CHAPTER-I

1. BACKGROUND

1.1 INTRODUCTION OF BANKING

Bank is an institution, which accepts deposits from depositor by

giving them certain percentage of interest as appreciation and give loans to
the borrowers by charging certain percentage of interest, which is main
source of income.
Generally, bank refers to the financial institution which performs the
activities of lending and borrowing the money. Now day's bank provided
different types of financial services apart from their regular lending &
borrowing activities therefore they are called financial supermarket. Banks
deal with various monetary transactions
a) Accepting various types of deposits.
b) Lending money in various sectors.
c) Stabilizing the inflation rate in the economy
d) Utilized the idle money in productive sector.
e) Letter of credit
f) Letter of guarantee.
g) Remittance
h) Agent services to customer

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1.1.1Some definitions of bank

According to the Crowther “ The banker’s business is to

take the debts of other people to offer his own in exchange and thereby
create money “

According to the Kent “ A bank is an organization whose principal

operations are concerned with the accumulation of the temporarily idle
money of the general public for the purpose of advancing to other for
expenditure.”

According to the Prof. Kinley “A bank is an establishment which

makes to individuals such advance of money as may be required and safely
made and to which individuals entrust money when not required by them for
use.

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1.2 HISTORY OF BANING IN NEPAL

It is assumed that the regular history of coinage in Nepal began from

the 5 century A.D. The advent of 12th century marked a new period in
th

economic history of Nepal. Silver coinage was introduced in this period

which widened the scope for trade the second major logical order of
development was found in the innovation of interest bearing private debt
such as bonds mortgages and loan.
In the year 879/80 A.D. a low cast merchant named Sankhadar
Shankhwa introduce a new era after paying all the debts that existed in the
country. In 1877 A.D. Prime Minister Ranoddip Singh introduced many
financial and economic reforms. The ‘Tejarath Adda’ was established at that
time. The basic purpose of establishing this ‘Tejawrath Adda’ was to provide
credit facilities to the general public at A.D. very concessional interest rate.
Under the prime minister ship of Chandra Shamsher, Tejarath Adda extended
its services outside the Kathmandu Valley. Hence, the establishment of
Tejarath Adda is regarded as the foundation of modern banking in Nepal.
However Kaushi Tosh Khana established during the regime of king Prithiv
Narayan Shah is also considered as the first step toward initiating banking
development in Nepal.
Prior to establishment of Nepal Bank Ltd. people relied on borrowing
from the corrupt money lender. Who charged very high interest rates and
added other dues. With the cooperation of Imperial Bank of India, Nepal
Bank Ltd. came into existence under the Nepal Bank Act. 1937. When the
concept of banking system was introduced. After that 1956 Nepal Rastra
Bank was established to carried all the functions of central bank . Rastrya
Banijya bank, a fully government owned bank was established on 23rd
January 1966.
Commercial Banking Act 1974 changed the financial scenario with
the introduction of Joint venture banks. As A.D. result, Nepal Arab Bank ltd
(Nabil Bank) was established on July 12,1984 with the partnership of Dubai
Bank Ltd., Dubai. The number of commercial banks operating in the country
is increasing everyday and many more are the pipeline to commence their
business.

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1.3 INTRODUCTION OF COMMERCIAL BANKS

Commercial bank Act 1974 defines A.D. commercial bank “ A

commercial bank means bank which deal in exchanging currency,
accepting deposit, giving loans and doing commercial transaction.
Commercial banks are the largest sources of finance and its business is
largely confined to business institutions. Hence the name is termed as
commercial bank. Though the commercial banks were established with the
concept of supplying short term credit and working capital needs of the
industries, they started to provided long term loan for up to 10 year by
provision made in commercial Bank Act 1974.

1.3.1 LIST OF COMMERCIAL BANKS IN NEPAL

S No. Names Operation Date
(A.D. )
1 Nepal Bank Ltd. 1937/11/15
2 Rastriya Banijya Bank 1966/01/23
3 Nabil Bank Ltd. 1984/07/16
4 Nepal Investmennt Bank Ltd. 1986/02/27
5 Standard Chartered Bank Ltd. 1987/01/30
6 Himalayan Bank Ltd. 1993/01/18
7 Nepal SBI Bank Ltd. 1993/07/07
8 Nepal Bangladesh Bank Ltd. 1993/06/05
9 Everest Bank Ltd. 1994/10/18
10 Bank of Kathmandu Ltd. 1995/03/12
11 Nepal Credit and commerce bank Ltd. 1996/10/14
12 Lumbini Bank Ltd. 1998/07/17
13 Nepal Industrial & Commercial Bank Ltd. 1998/07/21
14 Machhapuchchhre Bank Ltd. 2000/10/03
15 Kumari Bank Ltd. 2001/04/03
16 Laxmi Bank Ltd. 2002/04/03
17 Siddhartha bank Ltd. 2002/12/24
18 Agriculture Development Bank Ltd. 1968/10/19
19 Global Bank Ltd. 2007/01/02
20 Citizens Bank International Ltd. 2007/06/21
21 Bank of Asia Ltd 2007/ /
22 Sunrise Bank Ltd. 2007/ /
23 Prime Commercial Bank Ltd. 2007/ /

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1.3.2. FUNCTIONS OF COMMERCIAL BANKS

1.3.2.1 Credit Creation

Credit creation is one of the most important functions of commercial
bank. Through the acceptance and lending of deposits subject to some small
amount in liquid.

1.3.2.2 Accepting deposits and advance & loans.

Commercial banks accept deposits from saving units of society
collection, and lend to needy. Commercial banks accepts deposits and
provide loans.

1.3.2.3 Promoting foreign trade

Commercial bank helps to promote foreign trade. They manage for the
foreign currencies for business organization in foreign trade. Under the
directions of Nepal Rastra Bank, commercial banks provides to businessman

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 different facilities like accepting and collection foreign bills, avail them the
foreign currencies in exchanges of Nepalese currencies under the rules and
regulations. Issue the letter of credit has been of the main element in modern
trade.

1.3.2.4 Agency Service

Commercial banks also provide agency services to their customer.
They provided agent service like pay telephone bill, electricity bill etc.
commercial bank are major component of financial institutions and
intermediately.

