Professional Documents
Culture Documents
Final Project From Me
Final Project From Me
A Project Report
By
RIYA HIRACHAN
T.U. Regd. No: 7-2-723-121-2019
Herald International College
Submitted To
Kathmandu, Nepal
October, 2023
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Banks disburse loans to those in need, but with a higher interest rate. The main goal of banks
worldwide is to increase their credit in the economic market and maximize profits. Credit refers
to the total amount of funds provided by commercial banks to individuals, organizations, and
governments. Acting as financial intermediaries, banks accept deposits from the public and offer
loans at a specific interest rate to generate profits. To avoid bad debts and maintain profitability,
banks must create a credit portfolio. However, in their pursuit of profit, banks may offer loans at
a low-interest rate, which can negatively impact their ability to cover debts. The banking industry
has evolved, with banks now offering services in towns and villages.
The primary objective of every banking organization across the globe is to maximize its profits
by increasing its credit in the economic market. Credit refers to the aggregate amount of funds
provided by commercial banks to individual organizations and governments. Commercial banks
act as financial intermediaries by accepting deposits from the public and offering loans at a
certain interest rate to maximize their profits. It is imperative for banks to prepare a credit
portfolio to avoid bad debts and maintain profitability (Varshney and Swaroop, 1994:42).
However, in the pursuit of profit maximization, banks often provide loans to the public at a low-
interest rate, which can negatively impact individual financial institutions' ability to cover their
debts. The banking industry has evolved significantly over time, with banks now offering a range
of services in towns and villages.
The term 'bank' comes from the Italian word banco, Latin word bancus, and French word
Banque, all meaning bench. Banks play a crucial role in the economy, accepting deposits,
advancing loans, and providing interest to depositors.
Various writers have been defined the word "bank" in different ways.
According to Scholars, "The bank is defined as factory of money for credit where it does not
purchase goods and sells it rather produces credit inform of deposit and sells it inform of loans."
According to C.R. Crowther, "A bank collects money from those who have it to spare or who are
saving it out of their income and lends this money to those who required it." Thus. in conclusion,
we can say that bank is an organization which deals with the monetary transactions for the
mobilization of idle money or deposits in productive sectors, is essentially essential for the
development of the whole net.
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One of the primary objectives of the bank is to provide a range of beneficial products and
services to the general public, ensuring their future prosperity. The bank has achieved a
significant level of success in executing this objective in a short period of time, resulting in the
establishment of a substantial base of loyal customers. The bank's core strengths include
personalized service, prompt transactions, extensive networks, mobile banking, and real-time
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account credit. The bank offers a variety of deposit schemes, loans and advances, foreign
exchange facilities, trade financing, inward/outward remittances, market-making for government
securities, and non-fund-based services such as issuing guarantees and letters of credit. While
adequate financing is crucial for the establishment and operation of any business, it alone does
not guarantee success. Success is dependent on other factors such as quality consultation and
counseling. Therefore, the bank has prioritized the development of human resources capable of
understanding customer needs and meeting their requirements. The bank places its customers at
the center of all its operations, believing that a bank's success is only possible when its customers
are successful.
Research without a goal is useless. This study aims to understand the meaning of interest rates
and deposits at Prabhu Bank Limited (PrBL). It also aims to improve knowledge about the
banking industry in Nepal. This report helps gain practical experience and use knowledge in a
specific area. The main goal of the report is to explain what was learned.
To conduct an analysis of the fixed, savings, and total deposits of PrBL over the course of the
previous five years.
To examine the correlation between the interest rate on deposits and the quantity of funds
deposited.
To identify trend of rate of interest.
To identify the relationship between deposit collection and lending of the commercial banks.
To analyze the standing of the priority sector in the bank's lending activities.
The primary operations of commercial banks are centered on deposit-taking and lending. In this
regard, Prabhu Bank Limited assumes a pivotal role in executing these functions. The present
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study aims to evaluate the bank's efficacy in these procedures. This study no doubt will have
importance to various groups but in particular is directed to certain groups of people/
organizations, which are:
Current deposit
A current deposit account is a type of running account where funds are continuously deposited
and withdrawn. These accounts are also referred to as demand deposits or demand liabilities, as
the bank is obligated to pay out funds upon demand. Typically, current deposit accounts are
opened by business entities, public institutions, corporate bodies, and other organizations that
engage in frequent banking transactions. While primarily intended for business use, individuals
may also operate current deposit accounts. The nature of these accounts allows for unlimited
deposits and withdrawals at any time. However, funds deposited into current deposit accounts
cannot be invested in productive sectors and remain as stock in the bank. As such, banks do not
provide interest on these deposits. Merchants and traders tend to benefit more from current
deposit accounts than individuals. Banks must honor checks drawn against these accounts as
long as there are sufficient funds available. Firms with high daily transaction volumes typically
operate current deposit accounts.
