PROJECT REPORT

ON
FINANCIAL ANALYSIS
OF

Project report submitted to ACHARYA BANGALORE B-SCHOOL in

partial fulfillment of the requirements for the award of the
degree
Bachelor of Business Management
Submitted By,
SHRISTY BHANDARI
Register No: 12YUC24058
Under the guidance of
Dr.Kavitha
Professor
ACHARYA BANGALORE B SCHOOL

ACHARYA BANGALORE B-SCHOOL (Affiliated to Bangalore University

Andrahalli Main Road, Off Magadi Road, Bangalore560091

DECLARATION
I, SHRISTI BHANARI, hereby declare that this research
project entitled Financial performance of Rastriya Banijya
Bank submitted to Acharya Bangalore B-school in partial
fulfillment of the requirements for the award of BBM, is a
record of independent research work carried out by me under
the supervision and guidance of Dr Kavitha, Professor, ABBS.
This work has not formed the basis for the award of any
Degree and has not been submitted previously to any other
College/University.
From: Bangalore
January, 2015
BHANDARI

Dr. Kavitha
Professor
ABBS

SHRISTI

ACKNOWLEDGEMENT

Firstly I would like to express our immense gratitude towards

our institution ACHARYA BANGLORE B-SCHOOL, which created
a great platform to attain profound technical skills in the field
of BBM, thereby fulfilling our most cherished goal. I would
thank all the Finance department of RASTRIYA BANIJYA BANK
and the employees in the finance department for guiding
and helping me in successful completion of the project.
I am very much thankful to the professor Dr. KAVITHA (Internal
guide) for extending her corporation in doing this project
I convey my thanks to beloved parents and my faculty who
helped me directly or indirectly in bringing this project
successfully.

PREFACE
In any organization, the two important financial statements
are the Balance Sheet and Profit & Loss Account of the
business. Balance Sheet is a statement of financial position of
an enterprise at a particular point of time. Profit & Loss
account shows the net profit or net loss of a company for a
specified period of time. When these statements of the last
few year of any organization are studied and analyzed,
significant conclusions may be arrived regarding the changes
in the financial position, the important policies followed and
trends in profit and loss etc. Analysis and interpretation of
financial statement has now become an important technique
of credit appraisal. The investors, financial experts,
management executives and the bankers all analyze these
statements. Though the basic technique of appraisal remains
the same in all the cases but the approach and the emphasis
in the analysis vary. A banker interprets the financial
statement so as to evaluate the financial soundness and
stability, the liquidity position and the profitability or the
earning capacity of borrowing concern. Analysis of financial
statements is necessary because it helps in depicting the
financial position on the basis of past and current records.

Analysis of financial statements helps in making the future

decisions and strategies. Therefore it is very necessary for
every organization whether it is a financial or manufacturing,
to make financial statement and to analyze it.

Contents
Chapter I

1.1
1.2
1.3
1.4

Introduction Of Banking
Introduction of Banking
History of Banking in Nepal
Banks in Nepal
Nepal banking industry

Chapter III
26 37

2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8

Company Profile
Introduction of RBB
Business profile
Board of directors
Board committee
Business objectives
Technology used in RBB
Products and services
Awards and recognition

Chapter II

Research Methodology
38 58

3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8

Objective of study
Importance of study
Meaning of research
Research problem
Research design
Data collection method
Analysis and interpretation of data
Limitation of study

6 26

Chapter IV
59 78
4.1
4.2
4.3
4.4
4.5

Financial Analysis
Introduction of topic
Method/Tools of financial analysis
Balancesheet of RBB
Profit and Loss Account of RBB
Financial statement analysis
o Comparative financial statement
o Trend analysis
o Ratio analysis

Chapter V
79 96
5.1
5.2
5.3

Summary of Findings
Major Findings
Conclusions and refrences
Bibliography

Chapter 1

Introduction Of
Banking

1.1

INTRODUCTION OF BANKING

Defination of Bank:
Banking Means "Accepting Deposits for the purpose of lending or Investment of
deposits of money from the public, repayable on demand or otherwise and
withdraw by cheque, draft or otherwise.

-Banking Companies
(Regulation) Act,1949

ORIGIN OF THE WORD BANK:

The origin of the word bank is shrouded in mystery. According to one view point the
Italian business house carrying on crude from of banking were called banchi
bancheri" According to another viewpoint banking is derived from German word
"Branck" which mean heap or mound. In England, the issue of paper money by the
government was referred to as a raising a bank.

ORIGIN OF BANKING :
After recognizing the benefit of money as a medium of exchange, the importance
of banking was developed as it provides the safer place to store the money. This
safe place ultimately evolved in to financial institutions that accepts deposits and
make loans i.e., modern commercial banks.

Banking system in Nepal

Without a sound and effective banking system in Nepal it cannot have a healthy
economy. Today, the banking sector is more liberalized and modernized and
systematic managed. There are various types of bank working in modern banking
system in Nepal. It includes central, development, commercial, financial, cooperative and Micro Credit (Grameen) banks. Technology is changing day by day.
And changed technology affects the traditional method of the service of bank.The
most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in Nepal . In fact, Nepal banking system has reached even to the
remote corners of the country. This is one of the main reasons of Nepals growth
process.