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1.4 INTRODUCTION OF LAXMI BANK

Laxmi Bank was incorporated in April 2002 as a commercial bank. The

current shareholding constitutes of promoters holding 55.42 percent, Citizen
Investment Trust holding 9.02 percent and the general public holding 35.56 percent.
Promoters represent Nepal’s leading business families with diversified business
interests. The Bank’s shares are listed and actively traded in the Nepalese Stock
Exchange.
Laxmi Bank has grown with branches in Birgunj, Banepa, two in Pokhara,
Biratnagar, Narayanghat, Pulchowk, Lalitpur, Teku, New Road, Janakpur, New
Baneshwor and more recently in Damak. Following the merger with Hisef Finance
Ltd., a decade old first generation finance company, its office in Hattisar,
Kathmandu was converted to that of Laxmi Bank. This office was converted to a
full branch and our corporate office in October 2005.

With a view to prividing safe, seamless, quick and advance banking services,
the bank has been heavily investing in contemporary banking technologies.
The Bank uses Flexcube as its main banking platform. Flexcube incidentally
has been ranked the number one selling core banking solution globally, and
has been embraced by over 500 financial institutions across over 90
countries. The Bank provides its services through a host of delivery channels
including cell phone, Internet, ATM, Point of Sales (PoS) etc., in addition to
a network of physical branches. Our Internet banking facility comes with
capabilities of online shopping in addition to regular Internet banking
features. Similarly, through the bank's alliance with Smart Choice
Technologies (SCT), the ATM/Debit cardholder of Laxmi Bank has access
tor a network of ATMs, and PoS terminals located in all major urban centers
of the country. The bank is the first in South Asia to have implemented
SWIFTNet, the advanced version of the SWIFT technology, which is used
for speedy and secure payment and messaging services.

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1.4.1 ORGANIZATION STRUCTURE

1.4.1.1 BOARD OF DIRECTOR

Position Name of Position Holders

Chairman Mr. Rajendra K Khetan
Director Mr. Bhola B. Adhikary
Director Mr. C.P.Khetan
Director Gopi Krishna Sikaria
Director Mr. Nandan Hari Sharma
Director Ratan Lal Shanghai
Director Mr. Shambhu Prasad Acharya

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1.4.1.2 MANAGEMENT TEAM

Mr. Suman Joshi

Chief Executive Officer
Mr. B P Shah Mr. Bhubal Rai Mr. Ajaya Shah
Company Chief Internal Auditor, Head – Retail Financial
Secretary & Head - Operational Risk Services & Chief
Corporate & Chief Governance Strategy Officer
Affairs Director Officer
Mr. Jiwan
Limbu Mr. Sumed Bhattarai
Mr. Nirmal Dahal
Chief Head -Corporate
Head - Credit Risk
Technology Banking
Officer
Ms. Stuti
Basnyet Mr. Piyush Raj Aryal
Mr. Sanjeev Joshi
Manager, HR & Head - Finance &
Manager Branches
Corporate Treasury
Communications
Ms. Bharti Pande Ms. Euden Koirala
Head - Private Banking Manager Service Excellence

Branches Managers:
Mr. Kshitij Khadka - Birgunj
Ms. Bharti Pande- Hattisar, Kathmandu
Mr. Babin Satyal - Newroad, Pokhara
Mr. Bikash Lal Shrestha - Banepa
Mr. Dipesh Amatya - Pulchowk, Lalitpur
Mr. Manohar Raj Uprety - Narayanghat
Ms. Sabina Banskota - Teku, Kathmandu
Mr. Raju Bhandari - Pokhara Industrial District, Pokhara
Mr. Sanjeev Kumar Singh - Janakpur
Mr. Amit Singh Karki- Newroad, Kathamdu
Mr. Abhaya Raj Sharma- Biratnagar
Mr. Anup Shrestha - New Baneshwor, Kathmandu
Mr. Murari Pudasaini - Damak

Page 9
 1.4.2CAPITAL STRUCTURE

Share Capital And Ownership

Particulars Amount
Authorized capital Rs. 100 Million
Issued Capital Rs .715 Million
Paid up Capital Rs. 715 Million

Share Capital

Authorized
29% Capital
Issued Capital
29%
42%
Paid Up
Capital

Share Ownership %
Citizen Investment Trust holding 9.02℅
promoters holding 55.42℅
general public holding 35.56℅

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1.4.3PRODUCTS AND SERVICES
Laxmi Bank provides a full range of commercial banking services
through its outlets spread across the nation. Laxmi banks has following
product and services

1.4.4.1 DEPOSITS
Laxmi bank provide following deposits service

A normal saving account wherein the interest is calculated on a

Saving monthly minimum balance and credited in the account semi
Account: annually. The stipulated minimum balance requirement may
vary between branches.
Laxmi A saving account wherein the interest is calculated on a daily
Saving balance and credited in the account semi annually.
Account:
A premium saving account wherein interest is calculated on
daily balance and credited in the account semi annually. The
Orange accountholder is provided with a host of additional benefits,
Saving which includes accidental insurance, no restriction on the
Account: amount of withdrawals, concessional rates on issuance of
demand drafts and locker facilities and prime rates on consumer
lending.
Deposits for 7 days to more than 2 years can be placed under
fixed deposit. The rates of interest vary as per duration of the
Fixed deposit and are negotiable. Interest is payable at periodic
Deposit: intervals or at the time of maturity along with the principal
amount as per specific requirements, in the client’s
current/saving account.
Balance exceeding the agreed amount in the non-interest bearing
Call current account is transferred to call account on a daily basis
Account: wherein interest is calculated on daily balances of the call
account. Interest on this account can be pre-negotiated.
Two or more accounts can be automatically linked with each
Sweep other through a “Sweep-In Sweep-Out” technology, which is
facility : first of its kind in Nepal. Excess of balance in certain account
can automatically transferred/pulled back in different accounts.
A normal non-interest bearing checking accounts where
unlimited withdrawals are allowed. This account can be
Current
combined with a sweep facility where excess funds can be
Account:
moved to / from interest bearing accounts, as mentioned above
in Call Account facility.

Specialized Savings Account

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 A savings account targeted at the Gurkha servicemen and their
family, wherein the interest is calculated on a daily balance.
Gurkha
This is a hybrid savings account wherein the daily applicable
Savings:
interest rate on this account changes based on the account
balance at the end of each day.
A savings account, currently available to Manipal Medical
students and Kathmandu University students. Students from
other educational institutions many be considered in the future.
Students
The interest on this account is calculated on a monthly minimum
Savings:
balance. These students need not maintain any stipulated
minimum balance in their account. Free ATM cards shall be
provided to these students for cash withdrawals.
Branded as ‘Money Tree’ USD account can be opened with just
US Dollars 100.00 where the high value depositors can enjoy a
USD Savings: tier based interest rate up to 4.25% on daily balance. The
account holder can also avail wide range of benefits and
discounts and various banking products
accounts.

