DEPOSIT ANALYSIS OF

COMMERCIAL BANK

(RASTRIYA BANIJYA BANK, AGRICULTURE DEVELOPMENT BANK AND PRIME

COMMERCIAL BANK)

A Project Work Report

Submitted By:

ANISHA GHIMIRE

T. U. REGISTRATION NO: 7-2-22-207-2019

Group: Finance

PATAN MULTIPLE CAMPUS

PATAN DHOKA, LATITPUR

Submitted to:

Office of Controller of Examination

The Faculty of Management

TRIBHUVAN UNIVERSITY

In partial fulfillment of the requirement for the degree of

BACHELOR OF BUSINESS STUDIES (B. B. S.)

PATANDHOKA, LALITPUR
 Declaration
I hereby declare that the project work entitled ‘Deposit analysis of COMMERCAL BANK.’
Submitted to the Faculty of Management, T. U., Kathmandu is an original piece of work under
the supervision of Mr. SHIVA PRASAD POKHEREL, faculty member of PATAN MULTIPLE CAMPUS
in PATANDHOKA LALITPUR and is submitted in partial fulfillment of the requirements for the
award of degree of Bachelor’s in Business Studies. This project work report hasn’t been
submitted to any other university for the award of any Degree or diploma.

ANISHA GHIMIRE

Date: April 2024

 SUPERVISOR’S RECOMMENDATION

The project work report entitled ‘DEPOSIT ANALYSIS of COMMERCIAL Bank Ltd.’ Of PATAN
MULTIPLE CAMPUS, PATANDHOKA, LALITPUR, is prepared under my supervision as per the
procedure and format requirements laid by the Faculty of Management, T. U., as partial
fulfillment of the requirements for the award of the degree of bachelors of business studies. I,
therefore, recommend the project work report for evaluation.

………………………………

SHIVA PRASAD POKHEREL

PATAN MULTIPLE CAMPUS

 Endorsement
We hereby endorse the project work report entitled ‘Deposit analysis of COMMERCIAL BANK
Ltd’ by Anisha Ghimire of PATAN MULTIPLE CAMPUS, PATANDHOKA LALITPUR, submitted in
partial fulfillment of the requirements for award for the Bachelor of Business Studies for
external evaluation.

…………………………. ……………………………..

MR. SHIVA PRASAD POKHEREL

Chairman, Research Committee PATAN MULTIPLE CAMPUS

April 15 April 15
 Acknowledgement
This study attempts to examine the DEPOSIT ANALYSIS OF COMMERCIAL BANK LTD, with
available data and information. It deals with the problem identification besides the field study
to acquire the reality of banking operation. For easier study the data has been presented by
tables, graphs and have been interpreted using various statistical methods.

I express my heartiest gratitude to Mr. SHIVA PRASAD POKHEREL for guiding and inspiring me
to do this work.

Similarly, I am equally thankful to all the teacher of PATAN MULTIPLE CAMPUS, Department of
Management who helped me preparing this project. I would like to extend my gratitude to our
college Campus chief MR…………………………………………. for his continuous encouragement in our
study.

I would like to extend my sincere thanks to the staff of THREE BANK Ltd, for providing me
related data, information and contribution.

Finally, I want to thank my family, friends and colleagues for their continued moral support.

ANISHA GHIMIRE

PATAN MULTIPLE CAMPUS

FEBUARY 2024
Table of Contents

Contents Page

Recommendation…………………………………………………………………………………i

Declaration………………………………………………………………………………………… ii

Acknowledgement……………………………………………………………………………….iii

List of Tables…………………………………………………………………………………………iv

List of figure………………………………………………………………………………………….v

Abbreviation…………………………………………………………………………………………vi

CHAPTER 1: INTRODUCTION

1.1 Background of study………………………………………………………………………….1-2

1.2 Statement of problems……………………………………………………………………..4

1.3 Objectives of the study …………………………………………………………………….4

1.4 Significance of the study …………………………………………………………………..4

1.5 Limitations of the study …………………………………………………………………….5

1.6 Organization of the study…………………………………………………………………..5

1.7 Review of literature…………………………………………………………………………..15

1.8 Research methodology………………………………………………………………………19

CHAPTER2: DATA AND PRESENTATION

2.1 Results………………………………………………………………………………………………..30

CHAPTER3: SUMMARY AND CONCLUSION

3.1 Summary…………………………………………………………………………………………….32.

3.2 Conclusion……………………………………………………………………………………………32

REFERENCES……………………………………………………………………………………………34
List of table

Table1 Deposit of sample bank…………………………………………………………………….21

Table 2 Investment of sample bank……………………………………………………………..23

Table 3 Total loan and advance…………………………………………………………………..24

Table 4 Loan and advance to total deposit ratio………………………………………….26

Table 5 Total investment to total deposit ratio……………………………………………28

Table 6 Correlation coefficient of dependent and independent variable……29

List of figure

Figure1 Deposit of sample bank……………………………………………………………22

Figure 2 Investment of sample bank…………………………………………………….24

Figure3 Total loan and advance…………………………………………………………..25

Figure4 Loan and advance to total deposit ratio………………………………….27

Figure5 Total investment to total deposit ratio……………………………………28

 ABBVIATIONS
ADBL Agricultural development bank

B Retention ratio

BVPS Book value per share

C.V Coefficient of variance

D Dividend per share

DPR Dividend payout ratio

DPS Dividend Per Share

E Earnings per share

EPS Earnings Per Share

GDP Gross Domestic Product

Ke Cost of capital

MPS Market Price Per Share

NEPSE : Nepal Stock Exchange

NRB Nepal Rastra Bank

P Market price share

P.E Probable error

P/E ratio Price Earnings Ratio

R Internal rate of return

ROA Return on Assets

ROE Return on Equity

S.D Standard Deviation

SEBON Security board of Nepal

 CHAPTER I

INTRODUCTION
1.1 Background of the study

Commercial banks, as financial intermediaries are expected to transfer resources from surplus
units to deficit units. They mobilize funds from savers and allocate funds to deficit units based
on their ability to pay principal and interest given associated risk. Funds are allocated to deficit
units taking into account depositor's demands and to create a return for the intermediary.
Capital in a free economy is allocated through the price system. The interest rate is the price
paid to the borrowed capital. When in the case of equity capital, investors’ return comes in the
form of dividends and capital gains. This cost is affected by various factors. The most
fundamental things that affect cost of money are production opportunity and time preference
for consumption (Marthethe and Shawky, 2003). The returns available within an economy from
investment in productive assets determine the cost of investment or borrowing. Similarly, the
preference of consumers for current consumption as opposed to saving for future consumption
also determines the cost of borrowing or return on lending.

Interest rate is the price a borrower pays for the use of money they borrow from a
lender/financial institutions or fee paid on borrowed assets (Crosse, 1663). Interest can be
thought of as "rent of money". Interest rates are fundamental to a ‘capitalist society’ and are
normally expressed as a percentage rate over the period of one year. Interest rate as a price of
money reflects market information regarding expected change in the purchasing power of
money or future inflation (Ngtich and Wanjan, 2011).

