A PROPOSAL

ON

LOAN DISBURSEMENT AND COLLECTION PROCEDURE

OF

COMMERCIAL BANKS IN NEPAL

(NIBL, HBL, EBL)

Submitted by:
SARITA BASUKALA
NEPAL COMMERCE CAMPUS
T.U Reg. No.: 7-2-408-91-2003
Exam Roll No.: 5190

Submitted to:
Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the degree of

Master of Business Studies

Bhaktapur
Magh-2069

INTRODUCTION
1 Background of the study
Nepal is one of the least developed countries with poorest economic condition of the world. It
is placed among the lowest per capita income countries. the financial sector plays an
important role in the development of the country and mobilization of financial resources. The
financial sector consists of banks, co-operative societies, insurance companies, stock markers,
foreign exchange markets, mutual funds, provident fund etc. Financial sector organizes the
scattered domestic financial resources and invest them in different sectors. Economic
development depends upon various factors however, the major are capital formation and
proper utilization of the capital. The economic growth of under developed country is widely
depends upon the utilization of available economic and financial resources. The rapid pace of
economic development and self-economic reliance are the most in todays world, these can
only be achieved through the accelerate rate of investment and capital formation in the
country.
Liquidity is a word that can be taken as to perform the life cycle system of financial
institutions activities in a perfect manner. It can overall define the securities management of
the cash balance in a systematic way. In this regard, the term liquidity management is used to
describe money and assets that are readily convertible into money with a very short span of
time. For this different assets exhibits different degrees of liquidity depending upon the case
of turning into cash.

1.1 Meaning of Commercial Bank

Commercial Banks are those banks, which perform all kinds of banking function as accepting
deposits, advancing credits, credits creation and agency functions etc. they are the most
widely diversified and visible player among the financial institutions. They provide short
term credit, medium-term credits and long term credit for trade and industry. They also
operate off- balance sheet functions such as issuing guarantee, bonds. Letter of credit, etc.
Banking plays a significant role for the development of national economy. It provides an
effective payment credit system, which facilitates the channeling of funds from the surplus
spending units to the deficit spending units in the economy. The basic task of the
financial institution is to mobilize the saving to high yielding investment projects to
offer attractive and secured returns to the different sectors of the economy according
to the plan priorities of the country. This process of financial institutions give rise to
money and other financial assets, which therefore have a central place in the
development process of the economy. Banking intuitions are inevitable for the resources
mobilization and all round development of the country. It is resource for economic
development; it maintains economic confidence of various segments and extends credit to
people. In short, the growth of the economy is tied with the growth of the commercial
banks in the economy.
Commercial banks make sound investment in various sectors of the economy, which boost
the quality and quantity of investment as well as achieves, its own objectives of profit

maximization. Thus well formulated and sound investment policies, coordinated and
planned efforts accelerate the pace of economic growth.

1.2 Introduction of sample Organizations under study

1.3.1 Everest Bank Limited (EBL)
Everest Bank Limited (EBL) started its operations in 1994 with a view and objective of
extending professionalized and efficient banking services to various segments of the society.
EBL joined hands with Punjab National Bank (PNB), India as its joint venture partner in
1997. The bank is providing its services through a wide network of 18 branches across the
nation and over 250 correspondents across the globe. All the major branches of the bank are
connected through Anywhere Branch Banking System (ABBS), a facility which enables a
customer to do banking transactions from any of the branches irrespective of their having
accounts in other branch.
The Bank in association with Smart Choice Technology (SCT) is providing ATM services for
its customers. EBL Debit Card can be accessed a more than 50 ATMs and over 250 Point of
Sales across the nation. The bank is also managing the SCT ATM at Tribhuvan International
Airport for the convenience of the customers and the travelers, the first and the only bank in
Nepal to place ATM outlet at the Airport.
EBL is playing a pivotal role in facilitating remittance to and from across globe. Being the
first Nepalese bank to open a representative office in Delhi, India, the Nepalese in India can
open account in Nepal from the designated branches of Punjab National bank and remit their
savings economically through banking channels to Nepal. The bank has a Drafts Drawing
Arrangement with 175 branches of PNB all over India.

