A PROPOSAL ON

BUDGETING SYSTEM OF NIC ASIA BANK

Background of the Study

In today’s modern era, profit is what every institution is opting to get to run its corporation for a
longer period of time. No any corporation can be operated smoothly without earning sufficient
amount of profit. Profit plays an important role for the success of any institution and it is not
optional with any other objectives perceived by any corporation. For that reason profit planning
is vital for every organization. The important aspects of profit planning which is considered as a
proper budgeting practice, is yet to be realized by Nepalese corporation and due to lack of proper
knowledge of profit planning by Nepalese corporation through the aid of budgeting, it provides a
huge platform for any research study. The thesis presented is also based on the topic of the
budgeting practice to maximize the profit, focusing on the banking sector particularly Nepal
Bank Limited (NBL).

Nepal is a multicultural, agriculture dominated underdeveloped country. The development of the

country depends upon the economic growth of the country. The capitals invested on available
resources are very poor in Nepal. Resources are not mobilized properly. Resources available in
Nepal are of various types like mineral resources, forest resources, water resources, monetary
resources, and etc. Here in this thesis the discussion is focused on monetary resources/ financial
resources. Monetary resources are the prime factor for the economic growth of any country. So,
financial resources, if utilized properly can help any country in the path of economic success.
The manufacturing sector and service sector are the two prime sectors which use the financial
resources at most. Among various service sectors, the banking sector plays the most significant
role in the economic growth of the country.

The development of the country depends up on the financial sectors because they lend money for
various development projects which in turn help in the development of the country. A financial
sector utilizes the unused capital of individual for the purpose of economic development of the
country. Banks are one of the most important parts of financial sector. Banks primary role is
receiving and lending of money among various parties. These role played by bank assist in the
economic development of the country. The essence of banking sector lies upon borrowing of
unused fund from various parties and utilizing the same funds for their own development. The
bank earns its profit from differentiating interest earned from various parties against interest paid
to various parties from the fund available with the bank along with other incomes and
expenditure. The survival and growth of banking sector lies on the movement of fund among
parties.

History of Banking Sector

NIC Asia Bank, initially established in 1998 as Nepal Industrial & Commercial Bank,
transformed significantly in 2013 when it merged with Bank of Asia Nepal, creating the modern
NIC Asia Bank. This merger resulted in a bank with a strong capital base, an extensive customer
network, and a wide range of services. Over the years, NIC Asia Bank has expanded to become
the commercial bank with the largest branch network in Nepal, operating 360 branches, 670
ATMs, 115 extension counters, and 51 branchless banking networks, serving over 4.1 million
customers. The bank focuses on financial inclusion, particularly in rural and small urban areas,
where 72% of its branches are located (sharesansar.com) (NIC Asia Bank).
In the first quarter of fiscal year 2080/81, NIC Asia Bank reported a significant decline in net
profit, which fell by 42.29% to NPR 1.01 billion compared to NPR 1.75 billion in the same
period the previous year. This decline was primarily due to a 17.72% drop in net interest income.
Despite this, the bank's paid-up capital increased by 28.98% to NPR 14.91 billion, and customer
deposits grew by 16.79% to NPR 363.64 billion. Key financial metrics included reserves and
surplus of NPR 15.22 billion, loans and advances of NPR 294.09 billion, a non-performing loan
(NPL) ratio of 1.37%, and a base rate of 10.56%. The earnings per share (EPS) stood at NPR
26.58, and the net worth per share was NPR 202.05 (Investopaper).
NIC Asia Bank has also reaffirmed its stability and commitment to its customers by dispelling
rumors about closing branch offices, emphasizing its strategy of maintaining and expanding its
presence, particularly in areas with limited banking access (sharesansar.com). For more detailed
financial data and updates, you can visit NIC Asia Bank's official website and their latest annual
report (NIC Asia Bank).
Financial Sector in Nepal
The financial sector in Nepal is made up of the following: insurance companies, non-
governmental organizations, postal savings service, Nepal Stock Exchange, employee provident
fund, citizen investment trust, class A commercial banks, class B development banks, class C
finance companies, and class D micro-credit development banks. These include commercial
banks, financing businesses, development banks, and microcredit development banks. The NRB
has granted these institutions a license to provide banking services in Nepal and they are
registered under the company act. Under the Cooperative Act of 2049, Saving and Credit
Cooperatives are registered and granted the authority to gather savings and provide loans to its
members. All other entities within the financial sector, aside from the banks and credit
cooperatives already mentioned, are registered under other Acts. (Thapa, 2004).)

According to NRB there are 20 commercial banks (still increasing in number), 63 development banks, 77
finance companies, 15 micro credit development banks and thousands of saving and credit co-operatives
which are providing the facility of financial service in Nepal. (www.nrb.org.np)

Statement of the problem

The successful operation of an organization totally depends upon its planning mechanism. The
profit planning of any corporation is the most difficult and challenging aspect for its survival and
growth. So, Profit Planning should be developed through proper budgeting practice and under
proper authority and by the group discussion among those who are competent in the field of
planning, finance, accounting, and other necessary fields. Here are some Problem the researcher
tries to understand this problem:
 How to manage the profit capability of NIC Asia Bank.
 What was the profitability trend and its relation with loans.