1.4.3.2 CREDIT SERVICE

Limit is provided to finance working capital. Interest will

Overdraft: be charged as per the utilization of the loan.

Working Loan for maximum period of one year on a renewable /

Capital Loan revolving basis is provided to finance working capital.
/ Demand
Loan / Short
Term Loan:
Instant finance is provided against supply of goods to
multinationals and large local corporates. Invoices
Supply accepted by the corporates and their undertaking to route
Finance: payments through us would qualify a supplier to avail this
loan across the counter, without having to undergo
rigorous credit screening process.
Loan is provided to finance long-term investments and
Term Loan:
capital expenditures.
This facility is targeted at Small and Medium Sized
Enterprises (SME) to finance working capital or capital
expenditures. SMEs can now supplement entrepreneur’s
SME Loan: investments to start a small business or to achieve growth
through this loan. The bank has a full-fledged SME cell to
cater to the financing needs of these small business
enterprises.

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 Trust Receipt Loan is provided to finance the goods (for maximum
/ Importer’s period of 120 days) imported under our letter of credits.
Loan:
Packing Loan is provided against specific L/C, for specific time
Credit / period in order to support stock build-ups and payment of
Export Loan: creditors before export of the consignment(s).
Letter of Issuance of sight, acceptance L/C is possible to any part
Credit: of the world at a very competitive rate.
Bank Bid bonds, performance bonds or any other types of bank
Guarantee: guarantee are issued at ctee:etitive rates and terms.
Loan is provided to finance vehicles for either personal or
commercial use. Repayment shall be done on an equal
monthly installment basis (EMI) or unequal monthly
Car Loan:
installment basis (UMI), depending on client’s
requirement, which could last for a maximum period of
seven years.
The loan consists of financing home – construction,
acquisition, renovation or extension. This loan is to be
Home Loan: repaid in EMI or UMI basis, depending on client’s
requirement, which could last for a maximum period of
fifteen years.
Loan is provided for the encashment of investments made
in the residential property of the client. This loan is to be
Home Equity
repaid in EMI or UMI basis, depending on client’s
Loan:
requirement, which could last for a maximum period of
ten years.
A scheme designed for professionals and entrepreneurs to
Personal
meet varied personal needs like education, travel, social
Loan:
engagements etc.

1.4.3.3 OTHER SERVICES

The bank at present has draft drawing arrangements with various

banks in India and abroad. The bank currently provides drafts on
Demand Drafts:
ICICI Bank in India and Standard Chartered Bank, NY USA and
American Express Bank, NY USA.
Lockers of various sizes are available at reasonable rates in few of
Locker:
the bank’s branches.
The bank’s international network of correspondent banks facilitates
the execution of all outward/inward remittances and their fast
receipt by their beneficiaries. Apart from demand drafts, SWIFT
Funds Transfer/
transfers, American Express travelers’ cheques and manager’s
Remittance:
cheques, the bank has made special arrangements through a host of
key international banks and money transfer agents, including
Western Union Money Transfer.

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 The bank provides clearing and collection of cheques and bills
drawn on local banks as well as foreign banks. The bank is also a
Clearing / member of local clearing house managed by Nepal Rastra Bank,
Collection: wherein all outstation cheques of Laxmi Bank can be locally cleared
in Kathmandu itself; whereby delays in payment and extra charges
is avoid by the clients.
The bank provides full range of foreign exchange services
applicable in the Nepalese market. The bank has installed
“Telerate”, formerly known as “Bridge”, to access up-to-date
Foreign Exchange: knowledge on foreign exchange markets and currency movements.
This system also provides the bank with the latest information on
commodity prices in the world market, which are useful for various
businesses.
The bank provides its expertise advices in the management of the
Financial Advisory: client’s financial affairs. The bank may also consider providing
training to the client’s staff in the field of banking and finance.
Through this channel, clients will be able to view their account
balance, transfer funds, stop cheque payments, send instructions etc.
Internet to the bank online, 24 hours a day, 7 days a week, thus empowering
Banking/Online the client’s to manage their financial affairs on a click of the mouse
Payment : in the highest degree of security and speed. Bill payment is an added
feature whereby clients have the option of paying their bills of
various service providers through the internet.
Clients can enjoy the flexibility of conducting banking transactions
in the late afternoon/evening hours as well. Presently, Laxmi Bank
Extended Banking: is the only bank that credits the respective account on the transaction
day, thus minimizing any possible interest loss to the customers.
Presently, this service is available in few branches of the bank.
The bank has joined hands with Smart Choice Technologies to
access a network of about 20 ATM, and over 200 Point of Sales
ATM/ Debit Card: (PoS) terminals located in all major urban centers of the country.
Currently, Bank of Kathmandu, Everest Bank and Himalayan Banks
are the other members of this shared network.
Payroll The bank manages staff accounts of institutional/corporate clients,
Management: with value additions to the accounts maintained under this scheme.
The bank has a dedicated NRN cell to cater to the needs of and
requirement of the non-resident Nepalese (NRN) and has
NRN Cell: customized its product to suit their needs. NRN can open an
account, transfer funds between accounts and constantly keep track
of their funds through the online services of the bank.
:

1.4.4.3Correspondent Banks

Page 14
Local: Abroad:

1. Himalayan Bank Limited 1. Standard Chartered Bank

Mahabir Road ,Birgunj, Parsa New York, USA
Our A/C #. 00900062040018 Our A/C #.
USD: 3582 070795 001
2. Himalayan Bank Limited
Goshwara Road, Morang, Biratnagar 2. Standard Chartered Bank
Our A/C # 01300897660021 London, UK
Our A/C #.
3. Himalayan Bank Limited GBP: 01-2496801-01
Karmachari Sanchaya Kosh Building, EURO: 01-2496801-96
Tridevi Marg, Thamel, Kathmandu
Our A/C# 00100962030011 3. Standard Chartered Bank
Calcutta, India
4. Nabil Bank Limited. Our A/C #.
Kantipath, Kathmandu INR: 32205134223
Our A/C #. 0101011797301
4. ICICI Bank Limited
ICICI Bank Towers, South Tower
5. Nepal Rastra Bank Bandra-Kurla Complex, Bandra
Thapathalij, Kathmandu (East)
Our A/C #. Our A/C #.
NPR: 512201 INR: 000405075153
USD :522210

