1.1 Study Background
For the development of any country, the financial sector of that country is responsible and must be strong. The financial sector is vast field, which comprises of banks, cooperatives, insurance companies, financial companies, stock exchange, foreign exchange markets, mutual funds etc. These institutions collect idle and scattered money from the general public and finally invest in different enterprises of national economy that consequently help in reducing poverty, increase in life style of people, increase employment opportunities and thereby developing the society and country as a whole.
Thus, today’s concept, the financial institutions and commercial banks has become one of the bases for the measuring level of economic development of nation.
Commercial banks are the main source which motivates people to save their earnings. Bank deals in accepting the saving of people in the form of deposit collection and invest it in the productive area. They give the loan to the people against real and financial assets. They transfer monetary sources from savers to users.
In other words, they are intermediate between lender and receiver of fund they mobilize the depositor fund. Whereas in Nepal the role of joint venture banks are still to be realized as an essentials machine of mobilizing internal saving through various banking schemes in the economy. Hence, to uplift the backward economic condition of the country, the process of capital accumulation, among other prerequisites should be expedited.
This project report has been prepared as an output of the researcher’s internship experience in Nepal Credit and Commerce Bank Limited. Nepal Credit and Commerce Bank Ltd. (NCC Bank) formally registered as Nepal- Bank of Ceylon Ltd. Commenced its operation on 14th October, 1996 as a Joint Venture with Bank of Ceylon, Srilanka. It was the first private sector bank with the largest authorized capital of NRS. 1000 million. The Head Office of the Bank is located at Siddhartha Nagar, Rupandehi, the birthplace of LORD BUDDHA, while its corporate office is placed at Bagbazar, Kathmandu.
1.2 Statement of the Problem
Nepal is underdeveloped country and rapid economic development is the basic need of the country. Development by its means is not possible within a short period and it takes a long time for the proper development of a country, it has to build up infrastructure. In Nepal, the process of development started only after 1956 A. D. when the first five year plan came into practice.
Capital in fact, plays the leading role for the economic development of a country. But in Nepal, there is shortage of capital. There are various sources of accumulating capital internal and external sources. Under external sources: aid, grants and loans are the main sources. In internal sources: accumulating capital, taxes, public enterprises, public debt are the popular in our country. But due to underdevelopment, poverty, lack of banking knowledge the desired capital for the development of the country cannot be accumulated from those internal sources. So, it can be said that in Nepal’s present situation bank deposit is dependable and permanent sources of capital accumulation. The need of deposit mobilization for economic development of a country is no more to question. But we are facing an acute problem of resources mobilization. We have 32 commercial banks in Nepal which are very much considered to be vital financial institution to mobilize domestic resources.
1.3 Objective of the Study
The objective of the study is to examine relationship between the amount of total deposit and amount of total credit granted by the bank. The main objectives of the study are:
* To analyze the relationship between deposits and loans and advances. * To analyze the effectiveness of deposit mobilization of the bank. * To examine how far the interest rates of deposits have positive relationship with the deposit collection of the bank. * To measure the impact of interest rates of loan on the credit extended by the bank. * To draw suggestions and recommendations to the concerned bank for the further improvement.
1.4 Significance of the Study
Banks and other financial institutions play important role to increase economic standard for the development of the country. Economic development becomes slow if there are incomplete and unfair banking facilities. Especially commercial banks provide different economic and technical facilities to the people who involve in business activities. Commercial banks play major role in collection of scared small savings form depositors and transfer these funds into productive sectors for the economic development.
Mainly this study covers the deposit and credit position of commercial bank (NCC), so it helps to reveal the financial position of bank and study occupies an important role in the series of the studies on commercial bank. The significances of the study are: * Important to know how well the bank is utilizing its deposits. * Important to policy formulator and also be useful for academic professionals, students particularly those involves in commerce, CA and financial institutions to formulate policies and plans on the basis of the performance of the bank. * Important to the management party of the bank for the evaluation of the performance of their bank and comparison with other banks. * Important for the investors, customers (depositors, loan takers) and personnel of bank to take various decisions regarding deposits and loan advances. * This study will be equally important to the others who are interested to know about the area. It may encourage to researcher to research further.
1.5 Relevance of the Study
Currently, banks are gaining the stakeholders’ belief through their efficient management and professional services and playing an eminent role in the economy. The deposit mobilization for the bank is tough job. So, the study is focused on how the deposits are mobilized by the bank. The study attempts to interlink the financial performance and the deposit mobilization of the bank.
The study is expected to be useful to different stakeholders as: 1. The study is expected to be useful to the shareholders as they can analyze the risk relating to credit. 2. The study is expected to be useful to the management bodies of the bank to improve the operations of the bank to add more value to its service 3. The study is expected to be useful to the government body, NRB for further research is the area to formulate and implement new policies and regulations. 4. The study is expected to be useful to the other stakeholders to know the practices made over the deposit mobilization by the bank 5. The study is expected to be useful to analyzes the internal strengths and weaknesses of the bank 6. The study is expected to be useful to anyone who is conducting a bank survey in the related topic.