Objectives of the Study

The main objective of this study is to provide insight knowledge of Budgeting planning of RBB
Bank Limited. Apart from the main objective proposed in the research study the researcher has
tried to fulfill the following objective.
  To access the profit capability of NIC Asia Bank.
 To find out the profitability trend and its relation with loans.
 To recommend the further steps to be taken to improve the profit planning in NIC Asia
Bank Limited.

Significances of the study

The study of the budgeting system of NIC Asia Bank Limited holds paramount significance as it
offers insights critical for enhancing financial efficiency, mitigating risks, optimizing resource
allocation, evaluating performance, supporting decision-making processes, fostering stakeholder
confidence, ensuring compliance with regulations, aligning with strategic planning objectives,
and driving continuous improvement. By delving into the intricacies of the bank's budgeting
procedures, this study not only empowers the bank to streamline its financial operations, but also
contributes to the broader financial industry by fostering best practices, transparency, and
sustainable growth.

Literature review
A comprehensive review of literature related to budgeting systems in the banking sector and
financial institutions, in general, can provide valuable insights applicable to NIC Asia Bank
Limited.

According to Anthony & Govinda rajan, 2007 Budgeting within banking institutions is a crucial
aspect of financial management, playing a pivotal role in resource allocation, performance
evaluation, and strategic decision-making. Acording to Hope & Fraser, 2003 Traditional
budgeting methods have often been criticized for their rigidity and lack of alignment with
strategic objectives In response, alternative budgeting approaches such as activity-based
budgeting (ABB), zero-based budgeting (ZBB), and beyond budgeting have gained traction in
the literature.
According to the Innes & Mitchell, 1995 Activity-based budgeting (ABB) emphasizes the
allocation of resources based on activities that contribute directly to organizational objectives,
offering a more flexible and transparent approach compared to traditional methods
.According to the Peter & Pierre, 1971 Zero-based budgeting (ZBB), on the other hand, requires
a comprehensive reevaluation of expenses, starting from zero base, with each budgeting cycle,
promoting efficiency and cost-consciousness.

According to the Wolff, & Pant, 2008) This study is closely related with the various functional
budgets and other accounting statements as well as the actual result of the budgets procedure of
NBL. These information and data are presented in an analytical method. A good design is that
which accommodate flexibility, efficiency, economy and so on. The design that minimizes bias
and maximizes the reliability of the data collected and analyzed is considered as a good research
design.

Acording to the Kaplan & Norton, 2001 This alignment ensures that budgetary decisions support
the overarching goals of the organization, fostering accountability and driving performance
improvement. Additionally, studies emphasize the significance of integrating budgeting systems
with performance measurement frameworks such as the Balanced Scorecard to provide a holistic
view of organizational performance.

In conclusion, while specific literature on the budgeting system of NIC Asia Bank Limited may
be limited, a comprehensive review of literature on budgeting systems in the banking sector
provides valuable insights applicable to the bank's context. By drawing upon established
theories, best practices, and empirical findings, NIC Asia Bank Limited can enhance its
budgeting processes to drive financial efficiency, strategic alignment, and long-term
performance. However, further research specifically tailored to the bank's unique organizational
structure and operating environment would be beneficial to provide more targeted
recommendations.

Research Methodology
In this study, the main source of data is secondary which are collected from pre-published data
sources. The secondary data sources used in this study are:

Sources and techniques of data collection

  Internal source
 Annual reports of Rastriya Banijya Bank
 Interim performance report
 External source
 Book publications
 Journals
 Articles from newspapers
 Annual reports of RBB

Limitations of the Study

While studying the budgeting system of NIC Asia Bank Limited provides valuable insights into
its financial management practices, it's essential to acknowledge several limitations inherent in
the study:

 Annual reports of NIC Asia Bank Limited from 2075/76 to 2079/80.

 Articles in Newspapers, journals, booklets, issues published by financial institutions.
 Most Of data used are of secondary type, which is available from bank websites and
other sources of books
 This study mainly conducted on the basis of secondary data.

Organization of the Study

As discussed in the previous section, this study intends to find the Growth, problems, prospects
of stock markets in Nepal. This study has been organized into 3 chapters. Each are devoted to
some aspects of the study. This study is divided into three main chapters.

Chapter- first
The first chapter Introduction consists of general background, statements of Problems of the
study, and objectives of the study, Significance of the study, limitation of the study and
organization of the study and Review of Literature deals with of the related studies. Therefore,
this chapter includes the review of major journals, research work, and thesis etc along with
conceptual framework. This chapter also represents the Methodology adopted for the research
design, sources and technique of data collection, population and sample

Chapter- Second
The second chapter includes presentation and analysis of secondary data only and Major findings
from secondary types of data have been also presented in the last portion of this chapter.

Chapter- third
The third chapter represents the summary of the study, conclusion and recommendations with
bibliography and appendixes.

Time Schedule
The time allotment for writing this report will be as follows.
S.N. Activities No. of Days
1 Topic selection 3
2 Proposal writing 8
3 Field visit and data collection 11
4 Presentation and analysis of data 6
5 Proof reading 5
6 Setting and printing report 7
Total 40 Days