6. Nepal Rastra Bank 5. Commerze Bank

Birgunj ZIB, Frankfurt
Our A/c# Our A/C #.
NPR :512201 EURO: 400 878 7285 00

7. Nepal Rastra Bank

Biratnagar 6. American Express Bank
Our A/c# New York
NPR :512201 Our A/C #.
USD: 00748426
8. Nepal Rastra Bank
Pokhara
Our A/c# 7. American Express Bank Ltd.
NPR :512201 Tokyo, Japan
Our A/C #.
9. Bank Of Kathmandu JPY: 245-313010900
Kamaladi, Kathmandu CIF: 2887
Our A/c# Cost Center: 307
NPR :010000060536

Page 15
The other correspondent banks are as follows:
SWIFT BANK NAME CITY/STATE COUNTRY
AUSTRIA
OBKLAT2L Oberbank AG Austria Austria
NATAAU33 National Australia Bank Melbourne Australia
Limited
CANADA
BOFMCAT2 Bank Of Montreal Toronto Canada
ROYCCAT2 Royal Bank Of Canada Toronto Canada
CHINA
SCBLCNSX Standard Chartered Bank Shanghai China
SCBLHKHH Standard Chartered Bank Hong Kong China
FRANCE
UBAFFRPP Union De Banques Arabes Paris France
Et Francaises
GERMANY
COBADEFF Commerzbank AG Frankfurt Am Main Germany
DEGUDEFF Degussa Bank Gmbh Germany Germany
INDIA
ICICINBB ICICI Bank Limited Mumbai India
SCBLINBB Standard Chartered Bank Mumbai India
SYNBINBB Syndicate Bank Mumbai India
ITALY
BCPTITNN Banca Di Credito Popolare Torre Del Greco Italy
VRBPIT2V Banco Popolare Di Verona Verona Italy
E Novara Scrl
JAPAN
SCBLJPJT Standard Chartered Bank Tokyo Japan
MALAYSIA
SCBLMYKX Standard Chartered Bank Kuala Lumpur Malaysia
IOCIMUMU Indian Ocean International Mauritius Mauritius
Bank Ltd.
SCBLMUMU Standard Chartered Bank Mauritius Mauritius
PAKISTHAN
SCBLPKKX Standard Chartered Bank Karachi Pakistan
RUSSIA
MOBWRUMM Moscow Business World Moscow Russia
Bank
MINNRUMM Moscow Industrial Bank Moscow Russia
SINGAPORE
ABNASGSG ABN Amro Bank N.V Singapore Singapore
SCBLSGSG Standard Chartered Bank Singapore Singapore
SOUTH KOREA
SCBLKRSE Standard Chartered Bank Seoul South Korea
SRI LANKA
HBLILKLX Hatton National Bank Colombo Sir Lanka
Limited
SWITZERLAND
CRLYCHGG Credit Lyonnais (Suisse) Geneva Switzerland
S.A.

Page 16
CRESCHZZ Credit Suisse Zurich Switzerland
TAIWAN
SCBLTWTP Standard Chartered Bank Taipei Taiwan
THAILAND
SCBLTHBX Standard Chartered Bank Thailand Thailand
TURKEY
TGBATRIS Turkiye Garanti Bankasi Istanbul Turkey
A.S.
TKBNTR2A Turkiye Kalkinma Bankasi Ankara Turkey
A.S.
UNITED ARAB
EMIRATES
HBZUAEAD Habib Bank Ag Zurich Dubai United Arab
Emirates
SCBLAEAD Standard Chartered Bank Dubai United Arab
Emirates
UNITED KINGDOM
SCBLGB2L Standard Chartered Bank (All U.K. Offices) United kingdom
London
USA
AEIBUS33 American Express Bank, New York USA
Ltd.
BOFMUS4X Bank Of Montreal, Chicago USA
CITIUS33 Citibank N.A. New York USA
CINAUS6L City National Bank Los Angeles USA
MRMDUS33 HSBC Bank New York USA
IDBYUS33 Israel Discount Bank Of New York USA
New York
KEYBUS33 Keybank National Cleveland, Ohio USA
Association
SCBLUS33 Standard Chartered Bank New York USA
SNTRUS3A SunTrust Bank Atlanta USA

Page 17
1.4.5 STRATEGIES AND FUTURE PLANS OF THE
MACHHAPUCHCHHRE

Positive signs are noticeable in the country’s economy which was

badly damaged by the instability and insurgency prevailing in the country
during the last few years. Now it is likely positive change will occur in the
country following the recent political change and the effort made to bring
lasting peace in the country. If peace prevails big projects are sure to start in
the country this will provide safe investment opportunity to the banks
With an objective of providing facilities to the shareholders the bank
has allowed its share holders to open saving account with a minimum of RS.
500. They can enjoy facilities for ATM /Debit card and internet Banking free
of charge. The bank has thought a new scheme with special facilities suitable
for women to attract women depositors. This will promote the saving habit
among the women.
Moreover, the bank will extend its branches in feasible place of he
country to expand its services.

1.5 STATEMENT OF PROBLEM

Liquidity is the status and part of the assess which can be used to meet
the obligation. Liquidity can be viewed in terms of liquidity stored in the
balance sheet and in the term of liquidity available through purchase funds.
The degree of liquidity depends upon the relationship between cash assess
plus those assets which can be quickly turned into cash and the liability
awaiting payment.
Bank needs to maintain some reasonable level of liquidity to fulfill
different commitment such as provide money to depositors when they
demand for administrative expenses, for maintaining cash reserve ratio in the
central bank etc. so, liquidity is defined as the bank’s capacity to pay cash in
exchange of deposits. Liquidity is crucial in the banking business. Because if
bank has the high liquidity it can no earn desired profit and if bank has the
shortfall of the liquidity It can not satisfy it customer need and may lead to
collapse of the bank.
Bank should have to maintain an optimum level of liquidity.
Prediction covers inflow and outflows of liquidity. If predictions show more
outflows, bank should be prepared to cover the shortfall by borrowing or by
liquiditing assets. If inflow is greater than banks attach great importance short
terms and long term predictions. Prediction of liquidity need should be in the
form of primary and secondary compromise to liquidity banks got failure
because of wrongly analyzed liquidity position and wrongly predicted
liquidity requirement and management policy of liquidity. Thus to gain the
trust of the customer and be successor the operation , the bank should

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 maintain and forecast the liquidity need for the period of optimum level of
liquidity based on the past liquidity position.