Saving deposit
As per the Commercial Bank Act 2031(1974), a saving account refers to an account where funds
are deposited in a bank for the purpose of saving. The saving deposit possesses the
characteristics of both current and fixed period deposits. It is primarily intended for non-trading
customers who have the potential to save and do not have a high volume of transactions entering
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the account. The minimum compensating balance required while opening the account varies
according to the bank's regulations.
Developing countries often face a shortage of capital for developmental activities across all
sectors. It is not feasible for the government alone to handle and develop all sectors
simultaneously, and people cannot undertake large businesses due to their low per capita income
and high propensity to consume. Consequently, their savings and capital formation are low,
which is insufficient for carrying out developmental works. To achieve a higher rate of growth
and per capita income, economic development must be accelerated.
"Economic development may be defined in a very broad sense as a process of rising income per
head through the accumulation of capital" (Johnson. 1965:11). However, in developing
countries, capital accumulation can occur through two ways: external and internal sources.
External sources include foreign aid, loans, and grants, while internal sources rely on financial
institutions operating within the country. In Nepal, commercial banks are the primary financial
institutions that can play a crucial role in resource mobilization for economic development.
To achieve economic development, trade, industry, agriculture, and commerce must be
developed.
Fixed deposit
Under the provisions of the Commercial Bank Act 2031(1974), a "Fixed Deposit" refers to an
account where a certain amount of money is deposited in a bank for a specific period of time.
Customers who open such accounts deposit their funds for a predetermined duration. Typically,
individuals or institutions seeking higher interest rates opt for this type of account. Fixed
deposits offer a higher interest rate compared to savings deposits. Withdrawals from fixed
deposits are highly restricted, as the deposit must remain with the bank until the maturity date.
This type of deposit is also known as a "Time Deposit" due to its primary feature of being time-
bound. The interest rate on a Fixed Deposit varies according to the duration of the deposit, and
the bank cannot alter the interest rate before the maturity period. However, at the time of
renewal, the bank may change the interest rate and other terms and conditions. The interest paid
to depositors and charged to customers for loans is a crucial factor for both deposit and loan
accounts. The difference between the interest rates of deposits and loans is the primary source of
earnings for the bank. Loans are provided to individuals or businesses by the bank to meet their
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various expenses. The bank provides loans from the deposits collected, and the interest charged
on the loan depends on the nature of the loan, such as short-term, medium-term, or long-term.
According to Prof. Knight, "Profit is not a reward for bearing risk, but it is a reward for bearing
uncertainty." Banks provide loans to different people and businesses, and it is uncertain whether
all the loans will be recovered or not. If the loans are recovered, the bank charges a certain
percentage of interest, which becomes the bank's profit. In the event that expenditures surpass
income, a loss ensues. This may occur within a bank as a result of irrecoverable loans, elevated
administrative expenses, and the like. It is imperative that the bank take measures to manage and
mitigate such losses.
Dhungana (2011) conducted a study on the impact of commercial banks on the economic
growth of Nepal from 1990 to 2010 AD. The study utilized secondary data and employed
statistical analysis to examine the relationship between bank deposits and economic growth. The
findings of the study indicated that a higher level of deposit in financial institutions, particularly
commercial banks, was positively associated with an increase in GDP and economic growth.
The study also highlighted the dual role of the banking sector in mobilizing and allocating
limited resources to meet the needs of the people and promote economic development. The study
further revealed that individuals preferred to deposit their funds in saving accounts due to the
attractive features of this account. Additionally, the total deposit of various financial institutions
increased annually, with commercial banks having the highest level of depository amount due to
their reputation as a secure and sound financial institution.
Maharajan S (2008) research aims to investigate the relationship between the total deposit
amount and the total credit granted by commercial banks in Nepal. The study utilizes secondary
data and focuses on four banks, namely Himalayan Bank Ltd. (HBL), Siddhartha Bank Ltd.
(SBL), Nabil Bank Ltd. (NBL), and Standard Chartered Bank Nepal Ltd. (SCBNL), as a sample
for comparative analysis during the period of 2059/60 to 2063/64 BS. The research employs
financial and statistical tools, such as ratio analysis, mean, standard deviation, coefficient of
variation, and correlation analysis. The findings indicate that SBL has been relatively successful
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in investing in the productive sector and mobilizing its collected deposits to provide loans and
advances for profit generation. On the other hand, SCBNL appears to be more successful in
earning profits on loans and advances compared to the other three banks. The study recommends
that commercial banks should collect more deposits through a variety of deposit schemes and
facilities, such as cumulative deposit schemes, prize bond schemes, recurring deposit schemes
(life insurance), monthly interest schemes, house building schemes, direct finance housing
schemes, education loan schemes, and others.
