DEPOSIT AND LOAN MANAGEMENT OF SIDDHARTHA BANK

LIMITED

A Thesis Proposal
By
Prayas Sapkota
Public Youth Campus, Kathmandu
T.U. Reg. 7-2-31-301-2016
Exam Roll No.37184/21

In Partial Fulfillment of the Requirements of the Degree of

Master of Business Studies (MBS)
In the
Faculty of Management
Tribhuvan University, Kathmandu

Kathmandu,
Nepal
June, 2024
Table of Contents
1 Background of the Study 1

2 Focus of the Study 2

3 Problem Statement 2

4 Objective of the Study 3

5 Conceptual Framework 4

6 Significance of the Study 4

7 Limitation of the Study 5

8 LITERATURE REVIEW 5

8.1 Conceptual Review 6

8.2 Review of Related Study 7

8.3 Research gap 9

9 METHODOLOGY 9

9.1 Research Design 10

9.2 Population and Sample 10

9.3 Sampling Procedures and Technique 11

9.4 Types and Sources of Data Collection 11

9.5 Data Analysis Method 11

9.5.1 Financial Tools 12

9.5.2 Statistical Tools 17

10 Expected Output 19

REFERENCES 20
 1

1 Background of the Study

The term "word bank" comes from the Latin word "bank," meaning "bench." A
bank's main role is to accept deposits and lend money. Thus, a bank is a financial
institution operating directly or indirectly via capital markets. Banks are heavily
regulated in most countries due to their critical role in the financial system and their
impact on national economies. Banks must adhere to minimum capital requirements
based on international capital standards known as the Basel accords, alongside other
regulations ensuring liquidity. A bank is the largest financial entity that handles
monetary transactions. Banks accept various types of public deposits that can be
withdrawn on demand or short notice. This process aids in transferring funds from
savers to users.

A deposit is money held at the bank, involving a transaction to transfer money

to another party for safekeeping. Loan management and financial services are economic
services provided by the finance industry, covering a broad range of businesses that
manage money, including credit unions, credit card companies, and investment firms,
including government-sponsored enterprises.

Banks accept deposits in different formats, depending on the depositor's nature

and the bank's strategy. Common types include current deposits, fixed deposits, and call
deposits. Bank interest rates vary because the central bank allows commercial banks to
set their own rates. Similarly, loans are provided based on the lender's needs and bank
policy. Banks offer various loans such as home loans, vehicle loans, personal loans, and
more. Interest rates differ between banks. The difference between loan interest and
deposit interest constitutes bank income. Generally, a bank is an institution whose
primary function is to facilitate monetary transactions safely and efficiently. Banks
gather deposits from savers and lend to individuals needing credit for the same purpose.
Banks collect idle money from the public and lend it to fund seekers by offering
attractive interest rates. People with a lot of money often buy expensive items without
much thought about investing. Banks play a key role in encouraging saving and
investing in productive areas.

Siddhartha Bank Limited (SBL) is a prominent commercial bank in Nepal,

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known for its robust financial services, including deposit collection and loan
management. This dissertation explores the deposit collection and loan management
practices of SBL, aiming to understand their efficiency, challenges, and impact on the
bank's overall performance. Established in 2002, SBL has grown significantly and has
become an essential player in Nepal's banking sector, providing various financial
products and services to a broad customer base.

2 Focus of the Study

This research is centered on the management of loans and deposits within the
entire commercial banking sector, with a particular focus on Siddhartha Bank Limited
(SBL). The primary objective is to examine the deposit positions of commercial banks
and to understand the relationship between deposits and loans within these institutions.
Consequently, the study delves into various aspects of deposit and loan management.
It analyzes historical data concerning the bank's loans and deposits, tracing their
evolution and growth over the years to assess their current status. The research
specifically targets the deposit and loan management practices at Siddhartha Bank
Limited, comparing historical trends with contemporary data to provide a
comprehensive overview of the bank's financial management over time.

