A report on Current Deposits of Himalayan Bank Limited

CHAPTER – 1

1. INTRODUCTION

1.1 BACKGROUND OF THE STUDY

It is reasonably simple exercise to identify a bank as an institution whose essential
operation is to take deposits from public and to lend money. Banks accumulate idle money from
the general public by providing attractive sound interest rate in their deposits and disburse the
collection deposit as loan to business organizations industrial sector agricultural sector and needy
people etc. So, we can say that the main task of commercial bank is to mobilize idle resources in
productive areas by collecting it from scattered sources and generating profit. Thus, banks acts as
intermediaries channeling saving into investment and consumption through them, banks fulfill
the investment requirement of savers with the credit needs investors. In this way, bank plays an
imperative role in the economy by providing effective service, efficiency towards the attainment
of economic development.
Nepal is a very small landlocked country with a very low per capita income .Only 49% of
the total population is literate in Nepal. The significance and the need of the bank is confine to
the urban people only to a much extent as seen from the openings of such commercial banks in
the urban areas and no signs of such financial institution in rural areas where it is most pressing.
Bank makes a better use of money and mobilizes the people's savings in productive sectors. It
helps in every aspect of the government. Nevertheless, the bank is the best advisor for all the
economic activities of the government.
Himalayan Bank Limited is the first commercial bank of Nepal with maximum share
holding by the Nepalese private sector. The bank operation was commenced from Magh 5, 2049
B.S. (January, 1993). At the time of commencement, the bank had the authorized capital of only
NRs. 240 million and paid up capital was only NRs.120 million. But its authorized capital has
reached to NRs. 1,000 million and paid up capital to NRs. 429 million. In fiscal year 2059/2060,
its return on Shareholder's Equity was only 1.76%, which has been now increased to 23.19% for
fiscal year 2062/2063. The return on Loan and Advance at initial was 0.23% only but been
increased to 2.12% during the year under review. Similarly, the trend in increasing percentages
can be seen on Return on Total Assets from 0.13% at its first year of commencement to 0.91%

__________________________________________________________ 1
 A report on Current Deposits of Himalayan Bank Limited

for the year under review. Thus, HBL continue to maintain its number one position among the
joint venture banks in attracting the largest share of deposits and loans and advances during the
year under review. Because of HBL goodwill among its customers and its efficiency in the
banking sector the nationwide lure me for its study behind the reason on attracting a pool of
customers for deposits and its beneficial from the point view of account holders. This field report
is based on the five fiscal year data as published by HBL for its ninth annual report. I am
confident that this report proves to be a valuable contribution made to know about its deposits
and its mobilization made by the bank itself. Thus, the report attempts to examine and evaluate
the financial performance of HBL with special reference to deposits.

1.1.1 Commercial bank in Nepal (Historical Development) brief review:

Commercial bank occupies quite an important place in the framework of every economy
because it provides capital for the development of trade, industry and business investing the
collected saving as deposits. Besides these, commercial bank renders numerous services to their
customers and shareholders in view of facilitating their economic and social life. All the
economic activities of each and every country are greatly influenced by the commercial banking
business of that country. Commercial banks are playing active role and have changed the
economic structure of the world. Broadly defined Capital and Assets structure management of
commercial bank includes all the policies and approaches designed to obtain funds from deposits
and investment.
As being a developing country Nepal is directing its efforts to uplift their economy
rapidly. But still it has been an agricultural dominated economy, considering economic and
social development as the primary objectives. Nepal has adopted the “Mixed economy Model”
with the implicit assumption that the state and private sectors can compliment each other in the
development process over time. Bank provides opportunity to the people for the participation in
the development process of the country via issuing shares to own by them and accepting deposits
from them. The bank can mobilize and invest such accumulated resources in the field of the
agriculture, trade commerce, industry, finance, tourism, and hydroelectricity project etc.
The history of banking dates backs to sixteenth century. However, in Nepal formal
banking system was introduced only in November 1937 with the establishment of Nepal Bank
Ltd. (NBL), which is regarded as pioneer institution of modern banking system and served as a

__________________________________________________________ 2
 A report on Current Deposits of Himalayan Bank Limited

sole financial institution, the "Tejaratha Adda." However, the services offered were not
sufficient. Actually, the formation of high committee board "Udyog Parishad" was indeed a
landmark in opening new avenue in field of banking, industry and commerce. Accordingly, NBL
was established in November 1937 under Nepal Bank Act at joint venture between government
and private sector and replaced the Tejaratha Adda by taking over its operation and overcoming
its limitations. To regulate issue of currency securing country wide circulation of Nepalese
currency, achieving stable exchange rate and to mobilize capital for economic development and
for stimulation o f trade, industry and banking sector, Nepal Rastriya Bank (NRB) came into
existence in April 26, 1956 as county's central bank. After this, NRB diverted its attention
towards development of banking system by formulating relevant policies and procedure. In this
connection commercial bank act 1963 was promulgated, credit control regulation was
formulated. Hence, further shouldering the banking services, the Rastriya Bank (RBB) was
established in 1966 under RBB Act 1964 with full government ownership to spread banking
services to both the rural and urban areas.
A Joint Venture, an association of two or more persons or parties having exceptional
advantages in specific operation, is undertaken to make the operation highly remunerative with
their collective efforts. In 1980’s government introduced “Financial Sector Reforms” which
facilitated the establishment of Joint Venture Banks (JVBs), which give a new horizon to the
Nepalese Banking Sector. Joint Venture Bank especially with foreign banks was expected to
bring technology, modern management as well as foreign capital in the banking industry.
Besides, JVBs have been contributing a lot towards the promotion and expansion of both export
and import trade. They provide both pre–shipment and post shipment finance to exporters. Since
these banks being new, urban based and run by foreign management, they started their operations
with the accumulated system which could easily attract the elite group of business community
and expatriates due to their prompt service, modern management. With the advent of economic
liberalization in the early 1980’s joint venture bank appeared in Nepal. Nepal Arab Bank Ltd
(2041B.S) took birth as a pioneer joint venture in Nepal. Since then, other Eleven Joint Venture
banks have been in operation.
1. Nepal Investment Bank Ltd. (2042 B.S. / 1986 A.D.)
2. Standard Chartered Bank Nepal Ltd. (2043 B.S. / 1987 A.D.)
3. Himalayan Bank Ltd. (2049 B.S. / 1993 A.D.)

__________________________________________________________ 3
 A report on Current Deposits of Himalayan Bank Limited

4. Nepal SBI Bank Ltd. (2050 B. S. / 1993 A.D.)

5. Nepal Bangladesh Bank Ltd. (2051 B.S. / 1994 A.D.)
6. Everest Bank Ltd. (2051 B.S. / 1994 A.D.)
7. Bank of Kathmandu Ltd. (2052 B.S. / 1995 A.D.)
8. Nepal Credit & Commerce Bank Ltd (2053 B.S. / 1996 A.D.)
9. Nabil Bank Ltd. (1984 A.D.)
10. Kumari Bank Ltd. (2001 A.D.)
11. Nepal Industrial & Commercial Bank Ltd. (1998 A.D.)

Finally, it is relevant to define the meaning of commercial bank according to commercial

bank Act, 2013 (1974), which requires, " commercial bank means" a bank which operates
currency exchange transaction, accepts deposits, provide loan and performs dealing relating to
commerce, and other than these banks which have been specified for the cooperative, agriculture,
industry of likely and any other specific objective.

