LIQUIDITY ANALYSIS OF RASTRIYA BANIJYA BANK LIMITED

A Project Work Report

By

Sabitra Rai
Symbol No:700070066
T.U.Reg. No: 7-2-7-592-2019
Mahendra Multiple Campus, Dharan

Submitted to
Office of the Dean
The Faculty of Management
Tribhuvan University

In Partial Fulfillment of the Requirements for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Dharan, Sunsari
2024
 DECLARATION

I hereby declare that the project work entitled "LIQUIDITY ANALYSIS OF RASTRIYA
BANIJYA BANK LIMITED" submitted to the Faculty of Management, Tribhuvan
University, Kathmandu is an original piece of work under the supervision of Mr. Narendra
Kumar Rai, Mahendra Multiple Campus and submitted in partial fulfillment for the award of
the degree of Bachelor Business Studies (BBS). This project work report has not been
submitted to any other university of institution for the award of any degree of diploma.

.....................................
Sabitra Rai
Date:

ii
 SUPERVISION RECOMMENDATION

The project work report entitled "LIQUIDITY ANALYSIS OF RASTRIYA BANIJYA

BANK" Submitted by Sabitra Rai of Mahendra Multiple Campus, is prepared under my
supervision as per the procedure and format requirements laid by the Faculty of Management,
Tribhuvan University, as partial fulfillment of the requirements for the award of the degree of
Bachelor of Business Studies (BBS). I, therefore, recommend the project work report for
evaluation.

......................
Mr. Laxmi Prasad Guragain
Date:

iii
 ENDORSEMENT

We hereby endorse the project work report entitled "LIQUIDITY ANALYSIS OF

RASTRIYA BANIJYA BANK LIMITED" submitted by Sabitra Rai of Mahendra Multiple
Campus in partial fulfillment of the requirements for award of the Bachelor of Business
Studies (BBS) for external evaluation.

.................................. ................................................
Prof. Dr. Ashok Kumar Jha Mr. Chandra Kumar Rai
Management Research Committee MMC, Dharan Campus chief
Date : Date :

iv
 ACKNOWLEDGEMENT

This fieldwork report entitled "LIQUIDITY ANALYSIS OF RASTRIYA BANIJYA BANK

LIMITED" has been prepared for the partial fulfillment of the requirement of Bachelor of
Business Studies (BBS) under Faculty of Management, Tribhuvan University.

I am very grateful to get an opportunity to work under the admirable supervisor Mr. Narendra
Kumar Rai for the suggestion. I would also like to thanks to all my teachers who helped in
writing report and guided over the time for completion of my report. I have also tried my best
to present the various information and details of this report.

I am extremely thankful to all of those who assists me kindly in designing and formatting of
this report correctly and timely.

..........................
Sabitra Rai

v
 Table of Contents

Title Page i
Declaration ii
Supervisor's Recommendation iii
Endorsement iv
Acknowledgement v
Table of Content vi
List of Table vii
List of Figures viii
List of Abbreviations ix
CHAPTER I : INTRODUCTION
1.1 Background
1.2 Profile of the Organization
1.3 Objectives of the Study
1.4 Rationale of the Study
1.5 Literature Review
1.6 Research Methods
1.7 Limitations of the Study
CHAPTER II: RESULTS AND FINDINGS
2.1 Presentation of Data
2.2 Major Findings
CHAPTER III: SUMMARY AND CONCLUSION
3.1 Summary
3.2 Conclusion

REFERENCES
APPENDICES

vi
 List of Tables

Table No. Title of Table Page No.

1 Current Ratio
2 Quick Ratio
3 Cash Ratio
4 Defensive Interval Ratio

vii
 list of Figures

Figures No. Title of Figures Page No.

