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1.1 Background of the Study

Nepal, which is surrounded by China to the north and India to the east, west and south, is one of
the least developed countries in the world which is directing her efforts in accelerating the pace
of her economic development. Being landlocked happens to be a disadvantage for the country.
Nepal is located in between the latitude 26°22' North to 30°27' North and longitude 80°4' East to
88°12' East. The average length being 885 kilometers east to west to average breadth is about
193 km. north to south and area is 147,181 square kilometers.

The economy of Nepal is survived by agricultural sector. The agriculture sector contributes over
60 percent to the G.D.P. of the country. Over 80% of the population is depended on the
agriculture. Therefore, major concentration of every government of Nepal has been the
development and advancement of agriculture sector. But, still there has always been scarcity of
finance in this sector. To some extent, the establishment of Agriculture Development Bank has
provided the support for the farmers to raise the required capital. Also, various programs like
microfinance programs, cooperative programs have been introduced in various villages of Nepal
which has definitely helped local people to finance them.

While talking about the capital formation, commercial banks play a major role on it. Capital is
one of the most important components for an organization. Actually, no organization can exist
without capital. Without capital it is not possible to set up any type of business whether it is a
general store or a big business house. Every organization is started with a zero position and only
come into existence when the promotes, owners or shareholders finance on it as capital. Every
organization should have enough capital to run business. Capital adequacy by definition is seen
as a quantum of fund, which a financial institution should have and plan to maintain in order to
conduct its business in a prudent manner (Kishore 2005, Pandey 2005)

1.2. Profile of Organization

Introduction of RastriyaBanijya Bank

RastriyaBanijya Bank (RBB) is fully government owned, and the largest commercial bank in
Nepal. RBB was established on January 23, 1966 (2022 Magh 10 BS) under the RBB Act. Now,
the bank is running under bank and financial institute act 2063. RBB has been contributing to
socio economic development of the country for the last four and half decades. The Bank has
currently entered into 46 years of service. RBB provides various banking services to a wide
range of customers they include elite to poor individuals, institutional customers, and the
customers from industry/business communities. The core capital fund of RBB is negative Rs.
10.3 Billion where core capital of other banks.
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Introduction to Agricultural Development Bank

With the main objective of providing institutional credit for enhancing the production and
productivity of the agricultural sector in the country, theADBN was established in 1968 under
the ADBN Act 14967, as successor to the cooperative Bank. The Land Reform Savings
Corporation was merged with ADBN in 1973. Subsequent amendments to the Act empowered
the bank to extent credit to small farmers under group liability and expand the scope of financing
to promote cottage industries. The amendments also permitted the bank to engage in commercial
banking activities for the mobilization of domestic resources.

Agricultural Development Bank Limited (ADBL) is an autonomous organization largely owned

by Government of Nepal. The bank has been working as a premier rural credit institution since
the last three decades, contributing a more than 67 percent of institutional credit supply in the
country. Hence, rural finance is the principal operational area of ADBL. Besides, it has also been
executing Small Farmer Development Program (SFDP), the major poverty alleviation program
launched in the country. Furthermore, the bank has also been involved in commercial banking
operations since 1984.

1.3 Objectives of the Study

The objectives of this study are to analyze the significance and impact of capital
adequacy of Agricultural Development Bank Limited and Rastriya Banijya Bank.

The objectives of the study of this research are:

• To examine the capital adequacy position of selected commercial bank.

• To examine the relation of capital fund to other stakes of banks.
• To analyze the impact of deposit of selected banks

1.4 Rationale of the Study

Commercial banks have collected more than Rs. 715 Billion of deposits. We can observe that
there is a lack of investment opportunity of fund. In such a situation, these deposits have to be
protected by adequate capital fund of respective commercial banks. In fact, the banks should
have adequate capital fund although there are plenty of investment opportunities.

Presently, raising capital is a tough task. The growing NPAs, being the main headache of
commercial banks, meeting the capital adequacy is very tough, though it is not impossible.

It has been observed that any study has not been undertaken regarding the capital adequacy
norms for commercial bank. However, studies on NRB directives have been undertaken by some
private research organization but in the way of publication of the result as they conducted the
research
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So, this thesis is new study in the field of banking sector. Thus, the thesis has of course presented
some results which will reflect the capital structure and position of commercial banks of Nepal.

1.5 Literature Review

There are different model used to rate the commercial banks. Capital Asset quality Management
quality Earnings Liquidity is one of the best tools used to rate the quality of commercial banks.
The method even has adopted by Nepal Rastra Bank and publishes it time to time. "Capital Asset
quality Management quality Earnings Liquidity" is an international bank rating system with
which bank supervisory authorities rate institutions according to five factors. The five areas
examined are represented by the acronym "Capital Asset quality Management quality Earnings
Liquidity". Capital adequacy by definition is seen as a quantum of fund, which a financial
institution should have and plan to maintain in order to conduct its business in a prudent manner
(Kishore 2005, Pandey 2005)

Bank supervisor authorities assign each bank a score on a scale of 1 (best) to 5 (worst) for each
factor. If a bank has an average score less than 2 it is considered to be a high quality institution
while banks with scores greater than 3 are considered to be lessthan-satisfactory establishments.
The system helps the supervisory authority identify banks that are in need of attention.

During an on-site bank exam, supervision gather private information, such as details on problem
loans, with which to evaluate a bank’s financial condition and to monitor its compliance with
laws and regulatory policies. A key product of such an exam is a supervisory rating of the bank’s
overall condition, commonly referred to as a CAMEL rating. This rating system is used by the
three federal banking supervisor (the Federal Reserve, the FDIC, and the OCC) and other
financial supervisory agencies to provide a convenient summary of bank conditions at the time
of an exam.

The acronym “CAMEL” refers to the five components of a bank’s condition that are assessed:
Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth component, a
bank’s Sensitivity to market risk was added in 1997; hence the acronym was changed to
CAMELS. (Note that due to lack of proper data available, whole research is thus based on
CAMEL ratings.) Ratings are assigned for each component in addition to the overall rating of a
bank’s financial condition. The ratings are assigned on a scale from 1 to 5 (standard rating is 1-5
but may differ person to person). Banks with ratings of 1 or 2 are considered to present few, if
any, supervisory concerns, while banks with ratings of 3, 4, or 5 present moderate to extreme
degree of supervisory concern.
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1.6 Research Methodology

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done scientifically. In it we study the various
steps that are generally adopted by researcher in studying his research problem along with the
logic behind them. The various objectives of this chapter are to show the financial relations from
which liquidity, structure of working capital and utilization of working capital of the factory can
be measured.

The study about selected listed manufacturing companies in Nepal has been already streamlined
to some extent in earlier chapter regarding their growth, objective, statement of problem, relevant
literature of concerning manufacture in companies have been reviewed in second chapter. This
chapter, the focus has been made on research design, nature of data, population and sample,
source of data, data collection techniques and tools used for data analysis.

1.7 Limitations of the Study

The study is conducted for the partial fulfillment of BBS, so it possesses some
limitations of its own kind. The limitations of the study are follows:

• The study is limited to the capital fund and capital adequacy norms for
selected commercial banks among all the commercial banks.
• It covers financial data of only five fiscal years.
• All the data are based on secondary sources only.
• The quality of report depends upon the reliability of data provided by the
cooperative.