CHAPTER 1 INTRODUCTION

1.1 BACKGROUND OF THE STUDY A project is a flexible, practical assignment, geared to providing a young person with meaningful opportunity to develop knowledge. The study of project implies structural learning experiences. This report is prepared in order of partial fulfillment of our BBA-BI course. It is prepared as a requirement of the BBA-BI program of Pokhara University. This is a field work report which contains the information about Everest Bank. This report describes about the bank and work done in the treasury department. This profile is to avail information about the overall working activities and environment of the bank. This report provides a business learning experience in a formal, monitored program to a real world organization setting, which enhances the academic experience. It tells about how project helps the student to understand and identify the importance of organizational functioning, process, working business environment and problems in a real life situation. 1.2 OBJECTIVES The main objective of preparing this report is to access the work situation in Nepalese Banking organization. The objective of the study is simply to present and test the model that identifies customer attitude and customer adaptation of banking within the context of Everest Bank of Nepal. To identify problems and their underlying cause and evaluate potential solutions that To give suggestions for improvement. To identify how closely the theoretical aspect of treasury management are practiced in optimizes organizations strength, weakness, opportunities and barriers.

commercial banks of Nepal. 1.3 LIMITATIONS As everything has its limitations, this study too is not an exception. During the survey few limitations and constraints faced. They are as follows: Everest Bank Limited 1

Unavailability of enough secondary data. Information regarding only a specific branch. Time constraints. Validity of report fully depends on the information provided by the concerned Knowledge about a specific department. Reluctant of employees to involve the students in core and confidential activities.

authorities.

1.4 SCOPE OF THE STUDY This report has all the detailed information about the different departments of the bank which includes the customer service department, remittance department, treasury department, credit department and share department that could be very helpful to determine the major tasks performed by them. The report will also be helpful for the students and individuals who seek for the information about the banking activities and the services provided by it. This study also helps to understand the scope of banking sector in the Nepalese market. 1.5 METHODOLOGY For the preparation of this report, mainly two sources have been used: Primary source Studying the work methodology and processes in the organization. Regular discussion with the employees of the bank. Discussion with customers about their relation with the bank. From the queries with the bank employees. Secondary source Brochures and prospectus of the bank. Annual report of the bank. Internal record of the bank. Other material provided by the bank Articles published in the newspaper Website of the bank

Everest Bank Limited

CHAPTER 2 LITERATURE
2.1 MEANING OF BANK A bank is an institution, which deals with money and credit. It accepts deposits from the public and mobilizes the fund to productive sectors. It also provides the remittance facility to transfer money from one place to another. Bank is therefore, known as a dealer of money. In addition to this, bank may be engaged in different types of functions such as exchange currency, joint venture, underwriting, bank guarantee, discounting bills etc. bank is also the principal source of credit for individuals, organization and government. Finally, we can say that bank is the financial institution providing all kind of monetary services that is necessary for the industrialization and development of a country. 2.2 DEVELOPMENT OF BANKING Banking industries are indispensable for the overall financial development of the country. Without investment of the banks, modern business can never be able to run smoothly. Bank assists in the process from initial level of production to the final level of consumer service. Bank also assists in the development of financial activities of the government owned corporations. It provides important part of financial system i.e. monetary system of making or receiving payment in the country. In the era of financial concept bearing world of today, banking has proved to be a nerve of the economic development. Therefore, that cannot be ignored. Commercial bank plays an important role in the modern economy. They are regarded as the heart of financial system because they accept deposits of individuals and institutions. And mobilize such savings and make available funds for investments to borrowers i.e. needy persons and businesses. It provides credit to the people with economic confidence. The history of modern banking in Nepal begins with the establishment of Nepal Bank Limited in 1937A.D as a semi-government Commercial Bank. Later Nepal Rastra Bank, the central Bank of the country was established in 1956, with the objective of issuing paper currency, circulation of Nepalese currency all over the kingdom, maintaining stability in exchange rate, mobilizing capital to give boost to economic development and industry and Everest Bank Limited 3

