Chapter I

Introduction
1.1 Background of Study:
The financial sector in Nepal has witnessed significant growth and transformation over
the past few decades, with commercial banks playing a central role in the country’s
economic development. Among these institutions, Nepal SBI Bank Limited (NSBL) has
emerged as a major player, contributing substantially to the financial landscape of the
nation. Established in 1993 as a joint venture between the State Bank of India (SBI) and
several prominent local investors, NSBL has been a pioneer in providing diverse banking
services such as savings accounts, loans, foreign exchange, and investment opportunities.
The bank's partnership with one of India’s largest financial institutions, SBI, brings both
international expertise and credibility to its operations, enabling it to serve a wide range
of customers from individuals to corporate clients. Nepal SBI Bank has focused on
expanding its product offerings and adapting to the changing economic environment of
Nepal, thereby positioning itself as one of the most prominent commercial banks in the
country. Nepal SBI Bank’s strong brand, solid financial foundation, and wide range of
products position it well for the future. The bank’s focus on technological innovation,
customer service, and financial inclusion is expected to help it maintain a competitive
edge. Moreover, the increasing demand for financial services in Nepal, driven by the
growth of the middle class, urbanization, and remittances, provides ample opportunities
for the bank to continue its growth trajectory.

Investment analysis of Nepal SBI Bank is crucial to understanding the bank’s financial
health and its ability to contribute to the growth of Nepal’s economy. Investment
decisions within the banking sector are primarily influenced by various financial factors
such as liquidity, profitability, capital adequacy, and asset quality. For investors,
analyzing these factors helps determine the stability and growth potential of a bank like
NSBL. The bank’s investment strategies, which include managing the loan portfolio, real
estate investments, and other financial instruments, directly impact the returns to
shareholders. The economic

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1.2 Profile of Organization (NSBL)
Nepal SBI Bank Limited (NSBL) is one of the prominent commercial banks in Nepal,
renowned for its customer-centric banking services and robust financial performance.
Established in 1993 as a joint venture between the State Bank of India (SBI) and several
prominent Nepalese investors, NSBL has consistently evolved in response to the
changing dynamics of the financial sector in Nepal. The bank is widely recognized for its
diversified product portfolio, which includes savings accounts, loans, fixed deposits,
remittances, and a wide range of investment options. Over the years, it has built a strong
reputation for its commitment to excellence, ethical banking practices, and innovative
services. As part of a larger international banking network, Nepal SBI Bank has access to
the resources, expertise, and global outlook provided by its parent, SBI, enabling it to
expand its reach and offer enhanced services to its customers in Nepal.

Nepal SBI Bank Limited was founded in 1993, with its establishment marking a
significant milestone in the development of Nepal's banking sector. The bank was created
as a joint venture between the State Bank of India (SBI), a multinational bank, and
several Nepalese institutional investors, including prominent business houses. The
partnership between the international and local investors was strategic, aiming to bring
international banking practices to Nepal and enhance the country's financial
infrastructure.
The bank’s early years were dedicated to building a customer base and establishing a
strong network of branches across major cities in Nepal. With the backing of its parent
organization, SBI, which holds a significant portion of its shares, NSBL was able to
leverage the expertise and global presence of SBI to grow quickly and establish itself as a
reliable financial institution in Nepal. Over the years, NSBL has significantly expanded
its services and geographical reach, making it one of the leading commercial banks in
Nepal. As a joint venture, Nepal SBI Bank is 55% owned by the State Bank of India
(SBI), with the remaining 45% held by Nepalese investors, including individuals,
institutions, and the general public. The bank's structure is designed to leverage the
financial and operational strengths of its parent, SBI, while maintaining a local presence
and adhering to the regulatory requirements set by the Nepalese government. This

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structure enables the bank to balance local and international perspectives in its banking
practices, ensuring that it is competitive both in the local market and on the international
stage.
The board of directors of Nepal SBI Bank comprises representatives from both SBI and
local investors, ensuring that decisions made by the bank take into account both global
banking standards and the specific needs of the Nepalese market. The management
structure is headed by a CEO, who is supported by senior executives and a team of
professional bankers with extensive experience in the financial sector.
4. Core Services and Products

Nepal SBI Bank offers a wide range of products and services to meet the financial needs
of its diverse customer base. Its offerings can be broadly classified into retail banking,
corporate banking, and treasury services.

 Retail Banking:
Retail banking services form the backbone of NSBL’s business, with a range of
products aimed at individuals. These products include savings accounts, current
accounts, fixed deposits, personal loans, home loans, and auto loans. The bank
also offers a variety of card products, including debit cards, credit cards, and
prepaid cards, which are designed to offer convenience and ease of access to
funds for customers. Additionally, the bank offers internet banking and mobile
banking services, allowing customers to access their accounts and conduct
transactions from anywhere.