1.6 OBJECTIVE OF THE STUDY

The main objective of the study is to analyze the Machhapuchchhre

bank’s liquidity position. Based on the analyzed liquidity position the study
will suggest the liquidity need and its management for the current year.
Some other objective can be listed below.
i. To check the liquidity position of the MBL
ii. To analyze the financial performance
iii. To forecast the banks liquidity requirement
iv. To suggest the amount of the optimum level of the liquidity
v. To suggest the liquidity management policies

1.7 SIGNIFICANCE OF THE STUDY

This report is prepared to analyze the liquidity position of

Machhapuchchhre. This would help the bank to observe the trend of the
liquidity position hold in past year. Beside that the study also evaluates the
role of short terms obligations and the banks ability to pay the currently
maturing obligations. Moreover, the study will check the profitability of the
bank. This will help the bank to take the corrective actions if there are any
errors on the past performance and the study aims to recommend to corrected
the deviation if the standard has not been met.

1.8 LIMITATION OF THE STUDY

Nothing is perfect and unlimited in this world. Each and everything is

bound to some limit and so does this fieldwork report. This study is simply
conducted for the partial fulfillment of requirement for the degree of the
bachelors in business studies. Some limitation of the study are as follows.
i. Data contains mostly of the annual report of the bank through
fiscal year 2002/03 to 2005/06
ii. Only four year’s observation covering from FY 2002/03 to
2005/06
iii. Analysis is based on the ratios and trend lines of the
corresponding ratios only
iv. For the forecast of liquidity requirement daily and monthly data
is needed. But due to time and cost constraints, only the annual
data is used for analysis
v. Mainly the secondary data is used.

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1.9 SCOPES OF THE STUDY

This study will be useable and valuable to the various parties which
can be mentioned as follows:
i. To the management of the bank
ii. To the customer
iii. To the creditors
iv. To the investors

This study will be equally useful to the other readers, student of

related subject and other people who are concern with banking field.

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 CHAPTER – II
2. REVIEW OF LITERATURE
This chapter deals with the theoretical aspects of the topic on financial
analysis of the Machhapuchchhre Bank Ltd. In more detail and descriptive
manner. For this study, Journals, articles books and some research reports
related with this topic has been reviewed. Some of the prior reports by
students of BBS regarding this topic has also been reviewed.

2.1 CONCEPTUAL FRAMEWORK

Liquidity is crucial in the banking business. It is the status and part of

the assets which can be used to meet the obligation. Liquidity can be viewed
in terms of liquidity stored in the balance sheet and in terms of liquidity
available through purchased funds. The degree of liquidity depends upon the
relationship between cash assets plus those assets which can be quickly
turned into cash and the liability awaiting payment.
Bank needs to maintain some reasonable level of liquidity to fulfill
different commitments such as provide money to depositors when they
demand for administrative expenses for maintaining cash reserve ratio in the
central bank. Inadequate liquidity may lead to collapse of the bank while
excess liquidity is detrimental to banks profitability. In order to remove
demerits associated with maintaining inadequate and excess liquidity, banks
should maintain an optimum level of liquidity. This possible only when
bank’ liquidity need is correctly predicted. Banks attach great importance
short term and long term predications. Predication of liquidity need should be
in the form of primary and secondary reserves so that bank generates income
and at the liquidity in the forms of:

• Cash and bank balance

• Placement money at calls or short notice
• Investment in government securities and other security
convertible into cash

International federation of account has recommended that the bank’s

liquidity should be measured by:
• Cash and liquid securities
• Inter bank money deposit liabilities

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Page 22
2.1.1 Liquid Assets

The assets which can be converted into cash immediately with or

without nominal loss of value. Liquid assets can be in the forms of:
• Treasury bills
• Investment in government securities
• Gold, silver, diamonds and pearls
• Marketable securities etc.

2.1.2 Cash Reserve Ratio (CRR)

Central banks the world over make banks maintain a certain level of
liquidity to total deposits liabilities in the forms of the ash and bank balance.
This ratio is known as the cash reserve ratio or primary reserves.

2.1.3 Statutory liquidity ratio (SLR)

Central bank orders to the banks to maintain the certain level of

liquidity to total deposit liabilities in the forms of the cash and bank balance
and treasur bills and government securities and bonds. Such liquidity
requirement is called the statutory liquidity ratio.

2.1.4 Criteria of measuring the bank liquidity

Criteria of measuring of bank liquidity denote:

• Attributes required being bank liquidity

• Compliance test of liquidity requirement
In words, criteria of measuring bank liquidity refer to:

• What conditions the assets have to meet to be bank liquidity.

• Whether CRR and SLR have been maintained as per instruction
of the central bank.

2.1.5 Liquidity to be maintained with the central bank

Nepal Rastra banks, as the central bank of Nepal had made in

mandatory for commercial bank to maintain liquidity as under:

Balance at Nepal Rastra Bank – 7% of current and saving deposit

liabilities.
4.5% of fixed deposit liabilities

Page 23
 Cash in Vault - 2% of deposit liabilities

2.1.6 Penalty for non- compliance

Penalty will be levied for failing to maintain the adequate liquidity as

above under any of the following conditions:
1. In the case of shortfall in maintenance of balance with Nepal
Rastra Bank but maintenance of cash at vault exactly 2% then
on such shortfall amount.
2. In the case of shortfall in maintenance of balance with Nepal
Rastra Bank but maintenance of cash at vault more than 2% up
to 1% excess cash of total deposit is added in the balance with
NRB, than on such shortfall amount (after adding up to 1%
excess).
3. In the case of shortfall in maintenance of cash in vault as well
as shortfall amount.

2.1.7 Procedure of Compliance test:

For the purpose of examination of compliance of liquidity

requirement, the procedures will be as follows:

a) The cash reserve requirement will be examined on the basis of

the average weekly balance of deposit liabilities of immediately
preceding 4th week. If the whole week is holiday the average
weekly deposit balance of the previous week is taken into
calculation.
b) CRR is not calculated for the week which is fully holiday.
c) For this purpose, weekly information statement for Monday to
Friday shall compulsorily be submitted to Nepal Rastra Bank’s
inspection and supervision department within 15 days from the
date of end of the week.
d) For the purpose of calculating the weekly average of total
deposit cash in vault and balance held with Nepal Rastra bank,
the weekly total aggregate amount is to be supplied if any
happens to be holiday.