1 Trend Line of Current Ratio
2 Trend line of Quick Ratio
3 Trend Line of Cash Ratio
4 Trend Line of Defensive Intrval Ratio

viii
 Abbreviations

BBS : Bachelor of Business Studies

BS : Bikram Sambat

CA : Current Assets

CL : Current Liability

CR : Current Ratio

NPAT : Net Profit After Tax

RBB : Rastriya Banijya Bank

ROA : Return on Assets

Rs. : Rupees

T.U. : Tribhuvan University

ix
 CHAPTER -1 : INTRODUCTION
1.1 Background of the Study
Liquidity is a ability of a company to meet the short-term obligation. It is the ability
of company to convert it's assets into cash. Generally, short-term signifies obligations which
nature within one year. Short-term reflects the operating cycle: buying, manufacturing,
selling and collecting. A company that can not pay its creditors on time and continue not to
honor its obligations to the suppliers of credit, services and goods can be declared a bankrupt
company. Inability to short-term liabilities may affect the company's operations and in many
cases it may affect its reputation too. Lack of cash or liquid assets on hand may force a
company to miss the incentives given by the suppliers of credit, services and goods. Loss of
such incentives may result in higher cost of goods which in term affect the profitability of
the business. So, there always a need for the company to maintain certain degree of liquidity.
However, there is no standard rule for liquidity. It depends on the nature of the business,
scale of operations, location of the business and many other factors.

Liquidity refers to the degree to which an asset can be sold as quickly as possible
without significant loss in asset value. In the context of bank, management, liquidity refers to
the cash flow ability of a bank to meet deposits withdrawals, loan commitments, and
unexpected expenses without having to liquidate other assets. Banks are often evaluated on
their liquidity or their ability to meet cash and collateral obligations without incurring
substantial losses. Thus, the focus of liquidity management is to reduce the liquidity risk
exposure of banks.

Commercial banks holds liquid assets balanced in the form of currency, bank balance,
marketable securities and other assets in immediately convertible into cash. Liquidity can be
viewed in terms of liquidity available through purchases funds. Liquidity ratios are used to
determine a company's ability to meet short-term obligations. Investors often take a close
look at liquidity ratios when performing fundamental analysis on a firm, since a company
that is consistently having trouble melting its short-term debt is at art of higher risk of
bankrupt. Liquidity ratios are a good measure a whether a company will be able to
comfortably continue as going concern any type of ratio analysis should be looked at within
the correct context. For example, investors should always look at the company's ratio against
those of its competitors. It's sector and its industry and over a period of several years.
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The commercial banks receive deposits and lend it to those who need it after executing
required document actions and after making the necessary position for reserve as per
regulations. Commercial banks these days, undertake numerous kind of financial activities
and provide numerous kind of financial services. The commercial banks are second type of
bank and considered as the heart of the economic system. In Nepal, the Nepal Bank Limited
is the first commercial bank established in 1994 B.S. the second commercial bank is Rastriya
Banijya Bank Limited established in 2031 B.S. to develop economic development to the
country, now more banks are established as a commercial bank. Commercial bank is an
organization which exchange money, accept deposit, grant loan and perform different
functions,

1.2 Profile of the Study

Rastriya Banijya Bank Limited (RBBL), National Commercial Bank is fully owned,
and largest commercial bank in Nepal. Which is the second class 'A' commercial bank of
Nepal and the first commercial bank of Class 'A' is Nepal Bank Limited. RBBL established
on 10 B.S. Magh 2022(January 23, 1966) under the RBB Act, 2021. RBB provides banking
services to customers including banks, insurance companies, industrial trading houses,
airlines, hotels and many other sectors. RBBL has 270 branches and 200 ATM.

Contributed under RBB Act, 2021 with the full ownership of the Government of
Nepal, the bank has been running under Bank and Financial Institute Act (BAFIA) and
Company Act, 2063. The Bank, licensed by NRB as 'A' class commercial bank of the country
is a component of the Nepalese economy.