trade, developing banking sector in the country. The second commercial bank of Nepal is Rastriya Banijya bank established in 2022 B.S as a fully government-owned Bank. With the purpose of enhancing industry and Agriculture, Nepal industrial Development Corporation (NIDC) as a specialized institution to finance industries was established in 1959. Likewise, the cooperative bank established in 1963 was converted into Agriculture Development Bank in 1968 with the financial liberalization after restoration of multiparty democracy many financial institutions as well as joint venture banks have been established. At present there are all together 28 Commercial Banks operating in the country. COMMERCIAL BANKS IN NEPAL Agriculture Development Bank Ltd. Bank of Asia Bank Of Kathmandu Citizens Bank International Ltd. Development Credit Bank Ltd.(DCB) Everest Bank Limited Global Bank Himalayan Bank Nepal Industrial & Commerce Bank Nepal Investment Bank Nabil Bank Nepal SBI Bank Limited NMB Bank Nepal Bangladesh Bank Limited Nepal credit & commercial Bank Nepal Bank Ltd. (NBL) Kist Bank Limited Kumari Bank Limited Lumbini Bank Limited Laxmi Bank Limited Machhachapuchhre Bank Limited Prime Commercial Bank Rastriya Banijya Bank (RBB) Sunrise Bank Ltd Siddhartha Bank Limited Standard Chartered Bank Annapurna Bank

Table 1:Lists of Commercial Banks

2.3 EBL AT A GLANCE 2.3.1 Background of Ebl Everest Bank Limited (EBL) started its operations in 1994 with a view and objective of extending professionalized and efficient banking services to various segments of the society. The bank is providing customer-friendly services through a network of 29 branches all over the country. EBL joined hands with Punjab National Bank (PNB), India as its joint venture partner in 1997. Everest Bank Limited 4

PNB joined hands with EBL as a Joint Venture in 1997 and turned it around to a highly profitable bank. There has been no looking back since then. PNB provides top management support under the Technical Service Agreement. Punjab National Bank (PNB), our joint venture partner one of the largest nationalized bank in India having 114 years of banking history, holds 20% equity. Drawing its strength from its joint venture partner, EBL has been steadily growing in its size and operations and established itself as a leading Private Sector Bank. The Banker, a publication of Financial Times, London, has conferred the bank with Bank of the Year2006, Nepal. Similarly, Nepal India Chamber of Commerce also bestowed the bank with the NICCI Excellence Award twice for its spectacular performance under finance sector. The bank's performance under all parameter has been outstanding during the financial year 200506. This sustained growth of the Bank is attributable to its strong systems and procedures, professional approach, quality lending and highly motivated staff members. EBL is playing pivotal role in facilitating remittance to and from across the globe being the first Nepalese bank to open a representative office in Delhi India, the Nepalese in India can open account in Nepal from designated branches of Punjab National Bank and remit their savings economically through banking channels to Nepal. The Bank is also offering Cash Management System through HDFC Bank, India for managing the funds of corporate exporting to India by collecting their funds from about 183 locations in India the Banks own Web based online remittance product Everest Remit facilitates remittance from UAE and Qatar to more than 100 payout locations in Nepal. With India Remit, the Bank has same day remittance facility with India in association with PNBs 2200 Networked Branches at 550 locations, besides draft drawing arrangement with 218 PNB branches across India. All the branches of the bank are connected through Anywhere Branch Banking System (ABBS), which enables customers to do all their transactions from any branches other than where they have their account. EBL in association with Smart Choice Technology (SCT) is providing ATM services for its customers. EBL Debit Card can be accessed at more than 50 ATMs and over 800 Point of Sales across the country. ATM sharing arrangements with PNB has facilitated usage of EBL Debit Cards at more than 870 PNB ATM outlets across India at Everest Bank Limited 5

a normal rate. Similarly, Indian tourists and businessmen having PNB cards will be able to use EBL ATM, in Nepal. The Bank recognizes the value of offering a complete range of services and have pioneered in extending various customer friendly products such as Home Loan, Education Loan, EBL Flexi Loan, EBL Property Plus (Future Lease Rentals), Home quity Loan, Car Loan, Loan Against Shares, Loan Against Life Insurance Policies and Loan for Professionals. With an aim to encourage the saving habit among the individuals, the bank has introduced Sunaulo Bhavisya Yojana- suitable for accumulations small savings into substantial amount. EBL has been established with the objective of extending professionalized banking services to various sections of society in the Kingdom of Nepal and thereby contributes in the economic development of the country. EBL was one of the first banks to introduce Any Branch Banking System (ABBS) in Nepal EBL has introduced Bank on Wheel system, whereby the bank is installed in a vehicle and moves around to various places to serve the segment deprived of proper banking facilities through its Birtamod Branch. EBL is the only bank having representative office in a foreign soil. The office facilitates remittance and Nepalese working in India can even open accounts through the office. 2.3.2 Corporate Vision Banks corporate vision is to Evolve & position the bank as a progressive, cost effective & customer friendly institution providing comprehensive financial and related services; Integrating frontiers of technology & servicing various segments of society; Committed to excellence in serving the public & also excelling in corporate values 2.3.3 Corporate Mission Provide excellent professional services & improve its position as a leader in the field of financial related services; Build & maintain a team motivated & committed workforce with high work ethos; Use latest technology aided at customer satisfaction & act as an effective catalyst for socio-economic developments. 2.4 SHAREHOLDING PATTERN

