A STUDY ON PROFIT PLANNING AND CONTROL OF

SANIMA BANK LIMITED

By:
PREM BAHADUR THAPA
Shanker Dev Campus
Campus Roll No.: 232/066
T.U. Regd. No.: 7-1-31-426-2004
2nd Year Exam Symbol No: 390618

A Thesis Submitted to:

Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirements for the degree of

Master of Business Studies (MBS)

Kathmandu, Nepal
January, 2014
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 INTRODUCTION

Background of the Study

Nepal is landlocked country sandwiched between China in the north and India
in other three directions. Its altitude ranges from 70 meters to 8,848 meters
from the mean sea level. The country stretches from East to West with a mean
length of 885 km and north to south with mean width of 193 km. The country
has a total of 147,181 square kilometer area. Geographically, the country is
divided into three ecological zones, the high mountains and Himalayas in the
north, the hills and small mountains in the middle and the Terai (plains) in the
south. Administratively, the country is broadly divided into five development
regions - eastern, central, western, mid-western and far - western development
regions. The five development regions have 14 zones and 75 districts. The
population census of 2068 B. S. indicated an annual growth rate of 1.35 % and
on this basis the total population has been reached to 26,494,504.

At the current prices, the annual per capital income FY 2070/2071 stood at US
$ 721. Agriculture, tourism, hydropower and forestry are the major areas for
broad based development of the country. Nepal has high potential for
accelerated growth and development as it is situated between the two fast
growing giant neighbors- China and India. There are 31 Commercial Banks, 88
Development Banks, and 23 Micro Finance Institutions in Nations.

Back Ground of Banking Sector in Nepal

Integrated and speedy development of the country is possible only when
Competitive banking service reaches nook and corners of the country because
it is not possible to develop all the sectors by the investment of funds by the
government alone. Commercial bank occupies quite an important place in the
framework of every economy because it provides capital for the development
of industry, trade and business by investing the saving collected as deposits
from public. A bank is an institution that deals with money and credit. It

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accepts deposits from individuals and business institutions and mobilizes the
fund to productive sectors. It also provides remittance facility to transfer money
from one place to another.

Banks are the most important financial institutions in the economy. They are
also the lending buyers of bond and cater to the need for financial services to
the public and their enterprises. They are also the most important source of
short-term working capital for business and long-term business loans for new
plants and equipments. Therefore, Banks are the principle source of credit for
individual business and government. Bank is a dealer of money. At present
context, bank is not only confined to accepting deposits and disbursing loan but
also engaged in different function as remittance, exchange currency, joint
venture, underwriting, bank guarantee, discounting bills facilitating foreign
trades through letter of credit (LC) etc.

Nepal is adopting mixed economy where public and private sectors co-exist.
Nepal is a developing country. In any economy, the importance of financial
sector in general and banking sector in particular cannot be undermined.
Banking sector definitely plays a vital role in the overall development of an
economy. The Nepalese banking sector is at an exciting point in its
development. The Opportunities to enter new business and new markets and to
deliver higher levels of customer’s services are immense. As the Nepalese
banks position themselves as financial service providers, banking business is
getting refined.

Technology is unsetting the earlier business process and costumer’s behavior is

undergoing considerable changes. These have enhanced the forces of
competition. It is said that the banking sector mirrors the large economy. Its
linkage to all sectors makes it a proxy for what is happening in the economy as
a whole. Indeed, the Nepalese banking sector today has the same sense of
excitement and opportunity that is evident in the Nepalese economy. Nepal's

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economic progress is being declined, political stability is not cleared and
agriculture production is not sufficient, the number of financial institution was
being increased day by day. But increment in banking & financial institutions
has been stopped and NRB has adopted merger process for those bank and
financial institutions that have interested for merger. In the recent time, there
are 31 commercial banks, 88 development banks, 78 finance companies and 23
micro-finance institutions in Nepali financial market. The numbers of Co-
operatives are in large numbers and there are many more financial institutions
in pipeline for merger and acquisition (www.nrb.org.np).

Increasing financial institution has no harms for the country. This will help the
nation's economic growth. From side of customer also they will get cheapest
and best service in the banking field and it is sure that any business activities
will help youth and educated unemployment problem will be decreased. But
there is a little harder for self banking and financial institutions. All the
financial institutions small or large are being involved only in dealing with
undifferentiated Vanilla banking products. Because of numerous increment of
financial institution, the tough competition is raised automatically among them.
So the FIs are developing their skills and products to attract the customers and
increasing interest to saver and decreasing interest to creditors. The primary
objective of this joint venture is always to earn profit by investing or granting
loan and advances to people associated with trade, business and industry etc.
that means they are required to mobilize their resources properly to acquire
profit.

How well a bank manages its investment has a great deal to do with the
economic health of the country because the bank loans support the growth of
new business and trade empowering the economic activities of the country. In
summary, increase in number of Bank and financial institution may provide
positive impact for nation and its people. However, the tough competition
among them with regard to management improvement, transparencies of

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transaction, globalization of marketing and compliance of NRB rules and
regulation will make them hard to sustain with better performance and they
also have harder to sustain in market.

As a management student, selected to know the profit planning of Sanima Bank

Limited. Many industries and construction companies are emerging. For them a
lot of fund is needed. So that banks provide loans with security. Banks are
largely investing in hydro sector as well as construction, trade, business,
education, health, sport etc. Their contribution is highly recognized. Especially,
commercial banks that collect money from public giving low rate of interest
and granting loan with high interest rate. The difference between interests is the
profit along with commission and charge deducting all kinds of expenses.

Introduction of Bank
Meaning of Bank
Bank is an institution, which deals in money & credit. R. S. Sayers “Ordinary
banking business consists of changing cash for bank deposits & bank deposits
for cash; transferring bank deposits from one person or corporation to another;
giving bank deposits in exchange for bills of exchange, government, bonds, the
secured or unsecured promises of businessmen to repay.”

Indian Company Acts defines banking as “The accepting for the purpose of
lending or investment of deposit of money from the public repayable on
demand or otherwise withdrawal by cheque, draft or otherwise.”

Similarly, United States Laws has defined it as “Any institution offering

deposits subject to withdrawal on demand and making loans of a commercial or
business nature is a bank.”