3 Problem Statement
A problem statement clearly articulates an issue that needs to be addressed or a
condition that requires improvement. It highlights the discrepancy between the existing
problem and the desired situation. Having a clear and well-defined problem statement
is crucial for understanding the issue at hand and for developing effective solutions.
In the context of commercial banking, accepting deposits from customers and providing
loans to those in need are the primary functions. Managing these activities efficiently
is essential for the bank's success. However, banks and financial institutions are
currently facing intense competition and numerous challenges related to liquidity risk,
credit risk, inflation risk, and interest rate risk. Effective management of deposits and
loans is critical to navigating these challenges. Therefore, this study will address the
following key questions:
i. Does the investment of Siddhartha Bank Limited (SBL) in securities and
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loans align with the objective of maximizing profit?

ii. What are the trends in deposits, loans, advances, and net profits at SBL
over recent years?
iii. What is the correlation between deposits and loans at SBL?
iv. What is the current status of profitability at Siddhartha Bank Limited?

This research aims to provide a comprehensive analysis of these questions to offer

insights and recommendations for improving the deposit and loan management
practices at Siddhartha Bank Limited.

4 Objective of the Study

Banks offer essential services to the public by providing both deposit and credit
facilities. They collect funds from savers in the form of deposits and lend these funds
to individuals and businesses in need of financing. The effectiveness and efficiency of
a bank’s operations heavily depend on how well it manages these deposit funds.

The main objective of this study is to analyze the trends in deposits and loans within
commercial banks in Nepal, with a specific focus on Siddhartha Bank Limited. The
detailed objectives of this study are:

i. To investigate the prevailing policies and the trends in deposits and

advances at Siddhartha Bank Limited.
ii. To assess the overall trends in deposits, loans, and advances of Siddhartha
Bank Limited over recent years.
iii. To explore the relationship between the bank's deposits and loans.
iv. To evaluate the current status of profitability at Siddhartha Bank Limited.

Through this study, we aim to gain a comprehensive understanding of Siddhartha

Bank Limited's deposit and loan management practices, how these practices have
evolved over time, and their impact on the bank's financial performance and
profitability.
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5 Conceptual Framework
One of the important studies on the topic was written by researchers
Frangos et al. (2012). The following conceptual framework has been constructed
in the spiritof their paper.

Dependent Variable Independent Variable

loan

Total investment Deposit

Total income

Loan, investment and income are all dependent variables, whereas

deposit independent factors. Furthermore, several additional relationships for the
researchhave been constructed, such as the link between deposit and loan. The
total deposit and Investment. Link between deposit and income. These functional
links are investigated using statistical methods such as the correlation coefficient
and regression.

6 Significance of the Study

The significance of this study lies in its explanation of the necessity for this
particular research, justifying its importance and potential impact in the field. It outlines
how the study will contribute to new knowledge and benefit various stakeholders. The
quality and comprehensiveness of a bank’s fund management policies are indicators of
the bank’s overall health and, by extension, the national economy. Given the crucial
role that co mmercial banks play in providing credit to the economy, this study’s
focus on deposit and loan management is particularly relevant. The significance of this
research can be highlighted through the following points:

i. It will help identify trends in deposits and the key areas of lending among
commercial banks in Nepal.
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ii. The study will analyze the specific deposit and loan activities of
Siddhartha Bank Limited, offering detailed insights.
iii. The findings will be beneficial to a wide range of individuals, groups, and
organizations, both directly and indirectly.
iv. This research will provide valuable insights for banks and financial
institutions, aiding in the design of new loan products.
v. The study will offer a clear and detailed overview of the various loan and
deposit strategies employed by Siddhartha Bank Limited.

By addressing these points, the study aims to enhance the understanding of deposit
and loan management practices and their implications for the financial health of
commercial banks in Nepal.

7 Limitation of the Study

i. This study is exclusively focused on Siddhartha Bank Limited, limiting its scope
to this single institution.
ii. Confidentiality policies of the bank restrict access to certain critical information,
hindering a comprehensive analysis of all relevant facts and issues.
iii. The researcher may encounter challenges due to a lack of cooperation from
some respondents, and the possibility of respondent bias cannot be entirely
eliminated.
iv. The analysis will rely on basic statistical and financial tools, which may not
capture the full complexity of the data.
v. The time available to conduct the study is limited, which may affect the depth
and breadth of the research.
These limitations are acknowledged to provide context for the study’s findings and
to highlight areas where further research may be needed.

8 LITERATURE REVIEW
According to Paint (2005), a literature review serves as a method to explore
previous research in a particular field of study. This process involves extracting the
essential themes from various sources such as publications, books, newspapers, and
previous dissertations. The aim is to highlight and summarize the key findings and
 6

insights relevant to the research topic. A literature review can be segmented into
different sections to facilitate comprehensive coverage of the existing body of
knowledge.