1.1.2 Function of Commercial Bank

Banks can be defined according to the function they perform. Bank is established with
the prime objective of profit maximization. To achieve, this bank performs various functional
activities " principally, commercial bank accepts deposits, provides loans, primarily to business
firms there by facilitating the transfer of funds in the economy". Although, in the yesteryears
banks were viewed as acceptor of deposit ban provider of loan, but modern commercial banks
have to perform for overall development of trade, commerce, industry, agriculture including
priority and deprived sector. The growing banking needs and habits of people and competitive
environment has made the banking sector challenging and their operation cannot be under
emphasized in present context of marked globalization. Hence, "A bank is an institution
individual who is always ready to receive money on deposits to be returned against the cheques
of their depositors."

__________________________________________________________ 4
 A report on Current Deposits of Himalayan Bank Limited

Main Function of Commercial Bank

Although profit maximization is a mount objective of commercial bank, to achieve this
objective, commercial bank performs various functions under mandatory rules and regulation
and directives of NRB and Commercial Bank Act, 2031 (1974).

Primary Function
a) Acceptance of Deposits: Commercial Bank collects money from public in different
types of deposit account:
 Saving Account
 Fixed Account
 Current Account

b) Advancing of Loan: Commercial Bank provides the required loan or credit to various
sectors of economy such as ads, industry, trade, agriculture, business, deprived sectors, etc. In
this way bank creates credit. It provides loan from various procedures in different form such as:
 Over Draft
 Cash credit
 Direct loan with collateral
 Discounting bill of exchange
 Loans of money at call and short notice

General Utility Functions

Commercial Banks also perform general utility function such as:
 To issue letters of credit and travelers cheque.
 Collection and payment of cheque, bills, promissory note etc.
 Remittance of money.
 Keeping Valuable things under safe custody.
 Collection of trade information and banking statistics.
 Dealing in foreign exchange.

__________________________________________________________ 5
 A report on Current Deposits of Himalayan Bank Limited

Agency Function
Apart from above function, commercial bank also performs agency function for which it
acts as agent and claims commission on some facilities such as:
 Collection of customers' money from other banks.
 Receipt and payment of dividend, interest.
 Security brokerage service.
 Financial advisory service.
 To underwrite the government and private securities.

1.1.3 Introduction to Himalayan Bank Ltd. (HBL)

Himalayan Bank Limited was incorporated in 1992 by the distinguished business
personalities of Nepal in partnership with Employee Provident Fund and Habib Bank Limited,
one of the largest commercial banks of Pakistan. Banks operation was commenced from January
1993. It is the first commercial bank of Nepal with maximum share holding by the Nepalese
private sector. HBL's board of directors, the policy making body constitutes of seven members of
which one is chairman, one is nominated from Habib Bank Limited, Pakistan, one is nominated
by Employee Provident Fund and one member is elected from public shareholders and Annual
General meeting nominates three. HBL has authorized capital of NRS. 240,000,000 divided into
equity share of Rs. 100 each out of its NRS. 12,000,000 issued capital. The promoter holds 5.1
percent of share, Habib Bank Limited, Pakistan holds 20 percent and financial institution holds
14 percent by Nepalese citizen. Himalayan Bank has access to the worldwide correspondent
network of Habib Bank of funds transfer, letters of credit or any banking business anywhere in
the world. Habib Bank in Pakistan has over 1700 domestic and 65 branches covering all
continents and over 1800 correspondents worldwide. Besides HBL commercial activities, the
Bank also offers industrial and merchant banking.
The bank at present has six branches in Kathmandu Valley namely Thamel, New Road,
Maharajgunj, Pulchowk (Patan), Suryavinayak (moved from Nagarkot) and Card Centaer in
Pulchowk. In addition, the bank also has been ten branches outside Kathmandu Valley in
Baneps, Tandi, Bharatpur, Birgunj, Hetauda, Bhairahawa, Biratnagar, Pokhara, Dharan and
Butwal. The bank is also operating a counter in the premise of the Royal Palace. The bank is

__________________________________________________________ 6
 A report on Current Deposits of Himalayan Bank Limited

aggressively opening more branches at different parts of the Kingdom to serve its customers
better.
Himalayan Bank is always committed to providing a quality service, with a personal
touch, to its valued customers. All customers are regarded as valued clients and treated with
utmost courtesy. The Bank, wherever possible, offers tailored facilities to its clients, to meet
unique needs and requirements of different clients. To further extended the reliable and efficient
services to its valued customers. Himalayan bank has adopted the latest banking technology and
runs the world class banking software Globus on IBM platform. The Bank can now boast of its
state-of-the art IT infrastructure with an identical Disaster Recovery System, offsite. This has not
only helped the Bank to constantly improve its service level but has also prepared the Bank for
future adaptation to new technology. The Bank already offers unique services such as
HimalRemit, SMA Banking, Pre-paid Credit Cards and Internet to customers and will be
introducing more services like these in the near future.
Himalayan Bank is committed to be a Bank which has "The Power to Lead".

Function of HBL
HBL has been providing different services and products to their customers from their five
branches inside the Kathmandu valley and other six branched outside. Besides performing
ordinary banking operations as commercial banks, it has also announced some distinct product,
service and activities, which are as follows:

a. Credit Card
HBL has been pioneer in introducing a Nepalese domestic credit card "Himalayan Bank
Credit Card" valid in Nepal. The bank has also introduced "Himalayan Bank Gold Card " with
additional privileges.

b. Tele-Banking
To provide more prompt and efficient service to customer, HBL has been the innovator in
introducing Tele-Banking service. The customers just have to dial a pre-specified telephone
number and they will be able to make inquiries about balance and statement, order statement and

__________________________________________________________ 7
 A report on Current Deposits of Himalayan Bank Limited

cheque book, request for instant faxing of statement and get information on foreign exchange
rates.

c. All Branch banking

This service has enable HBL make certain operation like withdrawal and deposit of cash
and cheques from any of their branches within the country. Customers maintaining an account
with a branch can walk in any of other branches convenient to operation of account. They are not
restricted to a particular branch for account operation.

d. Automated Teller Machine (ATM)

HBL has established an ATM, which enabled them to extend service for 24 hours. To
utilize this facility the customer must request for ATM card from any of its branches.

e. Visa Card
HBL is a principal member of visa international. The bank has been issuing and acquiring
visa card transaction.

f. Master Card International

The bank has also obtained the membership of prominent and widely used master card
international.

g. Swift
To enhance the banking operation with modern techniques in the bank has also obtained
the membership of Swift (Society of World Wide Inter-Bank Financial Telecommunication),
which has resulted in prompt and easy banking transaction.

h. HRD Training
Bank has been organizing the training and workshop programs for their employee to
acquire or sharpen capabilities, to develop organizational culture, to discover new potential
areas, to enhance their relation with customer and to make their customer service more effective,
prompt, and reliable.

__________________________________________________________ 8
 A report on Current Deposits of Himalayan Bank Limited

Deposits
An individual person, sole proprietorship firm, company and other such as clubs,
societies and association are eligible for opening of accounts in HBL. Either single or joint
account can be opened by any customer complying with the general rules for account opening
and fulfilling the document requirement.

The Bank offers following types of deposit schemes to the customers:

1. Checking / Current Account
2. Savings Account
3. Short Term Deposit Account (7 days to 90 days)
4. Fixed Term Deposit (Above 90 days)

The Bank accepts and maintains these types of deposit accounts in the following
currencies:
1. Nepali Rupees
2. U.S. Dollar
3. Pound Sterling
4. Deutsche Mark
5. Japanese Yen
6. Swiss Franc

Deposit Features
HBL provides both saving deposit scheme and fixed deposit scheme to its valued
customers. HBL has been a pioneer in introducing its customers with the following deposit
features.