1.3.2 Nepal Investment Bank Limited (NIBL)

Nepal Investment Bank, one of the leading commercial banks of the country, was earlier
known as the Nepal Indosuez Bank. Nepal Investment Bank Limited was established in 1986.
Nepal Investment Bank was a joint commercial enterprise between the Credit Agricole
Indosuez (one of the largest banking group in the world) and the Nepalese. The name of the
bank has been changed to Nepal Investment Bank Ltd. upon approval of banks Annual
General Meeting, Nepal Rastra Bank and Company Registrars office with the following
shareholding structure.
A group of companies holding 50% of the capital
Rashtriya Banijya Bank holding 15% of the Capital.
Rashtriya Beema Sansthan holding 15% of the capital.
The remaining 20% being held by the General Public (which means that NIBL is a
Company listed on the Nepal Stock Exchange).

1.3.3 Himalayan Bank Limited

Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of
Pakistan. Despite the cut-throat competition in the Nepalese Banking sector, Himalayan Bank
has been able to maintain a lead in the primary banking activities- Loans and Deposits.
Legacy of Himalayan lives on in an institution that's known throughout Nepal for its
innovative approaches to merchandising and customer service. Products such as Premium

Savings Account, HBL Proprietary Card and Millionaire Deposit Scheme besides services
such as ATMs and Tele-banking were first introduced by HBL. Other financial institutions in
the country have been following our lead by introducing similar products and services.
Therefore, we stand for the innovations that we bring about in this country to help our
Customers besides modernizing the banking sector. With the highest deposit base and loan
portfolio amongst private sector banks and extending guarantees to correspondent banks
covering exposure of other local banks under our credit standing with foreign correspondent
banks, we believe we obviously lead the banking sector of Nepal. The most recent rating of
HBL by Bankers Almanac as countrys number 1 Bank easily confirms our claim.
Himalayan Bank Limited holds of a vision to become a Leading Bank of the country by
providing premium products and services to the customers, thus ensuring attractive and
substantial returns to the stakeholders of the Bank.

1.4 Statement of Problem

This section deals with the areas of the topic that should be studied rather than the problems
that are facing by the selected organizations for the research study. Nepal which is trying to
overcome from its 10 years internal war period which declined the whole economy of the
country, Banking sector is the only one sector which is survived upto now passing through the
profit in the days of critical situation of the country also. The topic loan disbursement and
collection procedure of commercial banks in Nepal have covered the following issues:

Whether total Loan disbursement of the selected banks is satisfactory or not?

Whether the techniques used by the banks to collect the loans so disbursed
successfully or not.

Whether the criteria for the disbursement of loan and its collection is appropriate or
not?

Whether the trend of collection of secured and unsecured loan satisfactory or not?

1.5 Objectives of the Study

The thesis is the preparation in course of the fulfillment of requirement for the degree of
master of business studies as approved by the Tribhuvan University which deals with loan
disbursement and collection procedure in commercial banks in Nepal. This thesis will help
the researchers in the course of preparation of the research report in the topic "Loan
disbursement and collection procedure of commercial banks in Nepal ". The objectives of the
thesis can be listed out as follows:
To study the trend of deposit and loan disbursement in Himalayan Bank Limited,
Everest Bank Limited and Nepal Investment Bank Limited.
To study the various sectors where loan disbursement are made.

To find out the basis of interest rate determination on different sectors of loan
disbursement and its effects on loan disbursement.

To find out the techniques of loan collection procedure and its effectiveness on the
loan collection process.

To provide the suggestions and recommendations based on the above study.

1.6 Rationale of the study

Banking and financial institutions are the vital sectors for the economic growth of any
country. The banking and financial sectors are the backbone of the economic development of
the country as it provides the huge amount of capital for the infrastructure development and
overall upliftment of the economic condition of the its citizens. Any study in this sector will
helpful for several stakeholders of this sector. Researcher believes that following institution
and individual will be benefited from the study covering the topic loan disbursement and
collection procedure of commercial banks in Nepal:

This study will help the banking institutions to understand their working performance
to loan.
It will also help the management to formulate a new policy to their banks.
Individuals who have keen interest in Nepalese economy and associated with the
sample banks selected for the study.