In the context of Nepal's banking sector, the management of deposits and loans
is a pivotal aspect that significantly influences the financial health and stability of
commercial banks. This literature review aims to delve into existing studies and
research conducted in Nepal, focusing on deposit collection and loan management
practices, particularly within Siddhartha Bank Limited (SBL). By examining prior
literature, this review seeks to provide a comprehensive understanding of the trends,
challenges, and implications associated with deposit and loan management in the
Nepalese banking industry.

8.1 Conceptual Review

At Siddhartha Bank Limited (SBL), gathering deposits and managing loans are
key tasks that keep the bank running smoothly.

Deposit Collection:
SBL values the money people and businesses trust them with. Just like a piggy
bank, SBL gathers money from folks who want to save it for a rainy day or for future
plans. There are different types of accounts you can open, like a current account where
you can take out money anytime, or a fixed deposit where you stash away money for a
set period and earn a higher interest rate. SBL also offers saving accounts where you
can deposit and withdraw money a few times a week. The more people save with SBL,
the more money they have to lend out to others.

Factors Affecting Deposit Collection:

SBL tries to attract more deposits through advertising and having accessible
branches where people can easily open accounts. They also pay attention to things like
inflation and people's understanding of money matters, as these can influence how
much people save.
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Loan Management:
SBL isn't just about keeping your money safe; they also lend it out to help people
and businesses grow. When you need money for a project or to start a business, SBL
might offer you a loan. They have different types of loans, like cash credits where you
can borrow against certain assets or overdrafts where you can withdraw more money
than you have in your account. But SBL is careful about who they lend to; they check
if you can repay the loan and if the purpose of the loan is sensible and productive.

Principles of Lending:
When SBL lends money, they make sure it's safe and that the borrower can pay
it back. They also spread out their lending across different types of loans and borrowers
to minimize risks. And of course, they want to make some profit from the interest on
the loans they give out.

Loan Collection:
SBL lends money, they need to make sure it gets paid back on time. They have
systems in place to collect loan payments efficiently, which helps them manage their
finances better and offer more loans in the future.

Credit Limits:
SBL sets limits on how much money they'll lend to each person or business.
This helps them manage risks and ensures they're not giving out more money than they
can afford to lose.

In simple terms, SBL is all about responsibly handling your money, whether
you're saving it with them or borrowing from them to achieve your goals."

8.2 Review of Related Study

Trends in Deposit and Loan Management
A study by Sharma and Shrestha (2018) investigated the deposit and loan
management practices of commercial banks in Nepal, with a specific emphasis on SBL.
The research revealed a consistent upward trend in deposit mobilization by SBL,
attributed to its strategic deposit product offerings and extensive branch network.
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However, despite the growth in deposits, the study highlighted challenges related to
loan disbursement efficiency, particularly in rural areas. This finding underscores the
importance of aligning deposit and loan management strategies to ensure balanced
growth and financial stability.

Policies and Strategies in Deposit and Loan Management

Analyzing the prevailing policies and strategies in deposit and loan management
is crucial for understanding the operational dynamics of commercial banks in Nepal.
Bhattarai and Adhikari (2017) conducted a qualitative study focusing on the policies
and strategies adopted by SBL to manage deposits and loans effectively. The research
identified SBL's emphasis on personalized customer service, innovative deposit
products, and prudent risk management as key drivers of its success in deposit
mobilization. However, challenges such as regulatory constraints and market
competition were noted, necessitating continuous adaptation of strategies to maintain
competitiveness and profitability.

Relationship between Deposits and Loans

The interplay between deposits and loans is a fundamental aspect of banking
operations, influencing liquidity management, profitability, and risk exposure. Lama
and Rai (2019) explored the relationship between deposits and loans at SBL, employing
statistical analysis to examine historical data. The findings revealed a strong correlation
between deposit growth and loan disbursement, highlighting the significance of
effective fund utilization and asset-liability management in optimizing bank
performance. Furthermore, the study emphasized the importance of aligning deposit
mobilization strategies with targeted lending activities to mitigate liquidity risks and
enhance profitability.
Profitability and Financial Performance
Assessing the current status of profitability and financial performance is
essential for evaluating the effectiveness of deposit and loan management practices. KC
and Maharjan (2020) conducted a comparative analysis of commercial banks in Nepal,
including SBL, focusing on key performance indicators such as net interest margin and
return on assets. The research highlighted SBL's competitive positioning in terms of
profitability metrics, attributing its success to efficient deposit utilization and
diversified loan portfolio management. However, challenges related to interest rate
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volatility and asset quality were identified, underscoring the need for proactive risk
mitigation measures to sustain profitability amidst market uncertainties.