“Banks are not just the storehouses of the country's wealth but are the
reservoirs of resources necessary for economic development. Bank renders

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valuable service to trade and industry. Industrial development can take place
only if sufficient money is invested in industries. Banks undertake the
stupendous tasks by mobilizing the saving of the people and lending the same
to the traders and industrialists. The bank helps in the uniform development of
the different regions in the country” (www.wikipedia.com).

The banking business has its genesis form its function of lending. Lending is
the most fundamental function of a bank. The pace of time has changed the
portfolio of banking business from its primary functions to other functions such
as merchant banking, credit card business, documentary credit, traveler cheques
business etc.

Nevertheless, the importance of lending in banking business is undoubtedly

unchanged and remained vital as it was in early days of the business. “The
classical economic functions of bank and other financial intermediaries all over
the world have remained virtually unchanged in modern times. What have been
changed are the institutional structure, the instruments and the techniques used
in performing these functions” (www.wikipedia.com). A banker or bank is a
financial institution whose primary activity is to act as a payment agent for
customer and to borrow and lend money.

Need of Bank
A well developed banking system plays an important role in the economic
development of a country. A country, developing or developed need adequate
and well-diversified banking services for the development of any concerned
sector. In the modern economy, banks are to be considered not merely as the
dealers in money but also the leaders in development. Therefore, banking is a
backbone of any country's economy. Bank plays vital role in the overall
development of the nation. Bank came into existence mainly with the
objectives of collecting the idle funds, mobilizing them into productive sector

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and causing an overall economic development. Following are some of the
needs of establishing and developing banks. (www.wikipedia.com).
 Capital Formation
 Monetization of Economy
 Economic Development
 Implementation of Monetary policy
 Price Stability
 Control Interest rate
 Credit Creation
 Expansion of Business
 Underwriting operation
 Safe Custody of Wealth
 Promote Saving
 Agency Service
 Fund Transfer
 Boost of Trade and Industry
 Employment Generation
 Legal Entity and Freedom from Exploitation Development of Agriculture
and other neglected sectors, etc.

Types of Banks
There are mainly five types of financial institutions.
 Central bank (A Class)
 Commercial bank (B Class)
 Finance companies(C Class)
 Micro Financial Institutions (D Class)
 Co-operatives (Non Class)

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Meaning of Commercial Banks
Commercial Banks are that financial institutions which deals in accepting
deposits of persons and institutions and in giving loans against securities. They
provide working capital, which needs of trade, industry and even to agricultural
sectors.

Moreover, Commercial Banks also provide technical and administrative

assistance to industries, trade and business enterprises. The main purpose of
priority sector investment scheme is to uplift the backward sectors of economy.
The definition of a bank varies from country to country.

English common law, “A banker is defined as a person who carries on the

business of banking, which is specified as:
 Conducting current accounts for his customer
 Paying cheque drawn on him, and
 Collecting cheques for his customers.

Commercial Bank is corporations which accepts demand deposits subject to

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

“A commercial banker is dealer in money and substitutes for money such as

cheque or bill of exchange. It also provides a variety of financial service” the
new Encyclopedia Britannica, the world Book.

Commercial Bank Act 1975 A.D. defined, “A commercial bank is one which
exchange money, deposits money, accepts deposits, grants loans and performs.
A commercial banking function which is not a bank meant for co-operatives,
agriculture, industries or for such specific purpose.”

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Commercial banks are the heart of the financial system. They hold the deposits
of many persons, government establishment and business units. They make
fund available through their lending and investing activities to borrowers,
individuals, business firms and government establishments units.

“Commercial Bank means a bank which operates currency exchanges

transactions, accepts deposit, provide loans, performs, dealing, relating to
commerce except the banks which have been specified for the cooperative,
agricultural, industry of similar other specific objective” Commercial Bank Act
2031.

In the context of Nepal, one of the developed sectors is banking sector. More
investor is attracted in the banking sector for the investment- The only stock
exchanges of Nepal also so the growth of financial sector. Thus, all the
definitions of commercial banks have tried to introduce on the basis of its
functions, so it will be relevant to discuss about the functions of commercial
banks in the following section

Functions of Commercial Banks

Commercial bank is the financial institution that deals with money and
monetary transaction. Although, it generally accept deposits and provide loans.
But nowadays, in the modern and advanced economy, it expand and diverse its
functions. It perform every potential functions for the development of trade,
commerce, industry and agriculture including supports for priority and
deprived sector. It is established with the prime objective of profit
maximization. So, keeping this objective in mind, commercial banks operate its
banking business. They earn profit as interest by advancing the fund as loan at
the interest rate higher than its cost.

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The functions of commercials banks are as follows:
Accepting Deposits
 Fixed Deposit Account
 Saving Deposit Account
 Current Deposit Account
 Nari Saving Account
 Recurring Deposit Account

Advancing Loans
 Term Loans
 Cash Credit
 Overdraft
 Money at Call

General Utility Function of letter of credit and traveler's cheques

Remittance of money
 Discounting bills of exchange
 Locker facilities
 Collecting trade information and banking statistics
 Exchange foreign currency
 Collection and payment of cheques, bills, promissory notes, etc.

Agency Function
 Collection of money from other banks to the customer
 Receipt and payment of dividend, interest, etc
 Financial adviser to the customer
 Security brokerage service
 Underwriting securities of Public and Private sector

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Historical Background of Banks
The evolution of banking industry had started a long time back, during ancient
time. The name bank derives from the Italian word banco "desk/bench", used
during the Renaissance by Florentine bankers, who used to make their
transactions above a desk covered by a green tablecloth. However, there are
traces of banking activity even in ancient times. In 1157, the first bank named
“Bank of vanish” was established. The first modern bank was found in Italy in
Genoa in 1406, its name was Banco di San Giorgio (Bank of St. George). But
after the establishment of “Bank of England” in 1694, modern banking was
begun. Now, there are a lot of banks that are providing quality services world
widely. To think about business, trade even life without bank is now
impossible. For the contribution of economic development, banking sector
plays vital role.

