CHAPTER-I

INTRODUCTION

1.1. Background of the Study

Generally the organization that transacts money is called bank. Bank and
Banking has always played a significant role for the financial activities in
the business. So bank is the major need for various developments. Bank
collects fund as a saving from the community and invest them into most
desirable and highly fielding sector as a full to a process of economic
development. It develops saving habits of people. “The importance of the
banking as the nerve center of economic development can not be over
emphasized and it is said that bank which are the need of and great wealth
of country have get to be kept very scared. Just as water or irrigation,
good banks are for the country’s industry and trade.”( Desai: 1967 ,120)

The main objectives of the bank are collection of amount from public in a
form of saving and providing short-term loan (for the development of
industry, trade, and business) to the ones in need. The development of
country’s economy is impossible without expansion of banking function
in both rural and urban area of the country. Development of trade and
industry is dependent upon the development of banking facilities. So it is
said that the bank is backbone of economic development in modern
society. Banking institutions are inevitable for mobilizing resources, for
finance and social economic development of a country and which is
important to all parties i.e. generally public, business, organization,
government and other small financial institution. The development of a
country is always measured by its economic development through
economic indices. That’s why every country has given emphasis on boost
up its economy. At present, the financial institutions are viewed as

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catalyst in the process of the economic growth. The mobilization of
domestic resources is one of the key factors in the economic development
of a country.

Bank is resource for economic development that maintains economic

confidence of various segments and expands credit to people. Bank
means “A financial establishment for the deposit, loans exchange or issue
of money and for the transmission of funds.” (Bhandari: 2003, 119)

The bank draws surplus money from the public, who cannot use the
money at the time and lends to those who give attention to use for
productive purposes. Bank lends the loan to the customers; gain interest
amount, the bank draw the money from institution or individual or people
pay the interest amount by certain interest rate. Banking institutions
collect scattered financial resources from the mass and invest them
among those who are associated with the economic, commercial, and
social activities of the country.

“Bank assists both the flow of goods and services from the products to
the consumers and the financial activities of the government. Banking
provides the country with a monetary system of making payment and is
an important part of financial system, which makes loans to maintain and
increase the level of consumption and production in the economy.” (The
American Bankers Association: 1972, 162)

A new organized financial institution companies, commercial banks and

other financial intermediaries play an important role for the development
of a country.

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1.2. Development of Banks
In Worldwide Context
The concept of banking developed from the very beginning of the
economic activities. First of all, the effort was made by the ancient gold
and valuables. Under such arrangements, the depositors would have their
gold for safekeeping and in turn were given a receipt. Whenever receipt
was presented, the depositors would return back their gold and valuable
after receiving a small payment as fee.

The word “Bank” is orient in medieval age in 1171 AD from an Italian

word “Banko.” That means the place where people come together for
different transaction. The “Bank of Vanice” was the first bank, which
established in Italy in 1157 AD as a first modern bank. Then after in 1401
AD “Bank of Barcelona” is established in Spain, Bank of Geneva
established in 1407 AD, Bank of Amsterdam established in 1609 AD. But
the credit of the development of modern banks goes to “The Bank of
England” which was established in 1694 AD in London. The growth of
banking accelerated only after the introduction of the banking Act 1883
in United Kingdom as it allowed opening joint stock company banks.

In Nepalese Context
The growth of banking in Nepal is not so old. In the 14th century,
Jayasthiti Malla - a king of Kantipur classified people in 64 groups
according to their occupations, “Tanka Dhari” was one among them
who used to lend money at a fixed rate of interest. During the period of
Ranodip Singh, the Prime minister, a government institution called
“Tejarath Adda” was established around 1887 AD for providing easy
and cheap credit at 5% interest to the public on securing of gold and
silver.

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“In the overall development of banking system in Nepal, the “Tejarath
Adda” may be regarded as the father of modern banking institution and
for quite a long time it tendered a good servants as well as to the general
public.” ( Shrestha: 1995, 4)

The development of modern bank started from the establishment of

“Nepal Bank Limited” in 1937 AD with put forth effort of government
and public, as a commercial bank with 10 million authorized capital. The
authorized capital was contributed by the government 51% and remaining
by public 49%. It started to provide depositing and borrowing facilities to
commercial as well as agricultural sectors. The government felt the
requirement of a central bank and established “Nepal Rastra Bank” in
2013 BS. It played leading role in development of banking in Nepal and
also controlled the monetary culture in the country. NRB was established
with the objective of supervising, protecting and directing the functions
of commercial banks. Likewise, raising of banking function get popular
and more complicated, thus NRB suggested for the establishment of
another commercial bank and in 2022 BS(1966 AD) “Rastriya Banijya
Bank” was established as a fully government owned commercial bank.
Now its branches are diversified all over the country. It made another
milestone in the history of growth of banking.

A part from this, NIDC was established in 1959 AD & Agricultural

Development Bank established in 1976 AD and other development bank
and financial institutions were established & continue to establish and are
contributing to the economy and banking tradition in Nepal. In 1990 AD,
after reestablished of democracy, the government took the liberal policy
in banking sector. As an open policy of HMG’s to get permission to

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invest in banking sector from private and foreign investor under
Commercial Bank Act 2031 BS, different private bank are getting
permission to establish with the joint venture of other countries.

1.3. Introduction of Commercial Bank

Commercial bank is a financial institution which transfers monetary
sources to users. In the process of such intermediation, commercial bank
develops funds raised from different sources into different assets with a
prime objective of profit generation an administrative assistance.
According to Commercial Bank Act 2031, “Commercial banks are
those banks which are established under this act to perform commercial
function.” The commercial banks pool together the savings of the
community and arrange for their productive uses. They supply financial
needs of modern business.

“The commercial bank has its own role and contribution in the economic
development. It is a resource for the economic development; it maintains
economic confidence of various segments and extends credit to people.”
(Grywinski: 1991, 87)

These banks are established to improve people’s economic welfare and

facility, to provide loan to the agriculture, industry and commerce and to
offer banking services to the people and the country. It provides internal
resources for developing countries economy. It collects diversified capital
from different parts of country through its own branches.

Commercial bank is a corporation which accepts demand deposits subject

to check and makes short-term loans to business enterprises, regardless of
the scope of its other services.

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The main purpose of establishing RBB was to contribute to the
development of banking system, particularly in the remote and hilly
regions, providing more banking facilities to the public.

Commercial Banking Scenario in Nepal

Nepal Arab Bank Ltd. (NABIL Bank Ltd.) was the 1st joint venture bank
established in 1984 AD, joint ventured with United Arab Emirates Bank.
Then two other banks, Nepal Indosuez Bank Ltd. (Nepal Investment
Bank Ltd.) with Indosuez Bank of Finance and Nepal Grindlays Bank of
London were established in 1986 AD. Himalayan Bank Ltd. joint
ventured with Habib Bank of Pakistan and SBI Bank Ltd. with State
Bank of India was established in 1993 AD. Everest Bank Ltd. joint
ventured with Punjab National Bank, India (early it was joint ventured
with United Bank of India, Calcutta) and Nepal Bangladesh Bank Ltd.
with IFIC Bank of Bangladesh were established in 1994 AD., Bank of
Kathmandu joint ventured with

SIAM commercial Bank Public Co., Thailand was established in 1995

AD. And Nepal Bank of Ceylon joint ventured with Ceylon Bank of Sri-
Lanka was established in 1997 AD. Besides this, Lumbini Bank Ltd., and
NIC Bank Ltd. are also operating from 1997 AD and Kumari Bank Ltd.
& Siddhartha Bank Ltd. served as a new commercial bank of Nepali
financial market.

All of these banks barely follow the directive and policies of Nepal Rastra
Bank (NRB). NRB functions as the central Bank of Nepal. NRB
formulates financial and monetary policies under which commercial
banks, financial institutions are functioning.

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Nowadays there are 31 commercial banks operating in Nepali financial
market along with 9 joint venture with foreign investors. Lists of licensed
commercial banks are presented below:

List of Licensed Commercial Banks

Mid-January 2011
Operation
Commercial Banks Head Office
Date (A.D)
1 Nepal Bank Limited 1937/11/15 Kathmandu
2 Rastriya Banijya Bank 1966/01/23 Kathmandu
Nabil Bank Limited(established as Nepal
3 1984/07/16 Kathmandu
Arab Bank Limited)
Nepal Investment Bank Limited (established
4 1986/02/27 Kathmandu
as Nepal Indo - Suez Bank Ltd.)
Standard Chartered Bank Limited
5 1987/01/30 Kathmandu
(established as Nepal Grindlays Bank Ltd.)
6 Himalaya Bank Limited 1993/01/18 Kathmandu
7 Nepal Bangladesh Bank Limited 1993/06/05 Kathmandu
8 Nepal SBI Bank Limited 1993/07/07 Kathmandu
9 Everest Bank Limited 1994/10/18 Kathmandu
10 Bank of Kathmandu Limited 1995/03/12 Kathmandu
Nepal Credit & Commerce Bank
11 1996/10/14 Siddharthanagar
Limited(established as Bank of Cylon)
12 Lumbini Bank Limited 1998/07/17 Narayangadh
13 Nepal Industrial & Commercial Bank Ltd. 1998/07/21 Biratnagar
14 Machhapuchhre Bank Limited 2000/10/03 Pokhara
15 Kumari Bank Limited 2001/04/03 Kathmandu
16 Laxmi Bank Limited 2002/04/03 Birgunj
17 Siddhartha Bank Limited 2002/12/24 Kathmandu
18 Agriculture Development Bank Limited 2006/03/16 Kathmandu
19 Global Bank Limited 2007/01/02 Kathmandu
20 Citizens Bank International Limited 2007/06/21 Kathmandu
21 Prime Commercial Bank Limited 2007/09/24 Kathmandu
22 Sun Rises Bank Limited 2007/10/12 Kathmandu
23 Bank of Asian Limited 2007/10/12 Kathmandu
24 Development Credit Bank Limited 2007 Kathmandu
25 NMB Bank Limited 2008/06/02 Kathmandu
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 26 Kist Bank Limited 2009/03/07 Kathmandu
27 Janata Bank Limited 2010/04/05 Kathmandu
28 Megha Bank Nepal Limited 2010/07/23 Kathmandu
29 Commece and Trust Bank Nepal Limited 2010/09/20 Kathmandu
30 Civil Bank Limited 2010/11/26 Kathmandu
31 Century Commercial Bank Limited 2011/03/10 Kathmandu
The sample taken from the commercial banks are follows
Total population Sample taken
commercial banks Everest Bank Ltd
Himalayan Bank Ltd.
(Sources: Banking and Financial Statistic)

1.4. Role of Joint Venture Bank in Nepal

In global prospective, joint venture bank is the mode of trading through
partnership among the nations and also a form of negotiations between
two or more enterprise for the purpose of carrying out a specific
operation. So, the main purpose of joint venture is to join economic
forces in order to achieve desired end. Under joint venture basis, to
operate a business organization, there should be at least two partners from
the different countries. The primary objective of joint venture bank is to
earn profit by investing or granting the loan and advances to the people
associate with trade, business, industry etc. that means they are required
to mobilize their resources properly to acquire profit
“A joint venture is forming of two forces between two or more
enterprises for the purpose of carrying out a specific operation (industrial
or commercial investment, production trade).” (Gupta: 1984, 25)

The HMG/N budget for the FY 1984/85 provided the following

justification for allowing the setting up of joint venture banks in the
following words:

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“At present, the financial institutions of the country have been effortful to
mobilize resources. On one hand, the major part of the few individual
where as the small traders and entrepreneurs are facing difficulties to
receive loans on the other. The only solution to this problem is to
encourage competition in the banking sector. Therefore, a policy of
allowing new commercial banks under joint venture with foreign
collaboration has been adopted; this will promote competition among
banks whereby the clients will get improved facility. Addition, the share
of these new banks will also be sold to the general public and while
distributing the shares, it will be ensured that the ownership is spread out
to the maximum extent possible.”

In such manner, joint venture banks are successful to bring healthy

competition among banks, increase in foreign investment, promoted and
expand export-import trade, introduce new techniques and technologies.
The various roles plays by the joint venture banks in Nepal can be
classified into three categories:

a. Introducing Advanced Banking Techniques

The joint venture banks in Nepal have been largely responsible for the
introduction of new banking techniques such as computerization,
hypothecation, consortium finance, fee-based activities and syndicating
under the foreign exchange transactions by importers and exporters,
merchant banking, inter-bank market for the money and securities,
arranging foreign currency loans, etc.

b. Introducing Foreign Investment in Nepal

When looking at the possibility of investing in Nepal, multinational
companies are unfamiliar with the local rules, regulations and practices.

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Though there are many system actually operates during the
implementation period. In this context, the joint venture banks help the
multinational companies to build up their confidence for investment by
providing necessary information and financial support.

c. Bringing in Healthy Competition

The induction of joint venture banks also brings the benefit of healthy
competition of which the main beneficiaries are the bank customers and
the economy. The increase in competition also force the existing banks to
improve their qualities of services by simplifying procedures providing
training and motivation to their own staff to respond to the new
challenge.
Hence, the entrepreneurial dynamic and pivotal role of the joint venture
banks contributes the economic development of the country by providing
various new financial services to modernize traditional Nepalese banking
system.

1.5. Focus of the Study

Bank is an institution, which helps in collection and mobilization of
savings. The role of commercial banks in uplifting the economic growth
of the country is very important. The uplifting of the development of a
nation largely depends upon the development of its economic growth.
The development of the economy is greatly influenced due to the internal
management of the bank.