Accidental Death Insurance

As an innovative measure, there is accidental death insurance cover for individual
account holders. The insurance benefit payable to the nominee of the account holder will be a
lump sum equivalent to four times the minimum balance in the account during the month of the
event. Subject to a maximum of Rs. 5000,000.00

__________________________________________________________ 9
 A report on Current Deposits of Himalayan Bank Limited

Premium Savings Account (PSA) Scheme

The Premium Saving Accounts scheme (PSA) provides incentives for accounts with
balance over Rs. 50,000/-. PSA holders are served through a special counter in all our branches.
The participants of this scheme can receive Himalayan Bank Gold Card, ATM card along with
Tele- banking facility, free of charges. However, the credit card issuance is subjected to HBL
routine credit analysis. The customers under this scheme are given preference in providing Safe
Deposit Lockers. They also enjoy 20% discount in rental charges on small size lockers. Interest
on all such accounts is calculated on daily balance basis. PSA holders maintaining average
balance of Rs. 100,000/- for one complete month as per our Nepali calendar are eligible to
participate in a lucky draw under which one point is awarded to every PSA holders’. For
example : PSA holder maintaining average balance of NRs. 1,000,000.00 that month is awarded
10 points for the draw in random order, thereby increasing the chance of winning bonus 10 fold.
The prizes may be changed at the discretion of the Management from time to time, as and when
necessary. Any possible or unforeseen government regulatory expenses are charged to the Bonus
Value.

Interest Rate and Charges

The Bank's deposits and lending interest rates and service charges for various banking
facilities are very competitive. These may be ascertained from any of the branches or by email.
HBL is pleased to announce its revised rates of interest on deposits effective from Monday,
Falgun 18, 2060 (March 01,2004)

__________________________________________________________ 10
 A report on Current Deposits of Himalayan Bank Limited

Table 1
Himalayan Bank Limited Interest Rate
Types of Deposit Currency & Duration %Per Annum
Saving Local Currency 2.50
Premium Savings 2.75
Foreign Currency (US$) 0.40
Fixed 14Days 1.75
01Month 2.00
03Month 2.75
06Month 3.25
01Year and above 3.75

The above table shows that fixed deposits interest rate increases with an increase in time
duration yielding higher interest to its fixed deposits holder in comparison to its saving deposits
holder. So, higher interest is offered for long-term deposits and lower interest rate for short-term
deposits.

HBL Performance for the Fiscal Year 2062/63(Mid-July2005/2006)

The total deposits of Bank amounted to Rs.21,007. 38 million by the end of FY 2062/63
(Mid-July 2005/2006). This figure was Rs.18,619.38 million at the end of previous fiscal year.
Thus, total deposits grew by 12.83% during the year under review. In the total deposits, the
highest share was that of saving deposits amounting to Rs.10,871.30 million (51.75%), fixed
deposit amounted to Rs.3,205.73 million (15.26%), current deposit Rs.3,501.93 million
(16.67%), call deposit Rs.3041.87 million (14.48%) and other deposits Rs.368. 54 million
(1.84%).The loans and advance portfolio increased by 12.21% over the last FY and stood at
Rs.10,001.85 million at the end of the year under review. Likewise, there was substantial
increase in investments amounting to a total of Rs.10, 175.44 million compared to the previous
FY's Rs.9,157.11 million.
The total assets of the bank stood at Rs. 23,355.22 million making an increment of
12.98% more than previous FY at the end of the year under review. Further, the net worth of the

__________________________________________________________ 11
 A report on Current Deposits of Himalayan Bank Limited

Bank increased by 24.45% amounting to Rs.1,868.63 million in FY 2062/2063 from Rs.1501.53

million for the FY 2061/2063 last year.
The Bank made a net profit of Rs.212.13 million during the FY 2062/2063. In the
previous financial year, such profit was Rs. 235.02 million. The operating profit of the Bank
increased by 8.76% over the last FY and stood at Rs.602.90 million for the FY 2062/2063.The
comparative financial indicators for FY 2059/60 (2002/03) and FY 2060/61 (2000/01) are given
in the table below.
Table 2
Himalayan Bank Limited's Financial Indicators for FY 2061/62 (2004/05) to
FY 2062/63 (2005/06).
(Rs. In Million)
S. No Particulars 2061/62 2062/63 Increase %
(2004/05) (2005/06)
1. Net worth 1,501.53 1,868.63 24.45
2. Total Assets 20,672.43 23,355.22 12.98
3. Deposit 18,619.38 21,007.38 12.83
4. Loans & Advance, Bills Purchased 8,913.72 10,001.85 12.21
and Discounted
5. Investment 9,157.11 10,175.44 11.12
6. Net Interest Income 570.87 647.10 13.35
7. Other Income 240.79 253.07 5.10
8. Operating & Staff Expenses 257.32 297.28 15.53
9. Operating Profit 554.33 602.90 8.76
10. Net Profit 235.02 212.13 (9.76)

Objective of HBL
The commercial banking industry has been passing through a various phase of transition
right from its inception which is now operating with the liberalization of financial policies, but
has given a way to some malfunctioning, misuse or fraudulent practices, deregulation in banking

__________________________________________________________ 12
 A report on Current Deposits of Himalayan Bank Limited

environment. So as to capture the increased interest sensitivity of depositors "manage the

change" has become the important management objectives of banks are:

1. To organize the structure to meet the challenges of changing environment.

2. To improve customer service.
3. To introduce new schemes.
4. To improve house keeping.
5. To improve technology in banks.
6. To modernize office equipment.
7. To train employees on an ongoing basic.
8. To improve work ethics.
9. To improve the quality of banking service.
10. To improve the health of the organization.
11. To improve value system.
12. To improve productivity through participative management.
13. To improve inspection and social audit.
14. To follow instruction and serve the community.
15. To rise above and serve the community.
16. To utilize human resource for improving quality of life.
17. To develop leadership and entrepreneurial spirit among the cadre.
18. To motivate employees to work efficiently, productively and profitably.
19. To evolve a unique monitoring and controlling system.
20. To improve the image and strengthen the confidence of people in system.

1.2 Statement of the Problem

As we know that the main objective of commercial bank is profit maximization, which is
obtained by mobilization of resources they have. But if the bank fails to collect adequate deposits
then it losses profitable opportunities and hence fails to generate profit. It the bank is not able to
collect sufficient deposits it must make some permanent change in its policies otherwise there
will be a question put forth and survival of that particular bank in this highly cut-throat
environment of commercial sector.

__________________________________________________________ 13
 A report on Current Deposits of Himalayan Bank Limited

In order to sufficient number of depositors i.e. from the view point of quantity and
quality, the bank should analyze their position in cash collection and trend of deposit in their
bank. The above quantity and quality means that the depositors should deposit more volume of
cash not more number is taken in consideration which implementing cash collection policy.

1.3 Objective of the Study

1. To analyze the total share of HBL deposits in Nepal.
2. To analyze the share of current deposit out of total deposit in HBL.
3. To analyze the trend of current deposit in HBL.
4. To analyze current deposit scheme.
5. To draw out problem in current deposit management.
6. To point out some suggestion and to recommend HBL regarding current deposit
management.
7. To analyze the financial performance of HBL.

1.4 Need / Importance of the Study

HBL has been providing its services to its valuable customers since the date of its
commencement on Magh 5, 2049 B.S. Mostly among various deposit features provided by
commercial banks, current deposit is also considered to be important. As we know current
deposit cannot be utilized to make medium term and long term investment due to their
uncertainty of quantity and time withdrawal. Therefore any amount of cash can be withdrawed
during the banking time. So this facility provided is very much helpful to the businessman. This
type of facility is not available in fixed deposit as well as saving deposit.
Besides this the study bears much usefulness to various parties, as mentioned below:

a. To the Management
The management also wants to know the financial viability of the bank. This study will
be helpful to go deeply into the various matters as to why the performance of their bank is better
(or worse) than other Joint Venture banks. The management will know about their loose areas
and gaps, which can be corrected in future.