Interest rate is sometimes referred to as the financial oil of the economy. Therefore, a vision on
its development is of vital importance to every financial organization and to its clients.
Predicting the interest rate, however, is hardly possible. Nevertheless, identifying the driving
forces behind the interest could help to create an image of its future course. Combining these
forces in a number of relevant, plausible and surprising scenarios, a clear image of the risks and
uncertainties with regard to interest rate development in the future arises. The interest rate
development has important consequences for the bank, for instance for the interest rate
margin (David,2012). Possible policy measures are being considered. But this is also important
for the clients. For companies the interest rate to be paid is a major expense and often an
indicator for the general economic situation and expectation. For consumers, the interest rate
influences the burden of mortgage and in a roundabout way also the value of houses.
The collection of deposit and its mobilization are the two sides of the same coin, in the absence
of one, another cannot work i.e. without the collection of deposit, mobilisation of deposits
would be quite impossible and vice versa. They both get along with another under favourable
condition. Interest is the main factor in fund activities of commercial banks. Interest rate effects
on the collection of deposits mobilization of saving position.

The Commercial Banks (CBs) have been left with one main problem: how to determine its
optimal interest rate exposure in order to retain its lenders (customers), sustain its operational
cost, maintain NRB policy rates and ensure business growth in line with set targets at the
beginning of the year. This has sent commercial banks Asset and Liability Committees (ALCO) to
an intense analysis of its lending rate determinants with the current prevailing economic
challenges coming from both customers and the regulator (Gaire,2007). Therefore, this study
seeks to establish and analyze determinants of interest rate exposure of commercial banks in
Nepal in order to provide affordable financial service and the same time ensures business
growth is in line with the organization setobjectives.

Irrespective of reasons for holding money, people feel the need of having an intermediate to
handle their money safely and easily. This is how financial intermediations have come to
function in the economy. The present structure of financial institutions is based on the
foundation laid by commercial banks. In the ancient period, commercial banks were synonyms
of financial institutions which performed the functions of money matters and financial jobs.
Historical evidence shows that commercial banks served as primary means of intermediation.
The origin of the banking system is traceable to the ancient Assyrians, Babylonians and
Atharsian, but the forerunners of modern banks are considered to be the bank of Vanice
(1171),

The Bank of Genoa (1320) and the Bank of Amsterdam (1609). Banking in America is strongly
influenced by its heritage, even though banks have evolved into professionally managed and
electronically connected money brokers. Financial institutions got freedom in fixing their
interest rates in their deposits and loans. In addition, there was also limitation on the interest
rate amounts on the different loans provided for productive and priority and full deprived
sector. However, there were limitations on certain sectors of lending such as the rate of
maximum of 15 percent on the priority sector loan. And for other kinds of loans, financial
institutions were given freedom to maintain the interest rate structure. In this way the
government has provided freedom as well as limitations on the determination of interest rate
(Shrestha,2000).
1.2 Statement of the problem

Banks traditionally perform a maturity transformation function using short-term deposits to

finance long-term loans. The resulting mismatch between the maturity of the assets and
liabilities exposes banks to reprising risk, which is often seen as the major source of the interest
rate sensitivity of the banking system. Apart from reprising risk, banking firms are also subject
to other types of sources of interest rate. As the economy has taken a reverse turn making the
financial sector hitting the record low return it has not left the banking sector either (Agrawal,
2007).

Though banking sector has always been the promising sector giving high return and value to its
promoters and shareholders, its down looking financial scenario has created very less
investment alternatives and comparatively lower return. The deteriorating situation of peace
and security of the country has rendered the economy further sluggish, whereby the pace of
lending to private sector is yet to accelerate (Sapkota, 2002). The establishment of new
industries and organizations have come to halt giving banks fewer opportunities to mobilize its
resources.

Interest is the price that one pays for utilizing a certain amount of money for a specific period of
time. Interest can thus be considered a cost for one entity and income for another. Interest
rates as a major tool to change the fortune of the bank it has always been modified as per
situation and economy. After commercial banks received autonomy to determine their own
interest rate they have greater burden to carry if it is to shoulder responsibility to drag country
towards prosperity.

An appropriate interest rate is always sought to keep both parties i.e. depositors and borrowers
at profitable minimum. Due to stiff competition between the banks to increase the volume of
deposit and loans and investments it has been working under very less interest spread which is
able to hardly cover total cost. This has been because of excessive availability of financial
institutions. Moreover frequent changes of interest rate within and outside the bank has
changed the banking habit of individual depositors (Keynes, 2006). This study basically deals
with such impacts of interest rate on the deposit mobilization. The main attempt of this study
has been answered the following questions.

i. What is the trend of deposit, investment, loan and advance?

ii. What is the relationship among interest with deposit, investment, loan and advances?

iii. What is the impact of interest rate on deposit, investment, loan and advance?
1.3 Objective of the study

The main objective of this study is to know the overall influence of interest rate on deposit of
commercial banks as well as to identify whether the interest rate spread is satisfactory or not.
Besides this the other specific objectives related to this study are as given below.

i. To analysis structure of interest rate of commercial bank.

ii. To analysis trend of deposit, investment, loan and advances of sample bank.

iii. To compare impact of interest rate on deposit, investment and loan and advance of sample
bank

1.4 Significance of the study

Commercial Banks will be able to understand the impact of interest rate of deposits
mobilization of the banks firm. The prevailing margin between deposit-lending rates, the
interest rate in an economy has important implications for the growth and development of
bank firm, as numerous authors suggest, a critical link between the efficiency of bank
intermediation and economic growth (Quaden, 2004).

i. By the help of this study, general public can know the interest rates offered by banks for
deposits of the Nepalese commercial banks.

ii. The study of interest rate and its impact on deposits would provide information to the
management of concern banks that would be helpful to take corrective actions in the banking
activities.

iii. This study provides valuable information that is necessary for the management of the banks,
shareholders, general public and related parties.

1.5 Limitations of the study

i. Out of 21 listed commercial banks only 3 commercial banks are considered for study. Some
banks got merged during the study period and some banks data were not available hence, such
banks are excluded from the purpose of study.

ii. It has only considered secondary data are for the study purpose. Data collection conducting
primary survey is not taken into consideration. It is limited to the data available in the annual
reports of the sample banks.

iii. Lack of pertinent literature on commercial bank deposit in the Nepalese context.
iv. This study has analyzed only last 5 years data beginning from 2075/76 to 2079/80.

1.6 Chapter plan

This study has been organized into three chapters. Each chapter has its importance and deals
with important aspect of the study.

Chapter I: Introduction

The first chapter presents the introduction of the study. It includes various aspects of present
study like Background of the Study, Focus of the Study, statement of the problem, objective of
the study, review of literature, research methodology significance of the study and limitation of
the study.

Chapter II: Results

The second chapter presents the data analysis and presentation. This chapter is the main aspect
of the study. It deals with data collection procedure and presentation of data with different
statistical and financial tools, and findings of the study.

Chapter III: Conclusion

This chapter presents the brief background of the study, objectives, literature review and
methodologies. Chapter focuses on the major findings and compares them with theory and
other empirical evidence to extend possible.