Everest Bank Limited

Shareholding Nepalese Promoters Punjab National Bank General Public

Table 2: Shareholding Pattern of EBL

Percent 50 20 30

As shown in above table the Nepalese promoters, general public and Punjab National bank hold ownership of EBL. Nepalese Promoters holds 50%, PNB holds 20% and the General Public holds 30% ownership this is also shown in the pie chart below.

Shareholding Pattern

30%

50%

Nepalese Promoters Punjab National Bank

20%

Figure 1:Shareholding Pattern

2.5 BOARD OF DIRECTORS

Mr. Bishnu Kumar Shrestha Mr. Indra Dev Singh Mr. Ved Krishna Shrestha Mr. Arun Man Sherchan Dr. Bal Gopal Baidhya Mr. Nabin Bhakta Shrestha Mr. Shiv sharan K. C. Mr. Ratna Sansar Shrestha Chairman Executive Director Director Director Director Director (Shareholders) Director (Shareholders) Director

2.6 MANAGEMENT TEAM Mr. Ravinder Kumar Ummat Everest Bank Limited Chief Executive Director 7

Mr. Pradeep Kumar Pradhan Mr. Indrajeet Arora Mr. Hum Nath Gurung Mr. Pramod Raj Sharma

Dy. General Manager Dy. General Manager Asst. General Manager Company Secretary

2.7 SERVICES OFFERED BY EBL EBL has persistently been mounting different techniques and ideas to serve its customers and stakeholders the best it can offer. In context of this some of the services offered by EBL are discussed below: 2.7.1 Accepting Deposit EBL offers a wide range of products and services designed to make banking easier and to match each and every customer's requirements. One of the services offered by the bank is accepting deposit. Bank collects money from its customers in form of deposit and provides them interest as per their rule some. Deposits vary in types some of the types of deposits offered by EBL are: a) Current Account b) Saving Account c) Saving Premium Accounts d) Fixed Deposit I. Cumulative Deposit Scheme II. III. IV. V. Sunaulo Bhawishya Yojana Saral Samridhi Bachat Unfixed Fixed Deposit Scheme USD Deposits

2.7.2 Loans and Advance EBL is also involved in service like providing credit facilities to its customers. The various credit facilities are: a) Home Loan Scheme Everest Bank Limited 8

b) Home Equity Loan c) Flexi Loan d) EBL Property Plus e) Professional Loan f) Vehicle Loan g) Educational Loan 2.8 DEPARTMENTS IN EBL EBL has different department for catering the services to be offered to its customer and are as follows: 2.8.1 Remittance Department This department is involved in transfer of fund inside or outside the country in addition to the conventional facilities like demand draft, travelers cheques etc. The bank has also introduced a facility for the Nepalese living in the Gulf for transfer of their savings to their homes in Nepal by entering into drawing arrangements with Exchange Houses in U.A.E., Bahrain and Kuwait. The services provided by this department is very effective in the sense that is give attention to the beneficiary, the service is very fast, coordinate with the head office, motivate to open account and identify the regular customer and provide privilege services. 2.8.2 Customer Service Department (CSD) Every branch of the EBL has CSD. The Customer Service Department of the bank deals with the customers of the bank and helps them in every possible way. The major task of the department is handling queries of the customers, opening and closing accounts, providing statement, OCD and many more. 2.8.3 Treasury Department There is a single Treasury Department in EBL that is responsible for over all treasury management of the bank. It does not exist in all branches, all the function of treasury is performed in this single department whether it be of branches or the head office. Treasury Department is involved in liquidity management of the company and ensuring the bank has sufficient liquid funds and identifying the profitable investment sector. Therefore we can also say that the Treasury management is all about management of the fund. Its function also Everest Bank Limited 9

includes the currency management, dealing in foreign exchange markets and management of foreign exchange risks. 2.8.4 Share Department The share department of the company deals with all the share related activities of the company may it be issue of share, transfer of share, dividend payment, issuing bonus shares etc. Share department also provides and handles all the queries related to the share of the company. 2.8.5 System Department The System Department of the company handles all the IT related activities of the company. Every branch has a system department. But the head office has a very significant system department in it. EBL long term IT strategy is to be updated in the organizations technology to keep abreast of current trends in IT and also to be the leader in implementing new technology for the benefit of the organization. The main business strategy is to increase the deposit base so that more loans can be disbursed. IT is helping to achieve that goal through various methods like ATM cards, POS machines, SWIFT, online remittances. The technological infrastructure plan was made and being implemented all throughout Nepal at all the 29 branches. The bank has risk monitoring system and mitigation strategies to avoid or mitigate the risk.

