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CHAPTER I

INTRODUCTION

1.1 Background of the study

Interest is defined as the prices paid for borrowed. Interest is the cost incurred by users of
funds when they use debt capital. From the viewpoints of suppliers of money as the
revenues when money is lent to users. Therefore, interest is a cost for users of funds and
revenue for suppliers Fund Interest rates on loan and deposits may defer considering the
purpose and to whom the amount is given. Interest rate on loan is fixed depending on the
type of loan and credit rating associated with borrower.

People deposit excess money in banks and financial institutions to earn additional
income as interest depending on the time value of money and the compounding effect. A
Deposit is a financial term that means money held at a bank. A deposit is a transaction
involving a transfer of money to another party for safekeeping. However, a deposit can
refer to a portion of money, used as security or collateral of the for the delivery of a good
used.

Whereas Bank deposit consist of money placed into banking institutions for
safekeeping. These deposits are made to deposit accounts such as savings accounts,
checking accounts, and money market accounts. The account holder has the right to
withdraw deposited fund as set forth in the terms and conditions governing the account
agreement.

Financial Analysis is the process of evaluating business, projects, budgets and

other finance related transactions to determine their performance and suitability.
Typically, financial analysis is used to analyze whether an entity is financially stable and
profitable enough to justify its investment.

Financial analysis is used to evaluate and analyze trends on financial data and
build long term plans for business activities and identify project for investment decisions.
Financial Analysis is performed by using financial analysis tools based on financial data
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and numbers. Financial analysis covers the analysis of company's Balance Sheet, Income
Statement and cash Flow statements.

1.1.1 Profile, event and activities

SBL Bank Limited licensed as “A” class financial institution by Nepal Rastra Bank in
May 2008 has been operating in the Nepalese Financial market for over twenty years and
is one of the leading commercial banks in the banking industry.

The Bank has a Joint Venture Agreement with FMO, wherein FMO holds 13.69%
of the Bank’s shares and is the largest shareholder of the Bank. In September 2016, the
Bank signed a Joint Venture Agreement with Nederland's Financiering FMO, the Dutch
development bank following which FMO became the single largest shareholder of the
Bank. The alliance with FMO positions SBL Bank in becoming the market leader in
managing environmental & social risks and the leading player in renewable energy and
agribusiness.

As we know that the main objective of a commercial bank is to maximize its

profit by mobilizing its resources in most efficient manner. But if the bank fails to collect
adequate deposits then it loses profitable opportunities and hence fails to generate profit. ,
if bank is not able to collect sufficient deposit, play song, then it should look forward for
policy amendments otherwise there will be a question. In the survival of that particular
bank in this highly competitive commercial sector.

1.2 Statement of problem

The statement of problem is current issue regarding the topic of research. The research
question is:
•What is the position of interest rate and deposit of SBL bank limited?
•Is there any significance difference between interest rate and deposit?
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1.3 Objective of the study

Every work has aims and objectives. Without aims and objectives the works could not
run forward properly. In the same way, the objective of this case study is to analyze the
total deposit of SBL Bank ltd. other sub objectives are as follows:

•To analyze the position of interest rate and deposit.

•To examine the relationship between interest rate and deposit.

1.4 Rational of the study

Different study reports have their own important in their sector area. Like that, study
report of saving and de posit of SBL Bank is prepared which play vital role. This report
contest saving and deposit distribution and payment system of fiscal year by using
generally accepted way. I hope this help in classifying and interpreting the real standing
of the bank with its major function. This field study report is remarkable and has its own
importance of the study, so in conclusion I submit it has its own area of importance.

•Useful in analysis of financial statement

•Express Financial Trend
•Useful in Planning
•Useful in decision making

1.5 Literature Review

A Literature review includes review of precious studies. To make a correct research

report, a deep study of previous research is important. The revision or review is
necessary to gain the knowledge on the research topic. As the study of past studies
provides knowledge for present research work, literature review is strong foundation to
present research.
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1.5.1 Concept of Deposit

The excess of income over consumption requirement is saved. Such savings are deposited
in commercial banks, even amounts to be spent for consumption purposes are deposited
in commercial banks. Payment for goods and services is made in Cheques drawn on
banks. Banking habit is growing faster. People deposit their earnings in commercial
banks because banks vaults are safer than home coffers and they pay interest according to
the kind of deposits.