In the country, the development of banking is relatively recent. The record of

banking system in Nepal gives detail account of mixture of slow and steady
evolution in the financial and global economy of Nepalese life. Involvement of
landlords, rich merchants, shopkeepers and other individual moneylender has
acted as fence to institutional credit in presence of unorganized money market.
In the Nepalese chronicle, it was recorded that the new era known as Nepal
Sambat was introduced by Shankhadar Shakhwa, a surda merchant of kantipur
in 880 A.D. after having paid all the outstanding debts in the country. This
shows the basic of money lending practice in ancient Nepal.

The establishment of the “Tejaratha Adda” during the year 1877 AD was
fully subscribed by the government of Kathmandu Valley, which played a vital
role in the banking system. This establishment helped the general public to
provide credit facilities at a very low rate of 5 percent. Tejaratha Adda
distributed credit facilities to the public especially on the collateral of gold and
silver. Hence, the establishment of Tejarath Adda” could be regarded as
pioneer foundation of banking in Nepal.

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When government started trade with India and Tibet the need of banking
institution was realized. In the 1937 AD, Nepal Bank Ltd was established under
the “Nepal Bank Act 1937” as the first commercial bank of Nepal with 10
million authorized capitals. Rastriya Banija Bank, the second commercial bank
was established in the year 1965 AD. RBB being the largest commercial bank
plays a major role in the economy. The financial shapes of the two old banks
have a tremendous impact on the economy. That is the reason why these banks
still exist in spite of their bad position (www.nrb.org.np).

Having felt need of development of banking sector and to help the government
for formulate monetary policies, fiscal policies, issue of currency etc., Nepal
Rastra Bank was established in 1956 A.D. as a central bank of the nation under
Nepal Rastra Bank act 1956 A.D. Since then, it has been functioning as the
government bank and has contributed to the growth of financial sector. With
the opening of Nabil Bank Ltd. In 1985 AD, the door of opening commercial
banks was opened to the private sectors. As the commercial banks grew they
stopped entertaining small projects. Thus, a scope for opening finance
companies emerged. Nepal Housing & Development Finance Company was
the first finance company (www.nrb.org.np).

No matter what name give to banks like Business Banks, Retail Banks,
Clearing Banks, Joint Venture Banks, Merchant Banks, etc, they all perform
the same basic function. Like other organization, the main objective of the
banking industries will be profit maximization and wealth maximization. Many
other financial activities were added over time. For example banks are
important players in financial markets and offer financial services such as
investment funds. Banks have influence economics and politics for centuries.
Historically, the primary purpose of a bank was to provide loans to trading
companies.

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Banks in Nepal
Table 1.1
Commercial Banks in Nepal
S.No. Names Operation Date (A.D.)
1 Nepal Bank Limited 15/11/1937
2 Rastriya Banijya Bank 23/01/1966
3 Agriculture Development Bank Ltd. 02/01/1968
4 NABIL Bank Limited 16/07/1984
5 Nepal Investment Bank Limited 27/02/1986
6 Standard Chartered Bank Nepal Limited 30/01/1987
7 Himalayan Bank Limited 18/01/1993
8 Nepal SBI Bank Limited 07/07/1993
9 Nepal Bangladesh Bank Limited 05/06/1994
10 Everest Bank Limited 10/18/1994
11 Bank of Kathmandu Limited 12/03/1995
12 Nepal Credit and Commerce Bank Limited 14/10/1996
13 Lumbini Bank Limited 17/07/1998
14 Machhapuchhre Bank Limited 03/10/2000
15 Kumari Bank Limited 03/04/2001
16 Laxmi Bank Limited 03/04/2002
17 Siddhartha Bank Limited 24/12/2002
18 Global IME Bank Ltd 02/01/2007
19 Citizens Bank International Ltd. 21/06/2007
20 Prime Commercial Bank Ltd 24/09/2007
21 Sunrise Bank Ltd. 12/10/2007
22 NIC Asia Nepal Limited 12/10/2007
23 Grand Bank Nepal Limited 23/01/2001
24 NMB Bank Limited 07/05/2009
25 Kist Bank Limited 07/05/2009
26 Janata Bank Nepal Limited 05/10/2013
27 Mega Bank Nepal Limited 17/09/2010
28 Commerz & Trust Bank Nepal Limited 20/09/2010
29 Civil Bank Limited 15/12/2013
30 Century Commercial Bank Limited 10/03/2013
31 Sanima Bank Limited 15/02/2013
Source: www.nrb.org.np

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Introduction of Sanima Bank Limited (SANIMA)
SANIMA Bank Limited (SANIMA) started its banking journey in 2004 as a
national level “B” class development bank. The Bank is promoted by
prominent and dynamic Non Resident Nepalese (NRN). Taking corporate
governance as its top priority aside from being customer- oriented SANIMA
has been able to establish itself as an “A” class commercial bank of the
country. The vision of the bank is optimum mobilization of resources for
national development. SANIMA has progressively continued to be profitable
since its operation.

SANIMA believes that the “Customer is King” and pledges to deliver products
and services in a customized and simplified manner. Ever since its inception,
SANIMA has offered a wide range of products and services best suited to
customer's needs. Dedicated and hospitable professional employees are
strength and they have been able to win the hearts of customers and
stakeholders by ensuring high standards of quality service and corporate
governance. In line with extending bank's reach to every citizen of the country.
It has today 27 fully fledged branches across the country. The bank's expansion
plan is underway to have more footprints in different parts of the country.
SANIMA has always taken the initiative for the wellbeing of the society in
which it operates and has been contributing to different sectors like health,
employment, and education. SANIMA assures its commitment to give
continuation to such a noble cause. (Source: www.Sanimabank.com)

SANIMA was the first private sector national level Bikas Bank in the country
to be capitalized at NPR 320 million (equivalent to USD 4.5 million) on its
initial. The current shareholding pattern of the Bank constitutes of promoters
holding 51% and general public holding 49%. (www.Sanimabank.com)

SANIMA Bank Ltd offers a full range of banking products and services in
wholesale and Consumer banking, catering to a wide range of customers

