CREDIT MANAGEMENT OF

KUMARI BANK LTD

A Research Proposal

Submitted By:
Nima Gurung

T.U. Regd. No: 7-2-302-518-2019

4th Year Symbol No.708460014
Group: Finance
Jhimruk Multiple Campus
Bagdulla, Pyuthan

Submitted to:

Office of Controller of Examination

Faculty of Management
Tribhuvan University

Kathmandu

In the partial fulfillment of the requirement for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)
Pyuthan, Nepal
July, 2024
 CHAPTER-1
INTRODUCTION

1.1 Background of Study:

The process of credit management begins with accurately assessing the loan-worthiness of
the customer base. As part of the evaluation process, Loan management also calls for
determining the total Loan line that will be extended to a given customer. Several factors are
used as part of the Loan management process to evaluate and qualify a customer for the
receipt of some form of commercial Loan (Richard, Chijoriga, Kaijage, & Peterson, 2008).

Credit Management is extremely important as granting credit is considered to be the

equivalent of investing in a customer. However, payment of the debt should not be
postponed for too long as delayed payments and bad debts are a cost to the company. Thus,
Efficiency and effectiveness in performing each steps of loan processing using various
parameters has significant effect on performance of credit management (Mirach, 2010).

The growing and increasing among financial institutions directly or indirectly effect on
companies effective functioning along with its deposit collection and loan management
policy. Nepal Credit & Commerce Bank Ltd makes an appraisal and if seemed viable then
only grants loan. They grant loan in various headings like project loan, overdraft, term loan,
personal loan, hire purchase loan, personal housing loan, car loan, and self-employment
schemes for small entrepreneurs and soft loans to facilitate export and import business. The
study is focused on the investment portfolio of KBL Bank. The study mainly focus on
policy the bank is adopting of credit management of the bank, the investment for the past
five years has increased or not at the satisfactory level, the bank is able to give service of
loan, the diversification in investment of KBL Bank is effective or not.

1.2 Profile of Organization:

Kumari Bank Limited, came into existence as the fifteenth commercial banks of Nepal,
starting its banking operations from Chaitra 21, 2057 B.S (April 03, 2001) with an objective
of providing competitive modern banking services in the Nepalese financial market. The
Bank has paid up capital of NPR 26.23 billion. The Bank acquired Kasthamandap
 Development Bank Ltd., Paschimanchal Finance Co. Ltd., Mahakali Bikash Bank Ltd. and
Kankrebihar Bikash Bank Ltd. on Asadh 2074; with an objective to fulfill the directive
forwarded by Nepal Rastra Bank to attain the paid-up capital of NPR 8 billion. Further to
that, the Bank acquired Deva Bikas Bank Limited and joint operation was started from
Asadh 28, 2077. On January 01, 2023, Kumar Bank Limited has been merged with Kumari
Bank Limited to jointly operate in the name of Kumari Bank Limited.

Kumari Bank Limited provides a wide-range of modern banking services through 410 points
of representation located in various urban, semi-urban and rural parts of the country, with
302 branches, 49 extension counters and 59 Branchless Banking Units

Mission:
Main goal of KBL is to deliver innovative products and services to their customers, use
these innovative products to achieve financial inclusion, and do so by exemplifying good
corporate governance, proactive risk management practices, and superior corporate social
responsibility.

Vision:
KBL’s vision is to be the preferred financial partner to their customers, a center of career
growth to their employees, and to maximize shareholders’ value, while contributing to
nation’s financial sector and to its economic welfare.

1.3 Objective of Study:

The general objective of the study is to analyze the credit management policy of Kumar
Bank. This study focuses on the following specific objectives:

• To examine various stages involved in credit management in KBL Bank.

• To measure the composition of loan in KBL Bank.

• To examine the status of loan, advances and overdraft as well as interest income of KBL
Bank.

• To see the relationship between loan and deposit.

1.4 Rational of Study:

The rational of the study has been cited below:

 • It will be helpful to understand why the performance of this bank is different than other
bank.
• It can be helpful to evaluate KBL bank ltd. for the purpose of investment.
• It helps to identify relative strength and weakness of credit management policy of KBL
Bank Ltd.
• This field work report might be useful to those who are willing to seek information about
KBL bank related to its credit management.

1.5 Statement of the Problem:

In this competitive world, every banking organization is emphasizing more and more on
its credit department as it is a must important department in the bank comprising a major
chunk of the bank’s revenue. So, it is imperative for a bank to have a well-functioning
credit department. A well-functioning banking system is an essential element in
economic growth. A good banking system is supposed to mobilize savings from
households and business in low cost of financing activities and channel funds to the most
productive investment opportunities. Though banks could maintain their position in the
banking industry, it cannot be predicted that the banks would continue to maintain its
profitability and stability of earnings because of the tough competition in this sector. This
study attempts to evaluate the credit management policy of selected commercial bank of
Nepal by using various measuring financial and statistical tools such as financial ratios,
and other necessary analysis. The main problems of credit management policy of Kumar
Bank are as follows:

• What type of credit system is followed by the bank?

• Whether the credit management policy used by the bank is beneficial for bank
or not?

• Are there any limitation or inherent weakness in the policy used by the bank?

• What is the overall impact of credit management policy used by the KBL
Bank ?

• Whether KBL Bank is at risk or not?What type of credit system is followed by

the bank?

1.6 Review of Literature:

This section provides current stage of the research work and guidelines for further study and
 helps to avoid unnecessary duplication of research work. It highlights upon the literatures
that are available in the area of credit management analysis of commercial banks.