Banks accept deposits to lend the same at a higher rate of interest. Deposits and
credits are just like inflow and outflow of funds of the banks. Banks deploy funds by way
of providing credits to needy people. Credits (loans and advances) are the largest income
earning asset of the bank and the most profitable and high risk associated item on the
asset side of the bank balance sheet. fixed deposit policy is the most essential policy for
its existence. The growth of banks depends primarily upon the growth of its deposits. The
volume of funds that management will use for creating income through loans and
investment is determined restrictive; the growth of bank is restated or accelerated with
the liberalization in the deposit policy. In banking business, the volume of credit
extension much depends upon the deposit base of a bank.

a) Interest Bearing Deposit

Deposit in which banks are required to pay interest is known as interests bearing deposit.
Saving, Term (Fixed), Call and Recurring deposit are interest bearing deposit.

• Saving Deposit

A saving deposit is one in which middle class people and general server open a limited
amount of money that can be withdrawn and low level of interest will be provided by
bank. This is a very common and general deposit account, which is suitable for those
classes of people who want to save some portion of their earnings or the money left
after the consumption. Initial deposit as decided by the bank must be made to open the
Saving Accounts. There are some restrictions in withdrawing money at the same time
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the limitation depends as per nature of the economy and from one country to the other
country or every one bank to the other.

•Fixed Deposit

This is a kind of deposit in which banks offers fixed interest rate on the deposit and
repays principal together with interest at fixed maturity or pays interest on regular
interval. So, the money deposited in this account can be utilized by banks for medium
or long-term credit freely being confident that the depositors will not come to claim
until the time lapses. Normally higher interest rate is offered for long term deposit and
lower interest rate for short term deposit. The time deposit is the main source of
commercial banks for their credit operation. Investment in medium term and long
purposes is possible only through this type of deposit. However, the depositor can take
loan under security. In this context of Nepal, fixed deposit has been classified on 21 the
basis of Quarterly, Semi-annually, Annually, Annually and above.

•Call Deposit

Call deposit incorporates the characteristics of current and saving deposit in the
sense. The companies not entitled to open savings account can open the call
accounts. Interest rate on call deposit is negotiable between the bank and the
depositors and hence, is normally not published in public. Interest rate is applied on
daily average balance. Withdrawal restriction is not imposed on call deposit but the
balance should not go below an agreed level.

b) Non-interest Bearing Deposit

It is the deposit in which the banks need to pay interest for the customer of their
savings. It is because in this types of deposit customers can withdraw the money at
any time or can withdraw daily and the bank could not employ the amount in interest
in this type of account. Current and margin deposit are non-interest bearing deposit.
The current deposit account generally opened by the business persons. They are
allowed to withdraw and deposit the money according to their needs. There is no
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limitation of withdrawing the money. Therefore, these types of deposits are for those
people who may need money at uncertain times.

1.5.2 Review of Previous work

Deposit Mobilization

Ibrahim (2011) in his study concluded that banks accept deposits to lend the same at a
higher rate of interest Deposits and credits are just like inflow and outflow of funds of
the banks. Banks deploy funds by way of providing credits to needy people. Credits
(loans and advances) are the largest income earning asset of the bank and the most
profitable and high risk associated Item on the asset side of the bank balance sheet.
Banks utilize its funds in suitable area and right sector. Banks cannot achieve its goals
until and unless it mobilizes it's deposits in right sectors and by performing different
activities. Much kind of activities and other thing can origin for the purpose of
receiving Invest from the bank. But bank should separate the useful and profitable
sector for mobilization its deposits. Banker being only a financial intermediary, will
not be able to make any profit unless it has to pay interest on deposits, meet
establishment expenses, meet liquidity of cash balance, and yet allow some balance
from out of which it can build reserve and pay dividend to the shareholder.

Kisha (2010) in his study analyzed that commercial banks are expected to
make profit. If there is no profit, there will be adverse criticism against public sector
banking, both in and outside the parliament when these banks are asked to open new
branches in areas which do not allow profits for years, or asked to grant loan to the
priority sectors such as small industries and agriculture with a high incidence of bad
debts, there is need for counter balancing profit from elsewhere. Therefore, these
banks will have to show an ascending order of profits in order to ensure growth with
stability. For this purpose, the bank will have to allocate land able resources to
different segments in such a manner these banks can ensure adequate profitability
while at the same time responding to policies laid down in accordance with national
objectives. Therefore, banks should mobilize its deposits in suitable and profitable
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banking activities and right sector. Generally, banks mobilize its deposits in the
following activities.