14
encompassing individuals, mid-market local corporate, multinationals, large
public sector companies, government corporations, airlines, hotels as well as
the DO segment comprising of embassies, aid agencies, NGOs and INGO'S.
The Bank enjoys an impeccable reputation of a leading financial institution in
the country. In addition to which the national branches network of SANIMA
Bank Ltd gives the Bank a unique opportunity to provide truly national banking
in Nepal. The Bank has been the pioneer in introducing 'Customer Focused'
products and services in the country and aspires to continue to be a leader in
introducing new products in delivering superior services. It is the first Bank in
Nepal that has implemented the free withdrawal facility of cash by using its
debit card (ATM) from SCT network. (Source: Sanimabank.com)

CSR Programs by SANIMA

Corporate Social Responsibility (CSR) has always been an integral part of
SANIMA. SANIMA is very much concerned for the development of the
community/ society where SANIMA work and are eager to make consistently
meaningful contributions addressing their needs. As a social duty, current year
too, SANIMA has served their community/ society in different sectors like
health, education and employment. SANIMA believes that development of
communities/ societies ultimately means development of the country as a
whole. As far as service to SANIMA's customer is concerned, SANIMA has
been carrying out several loyalty programs besides making various occasions
to show it's appreciation for the valuable support and trust they have in
SANIMA.(www.Sanimabank.com).

Among others, the following CSR and loyalty programs have been conducted
during this fiscal year.
 SANIMA's scholarship program
 Free eye treatment and self employment trainings
 Blood Donation Programs
 Tree Plantation at Narayanchaur
(Source: Sanimabank.com)
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 Strategic Intent of SANIMA:
"Strong & Reliability"

Values of SANIMA
 Responsive
 Trustworthy
 Creative
 International
 Courageous

Share Capital and Ownership of SANIMA

Table 1.2
Share capital & ownership of SANIMA
Particular F/Y 2011/2012
S. N Share Capital Amounts(Rs)
1 Authorized Capital
21,000,000 Ordinary Shares of Rs100 each 2,100,000,000
2 Issued Capital
20,160,000 Ordinary Shares Of Rs100 each 2,016,000,000
3 Paid Up Capital
20,160,000 Ordinary Shares of Rs100 each 2,016,000,000
Sources: Sanima Annual Report FY 2011/2012

Share Ownership of SANIMA

Table 1.3
Share ownership of SANIMA
Particulars Percentage F/Y 2011/2012
A Promoter 51%
1 Government of Nepal -
2 Foreign Institutions -
3 “A” Class Licensed Institutions -
4 Other Licensed Institutions -
5 Other Entities -
6 Individual -
7 Others -
B General Public 49%

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 TOTAL 100%
Sources: www.sanimabank.com
Details of Shareholders Holding > 0.5 % Shares
Table 1.4
Details of Shareholders Holding
S.N. Name of the Shares Holder No. of Shares Amount Rs Percentage
1 Mr. Arun Kumar Ojha 2,822,400 282,240,000 14.00
2 Mr. Tekraj Niraula 1,735,400 173,540,000 8.61
3 mr. jibanath lamichhane 1,260,000 126,000,000 6.25
4 Dr. Niraj Gobinda Shrestha 1,260,000 126,000,000 6.25
5 Mr. Binay Kumar Shrestha 1,013,000 101,300,000 5.02
6 Dr. Birendra Prasad Mahato 945,000 94,500,000 4.67
7 Mr. Ghanashyam Thapa 941,700 94,170,000 4.67
8 Mr. Khemraj Lamichhan 794,000 79,400,000 3.94
M/s Jai Ganesh Investment
9 Company Pvt.Ltd. 756,000 75,600,000 3.75
10 Mr. Ram Krishna Shah 633,000 63,300,000 3.14
11 Mr. Dineshmani Shrestha 394,900 39,490,000 1.96
12 Mr. Dilip Shrestha 327,600 32,760,000 1.63
13 Mrs. Indira Bhandari 176,400 17,640,000 0.88
14 Mr. Samba Lama 146,790 14,679,000 0.73
Total 13,206,190 1,320,619,000 65.50
Sources: Sanima Annual Report FY 2011/2012

Board of Directors of SANIMA

Table 1.5
Board of Directors of SANIMA
S.N. Name
1 Jibanath Lamichhane Chairman
2 Ram Krishna Shah Director
3 Binay Kumar Shrestha Director
4 Dr. Biswo Poudel Director
5 Shamba Lama Director
6 Bharat Kumar Pokhrel Director
7 Mahesh Ghimire Director
8 Rudra Banjara Company Secretary
Source: Annual report 2011/2012

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 Promoters of SANIMA

Table 1.6
Details Name of Promoters
S. N. Name Of the Promoters S.N. Name of the Promoters
1 Mr. Tek Raj Niraula 21 Mr. Harendra Prasad Jayswal
2 Mr. Arun Kumar Ojha 22 Mrs. Moushami Regmi
3 Mr. Jiba Lamichhane 23 Mr. Mohan Raj Pokhrel
4 Mr. Niraj Govinda Shrestha 24 Mr.Baidya Nath Sharma
5 Mr. Binaya Kumar Shrestha 25 Mr. Badri Prasad Pandey
6 Mr. Ghana Shyam Thapa 26 Dr. Manik Lal Shrestha
7 Dr. Birendra Prasad Mahato 27 Mr. Shiva Mani Bhurtyal
8 Mr. Khem Raj Lamichhane 28 Mrs. Jamuna Bhandari
9 Mr. Ram Krishna Shah 29 Mr. Ganesh Kumar Agrawal
10 Mr. Dinesh Mani Shrestha 30 Mr. Sudhir Kumar Agrawal
11 Mr. Dilip Shrestha 31 Mr. Subodh Kumar Devkota
12 Dr. Ganesh Prasad Pokharel 32 Mr. Bishnu Hari Regmi
13 Dr. Gopal Prasad Shrestha 33 Mrs. Sharmila Shrestha
14 Mr. Badri Prasad Ojha 34 Dr. Keshab Prasad Acharya
15 Dr. Upendra Mahato 35 Mr. Anand Prakash Rathi
16 Mrs. Usha Aryal 36 Mr. Kul Acharya
17 Mr. Madhav Banskota 37 Mr. Bishwo Nath Poudel
18 Dr. Subarna Das Shrestha 38 Mrs. Jyoti Shrestha
19 Mr. Tuk Prasad Paudel 39 Mr. Jay Ganesh Investment Co. Pvt. Ltd.
20 Dr. Jugal Bhurtel 40 Mrs. Saroswati Bhattarai
Sources: Sanima Annual Report FY 2011/2012