1.2 HISTORY OF BANKING IN INDIA

Nepal has a short history of the modern banking practices that starts from the
establishment of Nepal Bank Limited as a first commercial bank in 1937.Nepal
bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of modern
banking of the country. Nepal bank marks the beginning of a new era in the history
of the modern banking in Nepal. This was established in 1937 A.D. Nepal Bank has
been inaugurated by King Tribhuvan Bir Bikram Shah Dev on 30th Kartik 1994 B.S.
Nepal bank was established as a semi government bank with the authorized
capital of Rs.10 million and the paid -up capital of Rs. 892 thousand. Until mid1940s, only metallic coins were used as medium of exchange. So the Nepal
Government (His Majesty Government on that time) felt the need of separate
institution or body to issue national currencies and promote financial organization
in the country.
Nepal Bank Ltd. remained the only financial institution of the country until the
foundation of Nepal Rastra Bank is 1956 A.D. Due to the absence of the central

bank, Nepal Bank has to play the role of central bank and operate the function of
central bank. Hence, the Nepal Rastra Bank Act 1955 was formulated, which was
approved by Nepal Government accordingly, the Nepal Rastra Bank was
established in 1956 A.D. as the central bank of Nepal. Nepal Rastra Bank makes
various guidelines for the banking sector of the country.
A sound banking system is important for smooth development of banking system.
It can play a key role in the economy. It gathers savings from all over the country
and provides liquidity for industry and trade. In 1957 A.D. Industrial Development
Bank was established to promote the industrialization in Nepal, which was later
converted into Nepal Industrial Development Corporation (NIDC) in 1959 A.D.
Rastriya Banijya Bank was established in 1965 A.D. as the second commercial bank
of Nepal. The financial shapes for these two commercial banks have a tremendous
impact on the economy. That is the reason why these banks still exist in spite of
their bad position.
As the agriculture is the basic occupation of major Nepalese, the development of
this sector plays in the prime role in the economy. So, separate Agricultural
Development Bank was established in 1968 A.D. This is the first institution in
agricultural financing.
For more than two decades, no more banks have been established in the country.
After declaring free economy and privatization policy, the government of Nepal
encouraged the foreign banks for joint venture in Nepal.
Today, the banking sector is more liberalized and modernized and systematic
managed. There are various types of bank working in modern banking system in
Nepal. It includes central, development, commercial, financial, co-operative and
Micro Credit (Grameen) banks. Technology is changing day by day. And changed
technology affects the traditional method of the service of bank.
Banking software, ATM, E-banking, Mobile Banking, Debit Card, Credit Card, Prepaid
Card etc. services are available in banking system in Nepal. It helps both customer
and banks to operate and conduct activities more efficiently and effectively.
For the development of banking system in Nepal, NRB refresh and change in
financial sector policies, regulations and institutional developments in 1980 A.D.
Government emphasized the role of the private sector for the investment in the
financial sector. These policies opened the doors for foreigners to enter into
banking sector in Nepal under joint venture.

Banking in Nepal: Nepal Rastra Bank Photo

Some foreign ventures are also established in Nepal such as Nepal Bangladesh
Bank, Standard Chartered Bank, Nepal Arab Bank, State Bank of India, ICICI Bank,
Everest Bank, Himalayan Bank, Bank of Kathmandu, Nepal Indo-Suez Bank and
Nepal Sri Lanka Merchant Bank etc.
The NRB will classify the institutions into A B C D groups on the basis of the
minimum paid-up capital and provide the suitable license to the bank or financial
institution. Group A is for commercial bank, B for the development bank, C for
the financial institution and D for the Micro Finance Development Banks.
Generally banks in Nepal are opened 9 am to 3 pm Sunday to Thursday and 9 am
to 1 am on Friday. But nowadays most of banks in Kathmandu are opened
throughout the week.

1.3 BANKS IN NEPAL

In Nepal the banks are being segregated in different groups. Each group has their
own benefits and limitations in operating in Nepal. Each has their own dedicated
target market. Few of them only work in rural sector while others in both rural as
well as urban. Many even are only catering in cities. Some are of Nepal origin and
some are foreign players. Nepal has many nationalized and private banking
ventures.

BANKS AND FINANCIAL

INSTITUTIONS
There

are 32

REGULATED
BY
commercial banks, 79 development banks, 79 financial companies, 18 micro credit
(Grameen) development banks and 16 saving and credit co-operation(licensed by
Nepal Rastra Bank) are established so far in Nepal. The bank with the largest
network in Nepal is The Nepal Bank Ltd. These commercial banks and financial
institutions have played significant roles in creating banking habit among the
people, widening area and business communities and the government in various
ways.

COMMERCIAL BANKS IN NEPAL

A commercial bank is a type of bank that provides services such as accepting
deposits, making business loans, and offering basic investment products.
Commercial bank can also refer to a bank or a division of a bank that mostly deals
with deposits and loans from corporations or large businesses, as opposed to
individual members of the public (retail banking).There were 32 commercial banks
in Nepal including Agricultural Development bank. Recently, 2 banks (NIC bank
and Bank of Asia ) has merged and formed NIC Asia .With this the numbers of
banks in the country is .

LIST OF TOP 10 COMMERCIAL BANKS OF NEPAL

S.N
.

Name of Commercial Bank

Year of
establishm
ent A.D.