Page 24
2.1.8 Basis for liquidity requirement prediction

a) Maturity of deposit
b) Maturity of borrowing.
c) Maturity of placements
d) Maturity of bills payable
e) Repayment of the debt
f) Letter of credit outstanding
g) Seasonal purchase
h) Capital purchase
i) Central banks requirement
j) Market situation
k) Bonus to the staff
l) Dividend payable
m) Corporate tax payable
n) Investment

Page 25
 CHAPTER – III

3. RESERCH METHODOLOGY
Research is the process of systematic and in depth study of any
particular subject or topic supported by the collection, compilation,
presentation and interpretation of the relevant data. For this a set of methods
has to be used and the set of methods are called methodology.
This chapter refers to the overall approach to the research process,
from the theoretical underpinning to the collection and analysis of the data.
As most of the data are quantitative the research is based on scientific
methods. It is composed of both parts of technical aspect and logical aspects
on the basis of the historical data. Using both financial and statistical tools
performs detail analysis of different variables. Results are presented in
simply way.

3.1 RESEARCH DESIGN:

Research design is the task of defining the research problem.

“ A research design is the arrangement conditions, for collection and
analysis of data in a manner that aims to combine relevance to the research
purpose with economy inn procedure”
In fact the research design in the conceptual structure with in which
the research in conducted.
This study aims in the financial analysis of the Machhapuchchhre
bank Ltd. The focal point of the study will be based on descriptive and
analytical research design. This study is mainly based on primary and
secondary data.

3.2 DATA COLLECTION TECHNIQUES

During this field work I have been visited corporate office of the
Machhapuchchhre bank Ltd.at putalisadak, kathmandu for collection of data.
I collected the main data of this field work from corporate office its annual
report. And other various articles, journals and various publication of MBL’s
website.

Page 26
3.3 DATA ANALYSIS TOOLS:

3.3.1 Ratios:

An arithmetical relationship between two figures is known as ratio. It

is the most useful and analytical tools to evaluate in respect to one variable
over another. It is a technique of analysis and interpretation of financial
statement through mathematical expression. The ratio helps in various
managerial decision making and in many aspect of the problem solving
procedures. It is computed by dividing one item of relationship with the
other. Hence, for our purpose, only the liquidity ratios are calculated.

a) Liquidity ratio.
b) Cash and bank balance to current deposit ratio.
c) Saving deposit to total deposit ratio.
d) Cash and bank balance to total deposit ratio
e) Fixed deposit to total deposit ratio
f) NRB balance to fixed deposit ratio
g) Total deposit to investment ratio
h) Statutory liquidity ratio
i) Balance with NRB to current and saving deposit
j) Liquid assets to total deposit ratio

3.3.2 Statistical tools:

3.3.2.1 Arithmetic mean

Arithmetic mean is the most commonly used of all the averages. This
is due to the simplicity of its calculation and other advantages. It is used to
calculate the average value of quantitative data closed end calls intervals and
when distribution does not have very large and very small items. It is also
used to obtain average value of distribution having closed ended class
intervals and having non-extreme item.

Mean = (sum of observation / no. of observation)

Page 27
3.3.2.2 Standard Deviation

Standard deviation is often powerful and helpful measure of

dispersion in order to measure the size of deviation form the average.
Standard deviation is the positive square root of the average of the square of
the deviations of measurement from their means.

Standard Deviation (SD) = ∑( X − x) 2

3.3.2.3 Coefficient of variation

It is a relative measure of dispersion based on standard deviation. In
order to compare the variability between two sets of data, coefficient of
variation can be used as an useful method. It is a number expressed in
percentage
S .D
Coefficient of Variation (CV) = x100
mean

3.3.2.4 Karl Pearson’s Correlation Coefficient

Karl Pearson’s correlation coefficient measure a degree of association

between two variables only to their extend to which it is linear. Let X and Y
are two variables. Karl Pearson’s correlation coefficient between X and Y is
generally denoted by rXY or r(X,Y) or simply r only. It is also called product
moment correlation coefficient or simple correlation coefficient or simply a
correlation. It is defined as follows.

n∑XY − (∑X )( ∑Y )
r=
n∑X 2 −(∑X ) 2 n∑Y 2 − (∑Y ) 2

Probable error is the correlation coefficient denoted by P.E. is the

measure of testing the reliability of the calculate value of r if r be the
calculated value of r from a sample of n pair of observation then P.E. is
defined by:

Page 28
 1 −r 2
P.E. = 0.6745 x
n

It is used to interpret whether calculate value of r is significant or not

1. If ‘r’ < 6 P.E., it is not significant. So there is no correlation
2. If ‘r’>6 P.E, it is significant

3.3.2.5 Trend Analysis

The trend analysis is an important and useful technique of financial

statements analysis. The calculation of trend ratio involves the ascertainment
of arithmetical relationship which each item of several years to the same item
of base year. Thus, one particular item act of several item shown in the
financial statement are converted into ratio or percentage taking that item in
base year as equal to 1.00 or 100 %

Page 29
CHAPTER –IV

Page 30
4. DATA PRESENTATION AND ANALYSIS

This chapter deals with the representation of the data. This chapter is
very importance since all the findings are calculated here. All raw data is
analyzed in this chapter and presented as the raw findings.
All the collected data are grouped and sampled. The data is sorted as
necessary and finally processed for the processing, various tools are used an
necessary ratios and trends graphs statistical tools and many other
assumptions are used to draw the desired conclusion.

4.1 participation of the deposits in the total deposit liabilities

(fig. in RS.)
F.Y. Current deposit Saving deposit Fixed deposit Total deposit

2002/03 5354770.752 252086597.10 9216325226.92 1778786289.27

2003/04 71405367.7 493098505.69 1227279878.33 2754632089.65
2004/05 142677861.53 1250198232.85 1914763487075 5586802644.09
2005/06 248833577.28 2333367153.39 2604898292.95 7893297672.33
Proportionate of deposits in total deposit liabilities

100

90

80

70

60
(%)

50

40

30

20 current doposit
saving deposit
10
fixed deposit
0 total deposit
2002/03 2003/04 2004/05 2005/06
fiscal Year

Page 31
 Above table and chart we see that, in fiscal year 2002/03, the current
deposit account occupied 30%, saving deposits occupies 14%, fixed deposit
occupied 52% in the total deposit liability. Similarly in fiscal year 2003/04,
the current deposit account occupied 26%, saving deposit occupied 18%,
fixed deposit occupied 45% in the total deposit liability. Similarly in fiscal
year 2004/05, the current deposit account occupied 25%, saving deposit
occupied 22%, fixed deposit occupied 34% in the total deposit liability. In the
fiscal year 2005/06, the current deposit account occupied 31%, saving deposit
occupied 30%, fixed deposit occupied 33% in the total deposit liability.
Remaining percentage was occupied by the margin deposit, call
deposit, certificate of deposits and others .