a) Liquid Funds

A bank keeps a volume of amount in liquid funds. Liquid funds help banks to meet
liquidity requirement. The funds have so many responsibilities in banking activities liquid
funds includes, cash in hand, balance with NRB, balance with other domestic banks and
call deposits.

b) Investment

Bank invests its fund in different banking activities and different fields. Many types of
fields are shown in market for investment. Banks should invest its funds in profitable and
safety activities. Bank invests its fund in corporate shares and debentures, shares of
foreign banks, and in government securities. According to (NRB 2012) The share of
loans and advances to total assets of commercial banks in Nepal remained 58.3 percent in
Mid - July 2012. Similarly, share of investment and liquid funds to total assets registered
17.0 percent and 15.2 percent respectively.

c) Loan and Advances

Banks mobilize its funds or deposits by providing different types of loan and advances to
customers, by charging certain interest. Banks provide loan and advances to various
sectors. According to (Share Sansar 2008) Out of 31 commercial banks, 12 commercial
banks real estate loan exposure is above limit set by Nepal Rastra Bank i.e. above 20
percent. DCBL Bank has the highest percentage of loan exposure in real estate i.e.
28.58% whereas Agriculture Development Bank has the lowest percentage i.e. 0.03%.
There is a significant growth in long term loan of commercial banks i.e. 15% during the
review period compared to same period of previous fiscal year which indicates that more
loans are given for project financing for hydropower projects, industrial projects and
other manufacturing and service sectors which can help in sustainable growth of overall
economy.
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1.6 Research Methodology

Research methodology is the systematic way of solving the research problems.

Research methodology refers to overall research process. The research methodology
discusses the different methods that will be used to conduct this research. Hence the
research will be conducted in such way so the best result could be achieved. Both the
primary as well as the secondary means for research will be used. As a primary
research the branch office of the bank situated in itahari will be visited and the
questionnaire will be presented to the staffs. As a secondary means, different
magazines, books, websites will be consulted and the research will be made.

Nepal as economically bank pushed country; most of the resources of the country
remained unused due to the lack of financing. This inadequacy of financing can be
removed by participation of foreign investors in the commercial bank with this view
welcomed the joint venture bank there are many numbers of banks these days of course.
Being an economically backward country, its present economy is characterized by
limited economic activities. In such a situation major problem forced by Nepalese
Banking Sector is slowing down of the economy.

1.6.1 Research Design

Research design indicates a plan of action to be carried out in connection with proposed
research work. This research attempts to analyze the performance evaluation of
Nepalese commercial banks taking the data and information of sample bank named
NBB, Nepal. The research design is basically focused on analytical study Ratio
analyses, correlation analyses and testing of hypothesis have been done for analyzing
the research.

1.6.2 Population and Sample

Population refers to the industries of the same-nature of its service & product. It is the
collection or the aggregate of objects or the set of results of an operation. On the other
hand, sample means the representative parts of population selected from it with the
objectives of investigating its properties. Thus, a sample is just a portion of the
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population selected with a view to draw conclusions about the population under study.
Population of the study is twentyone (21) commercial banks operating in the country.
But, it is not possible to study all data related with these twentysix commercial Banks.
So, the study is made of SBL Bank.

1.6.3 Nature and types of Data

Basically, there are two types of data used in research i.e. primary and secondary data.
The method of allocating the data and information about fixed deposit. Secondary data
are previously collected data and aren't the first-hand data. The main source of secondary
data is primary data. They are generally obtained from public or private sources.
Secondary data Include the following method:

•Book of bank
•Annual statement of bank
•Cash flow statement
•Income statement
•Balance sheet
•Journal & news published by NRB
•Libraries

1.6.4 Tools and techniques of analysis

For analysis of the data financial tools are used. There are wide areas of financial tools
that can be applied in order to analyze the financial performance.

Financial tools:

Liquidity ratio:
•Cash Reserve Ratio (CRR)
•Balance with NRB to total deposit ratio
Saving with other ratio:
•Saving to Total deposit ratio
•Cash and bank balance to Saving deposit
•Investment to saving deposit ratio
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1.7 Limitation of the Research

As every research has its own limitations, this research is also not free from any kind
of limitations. Following are the basic limitations of this research
•This research is done for the partial fulfillment of the BBS Program; it is only an
academic research.