“General fund mobilizing means to flow the cash in different sectors at

profit motive. Investment in its broadest sense means the sacrifice of
certain present value for (possibly uncertain) future value. In pure
financial sense, the subsequent use of the term investment will be in the

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prevalent financial sense of the placing of money in the hands of other for
their use, in return for a proper instrument entitling the holders to fixed
income payment or the participation in expected profits. It can define the
terms of investment at manufacturing and trading forms those long term
expenditures that aim at increasing plant capacity of efficiency or at
building up goodwill, there by producing an increased return over a
period. Experts define the terms of investment from economic view point
that investment as a productive process by means of which additional are
made to capital equipment’s. It is finding to clear the terms of investment
at different points of view. But it needs to clear the terms of investment in
financial point of view as related to this study.” (Swami and
Basudevan :1979, 23)

This research focuses on the comparative study of fund mobilization of

two joint venture banks; Himalayan Bank Ltd. and Everest Bank Ltd.
These two banks are compared as per their fund mobilization procedure
by taking 5 years data from the year 2007 to 2011.

1.6. Profile of the Concerned Banks

As there has been number of commercial banks established, the research

has been taken into consideration of EBL and HBL. Therefore, short
glimpse of these commercial banks are given as:

Himalayan Bank Limited

Himalayan bank limited is a joint venture bank with Habib Bank of
Pakistan, was established in 1992 under the company act 1964 as a fourth
joint venture bank of Nepal. This is the first joint venture bank managed
by Nepali Chief Executive. The operation of the bank started from 1993

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February. HBL does not include government ownership. It has been
established to maintain the economic welfare of the general people to
facilitate loan for agriculture, industry and commerce to provide the
banking services to the country and people.
It is the first commercial bank of Nepal with maximum share holding by
the Nepalese private sector. Besides commercial activities, the Bank also
offers industrial and merchant banking. Its ownership is composed of
founder shareholders 51%, Habib bank of Pakistan 20%, Karmachari
Sanchaya Kosh 14% and general public 15%. It is the first bank having
domestic ownership more than 50%.HBL has been operating in high
profit for the establishment’s period till now. It accepts deposit through
current deposit, saving deposit, fixed deposit and call deposit.
At present HBL has eight branches in Kathmandu valley. Including this ,
it has thirty six branches outside Kathmandu valley with 57 ATM
services . There are in total 647 staffs.. The Bank has a very aggressive
plan of establishing more branches in different parts of the kingdom in
nearfuture. HBL was access to the worldwide correspondent network of
Habib bank for fund transfer, letter of credit or any other banking
business any where in the world. Himalayan Bank has adopting
innovative and latest banking technology. The bank provides various
facilities such as:
 Tele- Banking
 24 hours banking
 Credit card facilities
 Automatic Teller Machine( ATM)
 Visa card
 L.C. service
 Safe deposit locker

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  Himalayan SMS(Short Message Service)
 Foreign currency transaction etc.
The ownership of HBL is composed as:
Subscription % Holding
Promoter Share Holders 51%
Habib Bank Ltd., Pakistan 20%
Financial Institution (Employees Provident Fund) 14%
Nepalese Public share holder(General Public) 15%
Total 100%
The present capital structure of HBL is shown below:
Share Structure Amount (Rs.)
Authorized Capital 3,000,000,000
Issued Capital 2,000,000,000
Paid- Up Capital (20000000 equity shares of NRS 100.00 each, fully
paid)2,400,000,000
Source: Report of HBL

Everest Bank Limited

Everest Bank Ltd. was registered under the Company Act 1964 in 19th
November 1993 (2049/09/03) and started banking transaction in 16th
October 1994 (2051/07/01). The promoter of the bank decided to join
hands with an Indian bank and entered into joint venture agreement in
January 1997 AD with Punjab National Bank (PNB), which is one of the
leading commercial bank of India, having over 100 years of successful
banking experience and known for its strong system and procedure. A
team of professionals deputed by PNB under this arrangement. Now, the
bank 43 branches including main branch (i.e. head office) in Nepal &586
no of Staff.

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On equity holding PNB has 20% equity participation in its total
shareholding and also has undertaken management responsibility under a
technical service agreement and other balance is maintain by Nepali
investor. Nepalese promoter holding 50% and rest 30% held by General
Public. The main purpose of EBL is to extend professional banking
services to various sectors of the society in the kingdom of Nepal and
thereby contributing in the economic development of the country. It
provides following facilities and services to their customers:

 Cumulative Deposit Scheme

 Unfix Fixed Deposit
 ATM Facilities
 FC Deposit/ Lending

 Facilities of NRN
 Required Deposit Plan
 Telegraphy transfer (T.T)
 Letter of Credit
 Drawing Arrangement
 SWIFT Transfer
 Foreign Exchange
 International Trade and Bank Guarantees
 Merchant Banking

The ownership of EBL is composed as:

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Subscription %
Holding
Promoter Share Holders 50%
Punjab National Bank 20%
General Public 30%
Total 100%

The authorized capital of the bank has been Rs. 200 million, issued Rs.
128.1 million and paid capital Rs.117.5645 million in the beginning of
2051/052. The present capital structure of EBL is shown below:

Share Structure Amount (Rs.)

Authorized Capital 2,000,000,000
Issued Capital 1,281,406,500
Paid- Up Capital 1,279,609,490
Source: Report of EBL

1.7. Statement of the Problems

After introducing the liberalization policy of the government, many banks
and institutions are established rapidly. These days many commercial
banks, developments bank and financial institutions are operating their
work to assist in the process of economic development in the country.
Due to the high competition between the financial institutions the
collected huge amount from public is comparatively lower than fund
mobilization and investment practice of collected funds. Therefore, it
raised the problems of investment and proper mobilization of collected
funds. Strong fund mobilization activities play a vital role in utilization of
collected funds and overall development of the economy of the nation.

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If the funds are wrongly invested without thinking any financial risk,
business risk and other related facts, the bank cannot obtain profitable
return as well as it should sometimes lose its principle. Fund mobilization
policy may differ from one joint venture banks to another but there is no
optimum utilization of shareholders fund to have greater return in any
bank. Nepal Rastra Bank has also played significant role to make
commercial bank mobilize their fund in good sector. For this purpose,
NRB imposed many rules and regulation so that commercial bank can
have sufficient liquidity and security. Though most of the joint-venture
banks have been successful to earn profit from fund mobilization, none of
them seem to be capable to invest their entire fund in more profitable
sectors.

To meet the requirement of NRB, joint venture banks must have 6%

deposits of total current account and fixed deposit account of local
currency with NRB. They should have 3% minimum cash balance in their
own vault of total currency of all types of accounts. Except this, they
have fund from current, saving and fixed deposits borrowing, from other
banks, cash margin for different purpose, amount of bills payable and
retained earning, reserves share capital and other liabilities.

Commercial banks are reported to be criticized by customer due to

implementation of wrong investment policies. They are said to be
investing less risky and highly liquid sector, they keep high liquid
position and flow less funds in productive sectors, so these types of
function prove less investment opportunity of the fund. Sometimes they
seem to be ready to invest the idle fund even in those investment, which
have lower risk and comparatively greater profit the another problem is

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diversification of investment. The bank cannot achieve profitable return
from their resources as well as they sometimes may lose their principle
resulting in decreasing of national economy.
Fund mobilization is the most important factor from the shareholder and
banks management point of view. This study is a comparative study on
fund mobilization of Himalayan Bank Ltd and Everest Bank Ltd. The
problems related to fund mobilization procedures of the joint venture
banks of Nepal have been presented briefly as under:
a) Is there any stability in fund mobilization between HBL and EBL?
b) What is the relationship between deposit and total capital raised,
deposit with total investment and loan and advances with total deposits?
c) Does the investment decision affect the total earning capacity of the
bank?
d) Do the two joint ventures successful to utilize their available fund?
e) Are they maintaining sufficient liquidity position?
f) Which joint ventures have more effective investment policy among
HBL and EBL ?
1.8. Objectives of the Study
For any kind of research work or study, first of all the objectives should
be determined. It shows the way to achieve desired goals. Likewise, the
main objectives of this research work is to examine, interpret and analysis
the fund mobilization procedures adopted by two joint ventures;
Himalayan Bank Ltd. and Everest Bank Ltd. This study is concerned with
whether HBL and EBL are adopting efficient fund mobilizing policy or
not. The main objectives related to this study are presented below:
 To evaluate the growth and risk ratio of loan and advances and
total investment with respective to growth rate of total deposit and
net profit of HBL and EBL.

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  To evaluate comparatively operating, financial and investment
efficiency of two joint venture banks.
 To analyze the relationship between deposits and total investment,
deposits and loan and advance and net profits of HBL and EBL.
 To analyze the sources and uses of funds and analysis of cash flow
of these two joint venture banks.
 To suggest and recommend some measures for improvement of
financial performance of HBL and EBL.

1.9. Significance of the Study

Fund mobilization activities of joint venture banks greatly effects the
growth and earning of banks. Effective, stable, appropriate fund
mobilizing policy may cause the earning of sufficient return to the banks.
Most of the joint- venture banks have been successful to earn profit from
effective fund mobilization. Fund mobilizing policy may differ from one
joint-venture banks to another but there is no optimum utilization of
shareholders fund to have sufficient return in any bank.

Optimum utilization of fund makes better impact on the economy of the

nation. Fund mobilization activities must consider customer, national and
government as well as its shareholders interest. Significance of the fund
mobilization can be written as the following manner:

 The depositor’s general public can make decision to deposit their

money in the bank after analyzing the fund mobilization of joint
ventures.
 By the help of this study, general public can know the funds
mobilizing activities of banks.

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  It is also beneficial for the government while formulating policies
and rules regarding joint venture bank.
 From the study of fund mobilizing policy about bank, shareholders
and companies would get information related to the fund
mobilizing scheme of the bank and they may know how banks are
mobilizing their fund and resources. And it is fruitful to make
investment on shares of various joint venture banks.
 The study of fund mobilizing policy would provide information to
the management of the bank that would be helpful to take
corrective action in the bank activities.
 Effective fund mobilization activities are the cause to increase
earnings of the banks.
 This study will serve to be a guide to the management of banks,
financial institutions, related parties, shareholders, general public
(customer, depositors and creditors).

1.10. Limitation of the Study

For the completion of the study, some facts are to be considered as
limitation of this research work:
 This study is based on secondary data and accuracy depends upon
the data collected and provided by the organization.
 The whole study is based on the data of 5 years period This study
has been only of two joint venture banks as sample i.e. HBL and
EBL.
 Non availability of the various references of sources acts as
constraints for the study.

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  Only the fund mobilization aspects are analyzed. Other
performance of the organizations is fully neglected, while
providing suggestions.

1.11. Organization of the Study

The entire study carried out to different stages and procedures as it
needed. The study organized in the following chapters in order to make
the study easy to understand.

The first chapter is an introductory chapter which contains background

of the study, introduction of commercial banks, focus of the study,
statement of the problems, research methodology, and objectives of the
study, limitation of the study and organization of the study.
The second chapter is concerned with review of literature. This contains
conceptual framework, review of legislative provision, review of research
paper and published and unpublished master’s thesis of T.U.

The third chapter is the most important part of the study. It deals with
the research methodology, which is applied to collect the data and
analyze them in this study. It contains introduction, research design,
sources of data, population and sample, financial analysis and statistical
analysis.

The fourth chapter is analyzing chapter, which deals with presentation

and analysis of relevant data through definite courses of research
methodology with financial and statistical analysis related to investment
and fund mobilization of HBL and EBL. Major findings of the study have
been presented at the end of this chapter.

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The fifth chapter is the last part of the study, which provides summary
and conclusion, suggestions and recommendations for improving the
future performance of the sample banks. Finally, an extensive,
bibliography and appendices are also presented at the end of the thesis
work.

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 CHAPTER-II
REVIEW OF LITERATURE

2.1 Concept
This chapter is basically concerned with review of literature relevant to
the topic “A comparative study on fund mobilization of HBL and
EBL.” Every study is very much based on past knowledge. The previous
study cannot be ignored because they provide the foundation to the
present study. There must be continuity in research. This continuity in
research is ensured by linking the present study with past research
studies. This chapter highlights the literature that is available in
concerned subject as to my knowledge, research work, and relevant study
on this topic, review of journals and articles and review of thesis work
performed previously.

2.2 Theoretical Framework

Basically, theoretical framework describes the following terms which are
closely related to the research work.

2.2.1 Features of Sound Lending and Fund Mobilization Policy

Income and profit of the financial institutions like commercial banks and
financial institutions depend upon its lending procedure, lending policy
and mobilizing collected fund through investing in different securities.
The greater the credit created by the bank the higher will be the
profitability. Some required features of sound lending policy and fund
mobilization is explained as under:

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a) Safety and Security
Financial institutions should inlets their deposit in profitable and secured
sectors. They should not invest their fund in securities of those companies
whose securities are too much depreciated and fluctuated because of risk
of loss factors. They should accept those securities, which are marketable,
durable, profitable and high market price as well as stable. In this case
MAST should be applied for the investment.
Where,
M = Marketability
A = Ascertain ability
S = Stability
T = Transferability

b) Legality
Each and every financial institution follow the rules and regulation of the
company, government and various directions supplied by Nepal Rastra
Bank, Ministry of Finance and on while issuing securities and mobilizing
their fund. Illegal securities will bring out any problems to the investors.
Lastly, the reputation and goodwill of the firm may be lost.

c) Liquidity
Liquidity is the position of the firm to meet current or short-term
obligations. General public or customers deposit their savings at the
banks in different accounts having full confidence of repayment by the
banks whenever they require. To show a good current position and
maintain the confidence, every firm must keep proper cash balance with
them while investing in different securities and granting loan for excess
fund.