1.7 Review of literature

1.7.1 Background

The various concepts employed in the study are, in fact derived from the different literature
surveyed in this part. The review of these literatures has been described in three parts. This first
part presents discussion on conceptual frameworks while the other two parts deal with review
of literature in the international context and review of Nepalese studies.

1.7.2 Conceptual review

Different authors have defined interest and deposit in different ways. A review of these
definitions is important in order to have a better insight into this subject matter.
1.7.3 Concept of deposit

Deposit is nothing more than the assets of an individual which is given to the bank for safe
keeping with an obligation to get something from it. To a bank these deposits are liabilities.
Commercial bank act 2031 defines” Deposits” as the amount deposited in a current, savings or
fixed accounts of a bank or financial institution. The deposits are subject to withdraw by means
of cheque on a short notice by customers. The rate of interest rate varies depending on the
nature of the deposits. The bank attracts deposits from customers by offering different rates of
interest and different kinds of facilities. Though the bank plays an important role in influencing
the customer to save and open deposit accounts with it, it is ultimately the customer who
decides whether s/he should deposits his/her surplus funds in current deposit a/c, saving
deposits or fixed/time deposit a/c. Bank deposits arise in two ways. When the banker receives
cash, it credits the customer’s account, it is known as a primary or a simple deposit.

1.7.3.1 Importance of deposit

Deposit arises from saving. An individual’s income equals consumption plus saving. She deposits
the saved part of income in the bank gets interest from it. Banks in turn lend this money and
earn profit by charging high interest rates. The borrowers from banks invest this fund in
productive sectors yielding more return than the interest on borrowed fund. This investment
leads to create new employment opportunity in the economy. Ultimately due to new
employment the purchasing power of the economy increases and finally GDP and growth of the
economy occurs. It means that the deposit has very important role in the economy. There is a
direct relationship between deposit of banks and the investment in the economy. If the volume
of deposit is low, the investment in the economy also lags behind due to lack of resources. The
deposit of bank is the accumulated capital which can directly be invested. There is a greater
need of such deposit in the developing countries.

1.7.3.2 Deposit mobilization

Collection scatted amount of capital and investing the deposited fund in productive sector to
increase the income of the depositors is meant deposit mobilization. In other word, investing
the collection fund in the productive sectors and increasing the income of the depositors, it also
supports to increase the saving through the investment of increased extra amount. The main
objective of deposit mobilization is to convert idle saving into live saving. In developing
countries shortage of capital is the main problem for the developmental activities.
Development is needed in the entire sector. It is not to handle and develop all the sectors by
the government alone at time. People also cannot undertake large business because the per
capital income of the people is very low while their propensity to consume is very high. To the
low income their saving is very low and capital formation is also low. So, their saving is not
sufficient for carrying on development works. To achieve the higher rate of growth and per
capital income, economic development should be accelerating. Economic development may be
defined in a broad sense as a process of rising income per head through the accumulation
capital. But how capital can be accumulating in the developing countries? In context on Nepal,
commercial banks are the main financial institution which play very important role in the
resource mobilization for the economic development in the country. Therefore, banks should
mobilize its deposit in suitable and profitable banking activities and right sector. Generally,
Bank has mobilized its deposits in the following activities.
a. Liquid funds

A bank has kept a volume of amount in liquid funds. The funds have so many responsibilities in
banking activities liquid funds has covered following transactions.

i. Cash in hand

ii. Balance with NRB

iii. Balance with domestic bank

iv. Call money

b. Investment

Bank invests its fund in different banking activities and different fields. Many types of fields are
available in market for investment. But bank invest its fund in profitable and safely activities.
Bank invests its funds in the following titles:

i. Share and debenture

ii. Government securities

iii. Joint-venture

c. Loan and advances

Banks mobilize its funds or deposits by providing different types of loan and advances to
customers, by charging fixed interest. Bank manages the different types of loan i.e. providing
loan, business loan and traditional loan to priority area.
d. Fixed assets

Land and Buildings are essential for the establishment of bank. Bank’s funds are used in buying
of furniture, vehicle, computer and other concerned instrument which are related to banking
activities. Bank cannot take direct gain from these assets. But bank should buy it. A bank has a
need of fund to purchase fixed assets for the new branches of the bank. In this way, bank
mobilizes its deposits by performing different activities to achieve its desired goals i.e. earning
profit. Banks are able to earn sufficient profit by mobilizing its deposits in proper way into the
different profitable sector. It can utilize its collected deposits as well as funds in all banking
activities by performing effective deposit mobilization procedure.

1.7.3.3. Need for deposit mobilization

The following are some reasons for why deposit mobilization is needed in developing countries
like Nepal. The following points show the need for deposit mobilization.

i. Capital is needed for the development of any sector of the country. The objective of deposit
mobilization is to collect the scattered capital in different form with in the country

ii. The need of deposit mobilization is felt to control unnecessary expenditure. If there is no
saving, the extra money that the people have can flow forwards buying unnecessary and luxury
goods. So, the government also should help to collect more deposit, sleeping legal procedure to
control unnecessary expenditures.

iii. Commercial banks are playing a vital role for national development. Deposit mobilization is
necessary to increase their activities. Commercial banks are granting loans not only in
productive sectors, by also in other sectors like food, grains, gold and silver etc. Though these
loans are traditional in nature and are not helpful to increase productivity, but it helps, to some
extent, to mobilize bank deposit.

1.7.3.4 Factors affecting deposit mobilization

There are various factors like money, supply inflation other financial instruments and interest
rate and branch expansion which affect deposit collection. These factors should be considered
while making the policies regarding deposit mobilization, among all these factors, only interest
rate and branch expansion has taken for the study.

a) Interest rate

For the commercial banks, interest rate refers the amount paid on deposit. The main objective
of the interest rate on deposit is to attract the scattered savings. Therefore, the proper interest
rate plays vital role for collecting deposits. According to the neo-classical monetary theory
interest rate is a factor, which brings demand for investment and willingness to save into
equilibrium with each other. Investment represents the demand for resources and saving
represents the supply. While interest is the price of resources, at which two are equated.
Interest is an important factor to mobilize savings. In this sense, interest rate, it is interesting to
not some conflicting agreements of two groups. The classical idea was interest rate was the
reward for not spending i.e. it is the inducement to refrain for not spending. In opponent
contrast, the Keynesian doctrine is that interest is the reward for not boarding i.e. it is the
inducement to part with liquidity.

b) Branch expansion

To build up a financial infrastructure geographically and functionally diverse to help in the

resource mobilization to meet the expanding and emerging needs of developing economy. It
has been also felt that timely and adequate credit support should be made available for the
sector, which hither to be neglected, so that the system reached out to the small town and the
rural and semi urban area. For this purpose, the extension of geographical spread of banking
was given prime importance. It acted as an instrument of deposit mobilization on was given
prime importance. It acted as an instrument of deposit mobilization on the one hand and
provision of credit to the rural hinterland of the economy on the other. The larger number of
people of that country saves more money. (Bhandari, 2013).

1.7.4 Reviews from relevant studies

In this part a review of past studies is conducted by other researchers which are relevant to the
topic.