Head
office

Links to Related ba

Nepal Bank Limited

1957

Kathmandu

www.nepalbank.com.n

Rastriya Banijya Bank Limited

1966

Kathmandu

www.rbb.com.np

Nabil Bank Limited

1984

Kathmandu

www.nabilbank.com

Nepal Investment Bank

Limited(previously Nepal
Indosuez Bank)

1986

Kathmandu

www.nibl.com.np

Standard Chartered Bank

Limited(previously Nepal
Grindlays Bank Limited)

1987

Kathmandu

www.standardchartere
m

Himalayan Bank Limited

1993

Kathmandu

www.himalayanbank.c

Nepal SBI Bank Limited

1993

Kathmandu

www.nepalsbi.com.np

Nepal Bangladesh Bank

Limited

1993

Kathmandu

www.nbbl.com.np

Everest Bank Limited

1994

Kathmandu

www.everestbankltd.c

10

Bank of Kathmandu Limited

1995

Kathmandu

www.bokltd.com

Commercial banks engage in the following activities:

Processing payments via telegraphic transfer, EFTPOS, internet banking,
or other
Issuing bank drafts and bank cheques
Accepting money on term deposit
Lending money by overdraft, installment loan, or other
Providing documentary and stady, guarantees, performance bonds,
securities underwriting commitments and other forms of off-balance
sheet exposure.
Cash management and treasury
merchant banking and private equity financing
Traditionally, large commercial banks also underwrite bonds, and make markets in
currency, interest rates, and credit-related securities, but today large commercial
banks usually have an investment bank arm that is involved in the aforementioned
activities.

FINANCIAL INSTITUTIONS
Financial sector plays an indispensable role in the overall development of a
country. The most important constituent of this sector is the financial institutions,
which act as a conduit for the transfer of resources from net savers to net
borrowers, that is, from those who spend less than their earnings to those who
spend more than their earnings. The financial institutions have traditionally been
the major source of long-term funds for the economy. These institutions provide a
variety of financial products and services to fulfil the varied needs of the
commercial sector.
In Nepal, the financial sector represents both banking sectorand nonbanking
sector. The banking sector consists of the Nepal Rastra Bank (NRB) theCentral
Bank, and all the commercial banks operating within the country and is
classifiedunder A category of financial institutions. The nonbanking sector
consists of developmentbanks, finance companies, micro-credit development
banks, saving and credit cooperatives;and nongovernmental organizations (NGOs)
performing limited banking activities. Besides,other financial institutions such as

insurance companies, employees provident fund, citizeninvestment trust, and

other financial institutions not licensed by the NRB such as postalsavings bank,
microfinance institutions, cooperative societies, community basedorganizations
(CBOs) and the Nepal Stock Exchange are also included under the category ofthe
nonbank financial institutions in Nepal.

DEVELOPMENT COMPANIES
Development banks are the Financial institutions dedicated to fund new and
upcoming businesses and economic development projects by providing equity
capital and/or loan capital. Development banks provide capital to companies and
organizations when raising money for ventures is difficult, particularly in countries
where investment capital tends to be scarce.Development banks fill a gap left by
undeveloped capital markets and the reluctance of commercial banks to offer longterm financing.
Development banks may be publicly or privately-owned and operated, although
governments frequently make substantial initial contributions to the capital of
private banks.
The form(share equity or loans) and cost of financing offered by development
Banks Depend On their cost of obtaining capital and their need to show a profit
and paydividends.Nepal has many private and nationalized banking.There are 87
development banks in nepal.

List of 20 development bank arranged accordingly to their operation

date
Paid up
Capital
S.No. Names

Nepal Industrial Development Corporation

Operation Date
(A.D.)

Head Office

1959/06/15

Durbar Marg, Kathmandu

(Rs. 00
Thousands )

4158

Uddyam Development Bank Ltd.

1999/11/11

Narayangadh, Chitawan

500

Malika Development Bank Ltd.

1998/12/19

Dhangadhi, Kailali

2048

Siddhartha Development Bank Ltd.

1998/08/20

Tinkune, Kathmandu

6450

United Development Bank Ltd.

2002/03/16

Jeetpur, Bara

802

Manakamana Development Bank Ltd.

2001/06/19

Durbar Marg, Kathmandu

10000

Narayani Development Bank Ltd.

2001/10/17

Ratna Nagar, Chitawan

655

Pashimanchal Development Bank Ltd.

2003/03/02

Mitrapark, Rupandehi

3365

Sahayogi Bikas Bank Ltd.

2003/10/21

Janakpur, Dhanusha

750

10

Pashupati Development Bank Ltd.

2004/01/01

Banepa, Kavre

6632

11

Karnali Bikash Bank Ltd.

2004/02/14

Nepalgunj, Banke

800

12

Triveni Development Bank Ltd.

2004/07/26

Narayangadh, Chitawan

1357

13

Annapurna Development Bank Ltd.

2004/08/23

Banepa, Kavre

6720

14

Bhrikuti Bikas Bank Ltd.

2004/08/19

Butawal, Rupandehi

2792

15

Shubhechchha Bikas Bank Ltd.

2004/09/14

Narayangadh, Chitawan

1008

16

Bageshowri Development Bank Ltd.

2004/10/19

Nepalgunj, Banke

594

17

Sanima Bikas Bank Ltd.

2004/11/26

Kamalpokhari, Kathmandu

20160

18

Gaurishankar Development Bank Ltd.

2004/11/29

Kawasoti, Nawalparasi

2100

19

Gorkha Bikas Bank Ltd.