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d) Profitability
To maximize the return on investment and lending position, financial
institutions must invest their collected fund in proper sectors. Finally they
can maximize their volume of wealth. Their return depends upon the
interest rate, volume of loan its time period and nature of investment on
different securities and sectors.

e) Tangibility
A commercial bank should prefer tangible security to an intangible one.
Though it may be considered that tangible properly doesn’t yield an
income a part from intangible securities, which have lost their value due
to price level inflation.

f) Purpose of loan
Banks and other financial institutions must examine why loan is required
to the customer. If customers do not use their borrowings, they can never
repay and the financial institutions will have heavy bad debts. So, they
should collect detailed information about the plan and scheme of the
borrowing.

g) Diversification
A firm can invest its deposit collection in various securities to minimize
the risk. So, all the firms must diversify their fund or make portfolio
investment. Diversification helps to earn a good return and minimize the
risks and uncertainty. So, the firms are making portfolio investment with
different securities of different companies.

24
2.2.2 Meaning of Some Important Terminologies
The study in this section comprises of some important banking
terminology for which efforts have been made to clarify the meaning,
which are frequently used in this research work. Their brief summary is
presented below:

a) Loan and Advances

Loan, advances and overdrafts have occupied a huge portion for the
mobilization of funds of the commercial banks. Bank deposits can be
crossed beyond a desired level but the level of loans and advances and
overdrafts will never cross it. Commercial Banks and other financial
institution may take more preferential collateral while granting loan and
advances. Some portion of loan and advances and overdrafts includes that
amount which is given to staffs of the banks as home loan, vehicle loan,
personal loan and others.

b) Investment on Government Securities, Shares and Debentures

Commercial bank can earn some interest and dividend from the
investment on government securities, shares and debentures. It is not the
major portion of income but it is treated as a second source of banking
business. A commercial bank may extent credit by purchasing
government securities, bond and shares for several reasons. Some of them
are given as:
 It may want to space it’s maturating so that the inflow of cash
coincides with expected withdrawals by depositors of large loan
demands of its customers.
 It may wish to have high-grade marketable securities to liquidate if
its primary reserve becomes inadequate.

25
  It may also be forced to invest because the demand for loans has
decreased or it is not sufficient to absorb its excess reserves.
 However, investment portfolio of commercial bank is established
and maintained primarily with a view of nature of banks liabilities
since depositors may demand funds in great volume without
previous notice to banks. The investment must be of a type that can
be marketed quickly with little or no shrinkage in value.

c) Investment on other Company’s Shares and Debentures

Due to excess funds and least opportunity to invest these funds in much
more profitable sector and to meet the requirement of NRB directives
many commercial banks have to utilize their funds to purchase shares and
debentures of many other financial and non-financial companies. These
days most of the commercial banks have purchased regional development
banks, NIDC and other development bank’s shares.

d) Off- Balance Sheet Activities

Off-balance sheet activities involve contracts for future purchase and sale
of assets and all these activities are contingent obligations. These are not
recognized as assets or liabilities on balance sheet. Some good example
of these items are letter of credit(L/C), letter of guarantee, bills of
collections etc. nowadays, such activities are stressfully highlighted by
some economist and finance specialists to expand the modern transaction
of a bank.

e) Other use of Fund

A commercial bank must maintain the minimum bank balance with NRB
i.e.6% for fixed deposits and 8% for each of current and saving deposit
account in local currency. Likewise, 3% cash balance of local cash
26
balance, in local currency, accounts must be maintained in the vault of the
bank. Again a part of the fund should be used for bank balance in foreign
bank and to purchase fixed assets like land, building, furniture,
computers, stationery etc.

f) Deposits
Deposit is the most important source of the liquidity for each and every
commercial bank. For financial strength of banks, it is treated as a
barometer. In the word of Eugene, “a bank’s deposits are the amount that
it owes to its customers.” A deposit is the lifeblood of the commercial
banks. Even though, they constitute the great bulk of bank liabilities, the
success of a bank greatly depends upon the extent to which it may attract
more and more deposits, for accounting and analyzing purpose, deposits
are categorized in three headings. They are:
 Current Deposits
 Saving Deposits
 Fixed Deposits

2.2.3 Review of Legislative Provisions

Legislative environment has significant impact on the commercial bank’s
establishment, their mobilization and utilization of resources. All the
commercial banks have to confirm to the legislative provisions specified
in the Commercial Bank Act 2031 and the rules and regulation
formulated to facilitate the smooth running of commercial banks.

Compulsory Cash Reserve Ratio (CRR) and Refinancing

In order to improve the sluggish economy, continuity has been given to
flexible monetary policy. NRB has revised the compulsory CRR effective
with a view to reduce the cost of fund of banks which will facilitate the
27
banks to reduce their lending rates without changing in deposit rates. As
per this revision, in respect to balance with NRB requirements of
commercial banks, the present level of 7 % of the domestic current and
saving deposit liabilities and 4.5% of time deposit liability remain
unchanged. The requirement of cash reserve in their own vault, however,
has been brought down to 2% from 3%. In respect of refinancing rates,
the present rate of 2% for export credit in foreign currency; 3%
rehabilitation of sick industries, 4.5% for Grameen Bikas Banks(Rural
Development Banks) and export credits in Nepalese currency; and 5.5%
for all other types of refinancing remains unchanged. An additional
amount of Rs. 1500 million has been set aside to provide refinancing
facilities for such industries.

Policy Guidelines on the Establishment of the Commercial Banks

Receiving applications for the establishment of commercial banks has
been stopped since 1995. Visualizing that such an administrative
restriction is not in conformity with the liberal financial policy, the
following new policy guidelines have been made:

1) Paid up Capital

To establish a commercial bank of national level having its office in

Kathmandu, joint investment with foreign bank and financial institution
or a management contract at least for 3 years with such institutions is
required. The paid up capital of such bank must be at Rs. 1000 million.
To establish the commercial banks in all the places in the Kingdom other
than in the Kathmandu Valley, the paid up capital must be Rs. 250
million.

28
2) Share Capital
In general, the share of commercial banks will be available for the
promoters (70 percent) and general public (30 percent). The foreign
banks and financial institutions could have a maximum of 67 % share in
investment on the commercial banks of national level. In order to provide
adequate opportunity for investment to the Nepali promoters in national
level banks, only 20 % of total share capital will be made available to
general public on the condition that the foreign bank and financial
institutions are going to acquire 50% of the total share. In case of
commercial banks to be established outside Kathmandu Valley, share
investment of promoters and general public should stand at 70% and 30%
respectively.

3) Legal Procedure
Banks to be established with foreign promoters, participation have also to
be registered fulfilling all the legal processes prescribed by the prevalent
Nepal laws.

4) Banks Already in Operation

Banks that is already in operation and those who have already acquired
letter of intent before the enforcement of these provisions have to bring
their capital level within seven years, i.e. by 16 July 2009, as per the
recently declared provision. Such increase in the capital should be at a
rate of 10 percent should be at the minimum.

5) Concerning up gradation
Banks to be established outside Kathmandu Valley could be allowed to
operate throughout the Kingdom including Kathmandu Valley only on
the condition that they have brought their paid up capital level to Rs.

29
1000 million and also fulfilled other prescribed conditions. Until and
unless such banks do not get license to operate throughout the kingdom,
they will not be allowed to open any office in Kathmandu Valley.

6) Promoters Share Payment Procedure

Of the total committed share capital, the promoters has to deposit in NRB
an amount equal to 20% along with the application and another 30% at
the time of receiving the letter of intent on a interest free basis. The bank
should put into operation within one year of receiving the letter of intent.
The promoters have to pay fully the remaining balance of committed total
share capital before the bank comes into operation. Normally, within 4
months from the date of filling the application, NRB should give its
decision for the establishment of the bank whether it is in favor or against
it. If it declines to issue license, it has to inform in writing with reasons to
the concerned body.

7) Promoters Qualification and Experience

Action on the application from promoters will not be initiated if it is
proved that their collateral has been put on auction by the bank and
financial institutions as a result of non-payment of loans in the past, who
have not cleared such loans or those in the black list of the Credit
Information Bureau and 5 years have not elapsed from the date of the
removal of their name from such list. The application will be deemed
automatically cancelled irrespective of it being on any stage of process
for license issuance if the above events are proved. Of the total
promoters, one-third should be its chartered accountant or at least a
graduate of Tribhuvan University or recognized institutions with major in
economics or accountancy, finance, law, banking or statistics. Likewise,

30
one-fourth promoters should have the work experience of bank or
financial institution or similar nature.

8) Promoters Share
Promoter Group’s share can be disposed or transferred only on the
condition that the bank has been brought in operation; the share allotted
to the general public has been floated in the market and after completion
of 3 years from the date it has been registered in the Stock Exchange. But
before the disposal of such shares it is mandatory to get approval from
NRB. The share allotted to general public has to be issued and sold
within 3 years from the date the bank cannot issue bonus shares or
declare and distribute dividends, shareholders of the promoters group and
their family members cannot have access to loans or facilities from the
same institution.

9) Branch Expansion
The commercial banks established in national level will initially be
authorized to open a main branch office in Kathmandu Valley. They will
be authorized to open one more branch in Kathmandu Valley only after
they have opened two branches outside the Kathmandu Valley.

10) Disqualify from Becoming Director

An individual who is already serving as a director in one of the bank or
financial institutions licensed by NRB cannot be considered eligible to
become the director in other banks or financial institutions. Also, stock
brokers, market makers and also an individual and institution involved as
an auditor of the bank and institutions carrying on financial transactions
cannot be a director.
(Source: Economic Survey 2010/11)

31
2.2.4 Fund Mobilizing Procedure of Joint Venture Banks
All the banks of entire world were applied their own fund mobilizing
procedure. In practice, straightforward and effective fund mobilization
procedure has adopted by the bank. Effective fund mobilization is the
indicator of banks prosperity and its growth. Banks have some fund
mobilizing procedure they are summarized below:

1. Sources of Fund
In the economic activities there are so many sources of fund. In these
sources, issuing share and borrowing loan from different sector. The
sources of funds can be categorized in two ways.

A. Owned Funds/ Equity Capital of Bank

Following are the sources of owned funds:
a) Ordinary Share
Ordinary sources are the bank’s strong and reliable sources of funds.
Banks promoters issue ordinary shares to the public in fixed number.
Banks collects the fund by selling fixed ordinary shares to the public by
adopting fixed rules and regulation. These public make shareholders after
purchasing the issued share.
b) Preference Share
It is that kind of share which receive dividend and after liquidation money
before ordinary share. But in Nepal, bank can not issue preference share.
But some situation it can issue preference share by taking permission
from Nepal Rastra Bank.
c) Bonus Share
Company issue the extra share to the shareholder from the saving from
profit and reserve fund by capitalizing these funds is known as bonus

32
share. Bank issue shares to shareholders instead of banks amount. From
this share, bank collects some share of funds.
d) Retained Earning
Banks earns profit by investing the funds in different sector through the
principle of profit earning. Banks invests its fund in productive or
profitable industries and business. Bank earns some amount from these
investments.
e) Reserve Fund
Bank separates some share of capital in reserve funds in the time of
banking activities. The reserve funds size based on banks earning and
rules and regulation. Banks must separate some share of amount from
profit in reserve fund. Banks have been earning by investing the reserve
funds in liquid sector.
f) Undistributed Dividend
Bank does not distribute all profit to the shareholders. Banks invest some
amount from profit by not distributing to shareholders. By this, the
invested profit makes sources of funds to the banks.

B. Borrowed Fund of Bank

Bank collects the funds from another source except owned funds.
Another source is borrowing from different sector. These types of funds
collect borrow and debt capital. Following are the sources of the
borrowed fund:

a) Selling of Debenture
Debenture means a “Rinpatra” which is issued by company by keeping or
not keeping assets securities for collection of funds. If bank need a fund,
it can collect capital by issuing debenture. The money also collects bank
capital, which is collected by issuing debenture.

33
b) Deposits
The bank performs two-fold functions, i.e. the receipt of the deposits and
granting the loans. The bank borrows money by accepting different types
of deposits. The bank attracts the deposits from the public. The bank not
only undertakes to take care of the deposits but also agrees to honors the
demands of the depositor for withdraw of money from the deposits.
Deposits accepted by the bank are of different types. They are:
 Current Deposit
It is also known as demand deposit. A customer can open a current
account with a bank by making an initial of Rs. 100. Any amount
may be deposited in this account. The bank makes a small charge
on the customer having current deposit account.
 Saving Deposit
In this deposit, there are restriction on the maximum amount that can
be deposited and also withdrawals from the account. The bank may
not permit more than one or two withdrawals during a week.
 Fixed Deposit
A fixed deposit is one where a customer is required to keep a fixed
amount with the bank for specific periods. He is not allowed to
withdraw amount before expiry of the period. The rate of interest is
higher than on other deposit account during this period the bank is
free to make use this money for granting loans and advances.

c) Loan from the Central Bank

NRB is the central bank of Nepal. All banks should operate their
banking activities by maintaining the rules and regulations directed
by the NRB. In the time of necessity, NRB provides the loans for the
banks. The loan granted by the central bank is a bank capital.

34
d) Loan from the Financial Institutions
Financial institutions also provide loan for the banks. Bank can
receive loans from financial institutions in the form of borrowing.
The loan granted by the financial institutions is also a bank capital.

e) Loan from Commercial Banks

If banks need money, it receives money from other commercial bank
also in the form of borrowing. Banks fulfill the need of cash by taking
loan from other banks. It is also the types of bank capital.