Conclusion
In conclusion, the literature reviewed provides valuable insights into the deposit
collection and loan management practices of commercial banks in Nepal, with a
specific focus on Siddhartha Bank Limited. Despite facing various challenges,
including regulatory constraints and market competition, SBL has demonstrated
resilience and innovation in its approach to deposit mobilization and loan disbursement.
By aligning strategies with market dynamics and leveraging technological
advancements, SBL has positioned itself as a key player in Nepal's banking industry.
However, continuous monitoring and adaptation of policies are imperative to address
evolving challenges and sustain long-term profitability and growth.

8.3 Research gap

In previous studies, there has been limited exploration of the specific
relationship between deposit levels and deposit collection practices within Nepalese
commercial banks, particularly focusing on institutions like Siddhartha Bank Limited
(SBL). While some research has examined factors affecting deposits and loans
individually, there is a gap in understanding how deposit collection strategies impact
the overall financial position of banks, including SBL. Additionally, prior studies may
not have adequately considered updated data and changes in the economic landscape.
Therefore, this research aims to fill these gaps by conducting a comprehensive analysis
of deposit collection and loan management practices at SBL, utilizing various financial
and statistical tools. By addressing these research gaps, the study seeks to provide
valuable insights into the operational dynamics and financial performance of SBL
within the context of the Nepalese banking sector.

9 METHODOLOGY
In the words of Kothari (2009), research methodology is the process of
methodically solving a research problem. This research methodology addresses not
only the research technique but also the reasoning behind its application in the situation
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of our research inquiry. It also explains why we are employing the specific approach in
order for the results to be reviewed by others or by the researchers themselves. A
successful research study must employ the right technique in order to reach the stated
aims. A methodical process is seen as essential for actual fairness, better results, and
superior results.

The many sequential actions to be performed by a researcher in examining an

issue with a specific purpose in mind are referred to as "research methodology." It is a
way to systematically resolve the research challenge. The fundamental purpose of this
study is to assess and analyze SBL's deposit collecting and loan management (i.e., loan
disbursement and recovery) throughout the study period (F.Y. 2069/070 to 2079/080)
and to provide suggestions.

Recommendation for improving their financial situation. The research design's

data type and sources, the population and sample data, and the data-
gathering technique.

9.1 Research Design

This study employs a descriptive research design to analyze the deposit
collection and loan management practices of SBL. Both qualitative and quantitative
data are used to provide a comprehensive analysis.

9.2 Population and Sample

The target population is the population of interest. The collection or aggregation
of items or the set of the results of an action is referred to as a population. The study's
population consists of 20 commercial banks functioning throughout the nation.
However, it is impossible to study everything. A sample is a representative subset of a
population chosen to explore its qualities. The population of the study is SBL deposit
collecting and loan disbursement, with 11 years of data used as a sample for this
research. According to Baskota (2004), a sample is any number chosen to reflect the
population in accordance with some rule. Choosing a sample entail choosing
components from the target population for the end goal. It draws a general conclusion
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about the entire number of elements.

9.3 Sampling Procedures and Technique

Sampling is a crucial aspect of any research project, as the validity of the
research heavily depends on selecting an appropriate sampling method. In this study on
the deposit collection and loan management practices of SBL, a systematic approach
was taken to ensure accurate and reliable data collection.
Initially, raw data was gathered from various sources. This data was then processed and
organized into tabular and chart formats based on its nature, ensuring relevance to the
research objectives. This structured presentation of data is essential for effective
sequential analysis.

The primary sources of data for this study included published papers, audited
financial statements, and annual reports from selected institutions. To supplement this
quantitative data, qualitative insights were obtained through discussions with chosen
bank executives.

The process began with manually gathering essential data from the published
papers, annual reports, and audited financial statements. This information was then
compiled into a master sheet. Subsequently, the data was transferred into a spreadsheet
for calculating financial ratios and generating the necessary figures for the study.
This meticulous sampling procedure ensures that the data is comprehensive and
accurately reflects the deposit collection and loan management practices at SBL.