Shrestha (2014), In her thesis entitled "Deposit Mobilization of Selected Commercial Banks of
Nepal," conducted an analysis of the trend of deposit mobilization among commercial banks in
Nepal. The study focused on four commercial banks, namely Standard Chartered Bank Nepal
Ltd (SCBNL), Nepal Investment Bank Ltd. (NIBL), Himalayan Bank Ltd (HBL), and Nabil
Bank Ltd. (NABIL), during the period from 2065 to 2069 BS. Secondary data were utilized for
the study, and various financial and statistical tools such as ratio analysis, standard deviation,
average mean, correlation coefficient, regression analysis, and trend analysis were employed to
analyze the data.
The findings of the study revealed that all the sample banks were in a better position in terms of
liquidity and profitability. NIBL maintained a good liquidity position, while NABIL had a poor
liquidity position among the sample banks. SCBNL achieved a good return on loan and advances
and had the lowest credit risk ratio among the sample banks. The deposit and loan and advances
of commercial banks showed an increasing trend. However, the growth rate of loan and advances
was in a decreasing trend, and the growth ratio of deposit was in a fluctuating trend during the
observation period.
The term "research gap" refers to the disparity between existing research and the present study.
A multitude of studies have been conducted on the performance of deposit and lending in both
developed and developing countries. Various factors have been identified as influencing bank
deposit and lending practices, and numerous studies have been conducted to measure these
determinants. Banks play a critical role in a country's economic development by mobilizing
deposits and providing capital, thereby stimulating economic growth. In Nepal, the banking
sector is a crucial contributor to the country's development and is one of the highest profit-
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The research methodology pertains to the methods and processes utilized in a study. It provides a
detailed explanation of the research design, which encompasses the sampling techniques, sources
and types of data, and data collection and analysis methods. The tools and techniques employed
to achieve the research objectives are also expounded upon in detail.
In this particular study, both descriptive and causal comparative research designs were utilized to
address the fundamental issues at hand. The descriptive research design was employed to gather
pertinent information on bank-specific variables related to deposit mobilization in Nepalese
commercial banks. On the other hand, the causal comparative research design was utilized to
analyze the cause-and-effect relationship of these bank-specific variables on deposit
mobilization. To understand the directions, magnitudes, and forms of the observed relationship,
correlation analysis was employed under the causal comparative research design.
Though there were 20 commercial banks in Nepal till March 2021, all of them did not provided
scope for the study. In order to represent the banking sector, the basis of sample selection is that
banks established in different eras like public bank of government, commercial bank established
in 1980‟s, banks established in collaboration with foreign banks, bank established between mid-
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1990‟s and banks established in 2000‟s have been selected for the study. Fifteen commercial
banks have been taken. Therefore, out of 20 commercial banks, one is taken as sample for the
study for the period of 2018/19-2021/22.
Data is collected by using secondary sources and the secondary data are of annual nature. Cross
sectional data are used in this study where one commercial bank out of 20 in Nepal were
included over the period of 2018/19-2022/23 covering the period of 5 years. The variables used
in the study are categorized into bank specific variables (deposit and lending). The data of bank
specific variables are collected from official website of concern commercial banks. This research
is completely based on secondary data so this research does not require any of survey for
collection of primary data. Data are collected from different sources as per need and requirement.
The core of this research work lies in the presentation and sophisticated analysis of the collected
raw data. The data will be meticulously organized into systematic tabular formats, setting the
stage for a comprehensive analysis. To achieve the research objectives effectively, a range of
financial and statistical tools will be thoughtfully applied. The findings of this study will be
further elucidated through graphical charts and tables to facilitate interpretation. Besides these,
some graph charts and tables will be presented to analyses and interpret the findings of the study.
The tools applied are:
Financial Tools
Various financial tools can be employed for the analysis. In this study, the main focus will be on
Ratio Analysis. Ratio analysis is the most important tools of the financial analysis, which help to
ascertain the financial conditions of the organizations. Financial Ratio Analysis tools are used to
determine the performance of the banks. Following category of key ratios are used to analysis the
relevant components in terms of Working capital:
Statistical Tools
The collected data will be systematically grouped in table and charts according to their nature, so
that it would be easily calculated. As this research proposal related to the “Quantitative
Research” and also, we predicting relationship between variables, the major statistical tools will
be used for analyzing the data are as follows:
Arithmetic mean
Standard Deviation
Coefficient of Variation
Bar diagram
Line graph
This chapter includes a brief summary of the report, and conclusion based on the findings of the
report. Besides these chapters, Bibliography and Appendix will be included in this research paper.
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BIBLIOGRAPHY
Kathmandu.
Shrestha, P. (2014). Liquidity and credit management practices of commercial banks in Nepal.
University, Kathmandu.