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Management Committee of SANIMA
Table 1.7
Management Committee of SANIMA
S.N. Name Function
1 Kumar Lamsal Chief Executive Office
2 Sarju Kumar Thapa Senior Relationship Manager
3 Sushil Ratna Bajracharya Head-Information Technology
4 Tej Bahadur Chand Deputy Chief Executive Office
5 Saroj Guragain Head-Treasury, Finance& Planning
6 Bobby Singh Gadtaula Head- Central Operation
7 Rudra Banjara Company Secretary & Head- Share
8 Roshan Chandra Gautam Head -Liability Marketing
9 Samir Jung Rayamajhi Head-GS, BE & Remittance
10 Niraj Dhakal Head- Internal Audit
11 Santosh Koirala Head- Retail Banking
12 Sugat Manandhar Senior Relationship Manager
13 Pawan Kumar Acharya Head Credit Risk & HR
Sources: Sanima Annual Report 2011/2012

Branch of SANIMA
SANIMA has 27 branches in all major cities 9 branches are in Kathmandu
Valley, 18 branches are in outside the Kathmandu Valley till fiscal’s year
2070/071. Sanima has its branch in far remote area like Terhthum &
Sankhuwasabha.

Service and Products of SANIMA

A. Deposit
Saving Account
The Savings Account is a transactional interest bearing account wherein a
deposit is placed with the Bank for an unspecified period of time and the
depositor can withdraw or transfer the funds whenever required through
different means.

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It is an interest bearing account. In such account, interest is provided on daily
average balance or on minimum monthly balance, depending on the bank’s
policy to attract deposits. Any individual, NGOs, INGOs, non-profit making
organization like charitable organization are eligible to open this account.
However, profit making organization can also open this account to tax on
interest earned. Previously, they were restriction to a certain amount on
daily/weekly or monthly basis in this type of account. However by saving a
short period of notice to the bank large amount can also be withdrawn.
Banks encourage this type of account. The deposit in this type of account
remains stable for a fairly long period of time. The weakness of this account is
considered very suitable for lending. It is considered as the “Cash Cows
Product” of the banker. Various banks have started to introduce various
schemes in this account
The Saving Products of SANIMAs
 Sanima Sulav Savings
 Sanima Naari Savings
 Sanima Senior Citizens Savings
 Sanima Muna Savings
 Sanima Prime Savings
 Sanima Fixed Deposits
 Sanima Shareholder’s Savings
 Sanima Commitment Saving

2. Current Account
The Current Account is a transactional non-interest bearing account wherein a
deposit is placed with the Bank for an unspecified period of time and the
depositor can withdraw or transfer the funds whenever required through
different means.

Current account is a non interest bearing account which is known by cheking

account also. The deposit in such account is known by demand deposit as
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bankers have to pay on demand& no withdrawal restrictions can be imposed on
such account. Any individual, any organization, be it profit making or non-
profit making, corporate body, NGOs and INGO’s all can open this account.
There is no restriction of withdrawal and deposits in this account. Any amount
can be deposited and any amount can be withdrawn in current account. Banks
encourage this type of account, as it is a cost free account. The only weakness
of this account is that large amount can be withdrawn at any time without
giving prior information. So theoretically this account is not considered very
suitable for long term lending as banks resort to the theory of long term
deposit-long term lending and short term deposit- short term lending. As the
account is maintained at very low cost, it is considered as the “Cash Cows
Product” of the bank.

3. Fixed Deposit
A Fixed Deposit account is an interest bearing account, where a fixed amount
is held at fixed interest rate and is repayable (principal/interest) at a fixed future
date as agreed at the time of placement of the Deposits.

Deposit in this type accounts are accepted for a fixed period of time. Term
deposit receipt is issued in Non-Negotiable form. Fund cannot be withdrawn
before the maturity period of the deposit, interest rate is fixed depending upon
the amount and time period of deposit, higher is the interest rate offered.
However, in case the customer needs funds before the maturity of fixed term
deposits, one can pledge the instrument (TD) and obtain loan. The interest on
such loan may be 1% to 2% higher than what is paid on the fixed deposit. In
such situation, accumulated interest for a certain period is not provided or
certain percentage is deducted, which largely depends on the bank and its
policy. Theoretically, this account is considered very suitable for long term
lending as deposit remain stable for long term lending as deposit remains stable
for a long period of time. The only weakness of this type of account is that it is

21
maintained at a very high cost due to the higher interest rate paid compare to
other deposits. This type of account is “star Product” for bankers.

4. Sanima Sulav Savings

Sanima Sulav Savings account is a variant of Savings Account, which can be
opened in the name of person with Zero balance for their future savings. It has
normal interest rate.

5. Sanima Naari Savings

Sanima Naari Savins is a variant of Saving Account, specially designed for
women customers. There are free I- Banking facilities in this product.

6. Sanima Senior Citizens Savings:

Sanima Senior Citizens Savings account is a variant of Savings Account,
specifically designed for the Senior Citizens.

Loans
Sanima provides various types of loan such as home loans, auto loans, and
personal loans, cash/near cash backed loan.
Loan products of Sanima
 Sanima Home Loan
 Sanima Auto Loan
 Sanima Small Business Growth Loan
 Sanima Hire Purchase Loan
 Sanima Project Financing
 Sanima Margin Lending
 Sanima Business Loan
 Sanima Education Loan
 Sanima Tractor Loan
 Micro Finance Loan

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  Sanima Gold Loan
 Sanima Awasiya Ghaderi Karja
(Source: Sanima Annual Report 2011/012)

C. Debit Cards
It has introduced the SCT Debit Card.

D. Other Services
1. ATMs Network
Growing network ATM facilities are available to account holders. Debit Cards
with Pin numbers are issued to enable the customers to avail to 24-hour ATM
facility. SANIMA has 4 ATMs representative within country. The ATM card
holder of SANIMA can withdraw cash from any bank's ATM machine with
free of cost on SCT network.