__________________________________________________________ 14
 A report on Current Deposits of Himalayan Bank Limited

b. To the Shareholders
Shareholders will also be benefited by this study. They want to know how their funds
are utilizing and to what extent they are joining? The study will help them to identify the
productivity of their scarce sources.

c. To the Others
Others refer to these all interested group except the management and the shareholders,
such as depositors, debtors, investors, competitors, stockbrokers, merchant bankers' etc. These
groups will be interested in the performance of HBL for their own way such as whether to
deposit or not? Invest or not? Finance or not? Moverover, creditors are eager to know the short-
term solvency of the bank. The study will be helpful for all types of groups.
Hence, the study will be useful for various groups. Nevertheless, the policy makers will
also be benefited from the study. They are officials of government, Security Exchange Board,
Nepal Stock Exchange, Tax Office etc. The present study helps them in formulating the policy
regarding joint venture banks. Therefore, the study will be of much importance and bear
productive mature.

1.5 Limitation of the Study

It is a common fact that every study is conducted within certain limitations. The present
study has been conducted within the following limitations mentioned below.
1. The study has been confined only to one JVBs named HBL.
2. The study is based mainly on secondary data and to some extent on primary data too.
3. The study covers a period of seven fiscal years' i.e. from FY 2056/2057 i.e. Mid-July
1999/2000 to FY 2062/63 i.e. Mid-July 2005/2006.
4. The study has paid much attention towards the Balance Sheet and Profit and Loss
Account of HBL.
5. The study is based on the published annual reports of HBL.
6. The study focuses only on current deposits, so the study may not be sufficient for
depth analysis on banking financial performance.
7. Only limited financial tools i.e. ratio analysis and to some extents statistical tools are
used for this analysis.

__________________________________________________________ 15
 A report on Current Deposits of Himalayan Bank Limited

1.6 Research Methodology

Types of Study
This is an analytical case study of HBL's current deposits.

Types of Data Used

The main sources of data are secondary extracted from the annual report publication from
HBL, publication of NRB and CBS are also taken as secondary data. Balance Sheet and Profit
and Loss Accounts of last five years are taken for the secondary means. At time of necessary, the
primary sources of information are collected through discussions and enquiries made from
Himalayan Bank Limited , Biratnagar Branch.
Thus, the sources of data, the published annual reports and data are of secondary nature.
The primary data are also used in the study wherever necessary.

1.7 Data Collection Procedure

The basic secondary data from the published annual reports by HBL of different years are
collected through the bank employees of HBL. Before writing this reports, I too discussed with
various staffs of HBL to make it more clear and simple for the conduct of my study.

1.7.1 Analysis of Data

In this research study, the basic secondary data extracted form the annual report of HBL
have been processed, tabulated, analyzed and interpreted considering the requirement of the
management. I basically used the secondary data, which are first analyzed and tabulated into a
separate form systematically. A different financial as well as statistical tool has been used to find
out the actual performance of HBL current deposits. The main tool adopted to analyze the data is
Accounting Ratio. Other simple statistical analysis such as standard deviation, coefficient of
variation, trend percentage etc. are calculated where necessary.

__________________________________________________________ 16
 A report on Current Deposits of Himalayan Bank Limited

1.7.2 Tools and Techniques of Analysis

There are so many terms and techniques to analyze the performance of financial
institution, but here for the financial performance analysis of the data the following tools are
used.
a.Financial Tools
b. Statistical Tools

a. Financial tools
There are different types of financial tools that can be applied to analyze the financial
performance of HBL bank, but for our research analysis, following ratio analysis tools are used:

i. Liquidity Ratio
1. Cash reserve ratio (CRR)
2. Balance with NRB to total deposit rate.
3. Liquid assets to total deposit ratio.

ii. Activity ratio

1. Investment to total deposit ratio.
2. Total credit to total deposit ratio.

iii. Current with other ratio

1. Current to total deposit ratio.
2. Cash and Bank balance to current deposit ratio.
3. NRB bond to current deposit ratio.

b. Statistical Tools
For our research study following selected statistical tools is taken to examine the
economic data of HBL:
1. Mean
2. Standard deviation

__________________________________________________________ 17
 A report on Current Deposits of Himalayan Bank Limited

3. Co-efficient of variation
4. Time series
5. Percentage
6. Co-relation

__________________________________________________________ 18
 A report on Current Deposits of Himalayan Bank Limited

CHAPTER – 2

2. DATA PRESENTATION AND ANALYSIS

2.1 FINANCIAL ANALYSIS

2.1.1 Liquidity Ratio

Liquidity ratio measures the firm's ability to meet current obligations. It is extremely
essential for a firm to be able to meet its obligation as become due. A firm should ensure that it
doesn't suffer from lack of liquidity and also it is not too much highly liquidity. The failure to
meet its obligation due to lank of sufficient liquidity with result in bad credit rating. Loss of
creditors’ confidence or even question arises in survival means idle assets, which earns nothing.
Therefore, balance should be maintained better high and low liquidity. Liquidity ratio of HBL is
measured through following relevant ratios calculations.

2.1.1.1 Cash Reserve Ratio (CRR)

This ratio measures the availability of bank's liquid or immediate funds to meet its
unprecedented calls or demand on deposits (i.e. current, saving, fixed call deposit and others).
Thus, the required ratio is calculated by dividing cash and bank balance with total deposits.

Cash Reserve Ratio = Cash and Bank Balance / Total Deposits

Cash and bank balance includes cash in hand, foreign cash in hand, balance with NRB,
balance with domestic bank and balance abroad.
Total deposits include current, saving, fixed call and other deposit.

__________________________________________________________ 19
 A report on Current Deposits of Himalayan Bank Limited

Table 3
Cash Reserve Ratio of HBL
(Rs. In
Million)
Fiscal Year Cash and Bank Balance Total Deposits CRR (%)
2056/57 1,001.73 5,839.04 17.16
2057/58 1,029.10 7,713.60 13.34
2058/59 802.21 9,772.74 8.21
2059/60 901.91 14,043.09 6.42
2060/61 1,435.18 17,532.40 8.19
2061/62 1,264.67 18,619.38 6.79
2062/63 1,979.21 21,007.38 9.42
N=7years Mean 9.93
S.D. 3.63
C.V. 0.3656

Cash Reserve Ratio of HBL

2056/57

9.42% 2057/58
17.16%
6.79% 2058/59
2059/60
8.19% 2060/61
13.34%
6.42% 8.21% 2061/62
2062/63

Mean ( ) = /n where, n = Number of Years.

Standard Deviation (S.D.) = ² /n where, n = Number of Years.

Coefficient of Variation (C.V.) = S.D. / Mean

__________________________________________________________ 20
 A report on Current Deposits of Himalayan Bank Limited

The result from the above table shows that HBL has maximum CRR up to 17.16 percent
and minimum up to 6.42 percent for the FY 2056/57 and 2059/60 respectively. The total deposits
amounted to Rs.5,839.40 million and liquid fund (cash and bank balance) amounts to
Rs.1,001.73 million in FY 2056/57. In the same way, the total deposit has increased to
Rs.7,713.60 million with liquid fund up to Rs.1,029.10 million in 2057/58 having CRR 13.34
percent resulting a decrease in CRR. CRR continues to reduce to 8.21 percent in FY 2058/59.
Again, in FY 2059/60 the CRR is further reduced to 6.42 percent with significant increase in
total deposits yearly, which shows that the withdrawal from bank is low with increase in total
deposits. In FY 2060/61, the bank total deposits increases up to Rs.1,7532.40 million with
increase in liquid fund up to Rs.1,435.18 million having CRR of 8.19 percent which is more than
previous year. In FY 2061/62 CRR has reduced to 6.79 percent, and has increased upto 9.42
percent in FY 2062/63 as of significant increase in total deposits upto Rs. 21007.38 million and
liquid fund Rs. 1,979.21 million. Bank has maintained CRR of 9.93 percent for past seven years
with just 3.63 percent Standard Deviation and Coefficient of variation 0.3656 per unit.