The bank was established with an authorized capital of Rs. 10 Million, issued capital
of Rs. 2.5 million and paid up capital of Rs. 0.842 million. RBBL endured, many stressful
years of business and faced existential questions at some point of time in the past. But
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learning and lessons from the events and craving towards the brighter. Future, the bank
successfully implemented a restructuring plan, and now it stands as one of the most preferred
bank with highest number of customers all 77 Districts and 7 Provinces of the country. The
bank has been able to imprint its presence in National economy through efficient allocation of
resources in all sectors of economy thereby enhancing production and generating
employment opportunities within the country. The unflinching faith and goodwill best owed
by our customer continued support from the Government, well wishes and general public has
been the reason for us to stand as the most trusted bank in the country.

Vision :-
The most credible banks for one and all, always contributing towards nations
prosperity.

Mission :-
To enhance the quality of life all Nepalese eliminating barriers to financial access and
helping them achieve their full potential and by ensuring safe, innovative and affordable
financial services, through vast networks of efficient centers, socially responsible business
processes and empathetic human resources.

Strategy
RBBL's envisioned intention is to become the leading provider of diverse financial
services to all Nepalese.

1.3 Objective of the Study

The main objective of the study is to analyze the liquidity and profitability of the
RBBL. However, the specific objectives of this study are as follows:
a) To analyze the liquidity position of the RBBL
b) To examine the liquidity ratio of RBBL
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1.4 Rationale of the Study
This study is about will focused on financial performance of RBBL after the study of
this research is will be valuable for management of RBBL that helps in developing the
strategies for financial performance. This study will also provide good insight about financial
position of commercial bank in Nepal, who wants to do for the study in this field. Moreover,
this study will be helpful for the researcher who wants to conduct research in RBBL.

1.6 Literature Review

The literature review section of the study over the overview of the Nepal banking
system and the capital requirement, the theoretical and empirical study review in the areas of
financial performance of development bank of Nepal. Moreover, It presents the variable and
conceptual framework as well as main theories and research relating the liquidity of the bank.

Conceptual Review
In this section provides a critical analysis of the most relevant theories from the
classical to modern approaches also presenting the theoretical concepts of the studied field,
the definition of the main variables, as the main theories and researchers relating the financial
performance of commercial bank.

Financial Variables

Independent Variables Dependent Variables

- Current assets - Current ratio

- Current liabilities - Quick ratio

- Quick assets -Return on assets

Figure 1.1 Financial variables

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Independent Variables

An Independent variables are those that are stable and unaffected by change in
other variables but change in independent variables could change other variables. These kinds
of variables can affect positive and negative to dependent variables. The measurements of
independent variables are current assets, current liabilities and quick assets.

Dependent Variables

Dependent variables are effect and change by independent variables. It's always
depends on independent variables. The measurements of dependent variables are current
ratio, quick ratio and return on assets.

Liquidity Ratio

Liquidity reflects the short -term financial strength of the organization. In other
words, it is the ability of the firm to meet it's short-term obligation. Thus, the liquidity ratio
shows the relationship of the firms current assets to its current liabilities and its ability to
meet maturing debts. It indicates whether the firm would be in position to meet its short-term
obligation in time.

Current Ratio

Current ratio is fraction of current assets and current liabilities. Basically, current
ratio must be 2:1 which indicates the current assets is double of current liabilities of an
organization.

Where,

Current assets= Cash + Marketable securities+ Account receivables+ Inventories+ Prepaid

expenses

Current liabilities = Account payable+ Note payable + Accruals + Other current liabilities

Quick Ratio

Quick ratio is fraction of quick assets and current liabilities. Normally, quick
ratio must be 1:1 which indicates that quick assets is equal to current liabilities in
organization.
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Where,

Quick assets = Total current assets- inventories - Prepaid expenses

Or, Quick assets = Cash + Marketable securities + Account receivable

Return on Assets

To gaining reward rate in gross/ total assets is known as return on assets.