9.4 Types and Sources of Data Collection

The study will utilize both primary and secondary data. Primary data were
acquired using instruments, such as structured questionnaires provided to banks, and
other data were retrieved from unpublished bank records. Secondary data include
SBL’s and NRB annual reports, financial statements, and published research papers.

9.5 Data Analysis Method

Analytical tools will be used to solve the problem of the study. All calculated
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primary and secondary data will be arranged, scanned, and tabulated under various
heads, and then descriptive statistical analysis will be carried out to enlighten the study.
Statistical tools help to find out the trends in the financial position of the bank and
analyze the relationship between variables. This aid banks in making appropriate
investment policies, deposit collection, and fund utilization through providing loans and
advances to others. In this study, statistical tools such as the mean, standard deviation,
and coefficient of correlation between variables will be used for analyzing the financial
data.
9.5.1 Financial Tools

Financial tools include ratio analysis, in which various ratios are calculated
using financial statements from selected banks to determine an organization's
profitability, leverage, liquidity, and performance. A ratio is a fixed relationship
between two variables.
A. Liquidity Ratio: The ability of an asset to be turned into cash without a price
concession is referred to as liquidity. These liquidity ratios are useful in credit
analysis by a bank and other suppliers of short-term loans. The following liquidity ratio
has been calculated in this study.
i. Current Ratio: It depicts the link between current assets and current liabilities as:
Current ratio= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝐴𝑠𝑠𝑒𝑡/𝐶𝑢𝑟𝑟𝑒𝑛𝑡𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Current assets are those that may be turned into cash within a year, whereas current
obligations are those that must be met within the same year. Many types of businesses
regard 2:1 to be an appropriate ratio. A greater ratio suggests a stronger financial
condition. Current assets are cash and bank balance investments in treasury bills, bills
purchased, and discounted customer acceptance liabilities, which include current
account deposits, saving account deposits, margin deposits, bills payable, call deposit,
bank overdraft, intra bank reconciliation account, provisions, customer acceptance
liabilities, and so on.
Liquid Asset Ratio: It comprises a cash balance in one's personal locker, investments
in debentures and bonds, and a deposit balance in a commercial bank. It is calculated
as:
Liquid Asset Ratio= 𝐿𝑖𝑞𝑢𝑖𝑑𝐴𝑠𝑠𝑒𝑡𝑠 /𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

ii. Cash and Bank Balance to Total Deposit Ratio: This ratio measures a bank's
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capacity to cover deposits such current, calls, savings, and margin. A larger ratio is
employed in finance. Deposits might be covered by the corporation. It may be stated as
follows:
Cash and Bank Balance to Total Deposit = 𝐶𝑎𝑠ℎ𝑎𝑛𝑑𝑏𝑎𝑛𝑘𝑏𝑎𝑙𝑎𝑛𝑐𝑒/𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑝𝑜𝑠𝑖𝑡

iii. Cash and Bank Balance to Current Asset Ratio: This ratio represents the
percentage of funds easily available at the bank. A larger ratio, as well as carrier- staled
ratios, are better in this circumstance. The following is the formula:
Cash and Bank Balance to Current Asset Ratio = 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑏𝑎𝑛𝑘 𝑏𝑎𝑙𝑎𝑛𝑐𝑒/𝐶𝑢𝑟𝑟𝑒𝑛𝑡
𝑎𝑠𝑠𝑒𝑡

iv. Mandatory Balance Ratio: The statutory balance ratio is calculated by considering
the NRB balance and total deposits and borrowing as the numerator and denominator.
It is the ideal benchmark established by the NRB in its directions to financial
institutions.