2. Online Banking
SANIMA Online banking service connects the customers safely to their bank
account anytime, anywhere. With Online Banking, SANIMA provides
following services:
 Account Services
 Account Information
 Request for Statement
 Status of Issued Cheques
 Status of Inward Remittance
 Fund Transfers
 Within SANIMA Accounts
 Standing Order Requests for Periodic Payments

3. Safe Deposit Locker

Safe Deposit Locker is a special facility provided to our customers for keeping
their valuables or important documents safely. The customers can access the
23
locker any time during the Bank's business hours. Each locker has a separate
number and is fitted with a double key lock, which ensures the safety of
customer's lockers. Currently the Safe Deposit Locker service is available at the
following branches:
1. Head Office Naxal

E. Remittances
SANIMA provides an array of services to fulfill remittance requirements.
SANIMA Bank Ltd has introduced its own remittance product SANIMA X-
PRESS.
 Demand Drafts
 Telegraphic Transfers
 Cheque On Selves
 Foreign Exchange

F. SME Banking
SANIMA provides SME Banking service. It issues Letter of Credit, overdraft,
Short-term loan, Demand loan, Term loan, Trust Receipt Loan/Importer's Loan,
Export Credit, bank guarantees.

G. Wholesale Banking
SANIMA is the leading wholesale bank in the country. It is very well known
for innovation and our capability to implement new products in the market. It
provides cross border payment, domestic payment service. SANIMA provides
service of account transfers between SANIMA bank accounts, payment
through correspondent banks, telegraphic transfers.

Statement of the Problem

Profit is the primary measure of success of business. Normal profit is necessary
to run a business smoothly in long run. Bank is no exception for this. SANIMA
also needs profit so SANIMA might have been planning the profit.

24
The present study will try to analyze and examine the profit planning of this
bank. Without proper profit planning, any business organization can't run in
right way.

This study will answer the following questions:

 To what extend has the process of profit planning follows in this bank?
 What are the overall problems of SANIMA?
 To what steps should be taken to improve the profit planning system in
this Bank?
 Does the SANIMA mobilize the deposit and other resources optimally?
 Does the bank setup resources generating satisfactory return?
 What is the movement of overall performance of SANIMA?
 What suggestion can be recommended for their proper solutions?

Objectives of the Study

The specific objectives of the study are listed below:
 To examine the present profit planning premises adopted by SANIMA
 To examine the resource mobilization and achievement of SANIMA
 To examine the outcome of those plan in term of achievements.
 To sketch the main problem of development and implementing profit
planning system in SANIMA
 To outline the profit and loss of SANIMA.
 To provide appropriate suggestion and recommendation based on the
major findings.

Significance of the Study

The specific significance of the study are listed below:
 The research study will concern with the profit planning in commercial
bank with the case study of SANIMA.

25
  To analyze if there are any drawbacks in profit planning system in
SANIMA.
 To analyze the proper applicability of profit planning system in SANIMA.
 The significance of the study is really to examine whether SANIMA is
applying profit system properly or not.

Limitation of the Study

The limitations of the study are:
 Data prevails under this study are secondary.
 The study is limited to the related profit planning of SANIMA.
 Profit planning analysis covers only five years from F/Y 2064/65 to
2068/69.
 Only SANIMA is taken into consideration in this study.
 Review of literature is widely used.
 The accuracy of the study is based on the data available from the website
of SANIMA, Annual Report & its various published documents and
management.

Organization of the Study

According to the objectives of this study, it has been classified into five
chapters and the chapter is as follows:
Chapter- 1: Introduction
This chapter includes background of the country & study, introduction of bank,
meaning of commercial banks, and historical background of banks,
introduction of SANIMA, statement of problems, objectives of the study,
importance and limitation of the study.

Chapter-II: Conceptual Frame Work & Review of Literature

This chapter includes literature review about PPC, problems, limitation and
importance of PPC. Review of previous research work and research gap are
also included in this chapter.
26
Chapter-III: Research Methodology
This chapter deals with research methodology that includes research design,
nature and source of data, procedure of data collection research variables and
research tools.

Chapter-IV: Presentation & Analysis of Data

This chapter deals with presentation and analysis of data using statistical and
financial tools like mean, standard deviation, correlation analysis, trend
analysis, percentage analysis, ratio analysis and major findings.

Chapter-V: Summary, Conclusions & Recommendations

This chapter is the final chapter of the study that includes summary, conclusion
and recommendations. The bibliography, appendix and glossary have been
incorporated at the end of the study.

Research Gap
All the above-mentioned research studies are related to profit planning of
public enterprises and to the commercial banks. The study have pointed out
that there is no proper profit planning system in these organizations. Decision
making, policy formation and strategy formulation are made by executive
directors. Participation of lower level managers is not allowed. Also, found that
actual achievements are lower than budgeted. So, the researchers have
suggested and recommended to implement effective and appropriate profit
planning system. This may help this organization to achieve their goal and
objectives. And, also help to reduce the variance between actual and budgeted
data. But this study is different from the previous studies. The study aims to
access the profit system of SANIMA. This study tried to indicate the role of
profit planning to increase its profit. This study attempts to analyze the
financial position of the bank by using various statistical and financial tools. It
also concludes the various findings of the research and recommendation for
immediate and long term improvement and corrections.

27
Research Methodology
Introduction
“Research methodology is the way to solve systematically about the research
problem” (Kothari, 1990: 39).

Research methodology is the procedure of planned outline which deals with

research design, data collection procedure, nature of data, indentify the
population, making confidence of the sampling method and sampling variables,
data selecting styles, presentation style of collected information and data and
interpreting it. Now, no doubtingly it is obvious that the research methodology
is helpful to attain the objectives of the research.

This study mainly concentrated on the profit planning of Sanima Bank Ltd.
Research methodology, therefore, is designed and implemented to study about
the sources, causes and methods of profit planning. The analysis is income,
expenses, loan, deposit, employee status of SANIMA

Research Design
Research design is that outline which configures the collection and analysis
style of the data and information.

“Research design is a plan of structure and strategy of investigation conceived

so as to obtain answer to research questions and to control variances”
(Kerlinger,1986 : 275).

“Descriptive research is process of accumulating facts. It does not necessarily

seek to explain relationship and test hypothesis make predictions or get at
meanings and implications of a study” (Wolff and Pant, 2002: 81).
Analytical method is used to present information and data. A part from this,
there is also qualitative aspect and these aspects are described in word detail
wherever it is necessary.