2004/12/01

Putalisadak, Kathmandu

6608

20

Gandaki Bikas Bank Ltd.

2005/01/19

Pokhara, Kaski

2000

FINANCE COMPANIES
The history of the finance companies began with the establishment of the Nepal
Housing Development Finance Company Limited in 1992. In addition to the private
banks, there are73 private finance companies operating in Nepal. These
institutions have all commencedoperations over the past six years since the
Finance Company Act was promulgated. The Actpermits these companies to offer
installment credit for the purchase of vehicles, equipment, ordurable household
goods, for purchase or construction of residential buildings, for leasingfinancing,
and for operating industrial, commercial or other enterprises. Majority of
thefinance companies have their corporate offices in the Kathmandu Valley, and a
very few areoperating outside the Valley. The feature of assets and liabilities of the
finance companiesshows a different pictureIn the assets side, during the same

period, the maximum percentage of share is occupied byloans and advances

(69.24 percent), followed by liquid funds (12.28 percent), other assets(10.61
percent), while the investment occupied 7.87 percent only.
Finance Companies are licensed by Nepal Rastra Bank in Class C. Finance
Companies in Nepal are also playing vital roles for the development of economy
status of Nepal. Nepal has many nationalized and private finance companies.
There are 79 finance companies licensed by NRB in Nepal.
20 Finance companies in Nepal on the basis of name, year established
head offices, paid up capital are given below:

S.No
Names
.

Operation
Date
Head Office
(A.D.)

Paid up
Capital
(Rs. 00
Thousands )

Nepal Housing Development Finance

Co.Ltd.

1992/03/08 Bijulibazar, Kathmandu

1676

Nepal Finance Ltd.

1993/01/06 Kamaladi, Kathmandu

1114

NIDC Capital Markets Ltd.

1993/03/11

Narayani National Finance Ltd.

2009/11/01 Kalikasthan, Kathmandu 6475

Annapurna Finance Co.Ltd.

1993/09/30 Pokhara, Kaski

Nepal Share Markets and Finance Ltd.

1993/10/19

Ramshahapath,
Kathmandu

20343

Peoples Finance Ltd.

1993/04/15

Mahabauddha,
Kathmandu

2890

Mercantile Finance Co. Ltd.

1994/11/10

Birgunj, Parsa

180

Kathmandu Finance Ltd.

1994/11/10

Dillibazar, Kathmandu

1356

10

Himalaya Finance Ltd.

1993/11/11

Sundhara, Kathmandu

1400

11

Union Finance Ltd.

12/12/1995

Kamaladi,Kathmandu

1759

12

Gorkha Finance Ltd.

1995/03/12 Hattisar, Kathmandu

1440

13

Paschhimanchal Finance Co.Ltd.

1995/04/09 Butawal, Rupandehi

1488

14

Nepal Housing & Merchant Finance Ltd.

1995/04/11

2203

15

Universal Finance Ltd.

1995/04/27 Kantipath, Kathmandu

16

Samjhana Finance Co. Ltd.

1995/05/03 Banepa, Kavre

Kamalpokhari,
Kathmandu

Dillibazar, Kathmandu

2224

7043

1518

17

Goodwill Finance Ltd.

1995/05/16 Dillibazaar, Kathmandu

18

Siddhartha Finance Ltd.

1995/05/25

19

Shree Investment & Finance Co. Ltd.

1995/06/01 Dillibazar, Kathmandu

1391

20

Lumbini Finance & Leasing Co. Ltd.

1995/06/26 Thamel, Kathmandu

2681

Siddarthanagar,
Rupandehi

3000
1309

COOPERATIVES
A cooperative ("coop") or co-operative ("co-op") is an autonomous association of
people who voluntarily cooperate for their mutual social, economic, and cultural
benefit .Today, the Interim Constitution of Nepal has considered the co-operative
sector as one of the three pillars for national development. The major types of cooperative societies operating in Nepal are Saving and Credit, Multipurpose, Dairy,
Agriculture, Fruits and Vegetables, Bee Keeping, Tea, Coffee, Consumers, Science
and Technology, and Energy. It is believed that some 3 million people are already
affiliated in approximately 19,724 cooperatives and more than 50,000 people are
employed directly in Cooperative business.
In Nepal 13 types of cooperative operate . According to the department
Cooperative annually Cooperative operate and mobilize over annually over 100
billion ,Which accounts for Rs 61.54 billion investment ,58 Saving and 9.36 billion
share capital .This sector also provide direct employment to more than 50
thousands while in indirectly to more 100,000 job opportunities in different
fields .While it may normal to have 4000,to 5000 Cooperatives in the capital.

FINANCIAL INSTITUTION
REGULATED
BY

INSURANCE BOARD
Beema Samiti is the official government organization of Nepal to
manage,regulate,develop and control of insurance business in Nepal.Insurance
Board of Nepal is called Beema samiti.Nepal Insurance Board is the independent
institution established by the government of Nepal under the insurance act 2049.It
has been established to manage,regulate deveop and control of insurance
business in Nepal.The board has the following organizational structure.
The Insurance Board of Nepal is constituted under the Insurance Act, 1992, article
3. The form of the Insurance Board of Nepal is as under.