2.1.1.2 Balance with NRB to Total Deposit ratio

Commercial banks have to maintain a balance of certain percentage of their total deposit
at NRB as mandatory. Thus, the required ratio is calculated by dividing balance with NRB by
total deposit.

Balance with NRB to Total Deposit Ratio = Balance with NRB / Total Deposit.

__________________________________________________________ 21
 A report on Current Deposits of Himalayan Bank Limited

Table 4
NRB to Total Deposit Ratio
(Rs. In
Million)
Fiscal Year Balance with NRB Total Deposits Ratio (%)
2056/57 681.40 5,839.04 11.67
2057/58 742.61 7,713.60 9.63
2058/59 515.60 9,772.74 5.28
2059/60 655.32 14,043.09 4.67
2060/61 1,073.23 17,532.40 6.12
2061/62 695.38 18,619.38 3.73
2062/63 1,153.14 21,007.38 5.49
N=7years Mean 6.66
S.D. 2.67
C.V. 0.4009

Balance with NRB to Total Deposit

Ratio of HBL
2056/57
2057/58
5.49% 11.67% 2058/59
3.73%
2059/60
6.12% 2060/61
4.67% 9.63%
5.28% 2061/62
2062/63

The above table shows that HBL has maintained a maximum of 11.67 percent balance
with NRB in FY 2056/57 of total deposits. The total deposits in FY 2057/58 rises up to
Rs.7,713.60 million of which Rs.742.61 million in balance with NRB. In the same way the bank
has maintained Rs.515.60 million balances with NRB out of Rs.9,772.74 million total deposits in
FY 2058/59. Similarly, Rs.655.32 million out of Rs.14043.09 million in FY 2059/60 and
Rs.1073.23 million out of Rs.17,532.40 million total deposits but the ratio has decreased to 4.67

__________________________________________________________ 22
 A report on Current Deposits of Himalayan Bank Limited

percent in FY 2059/60 and has increased to 6.12 percent in FY 2060/61. Further, the total
deposits in FY 2061/62 and 2062/63 rises upto Rs. 18,619.38 million and Rs. 21,007.38 million
of which NRs. 695.38 million and Rs. 1,153.14 million respectively are the balances with NRB
maintained by the bank. The average balance with NRB of this bank is 6.66 percent for the year
with Standard Deviation 2.67 percent and Coefficient of Variation 0.4009 per unit.

2.1.1.3 Liquid Assets to Total Deposit

Liquid assets of this bank consist of Cash in hand, foreign currency on hand, Balance
with NRB, Balance with domestic bank, Balance held aboard and call deposits. This ratio shows
the liquid assets maintained out of the total deposits. The ratio is calculated by dividing liquid
assets by total deposits.

Liquid Assets to Total Deposits = Liquid Assets / Total Deposits.

Table 5
Liquid Assets to Total Deposits
(Rs. In
Million)
Fiscal Year Liquid Assets Total Deposits Ratio (%)
2056/57 1,856.84 5,839.04 31.80
2057/58 3,176.03 7,713.60 41.17
2058/59 4,928.06 9,772.74 50.43
2059/60 5,584.67 14,043.09 39.77
2060/61 5,492.83 17,532.40 31.33
2061/62 1,617.02 18,619.38 8.68
2062/63 1,582.02 21,007.38 7.53
N=7years Mean 30.10
S.D. 15.13
C.V. 0.5026

__________________________________________________________ 23
 A report on Current Deposits of Himalayan Bank Limited

Liquid Assets to Total Deposit Ratio of

HBL
2056/57
8.68%7.53% 31.80% 2057/58
31.33%
2058/59
41.17%
2059/60
39.77% 2060/61
50.43% 2061/62
2062/63

From the above table, it is clear that HBL has decreased its liquid up to 7.53 percent of
total deposit in FY 2062/63. In FY 2056/57 the liquid assets of bank amounts to Rs.1,856.84
million out of Rs.5,839.04 million total deposits and Rs.3,176.03 million out of total deposit of
Rs.7,713.60 million in FY 2057/58. In the same way, the bank has Rs.4,928.06 million total
deposits of Rs.9,772.74 million made in FY 2058/59. Similarly, the liquid assets was increased
with further increase in total deposits in FY 2059/60 and FY 2060/61 respectively, but the ratio
has decreased from 50.43 percent to 39.77 percent in FY 2059/60. In FY 2060/61, the bank has
maintained 31.33 percent of liquid assets in ratio with total assets. The ratio continues to decline
to 8.68 percent and 7.53 percent in the following FY 2061/62 and 2062/63 respectively. The
average of last seven years is 30.10 percent, its deviation is 7.02 percent and Coefficient of
variation is 0.5026.

2.1.2 Activity Ratio

Activity ratio is used to evaluate the efficiency with how the firm manages and utilizes its
sources. This ratio indicates the speeds with assets are being converted into profitable
transaction. The activities at banks can be measured by analyzing the following ratios.

2.1.2.1 Total Credit to Total Deposit Ratio

__________________________________________________________ 24
 A report on Current Deposits of Himalayan Bank Limited

This ratio indicates the efficiency of banks' deposit management. It measures the extent to
which the bank is efficient in mobilizing total deposit to total credit. The total credit includes
loans and advances (government and private sectors) and bills purchased and discounted (foreign
and local). It is calculated by dividing total credit by total deposit.
Total Credit to Total Deposit Ratio = Total Credit / Total Deposits

Table 6
Total Credit to Total Deposit Ratio
(Rs. In
Million)
Fiscal Year Total Credit Total Deposits Ratio (%)
2056/57 3,321.42 5,839.04 56.88
2057/58 4,223.07 7,713.60 54.75
2058/59 5,245.98 9,772.74 53.68
2059/60 7,224.72 14,043.09 51.45
2060/61 9,015.35 17,532.40 51.42
2061/62 8,913.72 18,619.38 47.87
2062/63 10,001.85 21,007.38 47.61
N=7years Mean 51.95
S.D. 3.19
C.V. 0.0614

Total Credit to Total Deposit Ratio of

HBL
2056/57
47.61% 56.88% 2057/58
47.87% 54.75% 2058/59
2059/60
51.42% 2060/61
51.45% 53.68% 2061/62
2062/63

__________________________________________________________ 25
 A report on Current Deposits of Himalayan Bank Limited

It is apparent from the above table that HBL has total credit up to 56.88 percent of total
deposit in FY 2056/57. The total credit of bank is 4,223.07 million out of Rs.7,713.60 million of
total deposit in FY 2057/58. The total credit has increased with the increase in total deposit for
FY 2058/59 to 2061/62 i.e. Rs.5,245.98 million out of Rs.9,772.74 million total deposits,
Rs.7,224.72 million out of Rs.14,043.09 million and Rs.9,015.35 million out of Rs.17,532.40
million total deposits respectively. But the ratio has decreased with the increase in total deposit
and total credits in the respective years, which shows HBL satisfactory mobilization of total
credit to total deposits as the fluctuation in the ratio is not much. The bank has maintained 47.87
percent and 47.61 percent total credits in ratio with total deposits with not much fluctuation in
FY 2061/62 and 2062/63 respectively. The average percentage of the last seven fiscal year is
51.95 percent and standard deviation 3.19 percent with greater variation per unit of 0.0614.