1.7 Theoretical Review:

Review is a process of systematic meticulous and critical summary of the published

literature in your field of research. It is a way to discover what other research in the area
of your problem has uncovered. It is also a way to avoid investigating problems that have
already been definitely answered. A literature review is an evaluative report of
information found in the literature related to your selected area of study. The review
should describe, summarize, evaluate and clarify this literature. It should give a
theoretical base for the research and help you (the author) determine the nature of your
research.

1.8 Empirical Review:

After liberalization and globalization of the world economy the economic transaction
such as trading and commerce, industrial and banking activities have grown up
tremendously. Likewise, an international trade of the developing country has also boosted
up. But on the other hand, the increasing competitiveness has also increased various type
of risk in every business, including banking sector. To manage with their risk, the banks
in favor of their clients have adopted strategies relating to treasury management.
(Shrestha, 2055, P-20)

1.9 Organization of the Study:

The study has been organized mainly into three chapters;

Chapter – I: Introduction

The first chapter deals with the background of the study, statement of the problem,
objectives of the study, method of the study, limitations of the study, review of literature
and significance of the study.
Chapter – II: Result and Analysis

The second chapter confines the presentation of results and findings observed during the
research.
 Chapter – III: Summary and Conclusion

The third chapter describes the brief summary of the report, and conclusion based on the
finding of the report.

1.10 Methods of Study:

1.10.1 Research Gap:
A research gap is defined as a topic or area for which missing or insufficient information
limits the ability to reach a conclusion for a question. A research need is defined as a gap
that limits the ability of a decision maker from making decision.

1.10.2 Research Design:

In this study the Researcher will use descriptive research design. The Researcher will be
conducted Qualitative as well as Quantitative data collection method on the basis of
secondary data.

1.10.3 Population and Sample

There are all together 28 commercial banks operating in the country. It will be lengthy,
time-consuming and vague while taking into consideration of all these institutions. So,
only KBL Bank Ltd. has been selected as sample on the basis of availability of data and
comparative studies is made.

1.10.4 Method of Data Collection

The required data for the study will collected from the concerned organizations. This
research study will mainly based on the secondary data that are available in the published
form and as well as primary data will also referred.
This refers to data that are already used and gathered by others. Secondary data mostly
used for this research purpose. So, the major sources of secondary data are as follows:
 Annual report of concerned banks.
 Internet and Email.
 Newspapers, journals, articles and various magazines.
 Internal & External audit reports of the concerned bank.

1.10.5 Method of Data Analysis

 Mainly financial tools will be applied for the purpose of this study. Other multiple bar-
diagrams and line graphs has also been used where necessary. For analyzing the financial
tools will be used.
Financial Tools
 Ratio Analysis
 Comparative analysis of balance sheet and income statement.
 Comparative analysis of management expenditures
 Multiple Bar Diagrams.
 Other Tools

1.11 Limitations of the Study

As every study has been conducted within certain limitation and assumptions, the present
has also following assumption and limitation:

• This study is confined to financial Standing of KBL Bank Limited.

• Data of five years from fiscal year 2075/76 to 2079/80 are taken into consideration to
conduct the study.
• The study principally has been based on secondary data like annual report and other
publication of the bank and audited data published by the bank are treated as authentic.
Thus, the findings and conclusions are drawn from the same.
 CHAPTER-2
RESULTS AND ANLAYSIS
This section includes the presentation and analysis of data. In addition, some statistical tools such
as mean, standard deviation and correlation are also used to present and analyze data. Nepal
Credit & Commerce Bank Ltd provides various kinds of loans to its customers like project loans,
overdrafts, term loans, personal loans, hire purchase loans, personal housing loans, car loans, and
self- employment schemes for small entrepreneurs, soft loans to facilitate exports and import
business etc.

2.1.1 Composition of Loan:

The research finds out that the total loan of KBL Bank is distributed as mainly six types of loan,
Overdraft/TR/WC, Term Loan, Real Estate Loan, Personal Home Loan, Margin Loan and others.

2.1.2 Loan Advance and Overdraft

Loan refers to a debt provided by a financial institution for a particular period. Where, advances
are the funds provided by the banks, which needs to be payable within one year. Loans,
Advances and Overdraft occupy the largest portion of the total assets of Nepal Credit &
Commerce Bank Ltd provides loan on different headings like hire purchase, business, service
sector, term loan etc.

2.1.3 Loan and Advance to Deposits

Loan & advances to total deposit ratio shows whether the banks are successful to utilize
outsider’s funds (i.e. total deposits) for the profit generating purpose as loan & advances or not.

Total Loan & advances

Loan and Advance to Deposits Ratio =
Total Deposit
2.1.4 Interest Income earned by Loan and Advances
When loans are granted it can be performing or non performing and whether it is performing or
not is judged by the interest earned by the loans.
Interest Income to Total Loan & Advance Ratio =

2.1.5 Loan Loss Provision:

Loan loss provision is an expense set aside as an allowance for uncollected loans and loan
payments. This provision is used to cover a number of factors associated with potential loan
losses including bad loans, customer defaults and renegotiated terms of a loan that incur lower
than previously estimated payments.

2.1.6 Correlation between Loan and Deposit

Coefficient of correlation is the measurement of the degree of relationship between two casually
related sets of figure whether positive or negative. Coefficient of Correlation between deposit
and loan & advances measures the degree of relationship between the two variables that are loan
& advances and total loan. The coefficient of correlation always lies between -1 and +1. The
value of correlation in minus shows negative correlation and in plus shows positive correlation,
nearer the value of r towards -1 & +1, there is high degree of negative and positive correlation
respectively. As the value of r reaches to zero, there is no correlation between the variables under
study.