limited cuts some percentages as margin on the goods kept as collateral to secure
the loan. This percentage is known as margin rate.
The margin is the difference between the value of security offered and the amount
advanced the borrower. Similarly bank charges some interest to the borrower and the
interest rate changes from time to time. If the borrower fails to pay the interest, then the
goods kept as collateral will be auctioned. Borrower should return the principle amount
along with the interest within the specified period of time. The agreement could not be
extended only if the borrower pays the interest timely. If the borrower fails to repay the
loan after the notice of reminder also then the bank has the right to auction the goods. If
the amount received from the auction is not enough for the recovery of the loan, bank
needs other goods for recovery.
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1.2
Conclusion
Nepal is an underdeveloped country based on agriculture. So, to develop our country first
of all the agricultural sector should be developed and at the same time more and more
industries should be established. In this context, Kumari bank Limited can contribute in
development activities by established branches in different parts of the country .This bank
is participating in various activities of development of the country by providing loan to
the needy people. The restriction on loan from the head office has been made to eliminate
the distribution of funds on a single area. Head office has fixed the single borrower limit
to its every branch, which is helping in the agricultural, industrial, and business sector
equally.
Kumari bank Limited has certain rules and regulations to grants loan. Everyone should
follow that rule, either people from urban or rural area. Since the most of the people from
the rural areas are poor. So the amount borrowed by them is also very low .but they have
to pay same lengthy procedure, which seems to be quite unfair to them. So, different rules
and policy should be implemented for the people of urban and rural areas.
From the foregoing discussions in the previous chapters, it can be said that Kumari Bank
Limited has been successful in distribution of loan in different sectors. Overall, it is
concluded that Kumari Bank Limited has become one of the leading commercial banks to
provide large amount of loan.
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3.3
Recommendations
On the basis of the analysis, the following recommendations and suggestions have been
made for the improvement of lending activities of Kumari bank Limited.
1.
The process should be updated from time to time according to its need.
3.
It should give much more emphasis on priority sector and deprived sector
loans.
4.
Many problems are arrogated with internal organization and management. So,
the bank should give first attention in this respect. Otherwise improvement measures may
not be efficiently used unless poorest system cannot be improved.
5.
Staffs 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. If 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. So the bank should make some provision for the betterment of the staffs to
run its business activities smoothly.
6.
Training and promotion should be provided to the staffs. Right men should be
Interest 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.
8.
The bank should check from time to time whether the loan amount is properly
Every branch should be well equipped with the new technologies such as
computers and other electronic devices. This leads to the rapid services to it customers.
11.
BIBLIOGRAPHY
27
1.
2.
3.
4.
7.
8.
9. Www. Nepalstock.com
10. www.banklilmted .com
11. A.G.M. of Kumari Bank Limited.
12. Annual report of Kumari Bank Ltd. (2065/2066)
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THE END
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