1.6 Research Questions
The study intends to reveal the following issues of deposit mobilization practices by the bank: 1. What is the relationship between deposit and loans and advances? 2. What is the effectiveness of deposit mobilization of the bank? 3. How far the interest rates of deposits have positive relationship with the deposit collection of the bank? 4. What is the increasing or decreasing trend of deposit mobilization of the bank?
1.7 Limitations of the Study
As every research has its own limitation, this study is not biased. The research is done for the partial fulfillment of MBA. Therefore, this study has some limitations, which are listed below: * This research study largely depends on the secondary data like annual reports (Profit and Loss Account, Balance Sheet and Financial Statements). * The study is based on only financial and statistical tools and technology. * The study mainly based on last five years data (2003 to 2008) that are not enough for the statistical calculation and cannot be generalized for entire financial sectors.
1. 8 Organization of the Report
Chapter one deals with the general background of the study and the major issues which has governed the overall study, chapter two deals with the nature of Nepal’s banking industry and challenges of banking sector in Nepal, chapter three deals with the qualitative aspect of Nepal Credit and Commerce Bank Limited which gives the introduction of major products and services provided by NCC Bank and new innovative products recently launched by NCC Bank, chapter four deals with presentation and analysis of data and Finally chapter five deals with the findings of the study and the recommendations which have been given to the bank for improving its deposit mobilization.
REVIEW OF LITERATURE
2.1Review of Literature
Deposit is the sum of money lodged with a bank, discount house or other financial institution. Deposit is nothing more than the assets of an individual which is given to the bank for safe-keeping with an obligation to get something (interest) from it. To a bank these deposits are liabilities. Commercial bank Act 2031 (1974) defines “Deposits” as the amount deposited in a current, savings or fixed accounts of a bank or financial institution. The deposits are subject to withdrawals by means of cheque on a short notice by customers. There are several restrictions on these deposits, regarding the amount of deposit, number of withdrawal etc. These are considered more as investments and hence they earn some interest. The rate of interest varies depending on the nature of the deposits. The bank attracts deposits from customers by offering different rates of interest and different kinds of facilities. Though the bank plays an important role in influencing the customer to save and open deposit accounts with it, it is ultimately the customer who decides whether s/he should deposit his surplus funds in current deposit a/c, saving deposits or fixed/time deposit a/c.
Bank deposits arise in two ways. When the banker receives cash, it credits the customer’s account, it is known as a primary or a simple deposit. People deposit cash in the banking system and thereby convert one form of money, cash, into another form, bank money. They prefer to keep their money in deposit accounts and issue cheques against them to their creditors. Deposits also arise when customers are granted accommodation in the form of loans. When a bank grants a loan to a customer it doesn’t usually pay cash but simply credits the customers account with the amount of loan. Of course, there is nothing that prevents the borrower from withdrawing the entire amount of borrowing in cash but quite often s/he retains the amount with the bank as deposit.
To solve the research problems, few systematic ways are adopted to collect the required data and information. Research methodology refers to the various sequential steps that are to be adopted by a researcher during the course of studying the problem with certain objectives. It shows overall research method from the theoretical aspects to the collection and analysis of the data. This study covers quantitative methodology in a greater extent and also uses the descriptive part based on both technical and logical aspect. This study tries to perform a well designed, quantitative and qualitative research in a very clear and direct way by using both financial and statistical tools.
3.1 Research Design
This study is based on a descriptive research design and follows an analytical approach. To achieve the study objectives, the required data are collected from secondary and primary sources and analyzed through the use of different financial and statistical tools.
3.2 Research Tools
In order to collect the data, the researcher had visited the bank as an intern for 8 weeks of time period. The tools that are used for the study is through direct observation at the time of internship, and discussions with the officers of the bank in concerned department.
3.3 Data Collection Method
The methods of collecting data are primary and secondary. Primary data includes personal observation, informal talk and also interview with officers whereas Secondary data includes Annual report of the bank, published and unpublished documents etc.
3.4 Data Analysis Tools
The processed data were analyzed and tested with the financial tools i.e. Ratio Analysis, Trend Analysis, graphs whereas Statistical tools are Karl Pearson’s Coefficient of Correlation Analysis, Probable Error (P.E) and Hypothesis Testing.
* Annual Report of NCC Bank limited 2003/04 – 2007/08.
* Kathmandu Frontier Associates (KFA), Professional Banking Course references. * Levin R. I and Rubin D.S. (2008), “Statistics for Management (7th Ed.)”, Pearson Prentice Hall. New Delhi * Sharma, Pushkar Kumar and Chaudhary, Arun Kumar (2058), “Statistical Methods”, Kathmandu: Khanal Books Prakashan. * Van Horne, C. James (2005), “Financial Management and Policy”, (12th Ed.), Pearson Prentice Hall, New Delhi.