28
The first step of the study is to collect necessary information and data
concerning the study. Research design means the definite procedure and
technique which guides the study and propounds ways or doing research. The
research has its basic objective to highlight the degree of application of profit
planning concept in SANIMA with respect to planned prediction and actual
production, degree of sales realization in respect to budgeted figures and
examine the cost structure. This study is an examination and evaluation of the
budget process of profit planning program of SANIMA various related
information. Functional budget and statement of SANIMA are tools to analysis
and evaluated the profit planning system of SANIMA. Also to figure out the
problems and provides them with some recommendations.

Period Covered
The research covers the period of five years from 2064/2065 to 2068/2069.
Data are taken from SANIMA and analysis is basically made on the basis of
five years data.

Natures and Source of Data

For any research work, information is the life blood. Therefore, it is the major
task to gather the information and data collection. Mostly secondary data has
been used in the study. It has been collected from the following sources:
 Published annual accounting and financial report of SANIMA
 Publication of Nepal Rastra Bank, publication of National Planning
Central Bureau of Statistics and related publication.
 Books, booklets, articles, magazines and official records of SANIMA.
 Previous dissertations, electronic media such as websites.
 Published and Unpublished document related to SANIMA.

Data Collection Procedure

Data gathering, recording which the most important part of the research is
consists of obtaining information from some body’s hand. It is therefore, very

29
difficult activity of the whole research process. Researcher is the staff of
Sanima Bank Ltd. He had collected all data from official published book,
articles, magazines and the official records and the annual reports are the main
source of secondary information.

In this study, I have been taken to analysis the collected data. Financial and
statistical tools are used to analyze data. Financial tools mainly used are
financial ratio. Similarly, the statistical tools are used such as mean, standard
deviation, covariance correlation, trend analysis and Figure etc. Once the data
and information collected then tabulated, presentation, analysis and
interpretation has been done.

Research Variables
Research variables play vital role in developing profit plan. Customer deposit,
loan, investment, profit, interest expenses, interest expenses, other income,
other expenses, other assets, staff of SANIMA are research variables of this
study.

Research Tools
Collected data and information are analyzed, presented in suitable table and
format, chart, Figure and graph. Financial and statistical tools are used to
analyze the presented data which includes mean, standard deviation, trend
analysis, ratio analysis, percentile analysis, coefficient of correlation analysis,
coefficient of variance, cash flow analysis etc.

30
Major Findings
Resource Mobilization
Major resource mobilization of SANIMA was deposit.
Deposit mobilized by SANIMA was found to be considerably growing every
year. Interest bearing deposit was growing rapidly every year than interest free
deposit. Total deposit was Rs. 11,178,734,351 in F/Y 2068/69 which was
increased by 75.86% than previous year.

Resource Deployment
Major area of the resources deployed in investment.
Cash and bank balance was in fluctuating. It was reached to Rs 1,373,062,742
in F/Y 2068/69. LABP was in increasing trend over the study period. It was
increased by 49.60%and reached to Rs. 9,531,504,834 in F/Y 2068/69.

Expenditure
Interest expenses amount were the highest among the total expenses of the
bank. In F/Y 2068/69, it was Rs 753,616,783 which is 63.49%1 of total
expenses.

Interest expenses of the bank were increasing trend every year. Interest
expenses were perfectly correlated with deposit.

Cost of deposit (Calculated as the ratio of total interest expenses during a year
on the outstanding deposit as of the year and expressed in percentage) of the
bank was increasing trend but the bank has maintained lower cost of deposit. It
was 6.99% only in F/Y 2068/69. The lowest cost of deposit is 4.92% in FY
2064/65. Provision for doubtful debt to LABP ratio was 0.55% in F/Y 2068/69.
It was because of granting secured loan.

31
Revenue
Interest income was the highest among the others in total revenue. It was
95.40% in F/Y 2068/69. The amount of interest was increasing trend every year
corresponding to increase in LABP. There is perfect correlation between
interest income and LABP.

Interest spread was in increasing trend but net burden was in fluctuating trend.
Net profit of the bank was positive and increasing trend over the study period
till 2068/2069. But In F/Y 2068/69, it was 121,769,566 which was decreased
by 21.55. The main reason of decreasing profit is started operation from its
own new building, increment in business promotional expenses and additional
provision for deficit management.

Business growth after being “A” class institution will be mainly reflected in the
FY 2069/70. So, Net profit figures seem to be less in FY 2068/69.

Performance Evaluation
Ratio Analysis
Liquidity ratio of the bank was 2.8:1 in F/Y 2068/69. The bank had able to
maintain standard ratio till over the study period. Debt to equity ratio of the
bank was 5.59% in F/Y 2068/69. The bank had maintained its debt to equity
ratio as per NRB guideline. Interest coverage ratio of the bank was higher than
1, which is satisfactory. It was 1.23 times in F/Y 2068/69. No. of employee of
SANIMA was increasing trend. Deposit per employee and LABP per employee
were also increasing some of the FY. It shows that the work efficiency was
increased.

ROE of SANIMA was 6.04% in F/Y 2068/69. It was positive and it’s only
because of management efficiency. ROA of the bank was 0.89% in F/Y
2068/69. The bank has deployed most of the fund in non business and fixed
assets. Therefore, ROA of the bank was low. EPS, MPS, PE ratio are

32
fluctuation trend over the study period due to the market situation of financial
sector.

Cash Flow
Cash flow analysis of the bank shows source of cash inflow are adequately met
by the bank for the cash outflow. Deposit mobilization is the major contributor
of the bank in cash inflow. Loan, Advance and Bills Purchased are the major
cash outflow.

Summary, Conclusions And Recommendations

Summary
Nepal is arguing to achieve economic prosperity though rich in natural
resources, such resources for the economic progress of the country then to its
poor economic condition. Its per capita income is only $480 according to the
2011/12 (CBS) that Nepal still belongs to the groups of the least
development country. Due to recession, the economic growth is not
increasing. Political instability, strikes, band as, shortage of fuel, food, raw
material, insecurity of public, higher rate of transportation, power cut of
electricity, labor hike, higher rate of wages etc largely impact negatively in the
development of industries, banks etc. In this time of insurgency, it is very
hard to run a business and cope with these types of challenges.