1.7.4.1 Review of articles

Schuiz(1979) analysed the institutional listed savings grew during the financial system
deregulation era in line with the view that liberalisation of financial sector results in increase in
supply of savings to the banking sector as expressed by Mckinnon and Shaw. The increases in
aggregate savings is not unconnected to the higher interest rate offered for deposit with the
bank. However, the resultant high borrowing cost discouraged the borrowers, especially private
sector producers, as their capital became inefficiently costly.

Schmidt-Hebbel (1999) reviewed the economic literature on saving provides a loan list of
factors affecting the saving rates. Studies have found an ambiguous effect of increasing in real
interest rate on saving because of a positive substitution effect toward future consumption and
a negative income effect due to the increase real returns on saved wealth. (Fry, 1995) has found
a small but positive interest rate elasticity of saving to be insignificant related to real interest
rates. The empirical evidence on the effect of real interest rates on saving has proven to be
inconclusive. The real interest rate affects the saving rate positively in Bangladesh and Nepal
but negative in India,Pakistan and Srilanka (Agrawal etal, 2007).

Ngetich and Wanjau (2017) explain the monetarists economists argued long time ago that
central bank interest rate rules exacerbate microeconomic fluctuations, essentially by not
allowing interest rate to respond promptly to shifts in supply and demand for loans. To support
this critique, they pointed to the pro-cyclicality of the money stock. Yet, when there are real
shocks and a real business cycle, modern macroeconomic models imply that some pro-
cyclicality is desirable, to stabilize the price level. A simple interest rate rule illustrate that the
monetarist critique can be valid within this model, since the rule exacerbates the real activity to
real shocks. Other interest rates rules instead limit the macro economy’s response to real
shocks. But, while these interest rates rules have diverse effects on real activity, there is an
important common implication: By smoothening the nominal interest rate in the short run, the
rules all lead to increases in the long run variability in inflation and nominal interest rates.

Pokharel (2007) conducted a study on “Problem & prospects of Commercial bank in relation to
deposit collection & mobilization” she has mention that the commercial bank in Nepal is doing
well but they are not giving satisfactory result due to some internal and external factor deposit
is indeed the major organ of commercial banks. Higher the deposit higher will be the capacity
of investment and higher will be the chance of mobilization of fund and make the satisfactory
profit for the long term sustaiRBBity of an organization. In her study she has mention that if the
commercial bank does not adopt the sound investment policy, it will be greater trouble in
future in the collection of loan. Bank should invest its fund in various portfolios after proper
study of the project. It keeps the bank far from the problem of default of payment that
certainly keep the bank safe from the bankruptcy. Diversification of investment is very much
important for banks because bank uses the money of people for the benefits of the depositors
and the benefits of its own.

Mashamba (2016) analyzed the relationship between banks’ deposit interest rates and deposit
mobilization in Zimbabwe for the period from 2000 to 2006. The study is developed based on
an Ordinary Least Squares (OLS) model to show the relationship between the response and
explanatory variables. The study found a positive relationship between deposit rates and banks’
deposits for the period under study and all the other explanatory variables were statistically
significant. The study also revealed that banks to tap into the unbanked markets through
massive branch expansion, offering low-cost accounts and increasing interest offered on
deposits to attract more deposits.
Bhatta (2004) in his article, “Monetary Policy and Deposit Mobilization in Nepal” that the
mobilization of domestic saving is one of the prime objectives of monetary policy in Nepal. For
this purpose, commercial banks stood as the active and vital financial intermediary for
generating resources in form of deposit of the investors in different aspects of the economy.

Pradhan (2000) in his article “Deposit Mobilization, its problem and prospectus" has presented
that deposit is the life-blood of every financial institution like commercial bank, finance
company, co-operative or non-government organization. He further adds in consideration of
most of banks and finance companies, the latest figure does produce a strong feeling that
serious review must be made of problems and prospectus of deposit sector. The main problem
is most of the Nepalese do not go for saving in institutional manner, due to the lack of good
knowledge however, they are very much used of saving be it in the form of cash or ornaments,
more mobilization and improvement of the employment of deposits and loan sectors. Nepal
Rastra Bank could also organize training program to develop skilled manpower. The study
summarizes that commercial bank only can play an important role to mobilize the national
savings. Now a day other financial institutions like finance companies, cooperative societies
have been established actively to mobilize deposits in the proper sectors so that return can be
ensured from the investment.

Sharma (2000), in his article entitled, "Banking the future on competition" found that all the
commercial banks are establishing and operating in urban area, his achievements are
Commercial banks are charging the higher rate of interest on lending, commercial banks are
establishing and providing their services in urban areas only. They have not interested to
establish in rural areas. Have branches in rural areas and they do not properly analyze the
credit system. The researcher further states that private commercial banks have mushroomed
only in urban areas where large volume of banking transaction and activities are possible.

1.7.4.2 Review of theses

Before this study, various studies regarding the various aspects of commercial banks such as
deposit mobilizing policy, financial performance and investment policy, lending policy, interest
rate structure, resource mobilization and capital structure has conducted several theses works.
Some of them, which are relevant for this study, are presented below.

Tandukar(2008) in thesis titled "The Role of NRB in Deposit Mobilization of Commercial Bank”
has tried to find out the relation between Nepal Rastra Bank and commercial Banks of Nepal.
The directives issued by NRB have both positive and negative impact on these commercial
banks. A sound investment policy containing a portfolio will guarantee long term survival of a
commercial bank. More, she focuses on importance of bank in country’s economy. It is source
of capital formation she has drawn the conclusion that all new directives of NRB on commercial
banks are effective and it is good for both nation and the future of the banks but the loan
classification and provisioning seem to be little bit uncomfortable to the commercial banks. She
had recommended the banks to minimize the bad loans ratio, creating the conductive
environment for the revival of sick investment, formulate future strategies to solve problems.

Ghosal (1996) in their book “Economic Growth and Commercial Banking in the Development of
Economy” states that insurance of bank deposits, creation of proper atmosphere can increase
deposits and the development of capital markets with the help of banks will prove effective in
mobilizing the available floating resources in the country.

Deveet (2001) in his book, “Modern Economic Theory”, mentioned Loanable funds theory of
interest. The loanable funds theories believed in time preference explanation of how interest
arises. According to loanable funds theory, the interest is the price paid for the use of loanable
funds. Like the classical and Keynesian Theories of Interest, it is also a demand and supply
theory. It asserts that rate of interest is determined by the equilibrium between demand and
supply of loanable funds in the credit market. There are several sources of both supply and
demand of loanable funds, which we discuss below.

Keynes (1936) in his book, “The General Theory of Employment, Interest and Money”, has
mentioned the following the viewpoints about the rate of interest. According to him,
community’s liquidity preferences and quantity of money determine the level and rate of
interest. These three things liquidity preferences, quantity of money and rate of interest are
negatively correlated. At low rate of interest, the liquidity preference of community is high and
it is low at high rate of interest.