2.8.6 Human Resource Department (HRD) EBL has a single Human resource department, which is in head office of the bank. HRD is a separate department in the bank that deals with and for the human beings present in an organization and is concerned with recruitment, selection of the new employees. Besides that, Human Resource department function also involves giving orientation class to the new employees, providing training and development programs to the current and newly recruited employees to make people more updated and well equipped so that they can cope with the changes. This department manages the need of the people by its systematic recruitment procedure.

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2.8.7 Marketing Department Marketing Department is the heart of the banking system. This department is basically concerned with the maintenance of the quality of the information since the existing use of the information is vital towards the daily transaction in a more systematic way. This department is basically concerned with the public relation i.e. it is concerned about making good relations with the customers as well as suppliers, providing information to the customers, giving adds in an effective way so that the people become attracted toward the bank, organizing events, designing the sites and try to make the site more informative so that people become more clear about the services that the bank is providing and the opportunity that they might get from the bank and many more. It is the responsibility of the marketing department to make people aware of the facility provided by the bank. 2.8.8 Credit Department Every branch of the bank has Credit Department. This department is concerned with granting loans to its customers. EBL provides various credit facilities to its customers in order to cater their needs, such as overdraft, term loan, working capital loan, trust receipt loan, home loan, vehicle loan, education loan and so on. The whole work of providing credit to its customer is done by the credit department. While extending credit to customers the credit 4Cs are taken into consideration i.e. capacity, capital, collateral, and condition. Loan supervision is also one of the responsible of the department. Loan supervision implies keeping in close contact with the borrower and monitoring his financial activities. This may include frequent plan visits, securing the borrowers periodic financial statements and reviewing requests for renewable or additional funds. The department also records graded accounts, Non-Performing Assets as per Nepal Rastra Bank directives 2.8.9 Account Department The Account Department of the bank maintains all the transaction of the bank that is related to payment to the vendors or any party. It keeps the record of every transactions occurred in the bank like administrative expenses. 2.8.10 Cash Department The Cash counter is where all the transaction of deposits and withdrawal by the customers are done in the bank. It is one of the most important sections of the bank in the operational area. Everest Bank Limited 11

The cash department has to maintain records of deposits, withdrawals and transfers done by customers and has to tally the records on a daily basis. 3.9 SWOT ANALYSIS The SWOT analysis of the bank is analyzing the Strength, Weaknesses, Opportunities and Threats of the banks. Strength Bank was awarded as Bank of the Year 2006. High paid-up capital and strong financial condition EBL has a good relationship with the existing clients and strong relationship with the Bank has been adopting the credit monitoring policy, which improves credit situation Technologically well developed. Absence of trade union, so the firms activities can be operated smoothly. Experience and well skilled work force. Proper information flow between the departments and good interpersonal relationship Being a joint venture bank is one of the strength of the bank as it has helped an

foreign competitors. and helps in recovering possible losses without the arrangement of the additional funds.

between every individual of the organization. improved a lot in operation of the bank. Weakness Lack of feedback from the clients. No credit card facilities. Lack of employee satisfaction regarding the financial factors. Lack of spacious infrastructure.

Opportunities With the improvements of economic and political situations in Nepal, EBL can collect EBL has the advantages to make investment in various government bonds as well as in as much as savings and grant credit, loans and make various investments. various shares and debentures of other institutions. Everest Bank Limited 12

The development of the technology has helped bank to widen up its area of services

provided to its customers. Threats bank. Market of commercial bank is very competitive in context of Nepal, so EBL has lot of By near future lot of foreign banks will be entering the market so EBL needs to be competitors in the market. strong to compete with those international bank. Unstable political situation of the country is the major threat for the operation of the

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CHAPTER 3 SPECIFIC AREA OF THE STUDY