 Corporate Banking:
NSBL provides a wide array of banking services to businesses and corporations,
ranging from small enterprises to large corporations. These services include
business loans, trade financing, working capital management, project financing,
and corporate deposits. The bank also offers customized solutions to meet the
specific needs of corporate clients, including cash management services, foreign
exchange services, and trade finance products.

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 Treasury Services:
The treasury division of NSBL manages the bank’s investment portfolio,
liquidity, and financial risk. The treasury team actively participates in managing
interest rate risks, foreign exchange risks, and investment portfolios, ensuring that
the bank’s financial position remains strong. Additionally, NSBL offers foreign
exchange services, facilitating both inward and outward remittances, which are
particularly important in a country like Nepal where remittance flows form a
significant portion of the national economy.

 Remittances:
One of the key services that Nepal SBI Bank provides is remittance services,
which play a critical role in Nepal’s economy. The bank offers remittance
services to both individual and corporate clients, ensuring that Nepalese citizens
working abroad can send money back home to their families. This service is made
more efficient through the bank’s partnerships with international remittance
companies, making it easier for the diaspora to transfer funds.

 Branch Network and Expansion

Since its inception, Nepal SBI Bank has expanded its network of branches across
Nepal, ensuring that its services are available to customers in both urban and rural
areas. The bank operates over 140 branches across the country, with a significant
presence in key cities such as Kathmandu, Pokhara, Biratnagar, and Lalitpur. The
expansion of its branch network is a key part of NSBL’s strategy to reach a
broader customer base and strengthen its position in the competitive Nepalese
banking sector.
In addition to its physical branches, NSBL has also focused on expanding its
digital banking infrastructure. The bank offers online banking services, mobile

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 apps, and ATM networks that allow customers to perform banking transactions
anytime and anywhere.

 Financial Performance and Strengths

Nepal SBI Bank’s financial performance has been consistently strong over the
years. The bank has demonstrated robust growth in terms of assets, liabilities, and
profits, making it one of the most profitable banks in Nepal. Its total assets have
consistently increased, driven by a steady growth in deposits, loans, and other
banking services. The bank’s capital adequacy ratio is well above the regulatory
requirements set by Nepal Rastra Bank, the central bank of Nepal, indicating its
strong financial position.
NSBL has also been successful in maintaining a healthy loan portfolio, with a low
ratio of non-performing loans (NPLs). This indicates that the bank has been
successful in managing credit risk and ensuring that its lending operations remain
profitable and sustainable. The bank’s net profit has shown steady growth, driven
by a combination of increased revenue from core banking operations and prudent
cost management.

 Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) is an important part of Nepal SBI Bank’s
operations. The bank actively engages in various social initiatives aimed at
improving the welfare of the community. NSBL’s CSR activities focus on
education, health, environment, and poverty alleviation, reflecting its commitment
to the development of Nepalese society. The bank has supported numerous
projects, including scholarships for deserving students, medical camps,
environmental sustainability initiatives, and support for underprivileged
communities.
The bank also supports various non-profit organizations and community projects
that focus on social upliftment, disaster relief, and rural development.

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  Challenges and Future Outlook
Despite its success, Nepal SBI Bank faces several challenges, including the highly
competitive nature of the Nepalese banking sector, political instability, and
regulatory changes. The banking industry in Nepal has seen significant
consolidation, with new players entering the market, increasing competition and
pressure on profit margins.
However, Nepal SBI Bank’s strong brand, solid financial foundation, and wide
range of products position it well for the future. The bank’s focus on
technological innovation, customer service, and financial inclusion is expected to
help it maintain a competitive edge. Moreover, the increasing demand for
financial services in Nepal, driven by the growth of the middle class,
urbanization, and remittances, provides ample opportunities for the bank to
continue its growth trajectory.
The future of Nepal SBI Bank looks promising, with the potential for further
expansion into rural markets, the introduction of new digital services, and
increased focus on sustainability and CSR initiatives. As Nepal's economy
continues to grow, NSBL is well-positioned to play a key role in supporting the
country's financial development.

1.3 Statement of the Problem

Despite Nepal SBI Bank Limited’s strong financial performance, diversified service
portfolio, and strategic partnership with the State Bank of India, several challenges persist
that may affect its long-term sustainability and growth. The increasingly competitive
landscape of the Nepalese banking sector, coupled with evolving regulatory frameworks
and political instability, poses significant operational and strategic risks.

Moreover, while the bank has demonstrated consistent growth in assets, profitability, and
branch expansion, questions remain about the efficiency and effectiveness of its
investment strategies, particularly in relation to deposit mobilization and loan
disbursement. The quality of its loan portfolio, although reported to have low non-

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performing assets, needs continuous evaluation in light of economic fluctuations and
credit risk.