Khatri (2009)in thesis entitled “Impact of interest rates on deposit mobilization of commercial
banks of Nepal” with the main objective of to find present the impacts of interest rate on
deposit mobilization of commercial banks, see the impact of interest rates of deposit on the
deposit collected by the commercial banks and see deposit-credit margin ration throughout the
changed incurred in the interest rate by which one can see that how far the deposits have
efficiently utilized.This study concern only a period of five years from the year ended 2007 to
2012. Only secondary data has analyzed. Simple analytical statistical tools such as graph,
percentage, Karl Pearson’s coefficient of correlation and the method of trend Analysis are
adopted in this study. Similarly, some strong according tools such as ratio analysis have also
been used for financial analysis.

Pokhrel (2007) on the “Interest rate structure and its relation with deposit, lending and inflation
in Nepal" concludes, the interest rate on both deposit and lending of all sample banks are in
decreasing trend, the saving deposit amount and saving interest rate have negative relationship
and fixed deposit amount and fixed interest rate shows negative relationship. The writer found
that the overall performances of commercial banks are satisfactory and Nepal Rastra Bank has
to play more active role to enhance the operation. Liquidity position of the commercial banks
has satisfactory. The interest rate has played important role in deposit mobilization of the bank.
So; the structure of interest rate should be changed according to the need to nation.

Bhandari (2013) on thesis entitled "Interest rate and its impact on deposit mobilization of
commercial banks." With the main objective of this study is to know the overall influence of
interest rate on deposit of commercial banks as well as to identify whether the interest rate
spread is satisfactory or not. Besides this the other specific objectives related to this study are
to examine the impact of the interest rate on the mobilization of deposits, to analyze the trend
of deposits, investments and loans and advances and analyze the relationship of deposit with
interest rate, investment and loan and advances.

Bhandari (2072/2073) conducted his master’s thesis on “The impact of interest rate structure
on investment portfolio of Commercial Banks in Nepal”. The objective of the study is to cast a
glance at the historical background of interest rate structure of commercial banks, policies,
decision and strategies regarding it and their impact, to present and analysis interest rate
structure of commercial banks in different period and to assess the impact of interest rate
structure of commercial banks of their investment portfolio by analyzing their deposits, loans,
advances, interest spread, investment and bills purchased and discounted. In his analysis two
commercial banks and three joint venture banks are taken for the purpose of the study. The
most of data and information and data have been collected from discussion and interviews,
both the financial and technical tools are used to for the analysis of data. Finally, he has
concluded rates of commercial banks have been fluctuating. Deposit and lending rate were
increased immediately after liberalization of the interest on August 31st 1989, but how ever
started to decline which have helped in increasing the credit flow, Interest rate structure has
direct influence on profitability of commercial banks. Decreasing lending rate helps to increase
the profitability through increasing the credit and deposit is more interest rate conscious and
positively correlated.

Shrestha (2016) in his Study, “A comparative analysis of financial performance of the selected
commercial banks”. Concluded that many of banks are of the view that political instability in
the country is mainly responsible for the decline of the lending opportunity, few banks ascribed
it to the economic crisis that occurred in Asia pacific region. No one helped that higher rate on
interest on lending to be major factor. At the same time should target not only the urban
sector.
1.7.5 Research gap

While a number of studies have investigated the effect of interest rate on deposit mobilization
of commercial banks. Most of these studies have been done in developed countries with few
being done in developing countries. In Nepal, when banking system has established in early (BS
1994) and established central bank has published act 2058 Dafa79 cleared by policy. The
approach used in much of the literature is to classify determinants of commercial banks‟
interest rate spreads according to whether they are bank-specific, industry (market) specific or
macroeconomic in nature.

It is asserted that this may be because spreads are largely determined at the industry level, thus
making individual bank characteristics more relevant to other variables, such as bank
profitability. A similar argument, made to explain the failure of analysis of interest rate
exposure in developing countries to converge to international levels even after financial
liberalization, suggests that high interest rate risks in developing countries will persist if
financial sector reforms „do not significantly alter the structure within which banks operate.

Such factors include the efficiency of the legal system, contract enforcement, and decreased
levels of corruption, which are all critical elements of the basic infrastructure needed to support
efficient banking. In Nepal the high inflation and lending interest rates witnessed in the year
2076/2077 was a clear evidence that the country is still struggling with drafting stable monetary
policies which can sustain its economic environment for progressive development. During the
past few decades, many banks both in developed, such bank failure and financial distress have
affected many banks and some of which have closed down by the regulatory authorities.
Banking problem results the output and employment loss in an economy. The output and
employment loss due to banking crisis was about two digit percentage of GDP.

This study has attempted to carry out distinctly from other previous studies in terms of sample
size, nature of the sample firms and the research methodology used. This study has covered 3
banks with 5 years of data. Thus, it is being believed that this study is different from earlier
studies of Nepalese context and attempts to analyze the Interest rate and deposit mobilization
in Nepalese commercial bank.

1.8 Research methodology

Research methodology refers to the various sequential steps to be adopted by a researcher so

as to obtain answer to the research question. In this chapter, the focus has been made on
research design, nature and sources of data, sampling procedure, tools used for analysis of
data.

1.8.1 Research design

The study analyzed the relationships between interest rate on deposit mobilization of Nepalese
commercial banks. This study has employed descriptive and causal comparative research
designs to deal with the fundamental issues associated with factors influencing interest rate
with deposit mobilization in the context of commercial banks in Nepal. This design has been
adopted to ascertain and understand the directions, magnitudes and forms of observed deposit
mobilization with different variables. The basic purpose of employing and bankers causal
comparative research design in this study is to understand and examine whether it is possible
to predict interest rate and deposit mobilization on the basis of information about commercial
banks firm specific and macroeconomic variables. Other methodological issues associated with
this study are credit in the respective sections.

To achieve the objective of this study descriptive as well as casual comparative research design
has been used. Statistical and financial tools have also been applied to examine facts.
Descriptive technique has been adopted to evaluate the impact of interest rate on the
performance of the bank.

1.8.2 Population and sample

Population of this study includes all the 21 commercial banks listed in NEPSE. For the study
purpose, banks involving in banking services at least for five years data have been considered
for sample from year 2075/76 to 2079/80. The sample of the study was 3 commercial banks
include ADBL, RBBL, and PCBL.

1.8.3 Sources of data

For this study, secondary data are collected mainly from published sources like annual reports,
prospectus, newspaper, journal, Internet and other sources. Secondary data published in the
annual reports of concerned organizations are collected through personal visit in respective
organization as well as from their web sites. All the annual report published is verified and
approved through AGM of respective banks and also approved by NRB Since these annual
reports were approved by concerned body the reports were considered authentic to be present
in this research.

1.8.4 Data collection and processing procedures

The research is based on secondary data. The annual reports of the sampled banks are the
major sources for secondary data as well as NRB and other reports published by NRB are taken.
The procedures of data collection is visiting and study of published annual report of sample
bank and NRB published report about finance.

1.8.5 Data analysis tools

To achieve the objectives of the study various financial, statistical and accounting tools has
been used. Analysis of the data has been done according to the pattern of the available data.
Collected data has been brought under statistical scrutiny after the raw data is edited, coded
and tabulated. Data has been analyzed in descriptive form interpreting each part systematically
so that each individual is able to understand as per their need.