 A person nominated or designated by Nepal Government Chairman

Representative from Ministry of Law, Justice and Parliamentary Affairs :
MemberRepresentative from Ministry of Finance : Member
A person nominated by Nepal Government from among the person having
the special knowledge in the Insurance Business : Member
A person nominated by Nepal Government from among the insured : Member

INSURANCE COMPANIES
A company that offers insurance policies to the public, either by selling directly to
an individual or through another source such as an employee's benefit plan. An
insurance company is usually comprised of multiple insurance agents. An
insurance company can specialize in one type of insurance, such as life insurance,
health insurance, or auto insurance, or offer multiple types of insurance.
Insurance companies make profits by people paying more in premiums than they
pay out in claims. Insurance companies pay out most of the money they bring in in
claims. If an insurance company makes a profit they usually will lower their
insurance rates to remain competitive
Insurance Companies in Nepal are playing vital roles to provide the life and non life
security to customer in the state. Nepal has many nationalized and private
Insurance Companies. There are 27 Insurance Companies of Nepal. There are
enlisted 27 lists of licensed Insurance Companies of Nepal.

List of licensed Insurance Companies of Nepal

1. Alliance company limited.
2. American life insurance company limited (Alico)
3. Asian life insurance company
4. Deposit insurance and credit guarantee corporation
5. Everest insurance company limited.
6. Gurans life insurance company limited.

7. Himalyan general insurance company limited.

8. Life insurance corporation (Nepal) limited.
9. Lumbini general insurance company limited.
10. National insurance company limited
11. National life & General insurance company limited.
12. National life insurance company limited.
14. Neco insurance limited.
15. Nepal insurance company limited
16. Nepal life insurance company limited.
17. NLG insurance company limited.
18. Premier insurance company (Nepal) limited.
19. Prime life insurance company limited.
20. Prudential insurance company limited.
21. Rastriya Beema Sansthan
22. Sagarmatha insurance company limited.
23. Shikhar insurance company limited.
24. Siddhartha insurance company limited.
25. Surya life insurance company limited.
26. The oriental insurance company limited.
27. United insurance company(Nepal) limited.

SECURITIES BOARD OF NEPAL ( SEBON )

Securities Board of Nepal (SEBON) was established by the Government of Nepal on
June 7, 1993 as an apex regulator of Securities Markets in Nepal. It has been
regulating the market under the Securities Act, 2006.

SEBON has been established to supervise and develop the primary and secondary
markets of the country's capital market system as well as financial or securities
related participants and institutions. Its prime roles are to formulate policies, rules
and regulations regarding the supervision, promotion, and development of
securities businesses as well as other activities pertaining to the securities
businesses; such as issuance and offer of securities for sale to the public; securities
exchange, and entities related to securities businesses; acquisition of securities for
business take-overs; and prevention of unfair securities trading practices.
The Governing Board of SEBON is composed of seven members including one full
time chairman appointed by the Government for a tenure of four years. Other
members of the Board include joint secretary of Ministry of Finance, joint secretary
of Ministry of Law, Justice and Parliamentary Affairs, representative from Nepal
Rastra Bank, representative from Institute of Chartered Accountants of Nepal,
representative from Federation of Nepalese Chambers of Commerce and
Industries, and one member appointed by the Government from amongst the
experts pertaining to management of securities market, development of capital
market, financial or economic sector.
The major financial sources of SEBON are the government grant, transaction fee
from the stock exchange and registration fee of corporate securities. Other
financing sources include registration and renewal of stock exchange and market
intermediaries and the income from mobilization of its revolving fund.

NEPAL STOCK EXCHANGE (NEPSE)

The Nepal Stock Exchange Limited (abbreviated as NEPSE) is the only Stock
Exchange of Nepal. It is located in Singha Durbar Plaza, Kathmandu Nepal. On
March 23, 2014 the equity market capitalization of the companies listed on NEPSE

was approximately US$ 7896 million.Members of NEPSE are permitted to act as

intermediaries in buying and selling of government bonds and listed corporate
securities. At present, there are 23 member brokers and 2 market makers, who
operate on the trading floor as per the Securities Exchange Act, 1983, rules and
bye-laws
The basic objective of NEPSE is to impart free marketability and liquidity to the
government and corporate securities by facilitating transactions in its trading floor
through member, market intermediaries, such as broker, market makers etc.
NEPSE opened its trading floor on 13 January 1994. As on April 4, 2013, the
number of listed companies are 334, which includes Commercial Banks, Hydro
Power Companies, Insurance Companies and Finance Companies among others.
NEPSE operates on the NEPSE Automated Trading System (NATS), a fully screen
based automated trading system, which adopts the principle of an order driven
market. Purchase & Sell of Physical Share certificates is done through NATS.

NEPAL BANKING INDUSTRY

It is apparent that Nepali banking space is crowded with 32 Commercial Banks, 88
Development Banks, 70 Finance Companies and several cooperatives undertaking
banking transactions. For this reason, implementation of major changes affecting
the industry becomes challenging and at times smaller players find it difficult to
cope with such changes. It is also observed that the changes that are easily
absorbed by the bigger players become bottle necks for smaller entities.
Nepal has been struggling to maintain macroeconomic balance for a couple of
years now. Low growth rate, high unemployment, balance of payments deficit,
ballooning trade deficit, and high and sticky inflation are some of the pressing
existing macroeconomic challenges. Now, add to that list banking and liquidity
crisesengendered largely by the bank and financial institutions (BFIs) themselves
and to some extent by Nepal Rastra Bank (NRB), the central bankand its
disastrous consequences in and beyond the banking system.
The NRB ignored the unhealthy competition, questionable lending to few sectors,
and governance in financial sector. In doing so it let new BFIs pop up without even
evaluating if the economy needs so many of them, and took damage control