2. Mobilization of Funds
Banks utilize its funds in suitable area and right sector. Banks can not
achieve its goals until and unless it mobilizes its funds in right sectors
and by performing different activities. Many 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 funds. Banker being only a financial intermediary, we
will not be able to make any profit unless he has to pay interest on
deposits, meet establishment expenses, meet liquidity of cash balance,
and yet allow him some balance from out of which he can build reserve
and pay dividend to the shareholder.
As commercial bank they 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

35
 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 funds in suitable and profitable

banking activities and right sector. Generally bank has mobilized its
funds in the following activities.

a. Liquid Funds
A bank has kept a volume of amount in liquid funds. The funds have so
many responsibilities in banking activities liquid funds has covered
following transactions.
 Cash in hand
 Balance with NRB
 Balance with domestic bank
 Call money

b. Investment
Bank invests its fund in different banking activities and different
fields. Many types of fields are shown in market for investment. But
banks invest its funds in profitable and safety activities. Bank invests
its fund in the following titles:
 Share and debenture
 Government securities
 NRB bond
 Joint-venture

36
c. Loan and Advances
Banks mobilize its funds by providing different types of loan and
advances to customers, by charging fixed interest. Different types of
loan and advances are
 To government enterprises
 To provide enterprises
Bank manages the different types of loans i.e. providing loan, business
loan, and traditional loan to priority area.

d. Fixed Assets
Land and buildings are essential for the establishment of bank. Bank’s
funds are used in buying of furniture, vehicle, computer, and other
concerned instrument, which are related to banking activities. Bank
cannot take direct gain from these assets, but bank should buy it. A
bank has a need of fund to purchase fixed assets for the new branches
of the bank.

e. Administrative and Miscellaneous Expenses

Bank should manage funds for administrative and other miscellaneous
expenses. The administrative expenses are:
 Salary of Employee
 Allowances
 Pension
 Advertisement
 Stationery
 Provident Fund
 Rent
 Income tax

37
  Donation
 Insurance
 Tour expenses
 Commission
 The miscellaneous expenses are
 To distribute the dividend to shareholders
 To bear the loss on sale and purchase of banking assets
 Maintenance expenses
 To pay the interest on borrowed amount
 Reserve fund

In this way, bank mobilizes its fund by performing different activities to

achieve its desired goals i.e. earning profit. Banks are able to earn
sufficient profit by mobilizing its funds in proper way into the different
profitable sector. It can utilize its collected fund as well as own funds in
all banking activities by performing effective fund mobilization
procedure.

2.3 Review of Related Studies

2.3.1 Review of Books

Banks are that kind of institutions, which deals with money and
substitutions for money. They deal with credit and credit instrument.
Effective circulation of credit is more significant for the banks. Unsteady
and unevenly flow of credit harms the economic situation of the nation.
Because of this, collected fund should be invested and mobilized into the
right sector. An investment of fund decides the life and death of the
banks.

38
“An investment is a commitment of money that is expected to generate
additional money that is expected to generate additional money. Every
investment entails sacrifice for a future uncertain benefit.” ( Francis:
1991 ,2)

Likewise, Cheney and Moses are concerned with the objective of

investment and indicate that the risk is in proportion with the degree of
returns. They write, “The investment objective is to increase
systematically the individual’s wealth, defined as assets minus liabilities.
The higher the level of the desired wealth, the higher must be received.
An investor seeking higher return must be willing to face higher level of
risk.” (Cheney and Moses:1992 ,12)
Charles P. Jones, emphasizing on the proper management of an
investor’s wealth says, “Investment is the commitment of funds to one or
more assets that will be held over some future time period. Investment is
concerned with the management of an investor’s wealth, which is the sum
of current income and present value of all future income.” (Charles:
1999, 2)

According to William J. Sharpe and Alexander J. Gorden has defined

the term “investment” as the sacrifice of money today for the prospective
money tomorrow. They write, “Investment in its broadest sense means
the sacrifice of current dollars for future dollars. Two different attributes
are generally involved time and risk. The sacrifice takes place in the
present and is certain. The reward comes later, if at all and the magnitude
is uncertain. In some cases the element of time predominates (e.g.
government bond). In other cases, risk is the dominant attribute (e.g. call
option on common stock). In yet both time and risk are important.”
( Sharpe and Gorden 1996, 1)

39
James B. Baxley expresses his opinion as “Investment policy fixed
responsibilities for the investment disposition of the banks assets in term
of allocating funds for investment and loan and establishing responsibility
for day to day management of those assets.” ( Baxley: 1987 ,5 )
In the view of Gittman and Jochnk, “Investment is any vehicle into
which funds can be placed with the expectation that will preserve or
increase in value and generate positive returns.” ( Gittman and Jochnk:
1990, 18 )

Sakespeare Baidya has an elaborated definition on “investment” which

beseeches of sound investment policy and covers wider aspects. He
writes, “A sound investment policy of bank is such that its funds are
distributed on different types of assets with good profitability on the one
hand and provides maximum safety and security to the depositors and
banks on the other hand. Moreover, risk in banking sector tends to be
concentrated in the loan portfolio. When a bank gets into serious financial
trouble its problem usually springs from significant amount of loans that
have become uncollectible due to mismanagement, illegal economic
downturn. Therefore, the banks investment policy must be such that it
ensures sound and prudent in order to protect public funds.
“Further in details he deals with what type of loan do banks make? And,
how much of loan is to be invested? The banks make a variety of loans to
a wide variety of customers from many different purposes from
purchasing automobile to construct of homes and making trade with
foreign countries. There, no uniform rules can be laid down to determine
the portfolio of bank. The environment in which the bank operates
influences its investment policy. The nature and availability of funds and
assets also differ widely from region to region within a country or country

40
to country. For example, the scope of operating a bank in Jumla will be
different from the scope of a bank operating in Kathmandu. The
investment policy to be applied in Kathmandu may not be applicable to
the customer of Jumla because the demand for loans is less in rural areas
whereas it is higher in urban areas.” (Baidya : 1997, 47 )

V.K. Bhalla has derived a three- pointed basic concept of investment. His
view on investment cover:
 Economic investment that is an economics definition of
investment.
 Investment in a more general or extended sense which is used by
the man of street or ordinary people
 The sense in which we are going to be very much interested
namely financial investment.
He says, “Banks are those institutions which accepts deposits from the
public and in return provide credit to trade, business and industry that
directly makes a remarkable impact on the economic development of a
country. To collect fund and collect as a good investment is a very risky
job. Ad-hoc investment decision leads the bank out of the business
thereby drawn the economic growth of a country. Hence sound
investment policy is another secret of a successful bank.” ( Bhalla: 1997,
13 )
In the view of Reed, Cotter, Gill and Smith, “commercial banks still
remain the heart of our financial system holding the deposits of millions
of persons, governments and business units. They make funds available
through their lending and investing activities to borrowers, individuals,
business firms and governments. Commercial banks are the most
important type of financial institutions in the nation in terms of aggregate
assets.” (Reed, Cotter, Gill and Smith 980 ,5 ,1)
41
The primary function of commercial banks is the extension of credit to
worthy borrowers. In making credit available, commercial banks are
rendering a great social service. Through their action, production is
increased, capital investments are expanded, and a higher standard of
living is realized. Although the investment activities of commercial banks
are usually considered separately from lending, the economic effects and
social results are the same.
Emphasizing the importance of investment policy, H.D. Crosse puts his
opinion like this way, “Lending is the essence of commercial banking,
and consequently the formulation and implementation of sound policies
are among the most important responsibilities of bank directors and
management. Well conceived lending policies and careful lending
practices are essential if a bank is to perform its credit creating function
effectively and minimize the risk inherent in any extension of credit.”
(Crosse: 1963 ,38 )

2.3.2 Review of Journals/Articles, Research Papers and Previous

Studies
In this subject, effort has been made to examine and review some of the
related articles published in different economic journals, Bulletin of
World Bank, dissertation papers, newspapers, researchers view and
findings towards fund mobilization and other related books.
Mr. Sunil Chopra in his article, “Role of Foreign banks in Nepal” had
conducted that the joint venture banks playing an increasingly dynamic
and vital role in the economic development of the country that will
undoubtedly increase with time. (Chopra :1989, 2 )

42
Sunity Shrestha has analyzed in her article, “Financial performance of
commercial banks using both descriptive and diagnostic approach.”
( Shrestha : 1997, 23-27)
In her studies she has concluded the following points:
a. The structural ratio of commercial banks show that banks invest on the
average 75% of their total deposit on the government securities and the
shares.
b. The analysis of resources position of commercial banks should quit
high percentage of deposit as cash reserve.
c. Return ratio of all the banks show that most of the time foreign banks
have higher return as well as higher risk than Nepalese banks.
d. The debt-equity ratios of commercial banks are more than 100% in
most of the time period under study period. It led to conclude that the
commercial banks are highly leveraged and highly risk. Joint venture
banks had higher capital adequacy ratio but has been dealing every day.
e. In case of the analysis of the management achievement foreign banks
have comparatively higher total management achievement index.
According to Asian weekly news paper report, published from Hong
Kong, competition between joint venture banks made them to collect
large amount as deposit. In same way, Nepal’s two joint venture Nepal
Arab Bank Ltd. and Himalayan Bank Ltd. are positioned among 500
biggest banks of Asia region. This evaluation is based on the total assets,
deposit, loan investment, net income and profit and investment on shares.
( Kantipur Daily,Wednesday 009) 2

Likewise, Mr. Ramesh Lal Shrestha in his article, “A study on deposit

and credit of commercial banks in Nepal” concluded that the credit
deposit ratio would be 51.30%, other things remaining the same in Nepal,
which was the lowest under the period of review. Therefore, he had

43
strongly recommended that the joint venture banks should try to give
more credit entering new field as far as possible, otherwise, they might
not be able to absorb even the total expenses.

Mr. Shiva Raj Shrestha has presented a short scenario of investment

management from his article “Portfolio Management in Commercial
Bank, Theory and Practice.” (Shrestha :2055, 13 )He has stressed in the
following issues, in case of investors having lower income, portfolio
management may be limited to small saving incomes. But, on the other
hank, portfolio management means to invest funds in various schemes of
mutual funds like deposits, shares and debentures for the investors with
surplus income. Therefore, portfolio management becomes very
important both for an individuals as well as institutional investors. Large
investors would like to select a best mix of investment assets and subject
to the following aspects:

a. Higher return which is comparable with alternative opportunities

available according to the risk class of investor.
b. Good liquidity with adequate safety on investment.
c. Certain capital gains
d. Maximum tax concession
e. Flexible investment
f. Economic and efficient investment

In the view of these aspects, investors are expected to develop the

following strategy:
a) Do not hold any single security; try to have a portfolio of different
securities.

44
b) Do not pull all the eggs in one basket i.e. to have a diversified
investment.
c) Choose such a portfolio of securities, which ensures maximum return
with minimum risk or lower return with added objectives wealth
maximization.

In order to prepare structure and modus operandi of effective portfolio

management, Mr. Shrestha has presented the following approaches to be
adopted.

1. To find out the investing assets (generally securities) having scope for
better returns depending upon individual characteristics like age, health,
need deposition, liquidity and tax liquidity etc.
2. To find out the risk of securities depending upon the attitude of
investor towards risks.
3. To develop alternative investment strategies for selecting a better
portfolio this will ensure a trade-off between risk and return so as to
attain the primary objective of wealth maximization at lowest risk.
4. To identify variety of securities for investment to refuse volatility of
returns and risk.

According to Mr. Bodi B. Bajracharya in his article “Monetary Policy

and Deposit Mobilization in Nepal” that “the mobilization of domestic
saving is one of the prime objectives of monetary policy in Nepal. For
this purpose, commercial banks stood as the active and vital financial
intermediary for generating resources in form of deposit of the investors
in different aspects of the economy.” ( Bajracharya: 2047, 93-97)
He has explained that commercial banks only can play an important role
to mobilize the national savings. Now a day other financial institutions

45
like finance companies, cooperative societies have been established
actively to mobilize deposits in the proper sectors so that return can be
ensured from the investment.
Similarly, Mr. Bhaskar Sharma has found same results that all the
commercial banks are establishing and operating in urban areas, in this
study, “banking the future on competition.” (Sharma: 2000, 13 ) .His
achievements are:
Commercial banks are establishing and providing their services in urban
areas only. They do not have interest to establish in rural areas. Only the
branch of Nepal Bank Ltd. and Rastriya Banijya Bank Ltd. are running in
those sectors.
• Commercial banks are charging higher interest rate on lending
• They have maximum tax concession
• They do not properly analyze the system

According to him, “Due to the lack of investment avenues, banks are

tempted to invest without proper credit appraisal and on personal
guarantee, whose negative side effects would show colors only after four
or five years.” He has further included that private commercial banks
have mushroomed only in urban areas where large volume of banking
transaction and activities are possible.
In the view of Mr. Shekhar Bahadur Pradhan, in his articles, “Deposit
mobilization, its problem and prospects” He has presented the following
problems in the context of Nepal: ( Pradhan : 2053, 9 )
• People do not have knowledge and proper education for saving in
institutional manner. They so now know financial organizational
process, withdrawal system, depositing system etc.
• Financial institutions do not want to operate and provide their
services in rural areas.

46
 • He has also recommended about how to mobilize the deposit
collection by the financial institutions by rendering their services in
rural areas, by adding various services.
• By operating rural banking programmes and unit
• Nepal Rastra Bank must organize training programmes to develop
the skilled human resources
• By spreading a numbers of co-operative societies to develop mini
banking services and improves the habits of public on deposit
collection to the rural areas.
Dr. Radhe Shyam Pradhan has done a research for which he carried out
a survey of 78 enterprises. Through his research entitled, “Financial
management practices in Nepal.” He found some of the major features of
the Nepalese financial management. According to him “the most
important one appeared to be maintaining good relation with stockholder.
The finding reveals that banks and retained earning are most widely used
financing sources. Most enterprises do not borrow from one bank only
and they do switch between banks to banks whichever offers best interest
rates. Most enterprises find that banks are faxable in interest rate. Among
the banks loan, bank loan of less than one year are more popular in public
sector where as banks loan of 1-5 years are more popular in private
sector. In period of light money, the majority of private sector enterprises
fell that bank will treat all firms equally while public sector does not feel
so. Similarly, he concluded that the majority of enterprises in traded
sector find that bank’s interest rate is just right while the majority of non-
traded sector find that the some is one higher side.”