The data collected from different sources has gone through two different approaches:

a) Financial Tools

b) Statistical Tools

Simple growth pattern and highly sophisticated tool like ratio analysis has been used under
financial tools.

a) Financial tools

The following ratios have been used to evaluate the performance of the banks.

1. Loan and advances to total deposit ratio

2. Total investment to total deposit ratio

b) Statistical tools

1. Coefficient of variation (C.V.)

It is the relative measurement of risk with return. It measures the risk per unit of return.
Standard deviation is the absolute measure of dispersion. The coefficient of dispersion based on
standard deviation multiplied by 100 is known as the coefficient of variation (C.V.). If (𝑋) be the
arithmetic mean and () be the standard deviation of the distribution, then the C.V. is defined
by

𝐶.𝑉. = 𝜎/ 𝑋 × 100

It is independent of unit. So, two or more than two distributions can be compared with the help
of C.V. for their variability. Less the C.V., more will be the uniformity; consistency etc. and more
the C.V. less will be the uniformity, consistency etc.

2. Correlation coefficient (r)

The correlation analysis is the technique used to measure the closeness of the relationship
between the variables. It helps in determining the degree of relationship between two or more
variables. It describes not only the magnitude of correlation but also its direction. The
coefficient of correlation is a number which indicates to what extent two variables are related
with each other and to what extent variables is one leads to the variation in the other.

Correlation may be positive or negative which lies between ±1. Simple deposit amount is
computed in this thesis. The correlation between interest rate on deposit and deposit amount
is positive. For our study following reference is used.

i. Correlation may be positive or negative and ranges from +1 to – 1. When r = +1 there is

perfect positive correlation, when r = -1 there is perfect negative correlation, when r = 0 there is
no correlation and when r < 0.5 then there is low degree of correlation.

ii. When ‘r’ lies between 0.7 to 0.999 (or -0.7 to -0.999) there is high degree of positive or
negative correlation.

iii. When ‘r’ lies between 00.5 to 0.6999 there is a moderate degree of correlation. The
correlation coefficient can be calculated as:

r 12 = 𝑛∑𝑋1𝑋2−∑𝑋1∑𝑋2 / √𝑛∑𝑋1 2−(∑𝑋1) 2√𝑛∑𝑋2 2−(∑𝑋2) 2

Where,

n = no. of observation

X1 = Dependent Variable

X2 = Independent Variable

3. Coefficient of determination (r2)

The coefficient of determination is the primary way to measure the extent or strength of the
association that exists between two variables X1 and X2. It refers to measure at the total
variance in a dependent variable that is explained by its linear relationship to and independent
variance.

The coefficient of determination is denoted by r2 and the value lies between zero and infinity.
The close to infinity means greater the explanatory power. A value or one can occur only is the
in explained diagram falls exactly on the regression line. The r2 is always a positive number. It
can’t tell whatever the square of the simple correlation coefficient is called coefficient of
determination and it is very useful in interpreting the value of simple correlation coefficient.
The main significance of the coefficient of determination is to represent the portion of total
variations due to independent variable. Coefficient of determination (r2 12) = (r12) 2

CHAPTER II

RESULTS
2.1 Background
In this section, all the collected data are presented in the filtered form and are analysed
thoroughly. This is the one of the major chapter of this study because it includes detail analysis
and interpretation of data from which concrete result of Nepalese market can be obtained. In
this chapter the relevant data and information necessary for the study are presented and
analysed keeping the objectives set in mind. This chapter consists of various calculations made
for the analysis of interest rate and its effects on deposit of sample bank. This chapter consists
of detail analysis and interpretation of data relating to interest rate on deposit, deposit
collection amount of each selected organization from Nepalese financial system. This chapter is
categorized in three parts presentation, analysis and interpretation. The analysis is based on
secondary data. In presentation section data are presented in terms of table, graph chart of
figures, according to need. The presented data are then analysed using different statistical tools
which are mentioned in chapter three. At last the results of analysis are interpreted. For our
simplicity, in this thesis, presentation, analysis and interpretation of data are made according to
the nature. After then, the relationship between interest rate and deposit amount is made.

In the previous chapters, we discussed about the interest rates on deposit mobilisation of
commercial banks, historical background of interest rate and NRB’s policies regarding it.
Likewise in second chapter we discussed about the previous studies through literature review
and in the subsequent chapter, we presented the methods that have been used to analyse the
information. This chapter is the heart of the study. This chapter consist of relevant data and
information necessary for the study. In this chapter the analysis part is presented in detail. This
chapter is mainly concerned with the presentation of collected data in suitable tables and
diagrams as well as the analysis and presentation of these collected data in a suitable manner
using various statistical and financial tools. Different types of ratios have been calculated to
reach in the conclusion of the study.

2.2 Deposit Analysis:

Deposit are the source of borrowed funds raised from the public. Banks collect deposits from
institutional and individual deposits. Total deposits mobilized from depositors are exhibited
under this head. Deposits are grouped for transaction as well as balance sheet purposes based
on interest trade, purpose, and maturity. All deposit accounts head. Deposit from BFIs and NRB
are presented under this account head. Deposits occupy a significant portion of bank’s total
sources of funds. Therefore, the efficiency of a bank depends on its ability to attract depositors.
The capacity of the banks to earn profit depends on the volume of deposits and the deposit mix
they have. In Nepal, banks offer different types of deposit account: current account, saving
account, fixed accounts, and call account.

Table 2.1

Deposit of sample bank

Year RBBL ADBL PCBL

2075/76 104.24 77.04 41.01

2076/77 110.27 87.39 48.24

2077/78 118.90 99.82 65.86

2078/79 135.98 104.18 81.30

2079/80 164.37 118.88 86.26

Mean 126.75 97.46 64.55

SD 21.64 14.34 17.72

CV 0.17 0.15 0.27

The mean, standard deviation and coefficient of variation of deposit indicated that
average deposit of RBBL, PCBL, and ADBL. Highest for RBBL (Rs. 126.75 Billion), followed
by ADBL (Rs. 97.46 Billion), PCBL(Rs. 64.55 Billion). The average deposit computed across
the year fluctuated over a period of time it increased from Rs. 51.47 Billion in 2075/2076
to Rs.104.80 Billion in 2076/2077.

We can find that the bank RBBL has highest mean deposit i.e. 126.75 Billion whereas
PCBL has lowest mean deposit i.e.64.555 Billion. The bank RBBL has highest S.D i.e.
21.64 whereas ADBL has lowest S.D i.e. 14.34 Billion. The bank ADBL has low risk and
more consistent than other banks because C.V. of NBL is lower than others i.e. 15%
whereas bank PCBL has high risk and low consistent than other banks because C.V. of
PCBL is higher than others i.e. 27%.

Figure 2.1: Average deposit sample banks.

 140

120

100

80
Series 1
Series 2
60 Series 3

40

20

0
RBBL ADBL PCBL

Figure 4.1 shows the comparative pattern of average deposit of commercial banks from
2072/73 to 2076/2077. The graph shows that average deposit has increased from Rs. 126.75
Billion of RBBL and decresed of PCBL to Rs.64.55 Billion in 2076/2077. The average deposit
current position is upward sloping indicating the continuous increment in average deposit.