B. Activity Ratios: It is often referred to as the efficiency utilization ratio. It assesses

the firm’s efficacy in utilizing its resources. The following ratio is used to assess the
efficacy of the bank’s actions.
i. Loan and Advance to Total Deposit Ratio: It assesses a bank’s potential to generate
profit by employing outsiders’ cash or deposits. A higher ratio indicates better usage of
total deposits. If the ratio is less than one, the bank will rely on its reserve money to
provide loans to its clients. This ratio may be calculated as follows:
Loan and Advance to Total Deposit Ratio= 𝐿𝑜𝑎𝑛𝑎𝑛𝑑𝐴𝑑𝑣𝑎𝑛𝑐𝑒/𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑝𝑜𝑠𝑖𝑡

ii. Loan and Advance to Saving Deposit: It evaluates a bank's ability to produce a
profit by utilizing outsiders' funds or deposits. A greater ratio suggests more efficient
use of total deposits. If the ratio is less than one, the bank will use its reserve funds to
provide loans to its customers. This ratio may be computed as follows:
Loan and Advance to Saving Deposit Ratio= 𝐿𝑜𝑎𝑛𝑎𝑛𝑑𝐴𝑑𝑣𝑎𝑛𝑐𝑒/𝑆𝑎𝑣𝑖𝑛𝑔𝐷𝑒𝑝𝑜𝑠𝑖𝑡

iii. Loan and Advance to Total Asset Ratio: It assesses a bank’s capacity to convert
total assets into loans and advances in order to generate profits. A greater percentage
 14

indicates that assets are being used effectively to provide loans and advances. It is
computed as follows:
Loan and Advance to Total Asset Ratio= 𝐿𝑜𝑎𝑛𝑎𝑛𝑑𝐴𝑑𝑣𝑎𝑛𝑐𝑒/𝑇𝑜𝑡𝑎𝑙𝐴𝑠𝑠𝑒𝑡

C. Profitability Ratio: The value gained by the usage of resources that is more than
the sum of the input resources is referred to as profitability. A greater profitability ratio
is a sign of successful management. Profit determines operating efficiency and the
capacity to provide an appropriate return to owners. Its profit defines its operational
efficiency and capacity to deliver an appropriate return to its owners (investors). The
value gained by the usage of resources that is larger than the sum of the input resources
is referred to as profitability.
i. Net Profit to Total Asset Ratio: Profit is divided by total assets to compute it. A
larger ratio is better since it improves the firm's operational efficiency. It evaluates the
return on investment in bank assets. It is computed by dividing earnings by total assets
minus the profit and loss account (i.e., the debt side). It is written as:

ROA= 𝑁𝑒𝑡𝑝𝑟𝑜𝑓𝑖𝑡/𝑇𝑜𝑡𝑎𝑙𝐴𝑠𝑠𝑒𝑡

ii. Interest Earned to Total Asset: It assesses the connection between total assets and
earned interest. It assesses a bank's capacity to earn interest. A greater ratio indicates
that the business is performing better. It is calculated by dividing the interest earned by
the total assets. It is computed as follows:
Interest Earned to Total Asset= 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡/𝑇𝑜𝑡𝑎𝑙𝐴𝑠𝑠𝑒𝑡

iii. Net Profit to Total Deposit Ratio: Individuals are given loans and advances using
deposits. To produce revenue, deposits are given to the public as loans and advances.
The internal rate of return on total assets is calculated. The greater the ratio, the better
the bank utilizes its overall deposit. It calculates the interest rate of return on total assets
used.
Net Profit to Total Deposit Ratio= 𝑁𝑒𝑡𝑃𝑟𝑜𝑓𝑖𝑡𝐴𝑓𝑡𝑒𝑟𝑇𝑎𝑥/𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑝𝑜𝑠𝑖𝑡

iv. Return on Net Worth: After removing total external obligations from total assets,
net worth represents the owner's claim on the bank's remaining assets. Total assets are
 15

all assets minus cumulative loss and intangible assets. The rate of return (Net Profit) on
net worth (or shareholders' cash or equity) is shown by the ratio. It is calculated as
follows:
Return on Net Worth= 𝑁𝑒𝑡𝑝𝑟𝑜𝑓𝑖𝑡𝑎𝑓𝑡𝑒𝑟𝑡𝑎𝑥/𝑇𝑜𝑡𝑎𝑙𝑝𝑟𝑜𝑓𝑖𝑡
Or,
Net Worth= Total Asset- External liabilities
Higher ratio represents higher efficiency in utilizing its resources.