4.2. Liquidity ratios:

4.2.1 Saving deposit to total deposit ratio

Fig. in RS.
F.Y. Saving deposit Total Deposit Ratio
2002/03 252086597.10 1778786289.2 0.14
7
2003/04 493098505.69 2754632089.6 0.18
5
2004/05 1250198232.8 5586802644.0 0.22
5 9
2005/06 2333367153.3 7893297672.3 0.30
Saving Deposit to total deposit ratio trend line
9 3
0.35
0.3
Ratio/Times

0.25
0.2
Ratio
0.15
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

Page 32
From the above table and trend line chart , the ratio is in the increasing trend

Page 33
4.2.2. Fixed deposit to total deposit ratio

Fig. in RS
F.Y. Fixed deposit Total deposit Ratio
2002/03 9216325226.92 1778786289.2 0.52
7
2003/04 1227279878.33 2754632089.6 0.45
5
2004/05 191476348707 5586802644.0 0.34
5 to total deposit ratio Trend
Fixed Deposit 9
2005/06 2604898292.95 7893297672.3
line 0.33
0.6 3
0.5
Ratio / Times

0.4
0.3 Ratio
0.2
0.1
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart the ratio is in decreasing
trend

Page 34
4.2.3 Cash and Bank balance to current deposit ratio

F.Y. Cash and Bank Balance Current deposit Ratio

2002/03 45642182.38 5354770.752 0.85
2003/04 65256535.68 71405367.7 0.91
2004/05 731133275.32 142677861.53 0.51
2005/06 813923936.26 248833577.28 0.33

Cash and balance to current deposit ratio trend

line
Ratio / Times

1
0.8
0.6
Ratio
0.4
0.2
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart the ratio is fluctuating in
increasing ratio up to end of the year 2003/04, it has decreased in the year
2004/05 and continuously 2005/06.

Page 35
4.2.4 Cash and bank Balance to Total Deposit Ratio

Fig. in RS
F.Y. Cash and Bank Balance Total deposit Ratio
2002/03 45642182.38 1778786289.2 0.26
7
2003/04 65256535.68 2754632089.6 0.24
5
2004/05 731133275.32 5586802644.0 0.13
9
2005/06 813923936.26 7893297672.3 0.10
3

Cash and bank Balance to Total Deposit

Ratio trend line

0.3
Ratio / Times

0.25
0.2
0.15 Ratio
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart, the ratio is decreasing trend.
It is decreasing continuously

Page 36
4.2.5 Balance with NRB to current and saving deposit

Fig. in RS

F.Y. Balance with NRB Current + Saving deposit Ratio

2002/03 88886902.07 305634299.9 0.29
2003/04 136657158.28 564503873.7 0.24
2004/05 463232971.30 1392876094 0.33
2005/06 489090528.57 2582200730 0.19

Balance with NRB to current and saving deposit

trend line

0.35
0.3
Ratio / Times

0.25
0.2
Ratio
0.15
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart, the ratio is in volatility
trend. It has decreasing trend to the end of fiscal year 2002/03. It has
increasing ratio up to end of the fiscal year 2003/04. Likewise ratio is in
decreasing trend then after.

Page 37
4.2.6 Balance with NRB to fixed deposit ratio

Fig. in RS

F.Y. Balance with NRB Fixed deposit Ratio

2002/03 88886902.07 9216325226.92 0.10
2003/04 136657158.28 1227279878.33 0.11
2004/05 463232971.30 191476348707 0.24
5
2005/06 489090528.57 2604898292.95 0.19

4.2.6 Balance with NRB to fixed deposit ratio trend line

0.3
0.25
Ratio / Times

0.2
0.15 Ratio
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart ratio has been increasing
trend to end of fiscal year 2004/05 after this year ratio has been decreasing
trend.

Page 38
4.2.7 Total Investment to Total Deposit Ratio

Fig. in RS

F.Y. Total Investment Total deposit Ratio

2002/03 398356200.01 1778786289.2 0.22
7
2003/04 274406945.26 2754632089.6 0.10
5
2004/05 468612174.63 5586802644.0 0.08
Total investment to total deposit ratio 9
0.25
2005/06 1191366403.01 7893297672.3 0.15
3
Ratio / Times

0.2
0.15
Ratio
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal Year

From the above table and trend line chart ratio has been decreasing
trend to end of fiscal year 2004/05 after this year ratio has been increasing
trend.

Page 39
4.2.8 Liquid Asset to total deposit ratio

Fig. in RS

F.Y. Liquid Assets Total deposit Ratio

2002/03 421724548 1778786289.2 0.24
7
2003/04 560745166 2754632089.6 0.20
5
2004/05 746133276 5586802644.0 0.13
9Liquid asset to total deposit ratio
2005/06 1532398457
0.3 7893297672.3 0.19
0.25 3
Ratio / Times

0.2
0.15 Ratio
0.1
0.05
0
2002/03 2003/04 2004/05 2005/06
Fiscal year

From the above table and trend line chart ratio is fluctuating adversely
from fiscal year 2002/03 to 2004/05 the ratio is in decreasing trend and after
then it is in increasing trend.

Page 40
4.3 STATISTICAL ANALYSIS:

4.3.1 Total liquid assets of Machhpuchchhre Bank Ltd.

Fig. in RS
F.Y. Liquid Assets (X)
2002/03 421724548
2003/04 560745166
2004/05 746133276
2005/06 1532398457
Total ∑x= 3261001447

Liquid Assets Trend Line

2000000000
1500000000
Rs.

1000000000 Liquid Assets(X)

500000000
0
03

04

05

06
2/

3/

4/

5/
0

0
20

20

20

20

Fiscal Year

By inspecting the trend line chart liquid assets was in increasing trend.
The assets has rise up very slowly till F. Y. 2004/05 but after then liquid
assets has rise very high than past F. Y.