2.3 Investment analysis

Investment analysis is a broad term for many different methods of evaluating investments,
industry sectors, and economic trends. It can include charting past returns to predict future
performance, selecting the type of investment that best suits an investor's needs, or evaluating
individual securities such as stocks and bonds to determine their risks, yield potential, or price
movements. The aim of investment analysis is to determine how an investment is likely to
perform and how suitable it is for a particular investor. Key factors in investment analysis
include the appropriate entry price, the expected time horizon for holding an investment, and
the role the investment will play in the portfolio as a whole. In conducting an investment
analysis of a mutual fund, for example, an investor looks at how the fund performed over time
compared to its benchmark and to its main competitors. Peer fund comparison includes
investigating the differences in performance, expense ratios, management stability, sector
weighting, investment style, and asset allocation.

In investing, one size does not fit all. Just as there are many different types of investors with
unique goals, time horizons, and incomes, there are investment opportunities that match those
individual parameters. Investment analysis can also involve evaluating an overall investment
strategy in terms of the thought process that went into making it, the person's needs and
financial situation at the time, how the portfolio performed, and whether it's time for a
correction or adjustment.
Table 2.2

Investment of Sample Bank (Rs in Billion)

Year RBBL ADBL PCBL

2075/76 30.97 13.54 57.43

2076/77 36.53 14.02 50.60

2077/78 32.59 15.94 61.45

2078/79 28.67 1.21 84.28

2079/80 42.51 16.95 10.14

Mean 34.25 12.33 52.78

SD 4.86 5.70 24.13

CV 0.14 0.46 0.46

The mean, standard deviation and coefficient of variation of investment

indicated that average investment of RBB, PCBL, and ADBL. Highest for PCBL (Rs.
52.78 Billion), followed by RBBL (Rs. 34.25 Billion), ADBL (Rs.19.27 Billion).

Investment computed across the year fluctuated over a period of time it

decrease from Rs. 25.155 Billion in 2075/2076 to Rs.13.04 Billion in 2079/2080.
We can find that the bank RBBL has highest average investment i.e. 34.25 Billion
whereas ADBL has lowest average investment i.e.12.33 Billion. Like that the
bank PCBL has highest S.D i.e. 24.13 Billion whereas RBBL has lowest S.D i.e.
1.02 Billion. The bank RBBL has low risk and more consistent than other banks
because C.V. of RBBL is lower than others i.e. 14%.

Figure2.2 :

Investment Sample bank

 60

50

40

Series 1
30
Series 2
Series 3
20

10

0
RBBL ADBL PCBL

Table 2.3

Total loan and advance of Sample Bank. (Rs in Billion)

Year RBBL ADBL PCBL

2075/76 65.50 25.19 33.47

2076/77 7.77 19.41 41.09

2077/78 9.15 15.88 58.69

2078/79 11.54 98.59 69.97

2079/80 13.58 110.09 75.56

Mean 21.51 53.83 55.76

SD 24.69 46.41 18.13

CV 1.15 0.86 0.33

The mean, standard deviation and coefficient of variation of deposit indicated that average
deposit of RBBL, ADBL, and PCBL. Highest for PCBL (Rs.55.76 Billion), followed by ADBL
(Rs.53.83 Billion), RBBL (Rs.21.51 Billion). The average loan and advance computed across the
year fluctuated over a period overtime it increased from Rs. 33.61 Billion in 2075/2076 to
Rs.54.62 billion in 2079/2080.

We can find that the bank PCBL has highest mean loan and advance i.e. 55.76 Billion whereas
RBB has lowest mean deposit i.e. 21.51 Billion. Like that the bank ADBL has highest S.D i.e.46.41
Billion whereas PCBL has lowest S.D i.e. 18.13 Billion. The bank PCBL has low risk and more
consistent than other banks.

Figure 2.3:

loan and advance of Sample Bank

60

50

40

Series 1
30
Series 2
Series 3
20

10

0
RBBL ADBL PCBL

2.4 Performance Analysis

Financial performance is a subjective measure of how well a firm can use assets from its
primary mode of business and generate revenues. The term is also used as a general measure
of a firm's overall financial health over a given period. Analysts and investors use financial
performance to compare similar firms across the same industry or to compare industries or
sectors in aggregate. Financial performance indicators, also known as key performance
indicators, are quantifiable measurements used to determine, track, and project the economic
well-being of a business. They act as tools for both corporate insiders and outsiders to analyze
how well the company is doing especially in regard to competitors and identify where strengths
and weaknesses lie.

2.4.1 Loan and advances to total deposit ratio

This ratio is calculated to find out how successfully the selected banks are utilizing their total
collection or deposits on loan and advances for the purpose of earning profit. This ratio can be
obtained dividing loan and advances by total deposits.

Table 2.4:

Loan and advances to total deposit ratio of Sample Bank (in percentage)

Bank/ Year 2075/76 2076/77 2077/78 2078/79 2079/80 Average

RBBL 62.84 67.85 69.17 8.03 8.13 43.20

ADBL 32.70 22.21 15.91 94.64 92.60 51.61

PCBL 81.63 85.00 89.12 86.06 87.60 85.88

From the table 4.6 it is depicted that loan and advances to total deposit
ratio of RBBL, ADBL, and PCBL are 43.20%, 51.61%, 85.88%,respectively in
average. The average ratio of PCBL is higher than other banks whereas the
average ratio of RBBL is lower than the other banks. The loan and advance
to the total deposit ratio of all banks are in an increasing trend. This
indicates that all the sample banks under the study are able to mobilise its
funds to the maximum extent.

Figure 2.4
Loan and advances to total deposit ratio of Sample Bank (in percentage)

Loan and advanve

RBBL
ADBL
PCBL

2.4.2 Total investment to total deposit ratio

Investment is one of the major sources of income for the financial institution in long run. It also
helps in mobilization of deposit fund. Bank can invest in different securities issued by
government and other financial institution. This ratio measures the investment proportion in
the deposit. This ratio indicates how properly firm’s total deposits have been invested on
different sectors.

Table 2.5:

Total investment to total deposit ratio of Sample Bank (in percentage)

Bank/ Year 2075/76 2076/77 2077/78 2078/79 2079/80 Average

RBBL 3.00 3.29 2.51 2.11 2.59 2.70

ADBL 17.57 16.04 15.97 1.17 14.25 13.00

PCBL 140.06 104.67 93.32 103.66 11.76 90.69

From the table 2.5 it is clear that total investment to total deposit ratio of are RBBL, ADBL, and
PCBL, 2.70%, 13.00%, and 90.69%, in an average in the period under study. The average ratio
of PCBL Bank is higher than other banks. The average ratio of RBBL is lower than other banks.

Figure 2.5

TOTAL INVESTMENT TO TOTAL DEPOSIT

RBBL
ADBL
PCBL

2.5 Correlation analysis

Correlation is a statistical measure that indicates the extent to which two or more variables
fluctuate together. It is used for checking directional relationship between variables. Having
indicated the descriptive statistics, Pearson correlation coefficients are computed and the
results are presented.