measures of late. Meanwhile, the BFIs engaged in unhealthy and imprudent

lending out of desperation to survive amidst cutthroat competition, which is
getting nasty by the day. The BFIs inability to effectively cope with the pressure to
increase deposit and lending, and to attain unsustainable profit targets is leading
to a situation where all profits are private but losses are social, i.e. taxpayers pay
the cost of reckless business practices of the BFIs in the form of expensive rescue
packages.
The banking industry in Nepal is likely to pass through few important policy
changes (or challenges) in the near future. These changes, mostly being
introduced by the regulator, are likely to be in the best long term interest of the
Industry and are expected to have a far-reaching impact on the industry in
Nepal.Some of the changes in its order of implementation are Base Rate, ICAAP,
Interest Rate Corridor, IFRS and BASEL III. Regulations for some of the changes
have already been released, and for others, it is a matter of time before the
industry brace itself for it.
Without deep structural changes in the banking industry, Nepal will see many
Northern Rock moments and eventually a disastrous Lehman moment as well.
The tendency to seek short term, quick returns against long term viability and
sustainability is leading the BFIs in a path of self-destruction. For a healthy banking
industry, Nepal needs fewer but stronger BFIs with sound corporate governance.
Furthermore, there has to be an enhancement of regulatory and supervisory
capabilities of NRB. The playing field has gotten unnecessarily congested amidst
less than proportionate growth rate in the number of depositors vis--vis BFIs.

Northern Rock and Lehman moments

When Vibor Bikas Bank (VBB) knocked on the doors of Nepal Rastra Bank (NRB) on
June 9, 2011 to either inject money in the development bank or to take over
management, it rattled the banking industry and the already suspicious depositors.
There were rumors and anticipation that due to excessive loan exposure to real
estate, housing and construction sectors bank and financial institutions (BFIs) will
land in the red sooner or later (Sharma, 2011).
The sudden move by Vibor made depositors panic and policymakers scurry to find
a way to avert a Lehman momentthe day when US investment bank Lehman
Brothers collapsed (September 15, 2008) and triggered the global financial crisis
that was ensued by the global economic crisis. In Nepals banking history, the

rescue of Vibor is a Northern Rock momentthe day when the Bank of England
extended emergency financial support to the troubled mortgage lender on
September 17, 2007 and saved it from collapsing.

Status of Banks and Financial Institutions (BFIs)

As of mid-July 2010, total assets and total deposits in banking sector amounted Rs
996.1 billion and Rs 795.3 billion respectively. The total loans amounted to Rs
622.6 billion. The market share of total deposits of commercial banks has declined
from 85.6% in mid-July 2008 to 79.4% in mid-July 2010, when the share of
development banks, finance companies, and other BFIs was 9.7%, 10% and 0.9%
respectively (Ministry of Finance, 2011). In the last three years, there has been a
slight decrease in deposits in commercial bank but increase in development banks
and finance companies (see Figure 1).
Meanwhile, of the total loans, commercial banks market share has declined from
78.6% in mid-July 2008 to 74.2% in mid-July 2010. During the same period, the
share of total loans of development banks, finance companies and other BFIs was
10.6%, 12.8% and 2.4% respectively.
As of April 2011, NRB data shows that the total deposits at commercial banks
stand at around Rs 642 billion. Of the total commercial banks deposits, demand
deposits, savings deposits, and fixed deposits stand at 12%, 36%, and 52%
respectively. They have liquid funds of Rs 114 billion (cash in hand Rs 16.2 billion,
and deposits with NRB Rs 39.3 billion). More than Rs 110 billion is invested in real
estate by the commercial banks alone. Over 72% of commercial banks credit flows
against fixed assets.

Figure 1: Market share of total deposit and lending (%), mid-July

2010(Source: Economic Survey 2010/11)

As a share of gross domestic product (GDP), total deposit, total credit (including
claims on government) and private sector credit are 51%, 54.9% and 43.6%,
respectively (Nepal Rastra Bank, 2011). Per person deposit as of mid-April 2011
was Rs 20,100 and per person loan was Rs 19,000 (Ministry of Finance, 2011).
Commercial banks deposit interest rate ranges from 2-12% and loans 7-18%.
Interbank lending rate ranges between 10 to 14%. Right now, the interest spread,
which is the difference between lending and deposit rates, is also high. The wider it
is, the more worrisome the state of BFIs. Likewise, the high inter-bank rate shows
that the banks themselves are reluctant to lend money to each other. Some of the
BFIs are yet to meet the revised capital adequacy ratio, which is the ratio of a
banks capital to its risks, laid out by the NRB, keeping in mind their increasing
vulnerability to excessive loan exposure to just a few sectors (Nepal Rastra Bank,
2010b).