The prosperity of every developing country can only be ensured by its

economic growth. The role of commercial banks in the economic growth of the
nation can be fairly estimated to be very prominent. By mobilizing the
scattered idle resources, commercial banks pool the fund in a sizable volume in
order to feed to the fund requirement of productive sector of the economy.
Such investments in the productive sector promote trade and industrialization
in the country thereby raising the employment opportunities and earning to the
labors and materials and service providers to such industries and trades which
as a chain effect, promotes saving in the banks and more saving for further
33
investment. In this way, as the chain moves rolling on, the economy of the
nation also grows.

To remain as the major contributing factor to the growth of the nation’s

economy, the banks also have to have sustainable existence and growth of
themselves. For the suitable existence and growth of a bank, it must ensure
reasonable profitability.

As the banks are formed as joint stock companies promoted by shareholders

investment, it must give reasonable return on the fund of the shareholders.
Further by the profit mad by the bank, it may choose to increase its capital base
to make it stronger and more sustainable for facing any future threat that may
come up. A profit earning organization can better feed to their employees,
thereby enhancing the morale of the employees and motivate them for better
performances.

Therefore, profit for commercial organizations has been defined as the life-
blood for them. A commercial bank also, being a commercial institution has to
plan for the reasonable profit earnings. Profit planning is the planning of
activities in such way that it helps in increasing the income at a minimum
possible cost or at optimum cost. PPC can be used an effective remedy for the
organization running in loss and maintain same or high level profit. It is
combination of various financial and physical techniques, which not only helps
on increasing profit but also to reduce unnecessary cost and utilize the expenses
in the best manner. This study aims at examining the application of profit
planning in a commercial bank, with a specific case study of Sanima Bank
Limited.

Sanima Bank Limited is also one of the leading commercial banks of Nepal.
The Bank has been the pioneer in introducing 'customer focused' products and
services in the country and aspires to continue to be a leader in introducing new

34
products in delivering superior services. It is the first Bank in Nepal that has
implemented free of withdrawal facility using its debit card within SCT
network. It has strongly adopted ‘Know Your customer’s (KYC)’on all the
customer’s accounts.

This study has tried to cover the various aspects of profit planning in the bank
from the time of fiscal year 2064/65 to the end of fiscal year 2068/69. In the
first introductory chapter, this study report has tried to give brief
introduction of banking and its relation to the economy, brief history of
banking in Nepal, brief profile of the concerned bank, general concepts to
profit and comprehensive planning, the problem statement, objective of the
study ant its scope, limitation and significance.

During the research works, an extensive review of various literatures, books,

past thesis, journals have been made and internet materials from relevant
websites were also consulted. The work was complied into “review of
literature” chapter.

Research methodology followed for this research work is mentioned in the

chapter three entitled as “Research Methodology”. Likewise, Data relating to
various activities of the bank has been collected, presented in tabular and
various Figure form and are tired to be interpreted in the study report in logical
ways. Data are then analyzed applying various financial, mathematical and
statistical tools have been listed in a systematic manner. All these works are
compiled in the fourth chapter titled as “Data Presentation and Analysis” of the
study.

Finally, the summary and the recommendation are made for this study is
hereby being presented in this chapter five titled as “Summary, Conclusion and
Recommendations”

35
Conclusions
Economical development plays the significant role for the countries overall
development. In the Nepalese prospective since the establishment of financial
institution have played progressive role for the economical development of the
country. So far commercial banks have been proved as prime movers of the
economical development in Nepalese scenario. But as a developing country
Nepal need to strengthen its economical structure to achieve rapid overall
development due to the problems of fund mobilization and investment.
Similarly, Nepalese banks are still stuck to traditional approaches for fund
utilization and management.

Studying the available data, it can be concluded that major concentration

of resource mobilization of the bank is deposit collection. Deposit collection of
the bank is satisfactorily good but mobilization of resources other than deposit
is not good. Likewise, resource deployment for non yielding liquid assets was
in fluctuating trend each year. Major portion of resources are deployed in
investments and LABP. Interest income is the main contributor of the income
sources. Likewise, interest expenses are the major portion of the expenses. Cost
of deposit of the bank is found to be increasing trend but the bank has
maintained lower cost of deposit. Other expenses other than operating expenses
were increasing trend every year. Other source of income other than other
income is also increasing trend. Interest spread is to be increasing trend each
year and net profit of the bank was increasing trend over the study period. Most
of the correlation shows positive correlation. SANIMA is able to maintain
proper coordination between goals, objective and strategies. There is proper
application of PPC system.

Recommendations
After studying the financial position of the bank and analyzing the available
data the followings suggestions are recommended to improve the profit
planning system of the bank.

36
 From the study it seems that SANIMA has been focusing in the urban side
of the country. So, it should focus on rural areas too for development of
the nation.
 Corporate Social Responsibility should be maintained very seriously
because it has responsibility to change the environment around it survives.
 The bank should give continuity in providing both conceptual and
practical training to the staff to enhance their knowledge, skill and
competency level.
 The Sanima Bank Limited should follow the process of profit plan to
increase its efficiency and to increase its profitability position. Making
profit plan means making further plan for income, expenses and profit etc.
This will help the bank to increase profit, income and reduce expenses.
 The bank should reduce its expenses (such as interest expenses,
staff expenses, provision for doubtful debt). These expenses are increasing
yearly which is not favorable for the bank.
 The bank should make effort to collect non-interest bearing deposit. The
bank should make effort to utilize the available resources effectively and
implement cost effectiveness technique to reduce operating expenses. It
must utilize effectively its human resources to reduce its staff expenses.
Decrease in expenses will increase net profit of the bank.
 The bank should increase its interest income as well as non interest
income.
 The bank should mobilize its fund properly to increase income.
 The bank has able to maintain lower provision for doubtful debt to total
LABP over the study period. It is suggested to maintain the same level.
The bank should evaluate the project before flow the loan and granting the
loan on secured projects.
 Investment is the safe sector to utilize the fund. It does not increase any
losses. The bank should increase investment activities and should invest in
profitable sectors. The bank should invest on industrial sector and
hydropower sector, which really helps to develop the nation.
37