2.3.3 Review of Theses

47
Before this study, various studies regarding the various aspects of
commercial banks such as fund mobilizing policy, financial performance,
investment policy, lending policy, interest rate structure, resource
mobilization and capital structure have conducted several thesis works.
Some of them, which are relevant for this study, are presented below:
Mahendra Mandala, in his thesis paper “A Comparative Financial
Performance Appraisal of Joint Venture Banks.”(1998) has studied
primarily three joint venture banks i.e. NABIL, NGBL and Nepal
Indosuez Bank Ltd. His main objectives is to find out the both banks,
NGBL and NABIL have mobilized the debt funds in proper way for
generating more return but Nepal Indosuez Bank (NIBL) could not
mobilize as NABIL and NGBL. He has recommended that all the banks
should provide their facilities in rural areas and encourage the small
entrepreneur’s development programmes, play merchant role, mobilize
the deposit funds in productive sectors and grant priority to the local
manpower.
He has not attempted to show the investment policy and concentrated
only on financial performance of JVBs, therefore if can not represent the
performance appraisal of JVBs. His study is comparative study of only
three JVBs. His study period is up to FY 1997/98 and it can not analyze
the investment policy after this fiscal year.

Udaya Bahadur Silwal has conducted a study on “Lending Policy of

Commercial Banks in Nepal”(1980) having following objectives:
• To analyze the role of commercial banks in its historical
perspective
• To show the relationship between deposits and loan and advances
• To identify major weakness of lending policy of the commercial
banks

48
The research was conducted mainly on the basis of secondary data.
Findings of this research are summarized below:
• Effectiveness of lending policy is directly based upon a sound
banking system. But due to geographical variation, transportation
and other regional disparities, it is very difficult to expand branches
in different rural areas. So, it can be said that commercial banks in
Nepal are not playing an active role to utilize their sources
collected from different sectors.
• By paying higher interest rate, the banks are increasing deposits,
which in turn increase saving habits of the general people. Then the
banks will be able to utilize these idle funds in productive
channels. This type of business of commercial bank is really a
necessary one in an agricultural country like Nepal, where public
investment has limited capacity.

Mr. M.N. Karmacharya, in his thesis paper “A study on the Deposit

Mobilization by the joint venture banks” (1998) has mentioned that the
bank has successfully maintained its liquid asset position but could not
mobilize its resources efficiently. He has concluded that Nepal Bank’s
utilization side is weak as compare to the collection of resources. He
suggested for extending its branches, so NBL’s deposit collection and
also long-term as well as short-term credit may increase. He has
recommended not to consider security factor only but to provide loan to
genuine projects without securing.

Uttam Raj Panta, in his thesis paper “A Study of Commercial Bank

Deposits and Utilizations” (1998) has tried to examine the resources
collection and utilization. He has concluded that commercial banks have
failed to utilize their resources due to lending for short term only. So that

49
he has suggested that all commercial banks should give preference on
long term lending sectors for the better utilization of the deposits and
improvement of their existing situation.
He has tried to show the deposit position and utilization. He has not also
explained the risk factors. His main focus is deposit collection, which can
not show and analyze the financial position and proper investment policy.
His study period is up to FY 1975/76 which can not show deposit
position and its utilization for succeeding years.

Bhoj Raj Bohara, in his thesis paper “A Comparative Study of the

Financial Performance of Nepal Arab Bank Ltd. and Nepal Indosuez
Bank Ltd.”(1992) has studied mainly financial performance of two joint
venture banks. His main objective is to examine the comparative financial
performance (during FY 1986/87 to 1990/91) of NABIL and SCBNL in
terms of their liquidity, activity and profitability. He has summarized and
concluded that the increasing trend of SCBNL’s earning per share, cash
dividend per share, tax per share, net profit, total loans, total deposits and
advances and market value per share in the last deposits, total loans and
advances and market value per share in the last three years of the study
period had shown improvement than that of NABIL.
He has also shown the comparative performance appraisal of only two
joint venture banks. Although he has tried to analyze and explain the
liquidity and explain the liquidity, activity and profitability position of
two JVBs, he has not explained the investment policy and various types
of risks. His study can not show the performance of the selected firms for
the succeeding years because of time limitation i.e. up to 1990/91.

Uddab Prasad Sapkota, in his thesis paper “A study on fund mobilizing

policy of Standard Chartered Bank Ltd in comparison to Nepal

50
Bangladesh Bank Ltd and Himalayan Bank Ltd” (2002) having main
objectives to examine the fund mobilizing policy adopted by three joint
venture banks viz. SCBNL, NBBL and HBL and the way these banks
mobilized their funds during five year study period i.e. from 1996/97 to
1999/2000.

He found the overall condition of SCBNL seems in satisfactory position

in comparison to NBBL and HBL. In other words, he recommends that
banks are strongly recommended to provide information about its
services, facilities and extension of their services towards rural areas.
These three banks is recommended to increase cash and bank balance to
meet the need of investment and demand of loan and advances. And
banks are to be investing its funds in the purchase of shares and
debentures of other financial, non-financial companies, hotels and
government companies.
Mr. Sapkota has not explained about the risk ratios which have to be
faced by these joint venture banks. His study can not show the fund
mobilizing policy of the selected banks for the succeeding years because
of time limitation i.e. up to 1999/2000.
While reviewing the books and articles and previous studies, it is found
that banks are not just the storehouse of the country’s wealth but are the
reservoirs of resources necessary for economic development and
employment generation. There are still different obstacles in the effective
operation of the commercial banks in Nepal. Therefore these obstacles
should be eradicated for the economic development of Nepal.

51
 CHAPTER-III
RESEARCH METHODOLOGY

3.1 Introduction
Generally, Research methodology refers to the numerous processes
adopted by the researchers during the research period. It is the technique
to solve the research problem in systematic manner. This includes many
techniques and is crucial for every research work. The main objective of
this research work is to evaluate the fund mobilizing procedure adopted
by the two joint venture banks i.e. HBL and EBL.

“Research methodology refers to the various sequential steps to be

adopted by a research in studying a problem with certain objectives in
view.” (Kothari : 1989, 30)

This study will seek the conclusion to the point that what kind of position
EBL and HBL have got and suggested the precious and meaningful
points so that all concerned can fruitful from this research work.

3.2 Research Design

This study is analytical in nature. A true research design is basically
concerned with various steps to collect the data for analysis and draw a
relevant conclusion. The research design allows the researchers to take an
appropriate measure and direction towards the predetermined goals and
objectives.
“A research design is the arrangement of conditions for collection and
analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure.” (Kothari: 1992, 25)

52
The research examines the facts and postulates in certain frameworks on
details and supplies the important information on subject matter,
summary of the study, major findings of the study, recommendations,
conclusion etc. are the most significant information among them, they are
derived with the help of some financial and statistical tools were adapted
to evaluate the fund mobilization of joint venture banks viz. EBL and
HBL in consideration not only to research about them but also to
facilitate among them.

3.3 Sources of Data

The study is mainly based on secondary data. The secondary sources of
data collections are those that have been used from published on used by
someone previously. The secondary sources of data are Balance Sheet,
Profit & Loss account and literature publication of the concerned banks.
The NEPSE report of the concerned bank has furnished some important
data to this research work. Some supplementary data and information
have been collected from the authoritative sources like Nepal Rastra
Bank, Tribhuvan Multiple Campus library of Palpa, Central Library of
T.U., Shankar Dev Campus library, Nepal Commerce Campus library,
Nepal Stock Exchange Limited, Security Exchange Board, Economic
Survey, National Planning Commission, different journals, magazines
and other published and unpublished reports documented by the
authorities.

In order to fulfill the objectives of this research work, all the secondary
data are compiled, processed and tabulated in time series. And to judge
the reliability of data provided by the banks and other sources, they were
compiled with the annual reports of auditors. Formal and informal talks to

53
the concerned head of the department of the bank were also helpful to
obtain the additional information of the related problem.

3.4 Nature of Data

In case of primary data, some personal views and ideas of individual’s
respondent are collected. But in case of entire study secondary data used
are basically of the following nature.
 Most of the data taken for the analysis is collected in the form of
published by the concerned banks through their annual reports.
 Since all the banks which are taken into account for the study are
listed in NEPSE, the figures are all most reliable and suitable too.

3.5 Population and Sample

There are altogether 31 commercial banks functioning all over the
kingdom and most of their stocks are traded actively in the stock market.
Among them nine are JVBs and remaining are domestic commercial
banks. Among all the banks only two banks are taken as a sample for
comparative study. These banks are compared as per fund mobilizing
activities. They are:
1. Everest Bank Ltd.
2. Himalayan Bank Ltd.
These two banks are compared as per fund mobilization procedure, that
they are adopting to mobilize their collected funds as well as own funds.

3.6 Data Analysis Tools

Analysis and presentation of the data is the core of each and every
research work. This study requires some financial and statistical tools to
accomplish the objective of the study. The financial and statistical tools
are most reliable. In this study various financial, statistical and accounting
54
tools have been used. These tools make the analysis more effective,
convenience, reliable and authentic.
The various results obtained with the help of financial, accounting and
statistical tools are tabulated under different headings. Then they are
compared with each other to interpret the results. Two kinds of tools have
been used to achieve the certain goals.
1. Financial Tools
2. Statistical Tools

3.6.1. Financial Tools

Financial tools basically help to identify the financial strengths and
weaknesses of the firm by properly establishing relationships between the
items of the balance sheet and the profit and loss account. Financial tools
are categorized into two parts. They are
II. Ratio Analysis
III. Sources and Uses of Funds
IV. Cash flow Analysis

II. Ratio Analysis

Ratio analysis is the powerful tool of financial analysis. A ratio is defined
as “the indicated quotient of two mathematical expressions ,the
relationship between two or more things.” (Merriam: 1975, 958) . “In
financial analysis, a ratio is used as a benchmark for evaluating the
financial position and performance of a firm. The relationship between
two accounting figure expressed mathematically, is known as a financial
ratio or simply a ratio. An accounting figure conveys meaning when it is
related to some relevant information.” (Pandey: 1975, 104)

55
“A ratio is a mathematical relationship between two variables. It is
significant for financial analysis. It also helps us to predict the future
performance of a company based on study of ratios of earlier years.”
(Benerjee :1989 ,95)

Thus, ratio analysis is the part of whole process of analysis of financial

statements of any business or industrial concerned especially to take
output and credit decision. Ratio indicates a quantitative relationship,
which can be in turn, used to make a qualitative judgment. Even though
there are various types of ratios to analyze and interpret the financial
statement, only six types of ratios have been taken in this study, which
are related to fund mobilization of the banks. They are presented below:
A. Liquidity Ratios
i. Cash and bank balance to total deposit ratio
ii. Cash and bank balance to current assets ratio
iii. Investment on government securities to current assets ratio

B. Assets Management Ratios

i. Loan and advances to total deposit ratio
ii. Total investment to total deposit ratio

C. Profitability Ratios
i. Return on loan and advances ratio
ii. Return on total Assets
iii. Total interest earned to total Loan & Advances
iv. Total interest Paid to Total Deposit

D . Growth Ratios
i. Growth ratio of total deposits

56
 ii. Growth ratio of total investment
iii. Growth ratio of loan and advances
iv. Growth ratio of net profit

A. Liquidity Ratio
Liquidity ratios are applied to measure the ability of the firms to meet
short term obligations. It measures the speed of firms to convert the firms
asset into cash to meet deposit withdraws and other current obligations.
This is quick measure of the liquidity and financial strength of the firm.
“Liquidity ratios examine the adequacy of funds, the solvency of the
firms ability to pay its obligation when due.” (Hampton, 1971, 139)
Various types of liquidity ratios are applied in these studies, which are
explained below:

i) Cash and Bank Balance to Total Deposit

Cash and bank balance are the most liquid current assets of a firm, cash
and bank balance to total deposit ratio measures the percentage of most
liquid assets to pay depositors immediately. This ratio is computed
dividing the amount of cash and bank balance by the total deposits. It can
be presented as,

Cash∧bank Balance
Cash and Bank Balance to Total Deposit Ratio = Total Deposits
Where, cash and bank balance includes cash on hand, foreign cash on
hand, cheques and other cash items, balance held abroad. Total deposits
consist of deposits on current account, saving account, fixed account,
money at call and short notice and other deposits.

57
ii) Cash and Bank Balance to Current Assets Ratio
This ratio measures the percentage of liquid assets i.e. cash and bank
balance among the current assets of a firm. Higher ratio shows the higher
capacity of firms to meet the cash demand. This ratio is calculated
dividing cash and bank balance by total current assets and can be
calculated as,
Cash∧bank Balance
Cash and Bank Balance to Current Assets Ratio = Current Assets
Hence, cash and bank balance includes cash in hand, foreign cash and
foreign banks.

iii) Investment on Government Securities to Current Assets Ratio

This ratio is used to find the percentage of current assets invested on
government securities, treasury bills and development bonds. It can be
mentioned as
Invt . on Govt . Sects
Invt. on Govt. Sects. to Current Assets= Current Assets

Where, Investment on government securities involves treasury bills and

development bonds etc.

B. Assets Management Ratios (Activity Ratio)

The asset management ratios, measures how effectively the firm is
managing its assets. These ratios are designed to answer this question:
does the total amount of each type of asset as reported on the balance
sheet seem reasonable or not. If a firm has excessive investments in assets
then its capital costs will be unduly high and its stock price will suffer.
(Brigham: 1996 ,74)

58
In this study this ratio is used to indicate how efficiently the selected
banks have arranged and invested their limited resources. The following
financial ratios related to fund mobilization are calculated under asset
management ratio and interpretation is made by these calculations.

i) Loan and Advances to Total Deposit Ratio

This ratio is calculated to find out how successfully the selected banks are
utilizing their total collections or deposits on loan and advances for the
purpose of earning profit. Greater ratio shows the better utilization of
total deposits. This ratio can be obtained dividing loan and advances by
total deposits, which can be shown as,
Total Loan∧ Advances
Loan and Advances to Total Deposit Ratio = Total depost

ii) Total Investment to Total Deposit Ratio

Investment is one of the major sources of earning of profit. This ratio
indicates how properly firm’s deposits have been invested on government
securities and shares and debentures of other companies. This ratio is
computed by using following formula:

Total nvestment
Total Investment to Total Deposit Ratio = Total depost

Where, total investment includes investment on government securities,

investment on debentures and bonds, share in subsidiary companies,
shares in other companies and other investments.