Additionally, with the rapid advancement in digital banking and increasing customer
expectations, NSBL must ensure that its technological infrastructure and service delivery
mechanisms remain adaptive and innovative. Therefore, a detailed analysis is required to
understand how NSBL is managing its deposit and loan portfolio, navigating competitive
pressures, and leveraging its investment decisions to sustain financial performance and
support Nepal’s broader economic development.

1.4 Objectives of the Study:

The primary objective of this study is to analyze the deposit and loan management
practices of Nepal SBI Bank Limited (NSBL) and assess their impact on the bank’s
financial performance and overall stability. The study also aims to evaluate the bank’s
investment strategies and their contribution to economic growth and shareholder value.

Specific objectives include:

1. To examine the trend and composition of deposits and loans in Nepal SBI Bank
Limited over recent years.
2. To evaluate the efficiency and effectiveness of the bank’s loan disbursement and
recovery mechanisms.
3. To analyze the bank’s liquidity, profitability, capital adequacy, and asset quality
in relation to its deposit and loan portfolio.
4. To assess the impact of the bank’s investment strategies on its financial
performance and shareholder returns.
5. To identify the major challenges NSBL faces in managing deposits, loans, and
investments in the current competitive and regulatory environment.
6. To provide recommendations for enhancing deposit mobilization, credit
management, and investment practices for sustainable growth.

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1.5 Rationale of study
The investment analysis of Nepal SBI Bank Limited (NSBL) is essential for a
comprehensive understanding of the bank's financial position, its investment strategies,
and its ability to generate sustainable returns in a competitive and evolving market.
Investment analysis involves scrutinizing a bank’s financial health, its strategic decisions,
and the risks it faces in order to provide valuable insights for various stakeholders,
including investors, regulators, customers, and the broader financial community. The
rationale behind conducting this analysis is multifaceted, driven by the need to evaluate
the bank’s performance, its growth potential, and the broader economic and financial
factors that influence its decision-making.

First and foremost, Nepal SBI Bank is one of the key players in Nepal's financial sector,
and understanding its investment practices is critical for evaluating its role in the
economy. As a joint venture between the State Bank of India (SBI) and local investors,
the bank combines international banking expertise with local knowledge, creating a
unique competitive advantage in the Nepalese market. The rationale for the investment
analysis lies in understanding how well this combination translates into financial
performance and how it influences the bank's investment decisions, including the
management of its capital, loan portfolio, and other assets.

Another important reason for undertaking this investment analysis is to evaluate the
bank’s ability to navigate external challenges, such as regulatory changes,
macroeconomic shifts, and political instability in Nepal. The banking industry is highly
sensitive to these external factors, and their impact on the bank’s investment strategy is
significant. For instance, changes in the interest rate environment, inflation rates, or
government banking regulations could directly affect the profitability of the bank’s
operations. By assessing how NSBL has responded to these challenges in the past, and
understanding the measures it has in place to mitigate these risks, the analysis can
provide insights into the bank’s resilience and adaptability. This understanding is vital
not only for investors looking to assess the potential returns but also for regulators and
policymakers who rely on the stability of major banks in fostering economic growth.

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The investment analysis is also important in assessing the bank’s growth prospects and
the strategic decisions it has made to position itself for future success. NSBL has been
actively expanding its branch network and introducing digital banking services to meet
the evolving needs of its customers. The rationale for this part of the analysis is to
evaluate how these efforts align with the broader trend of digital transformation in the
banking industry. By understanding the bank's strategic priorities, such as its focus on
innovation and geographical expansion, the analysis can provide insights into how well
NSBL is positioned to leverage future growth opportunities in Nepal’s growing economy.

Finally, the rationale behind this study is to provide investors with critical information
regarding the bank’s potential risks and returns. In a rapidly evolving financial market,
understanding the risks associated with investing in a bank is paramount. This analysis
will help investors make informed decisions by identifying potential risks, such as
operational risks, market volatility, and regulatory challenges, while also assessing how
well the bank is managing these risks through its risk mitigation strategies.

1.6 Literature Review

A literature review on investment analysis within the banking sector, particularly
focusing on Nepal SBI Bank, provides a detailed exploration of academic research,
market studies, and financial reports related to the investment patterns, strategic decision-
making, and risk management practices within Nepalese banks. Numerous studies
highlight the role of financial performance indicators, such as Return on According to
various studies on banking performance in Nepal, investment decisions of banks are
deeply intertwined with macroeconomic factors such as interest rates, inflation rates, and
the country’s regulatory environment. For instance, the monetary policy set by Nepal
Rastra Bank, the central bank of Nepal, influences the capital and reserve requirements
for commercial banks like NSBL. Several studies have also shown that Nepalese banks
are heavily reliant on remittances, and any shift in global remittance flows can
significantly affect their investment strategies.