•This research covers the relevant data of Nepal Bangladesh Bank Ltd for 5 years only

•This research focuses only on deposit and interest rate structure of SBL Bank Limited
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CHAPTER II

RESULTS AND FINDINGS

2.1 Presentation of data:

The most valuable and crucial tool to show the true position of any organization is its
past data. By analyzing the data, one can find out the core problems or limitations of
the organization. Therefore, this chapter focuses on presenting the data related to SBL
Bank regarding its saving deposit.

2.2.1 Total deposit structure of SBL:

The first and most important thing to know is the total deposit trend in SBL. Total deposit
trend refers to the total deposits of public in various accounts of SBL during certain
period. Following are the deposit structure of SBL Bank Ltd.

Year Total Current Saving Fixed Deposit Call Deposit Other

Deposit Deposit Deposit Deposit
Amt. % Amt. % Amt. % Amt. % Amt. %
2075/76 845071 47905 5.66 205579 24.3 457437 54.1 75739 8.96 58433 6.91

2076/77 985166 56831 5.76 289284 29.3 493548 50.09 89511 9.08 59130 6.00

2077/78 1348103 83791 6.21 389862 28.9 699519 5.18 99389 7.37 50295 3.73

2078/79 1664538 97953 5.88 539478 32.4 814635 48.9 141358 8.49 65137 3.91

2079/80 1863995 104601 5.61 482152 25.8 1137229 61.0 92990 4.98 48037 2.57

Table 2.1
Total deposit structure of SBL (in lakh)
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1200000

1000000

800000

600000

400000

200000

Figure 2.1 Total deposit structure of SBL (in lakh)

In the above table and figure shows the deposit structure of SBL for 5years SBL's fixed
deposit is very strong. Its ratio in total deposit of 54.1 in 2075/76 and 61.0 in 2079/80.
Saving deposit have second position it shows that the saving habit Nepal's people are
strong. Also, SBL able to collect deposit in efficient way. The structure of current deposit
is only 5.61% for 2079/80. So, it shows that banks could not attract the businessmen
properly as well as it shows the slow development of trade and industry in Nepal. Calls
and other deposit have also increasing trend each year.
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2.2 Analysis of data:

2.2.1 Saving deposit of SBL Bank

Since this report concentrates of saving deposit facility of SBL, it is now applicable to
know the deposit trends of saving deposit taking last five years as its source.

Table 2.2
Saving deposit of SBL (in lakh)
Year Saving Deposit % in increasement
2075/76 20557910 -
2076/77 28928443 40.72%
2077/78 38986251 34.77%
2078/79 53947831 38.38%
2079/80 48215204 -10.63%

Saving Deposit
60000000

50000000

40000000

30000000

20000000

10000000

Figure 2.2 Saving deposit of SBL(in lakh)

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The above table with diagram shows the trend pattern of saving deposit for five years
period time. The year 2075/76 is taken as base year for analyzing purpose. While looking
at the above table and diagram there has been increasing trend in saving deposit it has
been proved that the people in Nepal has been motivated and encouraged to open the
saving account and deposit their money which are useless condition and earn some
interest. After that the collected deposit, the banks invest them in different sector and
higher rate of interest then they give to depositor. In this way they are also getting the
profit as well as the depositor. The previous table shows only the broadest from saving
deposit.

2.3 Major finding:

2.3.1 Cash Reserve Ratio (CCR)
Cash Reserve Ratio indicates the availability of bank's liquidity of immediate cash fund
to meet unanticipated calls on deposit i.e. current, saving, fixed. Calls deposits and
many others. The ratio is brought about by dividing cash and bank balance with total
deposit.
CRR= Cash and bank balance
Total deposit
Total deposit and cash and bank balance are assets that the banks first line of defense
and it consists of cash in hand, foreign cash in hand, balance with NRB, balance with
domestic bank and balance hold abroad. Shows the CRR of SBL:

Table 2.3
Cash Reserve Ratio (CRR) (in thousand)
Year Cash and bank Total deposit Ratio
balance
2075/76 5645076 84507136 6.68%
2076/77 4127848 98516667 4.19%
2077/78 7994255 134810383 5.93%
2078/79 9421285 166453802 5.66%
2079/80 9935095 186399543 5.33 %
Mean 5.558%
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From the above table it is clear that the SBL bank has always kept the value of CRR
above the requirement rate. The maximum CRR of bank was in F/Y 2075/76 which was
6.68%. While in F/Y 2079/80 the CRR value is 5.33% which is according to regulations.
The average CRR value of bank between F/Y 2075/76 and F/Y2079/80 is 5.558%