C. Profitability Ratios
Profit is only appeared when there is positive difference between total
revenues and total cost over a certain period of time. Profitability ratios
59
show the combined effects of liquidity, assets management, and debt on
operating results. Profitability ratios are very helpful to measure the
overall efficiency of operations of a firm. It is a true indication of the
financial performance of each and every business organization. Here
profitability ratios are calculated and evaluated in terms of the
relationship between net profit and assets. Profitability of the firms can be
presented through the following different ways:

i) Return on Loan and Advances Ratio

Return on loan and advances ratio shows how efficiently the banks have
utilized their resources to earn good return from provided loan and
advances. This ratio is computed dividing net profit (loss) by the total
amount of loan and advances and can be mentioned as,

Net Proft (loss)

Return on Loan and Advances Ratio =
Loan∧ Advances

ii) Return on Total Assets

Return on total assets ratio measures the profit earning capacity of the
banks by utilizing available resources i.e. total assets. If the bank’s well
managed and efficiently utilized its assets , it will get higher return.
Maximizing taxes, this in the legal options available will also improve the
return. It is computed as:

Net Proft
Return on Total Assets = Total Assets

iii) Total Interest Earned to Loan and Advances

This ratio reflects the extent to which the banks are successful in
mobilizing these total assets to acquire income as interest. This ratio
60
actually reveals the earning capacity of commercial banks by mobilizing
its Loan and Advances . Higher the ratio higher will be the income as
interest. We have,

Total Interest Earned to Loan and Advances Ratio =

Total Interest Earned
Total Loan∧ Advances

iii) Total Interest paid to Total Deposit and Borrowing Ratio

This ratio measures the percentage of total interest expenses against total
Deposit and Borrowing . A high ratio indicates higher interest expenses
on total Deposit and Borrowing and vice-versa. This ratio is calculated
as:

Total Interest paid to Total Deposit and Borrowing Ratio =

Total Interest Paid
Total Deposit∧Borrowing

D. Growth Ratios
The growth ratios represent how well the commercial banks are
maintaining their economic and financial position. The higher ratios
represent the better performance of the selected firms to calculate, check
and analyze the expansion and growths of the selected banks the
following growth ratios are calculated. Growth ratios are directly related
to the fund mobilization and investment of those firms.
i) Growth ratio of total deposits
ii) Growth ratio of total investment
iii) Growth ratio of loan and advances
iv) Growth ratio of net profit

61
3.6.2 Statistical Tools
In this study, some important statistical tools have been used to present
and analyze the data for achieving the objectives. Such as coefficient of
correlation between different variables, trend analysis of important
variables as well as hypothesis test (t-statistic) has been used, which are
presented below:

i) Karl Pearson’s of Coefficient of Correlation Analysis

ii) Coefficient of Variation (C.V)
iii) Standard Deviation (S.D)
iv) Probable Error (P.E)
v) Testing of Hypothesis

i) Karl Pearson's Coefficient of Correlation Analysis

This statistical tool has been used to analyze, identify and interpret the
relationship between two or more variables. It interprets whether two or
more variables are correlated positively or negatively. Statistical tool
analyses the relationship between those variables and helps the selected
banks to make appropriate investment policy regarding to profit
maximization and deposit collection; fund mobilization through
providing loan and advances.

For the purpose of decision-making, interpretation is based on following

term:
 When r = 1, there is perfect positive correlation.
 When r = -1, there is perfect negative correlation.
 When r = 0, there is no correlation.
62
  When ‘r’ lies between 0.7 to 0.999 (-0.7 to 0.999), there is a high
degree of positive (or negative) correlation.
 When ‘r’ lies between 0.5 to 0.699, there is moderate degree of
correlation.
 When ‘r’ is less than 0.5, there is low degree of correlation.
Karl Pearson's correlation coefficient has been used to find out the
relationship between the following variables:

a) Coefficient of correlation between deposit and loan and advances

Correlation coefficient between deposits and loan and advances measures
the degree of relationship between two variables i.e. X and Y. In this
analysis, deposit is independent variables (X) and loan and advances is
dependent variables (Y). The main purpose of calculating correlation
coefficient is to justify whether the deposits are significantly used in
proper way or not and whether there is any relationship between these
two variables.

b) Coefficient of correlation between deposit and total investment

Correlation coefficient between deposit and investment is to measure the
degree of relationship between deposit and total investment. In this
analysis, deposit is independent variables (X) and total investment is
dependent variables (Y).
Karl Pearson's Correlation coefficient(r) can be obtained as:
nΣ Xy−( ΣX ) ( Σy )
Simple Correlation Coefficient (r) = √nΣX 2−( ΣX )2 √ nΣy2−( Σy )2
i) Coefficient of Variation (C.V)
The coefficient of variation is the relative measure of dispersion,
comparable across, which is defined as the ratios of the standard

63
deviation to the mean expressed in percent.(Richard I. Levin & David S.
Rubin,1994 P:114)
In Symbol
SD
CV = X 100
X͞
Where: S.D. = Standard Deviation
X ͞ = Mean average

The higher CV denotes to the higher variability of variable and vice-

versa.
ii) Standard Deviation (S.D)
The standard deviation measures the absolute value of risk, i.e.,
variability of the returns from the means returns. It is also known as root
mean square deviation for the reason that it is the square root of the
squared deviation from arithmetic mean. Symbolically,
Standard Deviation, σ = √ (∑X2/n – X2)
Where, X = Variables
n = Number of variables.
X= Expected rate of return or average rate of return.
iv) Probable Error (P.E)
The probable error denoted by P.E. is used to measure the reliability and
test of significance of correlation coefficient. Significance of relationship
has been tested by using the probable error (P.E.) and it is denoted by the
following model:
1−r 2
Probable Error ( P . E . ) =0.6745 X
√n
Where, r = the value of correlation coefficient
n = number of pairs of observations
if r< P.E., it is insignificant, i.e. there is no evidence of
correlation
if r>6 P.E., it is significant
64
 if P.E.<r< 6 P.E., nothing can be concluded
v)Test of Hypothesis Under this analysis the effort has been made to
average been followed for the test

Formulating hypothesis
i) Null Hypothesis (H0)
ii) Alternative Hypothesis (H1
b) Computing the t- statistic
c) Fixing the significance level
d) Finding critical research
f) Decision making

Null Hypothesis (H0): μ1= μ2 i.e., there is no significant difference

between mean ratios of

Alternative Hypothesis (H1): μ1≠ μ2 i.e., there is significant difference

between mean ratios of loans and advances to total deposits of HBL and
[Link] according to findings.

N :loan and advances to total deposit of HBL and EBL.

65
 CHAPTER-IV
PRESENTATION AND ANALYSIS OF DATA

General fund mobilization means to flow the cash in different sectors at

profit motive. All the banks were applied their own fund mobilizing
procedure. In practice, straight forward and effective fund mobilization
procedure has adopted by the bank. Effective fund mobilization is the
indicator of banks prosperity and its growth.

This chapter is primarily concerned with presentation and analysis of

data. In this study effort has been made to analyze the collected data by
using financial and statistical tools as well as various graphical
presentations. Like wise, comparative balance sheet and comparative
profit and loss account from the year 2007 to 2011 of HBL and EBL are
presented in appendices.

4.1 Ratio Analysis

4.1.1 Liquidity Ratios

[Link] Cash and Bank Balance to total Deposit
Cash and Bank balance to total deposit ratio is computed by using
following formula:

Cas h∧bank balance

Cash and Bank Balance to total Deposit Ratio= Total Deposits

66
 Table no 1
Comparative Cash and Bank Balance to Total Deposit
Year Ratio%
HBL EBL
2007 5.84 13.15
2008 4.55 11.13
2009 8.79 18.49
2010 10.28 21.17
2011 15.55 18.66
Mean ( x́ ¿ 9.002 16.52
S.D.(σ ) 3.85 3.75
C.V 25.90 22.72
Source: Appendix-I

From the above comparative table, cash and bank balance to total deposit
ratio of the two banks followed a fluctuating trend. EBL has maintained
the higher ratio i.e. 21.17% of cash and bank balance to total deposit than
HBL during the study period.

The average ratio of EBL is higher than HBL. HBL has the ratio of
9.002%. The variability of the ratio is lower in HBL it states that HBL is
more consistent than EBL.

This ratio can be presented by the help of diagram, which is shown

below:

Cash and Bank Balance to Total Deposit

67
 25

20

15
Ratio

HBL
10 EBL

0
2007 2008 2009 2010 2011
Fiscal year

Figure No. :1

[Link] Cash and Bank Balance to Current Assets

This ratio is calculated dividing cash and bank balance by total current
assets and can be calculated as,
Cash∧Bank Balance
Cash and bank balance to current Assets Ratio= Current Assets
Table No- 2
Comparative Cash Bank Balance to Current Assets Ratio
Year Ratio%
HBL EBL
2007 12.40 37.60
2008 8.58 34.04
2009 16.38 65.5
2010 20.71 67.72
2011 29.68 40.42
Mean ( x́ ¿ 17.55 49.06
S.D.(σ ) 7.28 14.37
C.V 41.52 29.29
Source: Appendix-I

From the above comparative table, it reveals that cash and bank balance
to current assets ratio of HBL has less fluctuating trend. The highest ratio

68
of HBL is 29.68% in the year 2011 and lowest ratio 8.58% in the year
2008. EBL has highest ratio of 67.72% and lowest ratio 34.02% in the
year 2008. Among two banks EBL has maintained the highest ratio than
HBL.
Similarly, C.V. ratio of HBL is more than EBL i.e. 13.23%. It indicates
that ratio of HBL is less stable than EBL.
Cash Bank Balance to Current Assets Ratio
80

70

60

50
Ratio

40
Ratio% HBL
30 Ratio% EBL

20

10

0
2007 2008 2009 2010 2011
Fiscal Year

Figure No 2

[Link] Investment on Government securities to current Assets

This ratio is used to find the percentage of current assets invested on
government securities treasury bills and development bonds. It can be
mentioned as:

Investment onGovt . Securities

Invt. on Govt. securities on current Assets = Current Assets

Table No-3

69
 Comparative Investment on Government Securities to Current
Assets Ratio
Year Ratio%
HBL EBL
2007 21.52 24.20
2008 23.69 20.41
2009 14.90 26.24
2010 29.30 18.20
2011 24.16 23.43
Mean ( x́ ¿ 22.71 22.50
S.D.(σ ) 4.68 2.85
C.V 20.61 12.67
Source: Appendix-I

The above comparative table shows HBL has invested more portions of
current assets in government securities i.e. 29.30% in the year 2010 in
comparison to EBL during the study period.

The mean ratio of HBL is highest i.e. 22.71% than that of EBL
coefficient of variation of EBL is 12.67%. It seems that EBL is more
consistent to make investment in government securities than HBL.

Investment on Government Securities to Current Assets Ratio

70
 35

30

25

20
Ratio

15 Ratio% HBL
Ratio% EBL
10

0
2007 2008 2009 2010 2011
Fiscal Year

Figure no 3
4.1.2 Assets Management Ratio
The following financial ratio related to fund mobilization are calculated
under assets management ratio and interpretation is made by these
calculations.

[Link] Loan and Advances to Total Deposit

This ratio can be obtained by dividing loan and advances to total deposit,
which can be shown as.

Total Loan∧ Advances

Loan and Advances to total Deposit ratio= Total Deposit

Table No-4

71
 Comparative loan and advances to total deposit ratio
Year Ratio%
HBL EBL
2007 59.22 77.44
2008 63.37 78.56
2009 73.58 73.43
2010 77.43 76.24
2011 80.57 76.98
Mean ( x́ ¿ 70.83 61.84
S.D.(σ ) 11.78 14.79
C.V 16.63 23.92
Source: Appendix-I

The above comparative table shows that these two banks have mobilized
their collected deposits in fluctuating trend as loan and advances during
the study period. The higher ratio of loan and advances to total deposit of
HBL and EBL are 80.57 and 78.56 respectively. EBL has mobilized
61.84% of it’s collected deposit in loan and advances which is less than
HBL in average, coefficient of variation of HBL is 16.63% which shows
that HBL is more stable than EBL in mobilizing collected deposit.
This ratio can be presented by the help of graph.

Comparative loan and advances to total deposit ratio

72
 90

80

70

60

50
Ratio %

40 Ratio% HBL
Ratio% EBL
30

20

10

0
2007 2008 2009 2010 2011
Fiscal Year

Figure No. : 4
[Link] Total Investment to Total Deposit
This ratio is computed by using following formula
Total investment
This Investment to Total Deposit ratio= Total Ratio

Table No- 5
Comparative Total Investment to Total Deposit Ratio
Year Ratio%
HBL EBL
2007 39.35 27.41
2008 41.89 21.10
2009 25.11 17.85
2010 22.45 13.56
2011 12.67 18.33
Mean ( x́ ¿ 28.29 19.65
S.D.(σ ) 10.89 4.57
C.V 38.50 23.25
Source: Appendix-I
From the above comparative table, it can be conclude that to banks have
the ratio of fluctuating trend during the study period. In average HBL has
invest more amount of its total deposit in comparison to EBL i.e. 28.29%.