Causes of liquidity and banking crises

There have been misleading and incongruous arguments floating around about the
causes of the ongoing liquidity and banking crisis. They are made by stakeholders
who fail to see how their vested interest and incompetence is jeopardizing the
future of the banking industry, and is potentially derailing an already unstable
economy.
First, bankers and businessmen are arguing that delayed budget and disbursement
of development expenditures are causing liquidity crisis. This argument does not
hold much water. It is true that budgets have been coming out late for two years

now, and there has not been normal flow of money from the Ministry of Finance
and other Ministries to the respective corners of the country via BFIs. This has
definitely limited liquidity in the banking system. But it in itself is not the main
cause. Instead, it is a minor stimulant to the liquidity crisis. If delay in development
expenditure is the cause, then why did Nepal not have liquidity crisis when similar
episodes occurred in the past?
Second, the withdrawal of large amount of money by institutional depositors,
especially NRB and Nepal Army, has drastically reduced reserves in BFIs,
especially category B and C, vaults and squeezed available liquidity. This again is a
stimulant to the liquidity problem, not its main cause. If just by pulling out a few
millions of mature deposits by institutional depositors puts the BFIs in trouble, then
there is something wrong with the way they are doing business. It points to
bankers incompetence and inability to run BFIs.

Third, while some argue that people are either stashing money at home or are
investing in commodities like gold and silver, others assert that the compulsion to
divulge source of income on transactions above Rs 1 million is restricting deposits.
Again, both are not the real causes, but stimulant to the liquidity crisis. These
arguments are trumpeted by certain businessmen who are afraid of divulging their
sources of income and dutifully pay taxes to the government.

Fourth, some argue that a decline in reserves, precisely monetary base (which is
equal to currency in circulation and reserves of banks held in central bank), due to
a slowdown in growth of remittances, led to a situation where credit growth was
higher than deposit growth. They assert that it is resulting in a liquidity crisis, and
to return to normal, the NRB should purchase bonds and treasury bills and lower
cash reserve ratio and the already high capital requirements (all of which will help
increase liquidity). Of all the arguments, this holds some truth. But increasing
liquidity without correcting the distorted market would only postpone the
inevitable.

The main cause is that Nepal has too many BFIs catering to too few customers
(note that a 2006 study on financial penetration shows that only 26 percent of
households in Nepal have bank accounts (Ferrari, Jaffrin, & Raj, 2006)), meaning
that in order to survive and meet ever-increasing profit targets, the BFIs have to
have constant flow of money from all sources, that also in higher proportion than
previous flows. The competition to attract deposits and give out loans intensified
with the increase in the number of BFIs, who competed without much product and
market differentiation. Without considering total deposits and their ability to fulfill

demand for withdrawls, the BFIs lent unsustainable amount of loans to earn quick
returns to meet profit target before the annual general meeting of shareholders
and directors. This translated into real estate and housing sectors bubble, which
sucked in as much as Rs 110 billion of commercial banks deposit.

Buoyed by easy finance and loans, real estate transactions and housing complexes
rose rapidly. Sometimes artificial demand was created just to jack up prices. This is
evident from the fact that our shaky economic fundamentals do not justify
multifold increase in land prices in a matter of days. Moreover, money is pumped
into this sector without properly assessing risks and the ability of borrowers to
repay loans. The BFIs are hardly distinguishing between normal and subnormal
loans. There is little product and market differentiation. This was assuaged by
NRBs easy monetary policy, lax supervision (by near-retiring officials who had
expectations of moving into private sector banking) and inflow of remittances,
which is approximately one-fourth of GDP right now.This created market
disequilibrium, i.e. the supply of real estate and housing complexes outstripped
demand, leading to decline in prices by as much as 30 percent. As prices dipped,
borrowers are and will be unable to honor principal and interest payments on time,
forcing the BFIs to restructure loans and variably increase lending rates. This in
turn led to and is leading to buyers canceling bookings even after paying the
minimum required down payment. Soon the major urban centers will see ghost
apartments, i.e. empty apartments waiting for customers to either buy or rent
them. This will ultimately hit the BFIs even harder unless it goes fundamental
restructuring and consolidation.

Chapter 2

COMPANY PROFILE

2.1 INTRODUCTION OF RASTRIYA BANIJYA BANK

(RBB)
RBB Ltd. - established on January 23, 1966 ( 2022 Magh 10 ) - a synonymous of
stable and people's bank in Nepal - is one of the pioneer Bank in the country with
the history of nearly a half century. Earlier constituted 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 (CA) 2063 at
present.The Bank licensed by NRB as a 'A' class commercial Bank of the country,
has grown up as an indispensable component of the Nepalese economy.

RBB which has made glorious history of contributing for the monetization of the
economy ,eliminating dual currency in the market , initiating preliminary financial
literacy, help flourish industrial ,commercial and financial sector of the country has
now emerged as a modern and strong financial institute of the country. The Bank
with 2600 hands has expanded its wings in the most part of the country through
multiple distribution outlets of 158 branches ,17 counters,28 branch less banking
(BLB) and 72 ATMs.The Bank with the highest public confidence- reflected in the
highest deposit base and growing demand for branch establishment in the various
parts -has stood as a pyramid in the financial arena of the country. The Bank with
as many as 1.7 millions satisfied /direct customers ranging from poor to elite ones
and millions of indirect ones,has drawn important imprint in the picture of
country's economy through its significant involvement in the best use of its
resources to enhance the production,income and employment opportunities.The
Bank is fully committed to contribute its best for the socio economic development
of the country and people in the days to come.
Services Currently Offered by RBB Credit- Business loan Housing Loan Vehicle
Loan Hire Purchase Loan Educational loan Apartment Loan Loan Against Gold Loan
against fixed deposit receipt Loan against the government bond Loan against

shares Loan against the first class bank guarantee Rastra Sewak Loan Teachers
Loan Personal Loan Agricultural Loan
Deposit, Current Account ,Saving account ,Fixed Deposit ,Karmayogi Bachat
Khata ,Mahalaxmi Bachat Khata, Chhunamuna Bachat Khata, Sikshak Bachat Khata
Remittance Branch less Banking ATM/ CDM E-Banking Mobile Pay SMS Banking
Card Services (Debit/ Credit Card)