Actually, we determine this ratio to know the profitability of organization. As well as the
ratio must be higher is the eligible. This ratio calculated by:

Return on Assets = Net Income

Total Assets

1.6 Methods of the Study

Research methodology is the research method used to test the hypothesis. It

sequentially refers to the various steps to be adopted by a researcher in studying a problem
with certain objectives in review. Generally, It refers to the numerous processes adopted by
the researchers during the research period. The purpose of the research methodology section
is to describe the nature of the research design, sampling, gathering and procedure and data
collection and analysis procedures. This section includes the following information.

1.6.1 Research Design

This research has followed the descriptive research design because this research
identifies and studies the financial performance of Rastriya Banijya Bank Limited. This study
is based on quantitative research which required quantity of data.

1.6.2 Population and Sample

The population refers to the industries of the same nature and it's services and
product in generals. Population is the entire collection of interest i.e. people, objects and
events as defines by researcher and sample is the entire collection of all observations of the
interest for the researcher. Currently, there are 20 commercial banks in Nepal. Out of 20
commercial banks of Nepal, Rastriya Banijya Bank Limited is taken as sample for this report.
Convenient sampling method is used for this study.
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1.6.3 Data Collection Procedure

While preparing the data is collected from secondary sources. Secondary data
refers to data was collected by someone other than the users. It's originally collected but
obtained from some published or unpublished sources i.e. the reports and publications made
by Central Bureau of Statistics are primary for that organization but secondary for those who
use it so, in the course of preparing this report the necessary data and documents are collected
only from secondary sources.

1.6.4 Methods of Data Collection

While preparing this report data are collected from secondary sources. The
researchers have used quantitative data. Data collection techniques used by secondary data
collection method, which are presented bellow:

i) Previous research report

ii) Books

iii) Annual report

iv) Websites

1.6.5 Method of Data Presentation and Analysis

In this report, the researchers have used the following presentation and analysis
tools:

Statistical tools

Table

Trend lines

Percentage

Correlation

Financial tools

Current Ratio
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Quick Ratio

Cash Ratio

Defensive Interval Ratio

1.7 Limitation of the Study

The present study is to analyze and to examine the liquidity position of Rastriya
Banijya Bank Limited. The main limitations of this study are as follows:

i) The study has covered the period of five financial year starting from 2075/2076 BS to
2079/2080.

ii) The information data and facts regarding the financial performance has based on
secondary data.

iii) Limited statistical and financial tools are used to while conducting this research.

iv) This research work is confined only to liquidity analysis of RBBL.

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CHAPTER - II

RESULTS AND FINDINGS

2.1 Data Presentation and Analysis

The main purpose of the chapter is to introduce the method of interpretation of

the data to fulfill the research objectives. The raw data collected from the literature review
and through review of various financial statement of bank. Organized and presented in the
form of tables, charts and different tools were applied to the data to draw valid conclusions.
The main purpose of the study is to highlight the study on liquidity position and profitability
position of the bank.

Liquidity Ratio

Liquidity refers to the firm's ability to meet the short-term obligations or

commitments from current assets and liquid assets. To measure the liquidity of any firm's
liquidity ratio can used as an important analytical tool. Liquidity ratio measure the firm's
ability to meet its current obligations. It compares short term obligations to short term
resources available to meet those obligations. So, its reflects the short term financial strength
of business concern profitability refers to the organization ability to earn profit.

Current Ratio

Current ratio shows the relationship between the current assets and current
liabilities. It measures short run debt paying ability and reflects the short term financial
strength / solvency of the bank. Higher the current ratio, greater the margin of safety for short
term creditors and vice versa. In other words higher current ratio indicates that the firm is in
liquidity position and has ability to pay its current obligations in time and when they become
due and vice versa. Current ratio is calculated by dividing current assets by current liabilities.

Current Ratio (CR) = Current assets

Current liabilities
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