2.1.2.2 Total Investment to Total Deposits Ratio

This ratio indicates the mobilization of banks deposit to investment in various sectors for
the profit maximization of the organization. It measures the extent to which the bank is efficient
in mobilizing total deposit to total investment. The total investment includes HMG security,
Foreign Government Security, Sales and Debentures, Subsidiary Companies and others. The
investment is made at cost or market price which ever is less and beneficial to the bank itself. It
is calculated by dividing total investment by total deposit.
Total Investment to Total Deposits Ratio = Total Investment / Total Deposits

Table 7
Investment to Total Deposit Ratio
(Rs. In Million)
Fiscal Year Total Investments Total Deposits Ratio (%)
2056/57 1,352.18 5,839.04 23.16
2057/58 973.98 7,713.60 12.63
2058/59 468.95 9,772.74 4.80
2059/60 2,216.42 14,043.09 15.78
2060/61 4,083.16 17,532.40 23.29

__________________________________________________________ 26
 A report on Current Deposits of Himalayan Bank Limited

2061/62 9,157.11 18,619.38 49.18

2062/63 10,175.44 21,007.38 48.44
N=7years Mean 25.33
S.D. 15.97
C.V. 0.6305

Total Investment to Total Deposit

Ratio of HBL
2056/57
48.44% 23.16% 2057/58
12.63%
4.80% 2058/59
2059/60
15.78% 2060/61
49.18% 23.29% 2061/62
2062/63
From the above table, it is apparent that HBL has extended its investment up to 49.18
percent of total deposits in FY 2061/62. In FY 2056/57, the bank has invested Rs.1352.18
million out of total deposits of Rs.5,839.04 million. Similarly, it's investment amounts to
Rs.9,73.98 million out of Rs.7,713.60 million, Rs.468.95 million and Rs.9,772.72 million,
Rs.2,216.42 million out of Rs.14,043.09 million, Rs.4,083.64 million out of Rs.17532.40 million
and Rs. 10,175.44 million out of Rs. 21,007.38 million in the FY 2057/58, 2058/59, 2060/61,
2061/62 and 2062/63 respectively. The investment percentage ratio has wide fluctuation from
23.16 percent to 4.80 percent from FY 2056/57 to 2058/59 and from 15.78 percent in FY
2060/61 to 23.29 percent in FY 2061/62 with gradual increment in investment. The fluctuation
continues in the FY 2062/63 with a slight percentage in comparison to the FY 2061/62 thereby
making a total investment of Rs. 10,175.44 million out of Rs. 21,007.38 million. Thus, from the
above table the calculated mean during the period of seven years is 25.33 percent and its
deviation is 15.97 percent with variation 0.6305 per unit.

2.1.3 Current Deposit with Other Ratios

__________________________________________________________ 27
 A report on Current Deposits of Himalayan Bank Limited

This ratio indicates the efficiency of current deposit management. It measures how
efficient and effectively the bank employs its fixed assets. It also shows the relation of current
deposits with other assets of bank. It is measured by analyzing following ratio.

2.1.3.1 Current Deposit to Total Deposit Ratio

This ratio measures the percentage of current deposits to total deposit. It shows the
amount of current deposit collected out of the total deposits. It indicates the percentage part or
involvement of current deposits in ratio. The following formula can be used.
Current Deposit to Total Deposit Ratio = Current Deposit / Total Deposits

Table 8
Current Deposit to Total Deposit Ratio
(Rs.In Million)
Fiscal Year Current Deposits Total Deposits Ratio (%)
2058/59 1266.66 9,772.74 12.96
2059/60 1743.98 14,043.09 12.41
2060/61 2252.13 17,532.40 12.84
2061/62 2634.37 19,619.38 13.42
2062/63 3503.14 21,007.38 16.67
N=5years Mean 13.66

Current Deposit to Total Deposit Ratio

of HBL

16.67% 12.96% 2058/59

2059/60
2060/61
12.41% 2061/62
13.42%
12.84% 2062/63

__________________________________________________________ 28
 A report on Current Deposits of Himalayan Bank Limited

The table shows that HBL has maximum of 16.67 percent current deposit ratio and a
minimum of 12.41 percent for the FY 2062/63 and 2059/60 respectively. The current deposit
ratio has decreased from 12.96 to 12.41 percent and 12.84 percent for the FY 2059/60 and
2060/61 which shows that current deposit has decreased with the increase in the total deposits
during the respective years. But the current deposits increase to Rs.1743.98 million in FY
2059/60 with increase in total deposits to Rs.14,043.09 million, the ratio maintained to 12.41,
which is less than previous year. The ratio continue to increase to 13.42 percent as a result of
increase in total deposits to Rs.1,9619.38 million and fixed deposits to Rs.2634.37 million. So, if
we take an average percentage ratio for the last five fiscal years, it comes to 13.66 percent .
2.1.3.2 Cash and Bank Balance to Current Deposit Ratio
This ratio measure the extent to which the bank meets its anticipated calls on current
deposits. It also indicates the liquidity or immediate funds available to current deposits calls.
This ratio is calculated dividing cash and bank balance by current deposits.

Cash and Bank to Current Deposits = Cash and Bank Balance / Current Deposit.

Table 9
Cash and Bank Balance to Current Deposit Ratio
(Rs. In Million)
Fiscal Year Cash and Bank Balance Current Deposits Ratio (%)
2058/59 802.21 1266.66 63.33
2059/60 901.91 1743.98 51.71
2060/61 1,435.18 2252.13 63.72
2061/62 1,264.67 2634.37 48.01
2062/63 1,979.21 3503.14 56.49
N=5years Mean 56.65
Cash & Bank Balance to Curent
Deposit Ratio of HBL

56.49% 63.33% 2058/59

2059/60
2060/61
48.01%
__________________________________________________________
51.71% 2061/62 29
63.72% 2062/63
 A report on Current Deposits of Himalayan Bank Limited

From the above table, it is clear that the HBL has maintained cash bank balance up to
63.33 percent of current deposits amount in FY 2058/59. The cash and bank balance to current
deposits ratio have decreased from 63.33 percent to 51.71 percent and have increased from 51.71
to 63.72 percent in the successive years. Again, in FY 2061/62 the ratio has decreased to 48.01
percent and has increased significantly with 56.49 percent in the following FY 2062/63. The
ratio has fluctuated with the increase and decrease earned by the Cash and Bank balance and
Current Deposit during the period of five fiscal year. The average of five years ratio comes to
56.65 percent.

2.1.3.4 NRB Bond to Current Deposit Ratio

This ratio measures the amount of current deposits invested in NRB bond, which is risk
free. So, it indicates the mobilization of current deposits in risk free investment. It is calculated
dividing amount invested in NRB bond by current deposits amount.

NRB bond to Current Deposit Ratio = NRB Bond / Current Deposits.

Table 10
NRB Bond to Current Deposits Ratio
(Rs. In Million)
Fiscal Year NRB Bond Current Deposits Ratio(%)
2058/59 Nil 1266.66 Nil
2059/60 94.04 1743.98 5.39
2060/61 Nil 2252.13 Nil

__________________________________________________________ 30
 A report on Current Deposits of Himalayan Bank Limited

2061/62 459.19 2634.37 17.43

2062/63 651.77 3503.14 18.60
N=5years Mean 8.28

NRB Bond to Curent Deposit Ratio of

HBL

0.00% 5.39% 2058/59

0.00%
18.60% 2059/60
2060/61
2061/62
17.43%
2062/63

__________________________________________________________ 31
 A report on Current Deposits of Himalayan Bank Limited

From the above table, it shows that HBL investment in NRB Bonds to current deposits
ratio is zero percent in FY 2058/59 and 5.39 percent in FY 2059/60. But after FY 2060/61, the
bank has invested drastically less percentage of current deposits amount in NRB Bond i.e. zero
percent. Later in FY 2061/62 and 2062/63 the bank has utilized 17.43 percent and 18.60 percent
of current deposits in NRB bonds. This shows that the bank has invested in alternative
investment areas as government security, foreign government securities, shares and debentures,
subsidiary companies and others. The average of five years ratio is 8.28 percent.