73
The coefficient of variation of EBL is 23.25%. It indicates that EBL is
more consistent to make investment of total deposit than HBL.

Total Investment to Total Deposit

45

40

35

30

25
Ratio%

20 Ratio% HBL
Ratio% EBL
15

10

0
2007 2008 2009 2010 2011
fiscal year

Figure no -5

4.1.3 Profitability Ratio

Here profitability ratios are calculated and evaluated in term of the
relationship between net profit and assets. Profitability of the firms can be
presented through the following different ways.

[Link] Return on Loan and Advances

This ratio computed dividing net profit(loss) by the total loan and
advances and can be mentioned as,
Net Profit (loss)
Return on Loan and Advances Ratio =
Loan∧ Advances

Table No – 6
Comparative Return on Loan and Advances Ratio
Year Ratio%

74
 HBL EBL
2007 2.89 0.80
2008 3.26 0.68
2009 3.04 0.48
2010 1.82 0.44
2011 2.83 0.34
Mean ( x́ ¿ 2.77 0.55
S.D.(σ ) 49.66 ( i.e 0.4966) 16.76
C.V 17.93 30.47

Source: Appendix- I

In the above analysis the return on Loan and advances of and EBL have
the ratio of fluctuating trend. During the study period, HBL has a higher
ratio 3.26% than EBL i.e. 0.80%. In average HBL has the highest ratio of
2.77% where EBL has the mean ratio of 0.55% & coefficient of variation
indicates that HBL has 17.93 and EBL has 30.47. Hbl is more
consistence to make return on Loan and Advance ratio than Ebl.

Comparative Return on Loan and Advances Ratio

75
 3.5

2.5

2
ration%

1.5 Ratio% HBL

Ratio% EBL
1

0.5

0
2007 2008 2009 2010 2011
fiscal year

Figure no: 6
[Link] Return on Total Assets
Return on Total Assets ratio is computed as:
Net Profit ( Loss)
Return on Total Assets ratio =
Total Assets
Table No -7
Comparative Return on Total Assets
Year Ratio%
HBL EBL
2007 1.47 1.38
2008 1.76 1.65
2009 1.91 1.73
2010 1.19 2.09
2011 1.91 2.10
Mean ( x́ ¿ 1.65 1.79
S.D.(σ ) 27 27
C.V 16.9 15.1
Source: Appendix-I
As per above comparative table the Return on total Assets of HBL has
raising and falling trend and EBL has the ratio of raising trend. During
the study period EBL has the highest ratio 2.10 than HBL i.e. 1.91. EBL
has highest return on total assets fund i.e. 1.79 % than HBL. In case of
coefficient of variation, EBL has the lowest CV of 15.1% than HBL.
76
 Return on Total Assets
2.5

1.5
Ratio %

1 Ratio% HBL
Ratio% EBL

0.5

0
2007 2008 2009 2010 2011
fiscal year

Figure 7

[Link] Total Interest Earned to Loan and Advances

The ratio actually reveals the earning capacity of commercial banks by
mobilizing its Loan and Advances will be the income as interest, we
have.
Total Interest fund earned
Total Interest Earned to Loan & Advance Ratio= Total Loan∧ Advances

Table No- 8
Comparative Total Interest Earned to Loan and Advances
Year Ratio%
HBL EBL
2007 9.98 6.87
2008 9.73 7.06

77
 2009 9.18 7.57
2010 10.81 9.95
2011 13.12 12.22
Mean ( x́ ¿ 10.56 8.73
S.D.(σ ) 1.90 2.06
C.V 18.08 23.62
Source: Appendix-I
The above analysis shows the HBL has highest interest earned to total
loan and advances ratio 13.12% in the year 2011 and the lowest ratio
9.18% in the year 2009. Like wise EBL has highest ratio 12.22% and
lowest ratio 6.87% in the year 2011 and 2007 respectively. HBL has
10.56% mean ratio but EBL has only 8.73%. The coefficient of variation
of HBL is less than EBL It indicates that interest earning power of HBL
is more consistent than EBL.
This ratio can be presented by the help of graph as following

Total Interest Earned to Loan and Advances

78
 14

12

10

Ratio % 8

6 Ratio% HBL
Ratio% EBL
4

0
2007 2008 2009 2010 2011
fiscal year

Figure No. 8

[Link] Total Interest paid to Total Deposit and Borrowing

Total interest paid to Total Deposit and Borrowing ratio is calculated as :
Total Interest Paid
Total interest paid to Total Deposit & Borrowing ratio =
Total Deposit∧Borrowing
Table No- 9
Comparative Total Interest Paid to Total Deposit and Borrowing
Year Ratio%
HBL EBL
2007 2.55 2.70
2008 2.59 2.61
2009 2.70 2.98
2010 4.13 4.18
2011 5.90 6.05
Mean ( x́ ¿ 3.57 3.70
S.D.(σ ) 1.30 1.30
C.V 36.50 35.15
Source: Appendix-I

From the above comparative table HBL has paid to Total Deposit and
Borrowing ratio fluctuating trend. Similarly, HBL & EBL have the ratio
of increasing trend HBL has 5.90% highest ratio in year 2011 and lowest

79
ratio 2.55 in year 2007. And EBL has highest ratio of 6.50% and lowest
ratio 2.61 in year 2011 and 2008 respectively. EBL has 3.70% mean
ratio, which greater than that of HBL i.e. 3.57%. The coefficient of
variation of EBL is more stable than HBL i.e. 35.15%.

Total Interest Paid to Total Deposit and Borrowing

7

4
Ratio %

3 Ratio% HBL
Ratio% EBL
2

0
2007 2008 2009 2010 2011
Fiscal Year

Figure no : 9
4.1.4 Growth Ratios
The growth ratio represents how well the commercial banks are
maintaining their economic and financial position. To calculate, check
and analyze the expansion and growth of the selected banks the following
growth ratio are calculated.

80
[Link] Growth Ratio of Total Deposits

Table N0– 10
Growth Ratio of Total Deposits
( Rs. In million)
Banks Total Deposits Growth
Rate
2007 2008 2009 2010 2011
HBL 30048.42 31842.79 34681.35 37611.20 40920.63 8.03
EBL 18186.2 23976.3 33322.9 36932.3 34427.9 17.29

Source: Annual Report of HBL and EBL

The table presented above shows that HBL and EBL are increasing their
deposit collecting five years study period. The growth ratio of total
deposits of HBL seems lower than EBL.
Growth ratio of total deposit of HBL and EBL are also shown in the
following chart.

Growth Ratio of Total Deposits

45000
40000
35000
30000
Total deposits

25000 HBL
20000 EBL
15000
10000
5000
0
2007 2008 2009 2010 2011
Fiscal Year

Figure No : 10

[Link] Growth Ratio of Total Investment

81
 Table No- 11
Growth Ratio of Total Investment
Rs. In million
Banks Total Investment Growth
2007 2008 2009 2010 2011
Rate
HBL 30048.42 31842.79 34681.35 37611.20 40920.63 8.03
EBL 18186.2 23976.3 33322.9 36932.3 41127.9 22.63
Source: Annual Report of HBL and EBL

The above table shows that HBL and EBL have the growth rate of 8.03%
and 22.63%. Among than EBL has highest growth rate than HBL.
It can also be presented with the help of line chart as following

Growth Ratio of Total Investment

45000
40000
35000
Total Investment

30000
25000 HBL
20000 EBL
15000
10000
5000
0
2007 2008 2009 2010 2011
Fiscal Year

Figure No. 11

[Link] Growth Ratio of Loan and Advances

82
 Table No- 12
Growth Ratio of Loan and Advances
(Rs. in million)
Banks Total Loan & advances Growth
Rate
2007 2008 2009 2010 2011
HBL 17793.72 20179.61 25519.52 27980.63 31566.98 15.41
EBL 18836.4 24469.6 28156.4 31661.8 14082.7 (25.24)
Source: Annual Report of HBL and EBL

The above table describes the growth ratio of loan and advances of HBL
is increasing order and EBL is decreasing order under five year study
period. The table shows the high growth ratio of HBL 15.41% and low
growth ratio of EBL (25.24) % or -25.24%.
Growth ratio of loan and advances of HBL and EBL are also shown in the
following line chart.

Growth Ratio of Loan & Advances

35000
30000
Total Loan and Advances

25000
20000
HBL
15000 EBL
10000
5000
0
2007 2008 2009 2010 2011
Fiscal Year

Figure No. 12

[Link] Growth Ratio of Net Profit.

Table No – 13

83
 Growth Ratio of Net Profit
In Percentage
Banks Net Profit in %
2007 2008 2009 2010 2011
HBL 34.90 41.58 39.96 22.13 25.46
EBL 21.62 24.17 24.92 16.49 14.27

The above table represents the growth ratio of net profit of HBL and EBL
during five years study period. It shows the HBL has the highest ratio
25.46%.
Growth ratio of Net profit of HBL and EBL are also shown in the line
chart

Growth Ratio of Net Profit

45
40
35
30
Net Profit

25 HBL
20 EBL
15
10
5
0
2007 2008 2009 2010 2011
Fiscal Year

Figure No. 13

4.2 Correlation Analysis

Correlation between the important variables are analyzed under this
heading.

4.2.1 Analysis of Correlation Coefficient between Deposit and Total

84
Investment
The following table describes the relationship between of HBL and EBl
under five years study period. In this case deposit is independent variable
(x) and total investment is dependent variable(Y)
Table: 14
Correlation Coefficient between Deposits and Total Investment
Banks Base of Evaluation
2
r R PE 6xPE
HBL -0.29 0.084 0.276 1.654
EBL 0.47 0.221 0.235 1.41
Source: Appendix III
From the above table, it is found that coefficient of correlation between
deposits and total investment of HBL is -0.29 i.e. high degree of negative
correlation between these two values. And the value of coefficient of
determination R2 is also 0.84 which means 84% of investment decision is
depend upon deposit and only 16% investment is depend upon other
variables. Similarly probable error P.E. is 0.276 and 6P.E is 1.654 which
shows that 'r' is highly lower than P.E. Therefore it reveals that
relationship between deposit and investment is significant of co relation
between investment and deposit is -0.29. i.e. high degree of negative
correlation between two variables. Coefficient of determination (R 2)is
0.221 which means only 22% of investment decision is depend upon
deposit and 78% investment is depends on other variables and P.E. is
0.235 and 6 P.E. is 1.41 which is higher than 'r' i.e. 0.47 . It means
correlation of coefficient between deposit and investment of EBL is
significant.

85
 Correlation Coefficient between Deposits and Total
Investment
2

1.5

1 HBL
Value

EBL
0.5

0
r R2 PE 6xPE
-0.5
Base of Evaluation

Figure No. : 14

4.2.2 Analysis of correlation coefficient between Deposit and loan &

advances
The following table describes the relationship between deposit and loan
and advances of HBL and EBL with comparatively fewer than five years
study period. In the following case deposit is independent variables(X)
and loan and advances is dependent variable(Y)
Table no 15
Correlation coefficient between deposit and loan and advances
Banks Base of Evaluation
2
r R PE 6xPE
HBL 0.99 0.98 0.00603 0.0362
EBL 0.94 0.88 0.00362 0.02172
Source: Appendix III
From the above table, we can find that the coefficient of correlation
between deposit and loan and and advances value of 'r'of HBL and EBL
are 0.99 and 0.94 respectively. This shows positive relationship between
these two variables i.e is loan and advances and deposits. By considering
coefficient of determination(R2), that the value of R 2 is 0.98 in case of
HBL & 0.88% incase of EBL. The value of R 2 of HBL 0.98 which means

86
98% loan and advances decision is depend upon deposit and only 2%
loan and advance depends upon other variables.

By considering the probable error (P.E), the value of R2 of EBl is 0.88

which means that 88% of loan and advance decision is depend upon
deposit and only 12% loan and advances depends upon other variable .the
probable error(PE) the value of R2 greater than 6 times of P.E. ie:
0.98>0.0362 and 0.88 > 0.02172 which indicates that there is significant
relationship between deposit and loan and advances.

The Value of R2 of HBL 0.98 which means 98% of loan and advances
decision is depends upon deposit and only 2% loan and advances

Correlation coefficient between deposit and loan & advances

1.2

0.8
Value

0.6 HBL
EBL
0.4

0.2

0
r R2 PE 6xPE
Base of evaluation

Figure No : 15

4.5 Major finding of the study

Basically in this research work, all the data has been obtained from
secondary sources. Data has been analyzed by using financial as well as
statistical tools. This topic focuses on the major findings of the study,
which are derived from the analysis of fund mobilization of HBL and
87
EBL with comparatively applying five years data from 2007 to 2011. ajor
findings of the study derived from the analysis of financial tools of HBL
and EBL below:

1. Finding from Liquidity Ratios

I) The mean ratio of cash and bank balance to total deposit of EBL is
higher than HBL. It states that the Liquidity position of EBL is better in
this regard. The ratio of EBL is less consistent and HBL has more
consistent ratio. It shows HBL has taken more risk to meet the daily cash
requirements.
II) The mean ratio of cash and bank balance to current assets of EBL is
higher than HBL. It reveals that EBL has the higher capacity to meet the
cash demand of its customer deposit than that of HBL. The ratio of HBL
is more consistent and EBL has less consistent ratio.
III) The average ratio of investment of government securities to current
assets of HBL is higher than that of EBL. But CV and SD of EBL is
lower than that of HBL. It reveals that investment on government
securities of EBL is stronger than HBL. Analysis shows the more
consistent.
The above result shows that the Liquidity position of EBL is
comparatively better than HBL. EBL has highest cash and bank balance
to current assets and investment to government securities to current assets
ratio. EBL has enough in cash and bank balance to total deposit ratio. At
Last, it can conclude that EBL has good deposit collection higher ability
to meet the cash requirements

2. Findings from Assets Management Ratios

88
I) The mean ratio of loan and advances to total deposit of HBL is greater
than EBL. The variability ratio of HBL is more than EBL. It seems
more consistent HBL than EBL.
II) The average ratio of total investment to total deposit ratio of HBL is
higher than that of EBL. The variability ratio of EBL lowers than HBL.
From the above analysis it helps to conclude that EBL is comparatively
successful to invest in productive sector and It seems stronger incase of
Investing fund. HBL has mobilized its collected to provide loan and
advances.