D. Leverage Ratio: Long-term creditors use this ratio to assess a company's efficiency
based on its long-term financial strength, as measured by its ability to pay interest and
principal on time. Long-term creditors would evaluate a company's soundness based on
its ability to pay interest on time and repay principal in installments on due dates or in
a lump amount at maturity. As previously stated, capital structure ratios are determined
to show a company's long-term financial solvency.
i. Total Debt to Equity Ratio: It is the ratio of money invested by outsiders to money
invested by the proprietors of the firm. A greater ratio suggests that creditors are
funding more than owners. It reflects the owners' safety buffer. It depicts the link
between borrowed cash and the capital of the owners. A greater ratio indicates that
creditors funded a larger portion of the total than owners. A low debt-equity ratio is
preferred by a creditor. A low debt-equity ratio indicates greater creditor protection. It
may be stated as follows:
Debt to Equity Ratio= 𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑏𝑡/𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝐸𝑞𝑢𝑖𝑡𝑦

ii. Interest Coverage Ratio: It demonstrates the firm's ability to pay interest. The time
interest earned ratio is another name for it. The ratio measures a company's ability to
service its debt in terms of long-term fixed-rate loans. It is computed as follows:
Interest Coverage Ratio= 𝐸𝐵𝐼𝑇/𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠

Creditors desire a higher interest coverage ratio because it provides them with more
certainty. A greater interest coverage ratio is preferred by creditors since it provides
them with more certainty. A high ratio, on the other hand, may imply underutilized debt
capacity. A low ratio in a constraint shows that the firm is utilizing too much debt and
 16

is unable to make promised interest payments to creditors.

iii. Total Debt to Total Assets: This ratio looks at the relationship between borrowed
funds and total assets. It displays how much money the company borrows. A lower ratio
is preferred because it decreases creditor hardship by leveraging more equity against
total assets. It is computed as follows:
Total Debt to Total Asset= 𝑇𝑜𝑡𝑎𝑙𝑑𝑒𝑏𝑡/𝑇𝑜𝑡𝑎𝑙𝑎𝑠𝑠𝑒𝑡

E. Other Ratios:
It can be computed as follows:
i. Liquidity Risk Ratio: The bank's liquidity risk specifies its deposit liquidity
requirement. The most liquid assets are cash and bank balances. The cash and bank
balance to total deposit ratio indicates the bank's liquidity liquid assets are cash and
bank balances. The cash and bank balance to total deposit ratio indicates the bank's
liquidity. If funds are kept inactive, this ratio is low. Although cash and bank balances
are available, this reduces profitability. When a bank makes a loan, both its profitability
and risk increase. As a result, a higher liquidity ratio indicates
a lesser profitable return and vice versa. This ratio is derived by dividing the total
deposit by the cash and bank balance.
Liquidity Risk Ratio = 𝐶𝑎𝑠ℎ𝑎𝑛𝑑𝐵𝑎𝑛𝑘𝐵𝑎𝑙𝑎𝑛𝑐𝑒/𝑇𝑜𝑡𝑎𝑙𝐷𝑒𝑝𝑜𝑠𝑖𝑡

ii. Credit Risk Ratio: The bank's funds are utilized to give loans to various industries.
Invoice nonpayment increases the chance of default. When making an investment, the
bank examines the project's credit risk. In general, the credit risk ratio represents the
percentage of nonperforming assets in a bank's total investment, which includes loans
and advances. It is calculated as follows:
Credit Risk Ratio= (𝑇𝑜𝑡𝑎𝑙𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 + 𝐿𝑜𝑎𝑛𝑎𝑛𝑑𝐴𝑑𝑣𝑎𝑛𝑐𝑒)/𝑇𝑜𝑡𝑎𝑙𝐴𝑠𝑠𝑒𝑡

iii. Earnings per Share (EPS): Earnings per share are computed by dividing net profit
after taxes (minus the preference dividend) by the total number of common shares
outstanding.
Earnings per Share= 𝑁𝑒𝑡𝑝𝑟𝑜𝑓𝑖𝑡𝑎𝑓𝑡𝑒𝑟𝑡𝑎𝑥/𝑇𝑜𝑡𝑎𝑙𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑠ℎ𝑎𝑟𝑒𝑠
 17

iv. Dividend Payout Ratio: This ratio indicates the connection between the returns of
equity stockholders and the dividends paid to them. The purpose of calculating this ratio
is to establish the percentage of total profits allocated to dividends. It is computed as
follows:
Dividend Payout Ratio= 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑝𝑒𝑟𝑠ℎ𝑎𝑟𝑒/𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑝𝑒𝑟𝑠ℎ𝑎𝑟𝑒