Table 2.6

Correlation coefficients of dependent and Independent Variable

Variables IN DA IA LA

IN 1.000
DA 0.236* 1.000

IA 0.058 0.573** 1.000

LA 0.055 0.645** 0.64** 1.000

Sources: SPSS output

** Correlation is significant at 0.01level (2-tailed)

*Correlation is significant at the 0.05level (2-tailed)

The table shows the Pearson correlation coefficients for selected

commercial banks interest rate, deposit amount, investment amount and
loan amount. The result reveals that interest rate is positively correlated to
deposit amount, which indicates that higher the interest rate, higher
would be the deposit amount. Similarly, interest rate is positively
correlated to investment amount. This indicates that higher the interest
rate, higher would be the investment amount. Similarly, the interest rate is
positively correlated to loam amount. It states that increase in interest
rate leads to increase in investment amount.

2.6 Major findings

After presentation and analysis of relevant data of sample banks under study; using various
analytical tools some findings can be drawn. The major findings of the study are as follows:

I. The mean, standard deviation and coefficient of variation of interest rate ADBL has highest
average interest rate i.e. 6.23% whereas PCBL has lowest mean interest rate i.e. 3.75%. Like
that the bank has highest S.D. i.e. 1.32 % whereas ADBL and lowest S.D. i.e.0.17% whereas SCB.
The bank ADBL has low risk and more consistent than other banks because C.V.

II. The structure and pattern analysis of investment shows that PCBL has highest average
investment i.e. 52.78 Billion whereas has lowest average investment i.e.2.55 Billion. The bank
PCBL has low risk and more consistent than other banks.

III. We can find that the bank PCBL has highest average loan and advance i.e. 75.71 Billion
whereas RBB has lowest average loan and advance i.e. 21.51 Billion. Like that the bank ADBL
has highest S.D i.e.46.41 Billion whereas SCB has lowest S.D i.e. 16.21 Billion. The bank ADBL
has low risk and more consistent than other banks.

IV. Ratio analysis is found that depicted that Loan and Advances to Total Deposit Ratio of RBB,
ADBL and PCBL are 43.20%, 51.61%,and 85.88% respectively in average. The average ratio of
PCBL is higher than other banks whereas the average ratio of ADBL is lower than the other
banks. The loan and advance to the total deposit ratio of all banks are in an increasing trend.
This indicates that all the sample banks under the study are able to mobilize its funds to the
maximum extent.

V. The total investment to total deposit ratio are RBB, ADBL, and PCBL 2.70%, 13.00%, 6.02%
and 90.69%in an average in the period under study.

VIII. The correlation coefficients for selected commercial banks interest rate, deposit amount,
investment amount and loan amount. The result reveals that interest rate is positively
correlated to deposit amount, which indicates that higher the interest rate, higher would be the
deposit amount. Similarly, interest rate is positively correlated to investment amount.

CHAPTER III
 SUMMARY AND CONCLUSION
This chapter is last part of the research study which includes all the briefing of the whole study.
So, it is the important chapter for the research because this chapter is the extracts of all the
previously discussed chapters. This chapter consists of mainly three parts; Summary, Conclusion
and Recommendation.

In summary parts revision or summary of all two chapters is made. In conclusion parts the
result from the research is summed up and in recommendation parts, suggestion and
recommendation is made based on the result and experience of thesis i.e. various measures are
recommended to concerned organization for the improvement of the current condition of
interest rate structure of the commercial bank of Nepal, so that the banks can mobilize their
deposits more smoothly and properly in the near future. Recommendation is made for
improving the present situation to the concerned parties as well as for further research.

3.1 Summary

Natural resources of the country Nepal remains unused and unutilized due to the lack of
financing and technical know-how. In order to mobilize the limited capital, the government of
Nepal adopted the liberalization policy. As result up to now 27 Commercial banks, 25
Development banks, 22 Finance companies and 91 Micro-credit. Financial system is hoped to
develop the economy and help to raise the living standard of the people. Financial
intermediaries mobilize the fund by collecting the scattered resources from the savers and
provide the collected funds to the users or investors the intermediaries of financial systems
sustain by lending the fund on higher interest rate and paying the deposit holder a little
interest. It means that such organization survive by making profit through a large interest
spread on deposit and lending. The decision made to charge and provide interest on lending
and deposit affects the profit position of the organization. Depositors are generally attracted by
offering the higher interest rates. Bank acts as an intermediary for transformation of fund from
surplus unit to deficit unit in an effective and efficient manner. Banks collect deposits from
general public providing certain rate of interest in order to provide loans to different needy
persons or business houses at higher interest rate. In this way financial institutions makes profit
and profit is essential for the survival of growth (Ojwiya, 2009).

Similarly high credit rates de-motivate the investors as a result investment in the country
shrinks down. Though there are various factors in the economy that affects the deposit amount
and lending amount; interest rate is one of the major factor that affect deposit and lending
amount. With the major objective of showing relationship between deposit rate and deposit
amount i.e. substitution effect, lending rate and lending amount, inflation and interest rate, this
study is undertaken. After that financial intermediaries charge and offer, but time to time, NRB
uses to issue directives regarding overall performance of the financial institutions. Therefore, in
past few years back, banks and other financial institutions get freedom to quote the interest
rate on lending and deposit. This creates the competition in the Nepalese economy. In this
sense, this study is conducted to identify whether some of the theories of finance and
economics are applicable or not in the Nepalese financial markets. These major theories are like
substitution effect, fisher effect and inverse relationship between interest rate, sample
organizations, statement of problem, review of literature, research methodology and
significance of the study research hypothesis and so on are made in the first chapter of this
dissertation.
In second chapter, collected data are presented in the tabular and graphic form and analyzed
using various statistical tools like mean, standard deviation, coefficient of variation and
correlation coefficient and regression analysis. Financial tools ratios were also used in to
analyzed data.

3.2 Conclusion

From the analysis of relevant data of sample banks under the study: using various statistical
tools and financial tools mentioned in chapter three and from their findings conclusion has
drawn. This study concludes that fluctuations in the interest rate of the commercial banks
slightly affect the deposit mobilization. When there is a slight increase or decrease in interest
rates of deposits and lending then changes its deposit and lending amount. The interest rate
spread (deposit and lending) of all sample banks are found to be fluctuating trend. But contrary
to this, deposit amount and lending amount is increasing every year. Clarify the above
calculation of correlation coefficient between deposit amount and interest rate on deposit of all
the sample banks was found to be positive. It reveals that the movement of total deposit and
interest rate is found in different direction whereas it shows positive relationship; it reveals that
the movement of total deposit and interest rate is found in similar direction.

According to Fisher effect, there should be positive correlation between these two variables but
the interest rate in Nepalese financial market is affected by inflation rate to same extent only
during the study period, it is found that, there exist the high spread between deposit interest
rate and lending interest rate. That may be due to competitive financial environment and less
availability of investment opportunity. It is also found that, lending interest rate of productive
sector loan such as commercial loan, industrial loan, trade credit, working capital loan were
decreased lesser in magnitude in comparison to the nonproductive sector loan.
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Deweet, K.K. (2001). Modern economic theory. New Delhi: S. Chand & Company Limited.

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