2.2 BUSINESS PROFILE

Rastriya Banijya Bank (RBB) is the largest commercial bank in Nepal, fully owned
by the government and currently under a restructuring process. The bank was
established in 1966 to support economic growth and development in Nepal. Since
then, the bank has developed and diversified its role to provide various banking
services to the community. It has been closely associated with government
programs targeting the priority and deprived sectors, while undertaking innovative
methodologies to finance self-help groups.
Methodology
Rastriya Banijya Bank provides various products and services in the form of
deposits, remittances, loans, merchant banking and bank guarantees. It has also
been lending and investing in rural areas, targeting low-income people under the
deprived sector lending requirements. In doing so, it has participated in several
government rural credit initiatives including the Intensive Banking Program. RBB
has adopted a methodology of providing financial services through self-help groups
with the Banking with the Poor program, which focuses on combining its lending
practices with the social mobilisation of Self-Help Groups (SHGs) undertaken by
NGOs. The program targets poor women, formed into SHGs, who are encouraged
to save first, and then determine the interest on loans provided to their members.
Unfortunately, the program has faced serious difficulties, due to weak institutional
support and insufficient dedication to the program. This has resulted in poor
implementation and incapacity to transform the pilot project into a viable program.
However, some positive aspects of the banking with the poor program includes the
relative low cost of financial intermediation, in comparison to usual practices, and
the good overall participation of the population in the program
Area of Operations
In total, RBB has 117 branches that span across 68 districts. Regionally, RBB
centers its operations on Katmandu, Biratnagar, Birgunj, Butwal, and Nepalgunj.
Clients

RBB provides banking services to a large number of clients including banks,

insurance companies, industry trading houses, airlines, hotels and many other
sectors in the economy. The bank also provides financial services to the lowincome population in rural areas, within the framework of government programs,
and seeks to promote economic development and the improvement of living
standards.
Active
clients
69,000*

Active savers

Active borrowers

Gender

1.2 million**

Individuals and institutions

*Active clients under the deprived sector lending program 6,900 within the BWTP
program (as of January 2004)
**Active savers include individuals as well as institutions
Poverty Focus
RBB serves both urban and rural populations. In order to address poverty, RBB
offers finance to self-help groups (SHGs), which gather clients of its microfinance
program. A series of specific operating principles have been set as parameters for
the operations of the groups. They are encouraged to use peer pressure as
collateral, to provide initial small size loans and to set their own interest rates on
loans. SHGs members are encouraged to save first before accessing credit.
Distinctive Features
The bank reaches out to both rural and urban households, institutions and
corporations through its vast network of branches. The bank aims to contribute to
economic growth and development of Nepal through a modern network of banking
facilities. The bank has 60 branches in mountainous regions, 51 in the Terai region
and 21 in the Kathmandu region. Two thirds of the branches are located in rural
areas. RBB has the largest deposit base in Nepal with 1.2 million depositors.
Approximately 300,000 clients use the banking services for their business and
development activities.
Innovations
The bank launched its Banking with the Poor program as a pilot project in the early
1990s. This initiative, launched under the priority sector credit program, aimed at
reaching the poor by establishing linkages with self-help groups. Despite the
difficulties in bringing the program to a larger scale and a more profitable basis,
there is considerable potential to transform it into a successful methodology, using
the example of the SHG-bank linkages in India.
Financial results
n/a
Loan Portfolio

Portfolio at risk

Savings
Deposits

OSS / FSS

RoE / RoA

Challenges and Development Plans

RBB faced major difficulties in operating its social financial intermediation in a
profitable manner. With pilots such as the Banking with the Poor program, the bank
failed to test, standardise and replicate a program in an appropriate pace (see
Sharma paper) and lacked a planning process including: vision, outcomes, goals,
and clear measurable outcomes. Along with this, no clear review and knowledge
management was carried out with regards to its financing of the priority sector.
The bank has recently transformed its priority sector credit department into a
micro and small enterprise division and produced a comprehensive manual on
small enterprise lending by the bank. The bank plans to undertake appropriate and
thorough planning, testing and reviews to implement microfinance program
successfully in rural areas. It envisages collaboration with microfinance institutions,
while developing its own microfinance activities modelled on the successful BRI
Unit Desa system in Indonesia.
Inclusion in the Financial Sector
Rastriya Banijya Bank plays multiple roles as a: commercial bank, microfinance
provider, and investor in the microfinance sector. RBB holds shares in the five
public-owned Grameen Bikas banks, along with RMDC. However, as a governmentowned body, its key priority is to act as a commercial bank.

2.3 BOARD OF DIRECTORS

Board of Directors
Mr. Ram Prasad Adhikary, Chairman
Mr. Shanta Raj Subedi
Prof. Premraj Panta
Dr. Ramchandra Bhattarai
Mr. Ratna Bahadur Maharjan
Mr. Kamal Khare

Managing Director
Mr. Ram Prasad Adhikary