3. Findings from Profitability Ratio

I )The mean ratio of return on loan and advances of HBL is higher than
EBL. The variability ratio of HBL is lower than EBL. It seems HBL has
stable return.
II) The mean ratio of return on total Assets of EBL is greater than HBL.
Where as the variability ratio of EBL is lower than HBL. It indicates that
the return on total Assets of EBL is stable.
III) In case of mean ratio of total interest earned to total Loan &
Advances of HBL is higher ratio than EBL. The variability ratio of HBL
is lower than EBL. It reveals that HBL is mobilizing its Loan & Advance
successfully so that is has high earning capacity.
IV) The mean ratio of total interest paid to total Deposit &Borrowing of
HBL is lower than EBL. It reveals that HBL has not paid high interest as
EBL. The ratio of EBL is more consistent than HBL.

From the above analysis of profitability ratio, it can be conclude that the
EBL & HBL both seems equal profitable in comparisons.

4. Findings from Growth Ratios

89
I) The growth ratio of total deposits of HBL is increasing every year&
EBL is decreased in 2011. Out of two banks growth rate of total deposits
of EBL is greater than HBL. It shows that EBL has increased its deposit
collection capacity.
II) The growth rate of total investment of EBL is higher than HBL.
Although HBL is investing more funds but it seems weak in comparison
to EBL. Because of lower growth ratio. It shows that HBL had adopted a
policy to keep on increasing investment.
III) The growth ratio of loan and advances of HBL is increasing & EBLis
decreased in 2011. Growth rate of HBL is higher than EBL and EBL is in
negative trend.
IV) The growth rate of profit of HBL & EBL is fluctuant trend during
study period. HBL has the higher growth percentage of net profit than
EBL.
From the above findings it can be observed that the EBL has maintained
the high growth ratio in total deposits& total investment And HBL has
maintained the high growth ratio in Loan & advances and net profit.

5. Finding from coefficient of correlation Analysis

I) Correlation coefficient between deposit and total investment of HBL is
higher than EBL. It indicates that HBL is successfully mobilizing its
deposits as investment. There is no significant relationship between
correlation coefficient of deposit and total investment of HBL and EBL.
II) EBL has the higher degree of correlation coefficient between deposit
and loan and advances than HBL. It states that the EBL is better position
of mobilization of deposit as loan and advances in comparison to HBL,
there is significant relationship between correlation coefficient of deposit
and loan and advances of HBL and EBL.

90
Findings from Test of Hypothesis
I) There is significant difference between mean ratios of loan and
advances to total deposit of HBL and EBL.
II) There is no significant difference between mean ratios of total
investment to total deposit of HBL and EBL.

CHAPTER- V
SUMMARY, CONCLUSION AND RECOMMENDATIONS

91
5.1 Summary
Basically the entire research work focus on the comparative study on
fund mobilization of two joint venture banks, Himalayan Bank Ltd. and
Everest Bank Ltd. These two joint venture banks are composed as per
their fund mobilization activities by taking five years data from the year
2007 to 2011.

The study is mainly based on secondary sources. All data are taken from
concerned banks annual report, literature publication, balance sheet,
profit and loss account, previous thesis report, different website, related
books and booklets, journals and articles, After collecting data from
different sources, it is analyzed by using financial and statistical tools viz.
. Findings are drawn by applying various financial tools viz. Liquidity
ratio, assets management ratio, Profitability ratio, growth ratio, risk ratio,
sources and uses of funds and cash flow analysis.
Similarly, statistical tools have been used viz. Mean standard deviation,
coefficient of variation coefficient of correlation.

In an attempt to fulfill the objectives of the research work, all secondary

data are compiled, processed and tabulated as per necessity and figures,
diagrams and different types of chart are also used.
This study suffers from different Limitation, it considers two banks only
and time and resource are the constraints of the study. Therefore the study
may not be generalized in all cases and accuracy depends upon the data
collected and provided by the organization.

5.2 Conclusion

92
From the analysis of Liquidity ratio, the Liquidity position of EBL is
comparatively better than HBL. EBL has highest cash and bank balance
to total assets and investment to government securities to current assts
ratio. HBL has cash and bank balance to total deposit ratio.

Considering assets management aspect of two banks, HBL is relatively

successful to invest in productive sector and has mobilized its collected
deposits to provide loan and advance for the purpose of earning profit.
HBL has weak condition in mobilizing its collected deposits in loan and
advances. EBL is weak in investing its collected deposits in comparison
of HBL. In comparison of HBL, EBL seems more successful in
mobilizing total fund on different types of government securities to
maximize its earning capacity. The Liquidity risk ratio of EBL is higher
than HBL. which appears to be less profitable return of EBL on other
hand Liquidity risk ratio of HBL has the lowest in comparison to EBL
which specified that HBL has kept idle funds in the form of cash and
bank balance but this reduces profitability.

HBL appears to be more successful to earn profit on loan and advances

than [Link] average ratio of return on Total Assets indicates the total
assets of EBL is well managed and efficiently utilized. HBL was not able
to receive high interest on Loan and Advance with EBL. On other hand ,
EBL has mobilized its profitability fund properly and its earning capacity
is also high .HBL is in better position from the viewpoint of interest
earned &expenses.

Growth ratio of total deposits, total investment, loan and advances and
net profit of HBL in comparision to EBL, HBL has low growth ratio in

93
comparison to EBL. EBL has maintained high growth ratios. Therefore,
We must say that the bank is successful to increasing its mobilization.

Deposit is the strongest sources of fund where as borrowings cover fewer

portions of sources of fund. HBL has kept fewer amounts in deposit in
compares to EBL. Among the uses of funds loan and advance cover
maximum portion and interest occurred coverless portion. HBL has
invested fewer amounts in to loan and advances in comparison to EBL.

The operating activities of HBL and EBL have been occurred cash
inflows throughout the study period, Operating efficiency of two banks
are in fluctuating trend during the study period. The investing activities of
two banks have deserved cash outflows throughout study period. By the
help of investing activities , these two banks are able to increase long
term assets as well as carry out profitable opportunity. It shows the cash
acquisition capacity of EBL is unable to generate cash inflow from
financing activities. The condition may arise due to the unavailability of
cash flow from share, insufficient profit dividend payment.

Correlation coefficient between deposit and total investment of HBL and

EBL elucidates the negative relationship or there is high degree negative
correlation. Most of the investment decisions on depend upon deposits
and only few decisions of two banks are depend upon other variables.
Moreover by considering the probable error, the value of coefficient of
determination of HBL and EBL both are less than 6 P.E. so it is no
significant relationship between deposit and total investment.

Correlation coefficient between deposits and loan and advances indicates

the positive relationship between the variables of HBL and EBL. In most

94
of the investment decision of these two banks depends upon deposits and
only few decisions are depend upon other variables. Moreover by
considering the probable error the value of coefficient of all banks is
greater than that of 6 P.E. so it can be concluded that the value of
correlation coefficient is significant i.e. there is significant relationship
between total deposit and loan and advances.

In case of testing of hypothesis we can conclude that there is significant

difference between mean ratio of loan and advances to total deposits of
HBL and EBL. Alternatively there is no significant difference between
mean ratio of total investment to total deposit of HBL and EBL.

5.3 Recommendations

Suggestion is the output ions of the whole study. It helps to take

corrective action in their activities in future. Different analysis were done
till arrive this step on the basis of above analysis and findings of the
study, following suggestions may be referred to over come weakness,
inefficiency and to fund mobilization of HBL and EBL.

• To maintain effective Liquidity position

The Liquidity position of a bank may be affected by internal as well as
external factors. The affecting factors may be interest rates, supply and
the demand position of loan and advances as well as savings, investment
situations, central banks directives, the lending policies, capability of
management, strategic planning and funds flow situations. The ratio of
cash and bank balance to total deposit EBL is higher than HBL. It means
EBL has higher cash and bank balance than HBL and it indicates EBL
has higher idle cash and bank balance. It may decrease profit of bank.

95
EBL is recommended to mobilize its idle cash and bank balance in
profitable sector as loan and advances.

• To increase deposit collection

The main source of commercial banks is collecting deposit from public
who don't need that fund recently. So it is recommended to collect more
amounts as deposits through large variety of deposits schemes and
facilities, like cumulative deposit scheme price bonds scheme (life
insurance), monthly interest scheme, house building scheme, direct
finance housing scheme, education loan scheme and many others.

• To make more investment in government securities

From the study EBL has not invested more funds in government
securities. EBL has made lower investment amount on government
securities. Increasing large amount on assets, as cash and bank balance is
not considered good from the profitability point of view of the bank as it
doesn't earn any return. EBL investment on government securities is not
satisfactory position. Investment on those securities issued by
government i.e. treasury bills, development bonds, saving certificates are
free of risk and highly Liquid in nature and such securities yield the low
interest rates of a particular maturity due to lowest risk in future, it is
more better in regard to safety than other means of investment. So, EBL
is strongly recommended to give more importance to invest more funds in
government securities instead of keeping them idle with this proverb.
"Something is better than nothing."

• To make profitable return.

As a private sector, commercial banks can not keep their eyes closed
from the profit motive. They should be careful in increasing profit

96
motive. They should be careful in increasing profit in a real sense to
maintain the confidence of share holders, depositors and all its customers.
HBL is profitability position is weak than EBL. So, HBL is strongly
recommended to utilize risky assets and shareholders fund to gain highest
profit margin, similarly, it should reduce it expenses and should try to
collect cheap fund being more profitable.

 To prefer aggressive defensive policy

Observing the findings of growth analysis; it has noticed that EBl has
been adopting an aggressive policy in all the parameters including loan
and advances. As the economy has not able to show the survival
growth, the aggressive policy may prove to be harmful in future. EBl
should rather prefer an aggressive defensive policy in mobilizing the
resources in loans.

 To invest deprive and priority sector

NRB has directed to commercial banks to invest their certain
percentage in deprives and priority sector and it is also responsibility of
banks. The study has been found that EBl has earned high profit
because their services are only for profitable sector. It revels that it has
not granted loan on priority and deprives sector. So EBL is
recommended to thoroughly follow the directives issued by NRB and
invest in priority and deprive sector and also to invest on other small
scale industries like public utilities, health sanitation and drinking
water, education and agriculture .

 To make effective portfolio Management

The total fund of bank is the aggregation of different portfolio such as
deposits, capital fund, borrowing and other deposits liability ties . It is
97
 need not to state that deposit liability is the major contribution sources
of considering the position of HBL, the contribution of deposits of total
sources funds is high. It is definitely not a good sign. HBL are
therefore, recommended to enhance its capital base and operation
resources of funds of the bank. High contribution of deposition the
total sources of funds, demands, high level of liquid assets and it is
threat of with drawls.
Portfolio management is very important for every investor. In each
investment, risk is involved. Risk is the chance of loss or the variability
of the returns of a period. The greater the variability of the returns
projects will be a riskier. so it is kept in mind while investing in the
project which would be lower risk and higher return, portfolio
management of the bank assets basically means allocation of funds in
different components of banking assets having different degrees of risk
and varying rate of return in such a way that the conflicting goal of
maximums yield and minimum risk can be achieved. So portfolio
conditions of HBL and EBL should be examined carefully from the
time to time and alteration should be made to maintain equilibrium in
the portfolio condition as far as possible. So, it can be said;"all eggs
should not be kept in the same basket." The bank should make
continuous efforts to explore new competitive and high yielding
investment opportunities to optimize their investment portfolio.

 Liberal Lending policy and sound credit collection policy

To get success in competitive banking market, commercial bank must
utilize their deposit as loan and advances. Loan and advances are main
source of income and also means of utilization resources of
commercial banks. Negligence in administrating these assets could be
the cause of liquidity crisis in bank and one of the main reasons of the
98
 bank failure collection of loan has been most challenging task of
commercial banks these days, increasing on no performing assets
discloses the failure of commercial banks in recovery of loan.
Therefore it is recommended to HBL and EBL follow liberal lending
policy when sensation loan and advances with sufficient guaranty and
implement a sound collection policy including procedure which rapid
identification of bad debtor loans, immediate contact with borrower
continual follow up and as well as legal procedure if require.

 To adopt innovative approach to bank marketing

In the light of growing competition in the banking sector the business
of the bank should be customer oriented. Marketing is an effective tool
to attract and retain the customers. Without effective marketing
strategy any one be along behind in today competitive environment.
Different marketing techniques like advertisement through audio-
visual, published website, documentary through new technologies like,
e-banking, increase investment through their wide international
banking network should be introduced.

 To extend branches allover the country

Economic development of the country depends upon the growth of
commercial banks. If the service of commercial banks expands all over
the country it collects idle money from every corner of the country and
can be utilized for the income generation purpose. Nepal Government
has also encouraged the joint venture banks to expand banking service
in rural areas and committees without making unfavorable impact in
their profit. Therefore, all banks are recommended to expand their
branch and providing banking service and facilities to the rural areas

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and committees to accelerate the economic development of the
country.
Being a developing county, economic environment of Nepal Is not in a
good condition. The strong economic structure is needed for the rapid
overall development. Commercial bank play strong economic structure
is needed for the rapid overall development. Commercial banks play
vital role in the developing country like Nepal. Commercial banks are
facing several problems related to fund mobilization. The have rush
with modern banking technology so that, they would be successful in
reaching to the modern innovative and competitive banking market.

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