1.6 Limitations of the Study:

Each and every thing in the environment has its own strengths and weakness. None is free
from complete his/ her weaknesses. In the same way this thesis has its importance and
strengths in one hand which is followed by its weakness or limitations as its shadow. The
study and outcome of the study will be an individual effort. As only three sample banks
Himalayan Bank Limited, Everest Bank Limited and Investment Bank Limited has been taken
as for the study, the research may not be able to give the clear picture of overall the condition
of banking sector. The weakness or limitations of the study can be pointed out as follows:
The study is basically based on secondary data of past 5 years; therefore, the accuracy
of results and conclusions highly depends upon the reliability of these data and the
respondents providing primary data.

As the title specifies the study covers about loan disbursement and collection subject
only others factors beside these will not be studied.

Resource, time, money constraints and inaccessibility of sufficient information also

may limit the conclusion drawn from study.

CHAPTER II
RESEARCH METHODOLOGY
2.1 Introduction
A systematic methodology is required to pick out an actual result for any special study so
research so research methodology refers to various sequential steps to be adopted by a
researcher in studying a problem with a certain objective in view.
This chapter highlights the methodology adopted in the process of present study. It also
focuses amount, sources and limitation of the date which are used in the present study. So, it
is a way of presenting the collected data with meaningful analysis.

2.2 Research Design

Research design is a conceptual structure within which a research is conducted in simple
language, planning for research design. It is purposeful scheme of action proposed to be
carried out in a sequence during the process of research. Research design helps researcher to
enable him/ her to keep track of action and to know whether he was moving in the right
direction to achieve his/ her goal.
Since the study is undertaken to examine and evaluate the loan disbursement and collection
policy of the three listed banks in Nepal, namely Nepal Investment Bank, Himalayan Bank
Limited and Everest Bank Limited.
The study is based on descriptive and analytical study in order to achieve the objective of the
study. Descriptive method is used to analyze collected primary data and information. Besides,
for the analytical purpose the annual reports, past performance, records and relevant materials
are considered.

2.3 Sample Selection

In Nepal, Banks are listed in Nepal Stock Exchange Limited and from where data on market
price of common stock are available. Out of 26 commercial banks, the three commercial
banks listed on NEPSE are taken as the sample unit to collect information and analysis
namely Nepal Investment Bank Limited, Himalayan Bank Limited and Everest Bank Limited.
The reasons behind selecting these three banks for the study are due to their popularity in
financial market, availability of data & information, competitive banks on Nepalese financial
market, and profit making commercial banks since a long time.

2.4 Data collection Procedures

Data collection procedures depend upon ones study and data will collect from different
sources. Here we will use both primary and secondary data.
Secondary data
The secondary collected directly from first hand experience is called primary data. In
primary data collection, we collect the data using methods such as interviews and

questionnaires. There are many methods of collecting primary data and the main methods will
include;
interviews
observation
case studies
Diaries.
2.5 Data analysis tools
Analysis and presentation of data is the core of the project study. This study needs some
financial and statistical tools to accomplish the objectives of this study. The financial and
statistical tools are most reliable. To achieve the objective of the study, various financial,
statistical and accounting tools will be used in this study.
The various results obtained with the help of financial, accounting and statistical tools will be
tabulated under different heading. Then they will be compared with each other to interpret the
results. Two kinds of tools will be used to achieve the purpose.
1) Financial tools
2) Statistical tools
2.5.1 Financial Analysis Tools
To evaluate the performance of any organization financial tools are very useful to determine
the strengths and weakness of a firm as well as its historical performance and current financial
condition. Ratio is an important analytical tool to summarize the large quantities of data and
to make quantitative judgments sources of data collections are those that have been used from
published on used by someone previously. Here the secondary sources of data will balance
sheet, P & L Account of concerned Banks, annual report & literature publication of the
concerned bank.
Primary data
Data observed &
about organization. The financial tools employed in this study basically represent ratio
analysis.

2.5.2 Statistical Analysis Tools

In course of data study and analysis related to the study different statistical tools are often
employed as well as interpretation are used during the data presentation and analysis section
of the thesis.
Trend Analysis
Coefficient of correlation
of data taking consideration to the objectives of the study. Following statistical tools

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