2.2 STATISTICAL ANALYSIS

2.2.1 Karl Pearson's Correlation Co - efficient

Of the several mathematical method of measuring correlation, the Karl Pearson's method,
popularly knows as Pearson co - efficient of correlation is most widely used in practice. The
Pearson co - efficient of correlation is denoted by symbol 'r' which shows the relationship
between the two variables.
The value of r always has between ± where r = + 1, it means there is perfect correlation
between variables, where r = 0, it means there is no relationship.
However in practice, such values of r as + 1, -1 and 0 are rare. The formula for
computing Pearson's co-efficient of correlation is:

Where, x = (X- ) and y = (Y- )

Probable Error (PE)

With the help of problem error, it is possible to determine the reliability value of co -
efficient i.e.

__________________________________________________________ 32
 A report on Current Deposits of Himalayan Bank Limited

Formula,

Where, r = co-efficient of co - relation.

n = No. of observation.

If value of r is less than PE, there is no evidence of correlation i.e. value of r is

insignificant and if value of r is more than six times the PE, then the value of r is practically
certain and significant.

Table 11
Correlation between Current Deposit and Total Deposits
(Amount in Crore)
Fiscal Current Total x x² y y2 xy
Year Deposits Deposits
(X) (Y)
2058/59 126.66 977.24 -101.34 10269.79 -662.16 438455.86 67103.29
2059/60 174.39 1404.31 -53.61 2874.03 -235.09 55267.30 12603.17
2060/61 225.21 1753.24 -2.79 7.784 113.84 12959.54 -317.61
2061/62 263.43 1,961.94 35.43 1255.28 322.54 104032.05 11427.59
2062/63 350.31 2,100.74 122.31 14959.73 461.34 212834.59 56426.49

Hence,
= 228
= 1639.4
x2 = 29366.614
y2 = 823549.34
xy = 147242.93
r = + 0.9468

__________________________________________________________ 33
 A report on Current Deposits of Himalayan Bank Limited

From the above table, the co-efficient of correlation r = +0.9468 which is less than +1 but
greater than -1 . It indicates that there is low degree of correlation between current deposits and
total deposits.

Now,

2.2.2 Trend Analysis

The statistical test used in this study, which describes the trend of any variables whether
it increase of decrease with passage of time. The formula of least square method.

Yc = a +bx
Where,

Hence, Yc is used to designate the trend value to distinguish from the actual values, a is
the ye intercept as the computed trend figure of the trend line or the amount of change in y
variable that is associated with a change of one unit on x variable. The x variable represents the
time.

__________________________________________________________ 34
 A report on Current Deposits of Himalayan Bank Limited

Table 12
Trend Analysis of Total Deposits with Passage of Time
(Rs.In
Million)
Year Total Deposit x = X-2057 x2 xY Trend
(X) (Y) Values(Yc)
2056 5839.04 -3 9 -17517.1 5338.64
2057 7713.60 -2 4 -15427.2 8141.36
2058 9772.74 -1 1 -9772.74 10894.08
2059 14043.09 0 0 0.00 13646.80
2060 17532.40 1 1 17532.4 16399.52
2061 19,619.38 2 4 39238.76 19152.24
2062 21,007.38 3 9 63022.14 21904.96
n= 7 Y=95527.63 x=0 x2 = 28 xY=77076.24

Let the Trend Line be

Yc = a + bx ……………….. (i)
where,
x = X - Middle Year
Since, x = 0,
So,

__________________________________________________________ 35
 A report on Current Deposits of Himalayan Bank Limited

Substituting these values of a and b in (i),

We get the required trend line, Yc = a +bx
= 13646.80 + 2752.72x ……………….. (ii)
Trend Values (Yc): substituting x = -3, -2, -1, 0, 1, 2 and 3 subsequently in (ii), we get the trend
values as follows:
When,
x = -3, then Yc = 13646.80 + 2752.72 × (-3) = 5338.64
x = -2, then Yc = 13646.80 + 2752.72 × (-2) = 8141.36
x = -1, then Yc = 13646.80 + 2752.72 × (-1) = 10894.08
x = 0, then Yc = 13646.80 + 2752.72 × 0 = 13646.80
x = 1, then Yc = 13646.80 + 2752.72 × 1 = 16399.52
x = 2, then Yc = 13646.80 + 2752.72 × 2 = 19152.24
x = 3, then Yc = 13646.80 + 2752.72 × 3 = 21904.96

Trend Analysis of Current Deposit:

Table 13
Trend Analysis of Current Deposits with Passage of Time
(Rs.In Million)
Year Current Deposit x = X-2058 x2 xY Trend
(X) (Y) Values(Yc)
2058 1266.66 -2 4 -2533.32 1207.386
2059 1743.98 -1 1 -1743.98 1743.721
2060 2252.13 0 0 0.00 2280.056
2061 2634.37 1 1 2634.37 2816.391
2062 3503.14 2 4 7006.28 3352.726
n= 5 Y=11400.28 x=0 x2 = 10 xY=5363.35

__________________________________________________________ 36
 A report on Current Deposits of Himalayan Bank Limited

Let the Trend Line be

Yc = a + bx ……………….. (i)
where,
x = X - Middle Year
Since, x = 0,
So,

Substituting these values of a and b in (i),

We get the required trend line, Yc = a +bx
= 2280.056 + 536.335x……………..(ii)
Trend Values (Yc): substituting x = -2, -1, 0, 1, and 2 subsequently in (ii), we get the trend values
as follows:

When,
x = -2, then Yc = 2280.056 + 536.335 × (-2) = 1207.386
x = -1, then Yc = 2280.056 + 536.335 × (-1) = 1743.721
x = 0, then Yc = 2280.056 + 536.335 × 0 = 2280.056
x = 1, then Yc = 2280.056 + 536.335 × 1 = 2816.391
x = 2, then Yc = 2280.056 + 536.335 × 2 = 3352.726

The graph of the above data is given below.

__________________________________________________________ 37
 A report on Current Deposits of Himalayan Bank Limited

Linear Trend Line by the Method of Least Square:

__________________________________________________________ 38
 A report on Current Deposits of Himalayan Bank Limited

CHAPTER – 3

3 SUMMARY, CONCLUSION AND RECOMMENDATION

3.1 Summary and Conclusion

This report attempts to examine and evaluate the financial performance of HBL with
special reference to deposits. Further, it attempts the deep evaluation for the role of current
deposits in total deposits. The financial statement of seven years i.e. FY 2056/57(1990/00) to FY
2062/63(2005/06) has been taken into consideration for the purpose of this study which has been
first processed and analyzed comparatively. Individual interview with the management has been
taken wherever necessary. This study is exploratory as well as analytical to some extent.
The bank's financial performance seems to be pretty sound and successful. From the
current scenario, the role of bank in maintaining financial status and monetary standard is
satisfactory. The bank has been able to maintain its CRR as per NRB's directive and requirement
successfully.
As we know that the efficiency of bank in managing its resources can be found by
looking at its activity ratios, which is also encouraging. The investment to total deposits ratio is
satisfactory. The total credit advancement though less in compared to total deposits is also
satisfactory. For the unanticipated call on deposits the bank has maintained sufficient liquid
funds as cash and bank balance in seven years. But banks cash and bank balance to current
deposits seem to be highly fluctuating i.e. ranging from 63.72 percent in FY 2058/59 to 56.49
percent in FY 2062/63.
Therefore, the overall performance of HBL resulted from this report indicates satisfactory
and worthwhile.
Besides, the limitation of this study the following points throw more light on the financial
performance of Himalayan Bank Limited during the review year 2005/2006:

a) Impact of International and National Events

The world economic growth has been projected at 3 percent during the FY 2005/06,
registering a slight increase over the figure of 2.30 percent in the FY 2004/05. The positive