9.5.2 Statistical Tools

Several statistical methods, such as mean, correlation, and standard deviation,

are employed to help the investigation. The mean, the arithmetic average of numbers,
the median and mode, range, dispersion, standard deviation, inter quartile range,
coefficient of variation, and so on are the most well-known statistical tools. There are
also software packages available, such as SAS and SPSS, that can aid in the
interpretation of large sample size results

i. Arithmetic Mean: The average is a statistical constant that allows us to grasp the
importance of the total with a single effort. Bowley and Gupta (Bowley and Gupta,
2000, p.35) It is calculated by dividing the total number of observations by the total
number of observations. The arithmetic mean is a single value that
reflects all of the data. It summarizes and provides a bird's-eye view of the huge amount
of cumbersome numerical data. It may be computed as follows:
𝛴𝑥
𝑥̅ =
𝑁

Where, 𝑋̅ = Mean value of Arithmetic mean

N= Number of Observations
∑𝑋= Sum of Observations
ii. Correlation Coefficient: It is focused with determining the strength and direction
of linear correlations between variables, and the relationship between variables is
carried out by a simple correlation coefficient. The degree of the management success
in handling the credits and advances of the bank is determined by the significance of a
series of relationship of loans and advances among a number factor such as Net profit,
 18

liquid assets, total deposits etc. It is calculated as:

𝑛(𝛴𝑥𝑦) − (∑𝑋)(∑𝑦)
𝛾=
[𝑛𝜀𝑥 2 − (𝛴𝑥 2 )][√−𝑛𝛴𝑦 2 − (∑𝑦 2 )]

It reveals if variables have a positive or negative connection. The correlation coefficient

ranges from +1 to -1. A correlation coefficient's magnitude represents the strength of
the linear link, while the sign denotes the direction. A strong linear relationship is
represented by a correlation coefficient close to +1 or -1. A correlation coefficient value
close to 0 suggests a very weak linear link.

iii. Standard Deviation (SD): Standard deviation measure the absolute dispersion. The
larger the amount of deviation or error higher the standard deviation. Karl person
introduced standard deviation. The absolute measure of the dispersion of a value is the
standard deviation, which shows the deviation or dispersion in absolute terms (Sthapit,
2006). The standard deviation is used in this case to calculate the deviation in absolute
terms. It can be calculated as:

∑𝑥 2 ∑𝑥 2
𝜎=√ −( )
𝑁 𝑁
Where, 𝜎 = Standard Deviation
∑𝑥 2
= Sum of Squares of Observation
𝑁
The following relationship between variables is studied:
a. Correlation between loan and advances and deposit
b. Correlation between Investment and deposit
c. Correlation between total income and deposit
iv. Coefficient of Variation (CV): A CV is a similar measure of dispersion based on
the standard deviation. A low CV value indicates a high degree of consistency in the
measured data. It may be computed as follows:
𝜎
C.V = ×100
𝑥̅
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Where, 𝑥̅=Mean

𝜎=Standard Deviation CV=Coefficient of Variation

vi. Trend Analysis: The direction of change over time is crucial in financial
statement analysis. The shift in direction is shown through trend analysis. It is
an essential tool for performing horizontal financial analysis. Trend analysis is
useful for analyzing data over a specific time period and forecasting future
issues.

It indicates whether or not the line of best fit or straight line is reached. It returns the
optimum mean value of the dependent variables for the study's independent variable.
Trend analysis is utilized as a time series in this study to display data and information.
This statistical technique is used to do a comparison of financial statements over
different years. It denotes the average relationship between two series, one of which is
related to time and the other to the value of a variable. It displays if the best fit or straight
line was produced. The best-fit line represents the changes that occur in a given series
as a result of a unit change in time. To put it another way, it returns the optimal mean
values of the dependent variable for a given independent variable. Trend analysis is
employed as a time series analysis in this investigation. It may be computed as follows:
YC= 𝑎 + 𝑏𝑥

Where YC= Estimated value of y for given value of x obtained from the line of
regression of y on x
a= constant value
b= slope of the trend line
x= independent variable
b= ∑ 𝑥𝑦/ ∑𝑥 2
a= 𝑦̅ − ̅𝑏̅𝑥̅

10 Expected Output
The expected outcomes of this research include a detailed analysis of SBL's deposit and
loan management practices, identification of key areas for improvement, and practical
recommendations to enhance SBL's financial performance.
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