Research on digital banking has also been instrumental in shaping investment strategies
for banks worldwide, and studies on Nepalese banks suggest that digital banking services
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have become an increasingly important investment avenue for commercial banks in
Nepal. A significant body of literature on digital transformation in Nepalese banks
indicates that adopting new technologies helps banks increase their reach, reduce costs,
and improve the customer experience. This shift aligns with the growing trend of
financial inclusion in Nepal, where a significant portion of the population still remains
unbanked. NSBL’s investments in mobile banking and internet banking, therefore, must
be seen in the context of enhancing financial inclusion and expanding its customer base.

1.7 Method of the study

The research methodology for analyzing the investment strategies and financial
performance of Nepal SBI Bank Limited (NSBL) will adopt a descriptive research
design, combined with quantitative and qualitative approaches. The goal is to gain
insights into the investment practices of NSBL, evaluate its financial health, and assess
the factors influencing its decision-making in the context of the Nepalese banking sector.

The study will use a combination of primary and secondary data sources to gather
relevant information. This dual approach ensures a comprehensive analysis by combining
the detailed information from financial reports and academic literature with first-hand
insights from key stakeholders.

1.7.1 Research Design:

Descriptive research is appropriate for this study because it aims to describe the current
situation of Nepal SBI Bank's investment activities, financial performance, and risk
management practices. The focus will be on the present status of NSBL’s investments,
the quality of its loan portfolio, its digital banking initiatives, and its risk mitigation
strategies. The study will also explore how macroeconomic factors and government
policies impact the bank’s investment decisions.

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1.7.2 Population and Sample
The population for this study includes all the Commercial bank of the population for this
study includes key stakeholders involved in the investment and financial decision-making
processes all the commercial bank, such as senior management, financial analysts, and
risk managers who directly influence investment strategies and risk management
practices. Additionally, the sample will include regulatory bodies like Nepal Rastra Bank,
customers, and retail investors who provide valuable feedback on the bank's performance.
A purposive sampling technique will be used to select individuals with relevant expertise
and insights, ensuring a comprehensive understanding of the bank's investment
operations and strategies. The sample size will consist of approximately 20-30
individuals, representing various levels and functions within the bank and external
regulatory bodies.

1.7.3 Method of Data Collection

This study relies exclusively on secondary data collected from various credible sources to
analyze the deposit and loan management of Nepal SBI Bank Limited. Key sources
include the bank’s annual reports, which provide detailed financial information. The
study cover form the year Period form 2019-2020 to 2023-2024

1.7.4 Method of Data Analysis

The collected secondary data was analyzed using quantitative and comparative methods
to evaluate the financial performance of Nepal SBI Bank Limited, particularly in terms of
deposit and loan management. Key financial ratios such as loan-to-deposit ratio, net
interest margin, non-performing loan ratio, return on assets (ROA), and return on equity
(ROE) were calculated to assess efficiency, profitability, and risk. Trend analysis was
used to examine changes over time in deposits, loans, and key performance indicators.
The results were interpreted to identify strengths, weaknesses, and areas for improvement
in the bank’s financial practices.

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1.7.5 Definition of Variables

The study uses several financial variables to assess the performance and efficiency of
deposit and loan management at Nepal SBI Bank Limited. Total Deposits refer to the
total amount of customer funds held by the bank in various accounts such as savings,
current, and fixed deposits. Total Loans and Advances represent the amount disbursed by
the bank to individuals and businesses as credit. The Loan-to-Deposit Ratio (LDR)
indicates the bank’s liquidity by showing the proportion of deposits used for lending.
Non-Performing Loans (NPL) refer to loans that are in default or close to being in
default, serving as a measure of credit risk. Return on Assets (ROA) and Return on
Equity (ROE) are profitability ratios used to assess how efficiently the bank is utilizing
its resources and equity. These variables collectively help evaluate the effectiveness of
the bank’s financial management and overall performance.

1.8 Limitation of the study

While secondary data is an invaluable resource, it comes with certain limitations. One of
the primary drawbacks is that the data may not always be specific to the research
question or may not be fully aligned with the study’s objectives. For instance, financial
reports or government publications may lack detailed information about the internal
strategies or decision-making processes of Nepal SBI Bank. Additionally, secondary data
is often collected for purposes other than the researcher’s specific needs, meaning it may
not always reflect the most recent developments or changes, especially in a dynamic
industry like banking. There is also a risk of data being incomplete, outdated, or biased,
depending on the source, which can affect the accuracy and reliability of the analysis.
Moreover, since secondary data is collected by others, the researcher has limited control
over the methodology used to gather the data, potentially impacting its relevance or
quality. Lastly, secondary data may not capture certain qualitative aspects, such as
internal culture, attitudes, and personal experiences, which are often crucial in
understanding the deeper factors behind investment decisions.

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