4.3.1.1 Calculation of Mean

We have ,
∑x = 3261001447
N=4
Now,
Mean ( X ) = ∑
X
n
3261001447
=
4
=815250361.8

Page 41
4.3.1.2 Calculation of standard deviation

F.Y. Liquid Assets (X- X (X- X )2

)/A
2002/03 421724548 -393.5258 154862.5553
2003/04 560745166 -254.5052 64772.8968
2004/05 746133276 -69.1171 4777.1735
2005/06 1532398457 717.1481 514301.3973
Total ∑ X = 815250361.8 ∑(X- )2 = 738714.0229

Now, Here,
Mean ( X ) = 815250361.8
N=4
∑(X- X )2= 738714.229
A=1000000
We have,

S.D. = ∑( X − x) xA
2

738714 .0229
= x1000000
4
=429742371.3

The Standard deviation of the liquid assets is Rs 429742371.3

Page 42
4.3.1.3 Calculation of coefficient of variance:

we have,
S.D. = 429742371.3
Mean = 815250361.8
Now,
We have
S .D
Coefficient of variance (C.V.) = x100
mean

429742371 .3
=
815250361 .8

Therefore c.v. = 52.71%

The C.V. of the liquid assets is 52.71%

4.3.1.4 Calculation of Karl Pearson’s correlation coefficient between liquid

assets and current plus saving deposit
Fig. in million rupees
F.Y Liquid Current+saving X2 Y2 XY
Assets deposit(Y)
(X )
2002/03 421.7245 305.6343 177851.55 93412.35 128893.47
2003/04 560.7452 564.5038 314435.18 318664.54 316542.80
2004/05 746.1333 1392.8761 556714.90 1940103.83 1039271.24
2005/06 1532.398 2582.2000 2343245.16 6667756.84 3956959.41
5
Total ∑X= ∑Y = 4845.21 ∑X2 ∑Y2 ∑XY =
3261 =3397246.79 =9019937.56 5441666.92

We have
∑X = 3261
∑Y = 4845.21
∑X2 = 3397246.79
∑Y2 = 9019937.56
∑XY = 5441666.92
n=4
n ∑XY − (∑X )( ∑Y )
Now, r=
n∑X 2 −(∑X ) 2 n∑Y 2 − (∑Y ) 2

Page 43
 4 x5441666 .92 − 3261 x 4845 .21
= ( 4 x3397246 .79 − 3261 2 ) ( 4 x9019937 .56 − 4845 .21 2 )
= 0.977
Here we check probable error
1 −r 2
P.E.= 0.6745 x
n
1 − 0.977 2

=0.6745x
4

= 0.01534
Now, 6 x P.E
= 6x0.01534
=0.09204
Here r>6 P.E. therefore the calculated value of r is significant
Here
r=0.977
r>6 P.E.

Page 44
 CHAPTER –V
5 SUMMARY, CONCLUSION RECOMMENDATION
5.1SUMMARY

Nepal is one of he least developed countries of the world. For most of

the developing process, it is financially depending upon the foreign countries.
It is economically too week. In Nepal about 90% of the people are depended
upon agriculture sector which is unable to provided full employment to the
people. To development of country, development of sound banking system is
essential.
In Nepalese baking sector, commercial banks including ventures bank
are operating at present. In the absences of modern banking any country
cannot develop the economic activity. Therefore, it is essential to find out
whether or not the banks are serving an important contribution to develop
sectors of economy.
Liquidity is said to be general business of fund, which shows the bank
ability to meet cash requirement. In this record, this study has been based
upon the objective to evaluate liquidity position of Machhapuchchhre Bank
Ltd.

5.2. CONCLUSION

a) The saving deposit account is increasing trend.

The highest ratio is 30% in fiscal year 2004/05 and the lowest ratio
is 14% in fiscal year 2002/03. This ratios considers as satisfactory.

b) Fixed deposit in Machhapuchchhre Bank is

decreasing trend. The highest ratio 52% and lowest ratio is 33%. It
is not satisfactory due to decreasing trend of fixed deposit
c) Cash and Bank Balance to current deposit ratio is
fluctuating in decreasing state. The ratio is not satisfactory because
of declining trend.
d) Cash and banks balance to total deposit ratio is in
decreasing trend. The higher ratio is 26% and lowest ratio is 10%. It

Page 45
 is not satisfactory because of declining trend. But the percentage is
higher than the requirement.
e) The ratio of banlance with NRB to current and
saving deposit is in volatility trend. This trend shws not
satisfactory result. The highest ratio is 33% and lowest is 19%. But
the percentage is higher than the requirement of NRB.

f) Balance with NRB to fixed deposit ratio is

fluctuating in increasing trend. The highest ratio is 24% and lowest
is 10%. It is consider as satisfactory.

g) Total investment to total deposit ratio is

fluctuating adversely. Since theratio is fluctuated the bank has
unsatisfactory result. However the investments from sources of
deposit is higher it will give a higher return with out risk only if the
ratio is stabilized

h) The liquid assets to total deposit ratio is

fluctuating adversely. The highest rato is 24% and lowest 13%. It
is consider as satisfactory.

i) Liquid assets is in increasing trend. Mean of the

liquid fund is Rs 815250361.8. And Standard deviation is Rs.
4297423710.3 and C.V is 52.71% . But this calculation is not so
useful. Because single mean, s.D and C.V fetch nothing for
decision making except the standard volume during the period.

j) Correlation between liquid assets and current

deposit and saving deposit liability is positively correlated. The
correlatin coefficient is 0.977

Page 46
5.3 RECOMMENDATION

The overall result are satisfactory. But in some cases the

Machhapuchchhre bank should take certain steps to improve the banks
current financial condition. Therefore some recommendation are being put
forward for its improvement along with its development of the country.

A. The proportion of the fixed deposits are decreasing over the

year, the fixed deposit is the major financial sources to the
bank. With the higher amount from the fixed deposit, bank can
earn a higher income spread investing. In long term bound and
higher yielding areas. So it is recommended that the bank
should take necessary steps and alternative to attract the fixed
depositors
B. The proportion of saving deposit is increasing trend in total
deposit by year. So, it is recommends that the bank should
utilized the amount collected from the saving deposit account
carefully. It should be invested in the higher yielding areas.
C. Balance with NRB to current plus saving deposit should be
maintained at the straight of 4%.
D. Cash and bank balance of Machhapuchchhre is higher a bit.
Bank should analyze the opportunities for short term
investments.
E. Investment to deposit ratio is needed to be stabilized.
F. The bank is planning to spread it operation all over the nation
so the bank should always aware of liquidity need and keep in
mind to maintain the optimum liquidity.

Page 47