__________________________________________________________ 39
 A report on Current Deposits of Himalayan Bank Limited

impact of the world economic growth couldn’t occur on the Nepalese economy due to the law
and order situation of the country, which did not improve significantly. Furthermore, the SARS
epidemic spreading in China and some other Asian countries and the Iraq war made a negative
impact on tourism and export industry. The exchange rate of the US dollar, which was Nepalese
rupees 78.60 for one US dollar as on 16 July 2005, depreciated gradually to rupees 74.35 by the
month of December 2006. As a result, the imports from third countries became cheaper to some
extent as most of Nepal’s foreign transactions are carried out in US dollars, while the income
from exports and investments suffered badly.
Among the South Asian countries, our neighbour India’s economic growth has
encouragingly risen to some 6.50 percent for the last few years. But the quantitative and other
restrictions as well as extra levies imposed time and again by the central and provincial
governments of India on some of our exports, which were doing well, have seriously affected the
export earnings from India. The recovery of the loans disturbed by the bank for the manufacture
of these export goods to India was also adversely affected.
As per the economic survey issued by HMG, Finance Ministry, the economic growth
rate, which was negative in the previous financial year, is estimated to increase by 2.4 percent in
the fiscal year 2005/06. Although there was some improvement in the law and order situation,
the performance of tourism and industry sectors remained much below par as economic activities
remained sluggish due to insecurity.
An overall review of the banking sector shows that deposits, which increased by 4.7
percent in the preceding fiscal year, rose by 9.2 percent to reach Rs.202,089.2 million. Likewise,
loans and advance rose by 3.7 percent over the figure for the preceding year and reached Rs.
128,462.9 million.
As in the preceding years, Himalayan Bank Limited topped the joint-venture and private-
sector banks in terms of mobilization of deposits and loans.
The twenty-point Monetary Policy and Programme announced by Nepal Rastriya Bank
for the fiscal year 2005/06 has stipulated that the compulsory extension of 12 percent loans and
advances to the priority sector will be abolished within five years, while the provision for
extending credit to the deprived sector will remain unchanged. HBL regards such a policy as an
encouraging move towards flexibility in extension of credit by the banks. In this context, the new

__________________________________________________________ 40
 A report on Current Deposits of Himalayan Bank Limited

provision for waiving penalty on the shortfall of up to 25 percent in lending to the deprived
sector is also welcome.

b) Current Financial and Banking Environment

Import and export transactions have registered remarkable growth up to 17 October 2005
in the fiscal year 2005/06. The higher growth rate in exports vis-à-vis import has contributed to
reducing the trade deficit. It is learnt from the concerned sector that the gross foreign exchange
reserves have reached over rupees one billion.
By the end of the first quarter of the fiscal year 2005/06, deposits of the banking sector
have reached Rs. 204,464.6 million and loans and advances Rs. 128,855.2 million. Up to this
period also, our bank has topped the joint-venture and private-sector banks in terms of the
mobilization of deposits and loans.
The financial and banking sectors of the country are expected to improve with some
announcements made in the government budget for the fiscal year 2005/06 such as legal
provision for encouraging non-resident Nepalese to make investments in Nepal, established of an
Assets Management Company and enactment of an umbrella act to regulate banks and other
financial institutions. With the establishment of the specialized Debt Recovery Court, it is hoped
that the process of recovering outstanding loans, which has been a problem, will get some
momentum.

c) Appropriation of Profit and Loss Account

The net profit in FY 2005/06 was Rs. 212.10 million. With the retained earning of Rs.
120.30 million, the total amount available for the appropriation is Rs. 332.4 million. Out of this
Rs. 42.40 million i.e. twenty percent of the net profit, has been appropriated to the Statutory
General Reserve and Rs. 1.70 million i.e. Twenty five percent of the exchange fluctuation gains
during the year under review, has been appropriated to Exchange Equalization Fund. HBL
capital base needs to be strengthened to ensure its sound growth and to meet the increasing
capital adequacy requirement laid down by Nepal Rastriya Bank. Therefore, HBL proposed a
cash dividend of 1.32 percent of the paid up capital and twenty five percent bonus share. For this
Rs. 5.64 million and Rs. 107.25 million have been earmarked respectively. In order to augment

__________________________________________________________ 41
 A report on Current Deposits of Himalayan Bank Limited

HBL capital fund the remaining amount Rs. 122.50 million has been posted to the Balance Sheet
as retained earning. Such figure in the last FY was Rs. 119.50 million.
I thus, conclude that the financial performance of HBL sounds satisfactory in overall FY
and FY 2005/2006 even when the economy of Nepal has been hit hard in all the economic
sectors due to Maoists insurgency. HBL has been rated as Nepal’s Number one bank in a well
known book “The Bankers’ Almanac” published from Britain in its July 2003 issue. Besides this,
HBL has also been awarded “National Excellence Award 2003” by Federation of Nepal
Chamber of Commerce and Industry.

3.2 Recommendation
Based on the analysis and the observation of research study, following recommendation
is suggested to overcome the weakness and inefficiency and to improve the present financial
performance of HBL.

 The mandatory CRR to be maintained is 12 percent. But from the past five years, it is
fluctuating from 6.42 percent in FY 2059/60 to 17.16 percent in FY 2056/57 and average
of seven years is 9.93 percent, which is nearer to the mandatory. So, HBL should try to
increase its CRR around 12 percent and utilize its resource in a diversified manner from
loan advancement to the priority sector investment.

 The average of total credit to total deposits for five years is 51.95 percent and 48.05
percent of HBL's collected funds have remained worthless and bears of paying interest.
So, the bank should mobilize its deposits in productive sectors having the benefits.

 Those securities issued by bank are considered to be free of risk default and NRB bound
totally risk free. Because of lower risk, low interest is yield in government securities and
same maturity of other securities. So, HBL emphasis only to government securities
should also invest in other securities relative higher risk with the higher return.

 Like as other joint ventures commercial banks the main concentration area of Himalayan
Limited Bank is limited in major cities. However, the major part of Nepalese living in

__________________________________________________________ 42
 A report on Current Deposits of Himalayan Bank Limited

the rural areas are highly exploited by shau and mahajan by charging high interest rates
on loans, compounding interest and even by manipulating the principal amount. The
overall economic development of the country is almost impossible unless the programs
are matched with those people requirements. Therefore, I recommend Himalayan Bank
Limited to expand its branches in rural areas for the economic upliftment of the huge
majority of poor economic people taking into consideration regarding the safety and
security of the rural areas threat imposed by Maoists at times by robbing and looting the
banks as seen in the current and previous years.

 It is noted that banks most resource flows to private sector, which makes the other sector
behind in their performance. So, HBL should divert its resources to agricultural, priority
and deprived sector as per NRB directives.

 Finally, it is universal that banks are the heart of our financial system. So, the ability of
banking system to perform its tasks efficiently and in harmony with customer's needs
economic goals depends in large on its efficient management.

__________________________________________________________ 43