2.3.2 Saving deposit to total deposit ratio

This ratio measures the percentage of saving deposit to total deposit. It is calculated by
dividing saving deposit with total deposit.
Saving deposit to total deposit = Saving deposit
Total deposit

The following table shows the percentage of saving deposit to total deposit:

Table 2.4
Saving deposit to total deposit ratio (in thousands)

Year Saving deposit Total deposit Ratio

2075/76 20557910 84507136 24.32%

2076/77 28928443 98516667 29.36%

2077/78 38986251 134810383 28.91%

2078/79 53947831 166453802 32.41%

2079/80 48215204 186399543 25.86%

Mean 28.72%

From the above table it is clear that saving deposit to total deposit ratio starting from
074/75 to 078/79 is increasing. The average saving deposit to total deposit ratio for the
period between 2075/76 to2079/80 is 28.72%.
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2.3.3 Investment to saving deposit ratio

The ratio measures the extent to which SBL is managing to mobilize its saving deposit
fund.

Investment to saving deposit ratio = Investment

Saving deposit

The following table shows the ratio of investment to saving deposit ratio:

Table 2.5
Investment to saving deposit ratio

Year Investment Saving deposit Ratio

2075/76 9669999 20557910 47.03%

2076/77 10905293 28928443 37.69%

2077/78 15371244 38986251 39.42%

2078/79 17826051 53947831 33.04%

2079/80 32097334 48215204 66.57%

Mean 44.75%

The above table shows that the SBL has maintained investment to saving deposit ratio of
47.03% in 074/75 and 66.57% in 078/79. It shows the average of 44.75% in five years.
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CHAPTER III

Summary & Conclusion

3.1 Summary

SBL is a joint venture bank. It is running in profit. It provide quite satisfactory

customer oriented service, its total performance and financial condition have better. SBL
is deeply committed to embodying the principles of responsible banking as a cornerstone
of its operations, with a steadfast focus on fostering a sustainable future. This
commitment permeates every aspect of the Bank's activities, guiding strategic decision-
making and operational initiatives. SBL's vision is to be financially sound, operationally
efficient and keep abreast with technological [Link]'s motto highlights the
core philosophy of the Bank, which is to build and maintain healthy relationships with
our customers. To make extra strong for SBL and to survive in competitive environment
following strategy should be adopted by SBL:

•SBL's saving deposit increasing ratio in decreasing trend, so it should try to increase
deposit.
•SBL's cash assets to Total deposit ratio is high, so it should try to invest its cash in
productive sector.
•SBL should try to use modern methods and technologies.
•SBL should try to motivate employers.
•It should try to manage its employer's performance, reward, Discipline and grievance.
•It should try to extend its branch to ruler area.
•SBL should try to target financial service in the communities based on strong
relationship.
•SBL should try to use modern technology for the financial data collection.
•SBL should try to use modern software for the monetary transaction.
•SBL should try to install ATM at various needed locations.
•SBL should try to give training related to banking system, software, technology,
monetary policy fluctuation, empowering employee, refreshment program for overloaded
environment of the bank.
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3.2 Conclusion

As per regulation of NRB, there is a legal provision for a commercial bank to maintain its
balance with NRB at least in average out of its total deposit. All the years except in the
fiscal year 2077/78, SBL has maintained above balance of its total deposit. In average,
SBL's balance with NRB is 5.906% of its total deposit which is enough to fulfill the legal
requirement. The efficiency of commercial bank highly depends on its capacity to
mobilize its available funds into productive sector which ensures to secure interest
regularly and recoverable of interest amount on mature date. So far saving deposit of
SBL is concerned; it has managed successfully to invest into productive sector in the
beginning year. The average ratio of investment to saving deposit is 44.75%.

The percentage of saving deposit out of total depositing the beginning year is not
satisfactory which indicates the back inability to attract the General Public towards
saving. This is due to the inability of SBL to create confidence among General Public on
its performance. However, the ratio of saving deposit to total deposit is increasing year by
year which shows the success of SBL to attract more people towards saving deposit year
by year and to create a reputed image among general public. The upward slope of the
trend line of saving deposit from left to right indicates that more people are attracting in
saving deposit. It further indicates that the customers of SBL are keeping their amount for
long time and the banking habit of general public is increasing year by year.
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