3.1 MEANING AND FUNCTIONS OF TREASURY DEPARTMENT To survive in todays complex financial environment, businesses need to be able to actively manage both their ability to undertake the opportunities, and their exposure to risks. They need to be aware of the expanding range of hybrid capital instruments and financial instruments and be able to select from these the ones which are appropriate to the businesses needs in the prevailing circumstances in order to gain competitive advantage. Therefore every organization has to have a Treasury Department. Treasury function is the proper management of the assets and liabilities as well as financial risks and is also concerned with the raising finance, management of liquid resources, management of currency and interest rate risks, and management of relationships with banks. A separate Treasury function is more likely to develop the appropriate skills, and it should also be easier to achieve economies of scale; for instance, in achieving lower borrowing rates, or netting off-balances. The Treasury function varies in different organization depending on its size, complexity, geography and organizations for e.g. in larger companies and groups, treasury will usually be centralized at head office providing a service to all the various units of the entity and thereby achieving economies of scale. The functions or the activities of the Treasury Department can be grouped in three main area i.e. firstly the Investment decision which determines how scarce resources in terms of funds available are committed to different available projects ensuring to get the maximum return from it. Secondly the Financing decision that is related in acquiring the optimum finance to meet financial objectives and seeing that fixed and working capital are effectively managed. It is also concerned with knowing the different sources of capital and its cost, ensuring that the entity has a sound capital structure and maintaining proper balance between equity and debt of the company. Thirdly the Dividend decision which is to decide what part of the company profit should be retained in the company in form of retained earnings in order to support the growth of the entity and what part should be distributed among the shareholders as dividend which is a significant factor in determining the market value of the stock. Fourth one is the Liquidity management which involves the working capital and money management to ensure that the company has enough working capital to conduct its regular activities and Everest Bank Limited 14

has sufficient liquidity and surplus fund is invested in some profitable. The Treasury function also includes the Currency management that is involved in forecasting the exchange rate which will help in adopting the procedure to manage such exchange rate risk. Dealing in the foreign exchange markets and day-to-day management of foreign exchange risks becomes the key functions of the Treasury department. 3.2 OBJECTIVES OF TREASURY DEPARTMENT The treasury function exists in every business, though in small businesses it may form part of a department covering other functions where as in a larger company, it is likely to be a separate department reporting to the chief financial officer, but communications with the rest of the organization need to be in good order if an effective service is to be provided. Therefore in context to this the main objectives of the Treasury Departments can be listed in following points Acquiring the optimum finance for the business to meet its financial objectives. To manage the banks investment portfolio and ensure that the banks liquidity

requirements are met at all times i.e. maintain Cash Reserve Ratio(CRR) as per the central bank guidelines Maintain the Statutory Liquidity Ratio (SLR) as per the central bank guidelines Management of liquid assets, interest and exchange rate and risks. Providing advice to management on capital structure and dividend policy issues. Liaison with the organizations banks.

3.3 ORGANIZATIONAL STRUCTURE Of EBL The Treasury function varies in different organization depending on its size, complexity, geography and organizations. Similarly EBL also has its Treasury Department in its Head Office i.e. in Lazimpat that deals or handles with overall function of the treasury department. The Department of EBL can be divided into two following sections. Dealing Section or Front Office. Back-up Section or Back Office.

3.3.1 Dealing Section or Front Office Everest Bank Limited 15

This section of the department is responsible for the treasury related activities such as inter bank borrowings and lending, buy and sale of foreign currencies, bidding and repurchases of treasury bills or bonds, placements in financial institutions etc. Dealing section of the EBL deals with following activities: a) Inter-bank Lending This is a short term placement with maturity of less than 7 days provided to other banks in case of surplus fund in the bank for its optimum utilization and revenue generation from it. b) Inter- bank Borrowing Bank has to maintain sufficient liquidity to meet its financial obligation and when the bank doesnt have enough funds it has to borrow from the other commercial banks to meet its obligation in case commercial bank is not in position to borrow the bank has to depend on NRB and it receives funds from NRB by placing the treasury bonds as collateral, and this is called inter-bank borrowing, and this function is also performed by the Dealing Section of the office. c) Placement In case of surplus foreign currency and o maintain short and long position of the bank, bank makes a placement of the foreign currency with other banks in order to avoid keeping it idle. The placement is done for certain period of time. d) Treasury Bill and Government Bond Treasury bill or T- bills are the most marketable money market security. It is a debt instrument issued by HMG/Nepal and NRB with the validity of less than one year. T-bills are issued with 28 days, 91 days, 182 days and 364 days maturity period every Tuesday and the dealing section deals with quoting such bills. Government bonds are the long term bonds issued by the government when fund is required in long term i.e. more than 5 years.

e) Repo Everest Bank Limited 16

In case NRB has excess fund and commercial bank has less fund, in this case NRB provides fund to the banks but before that the commercial banks are asked to bid for the interest rate, and NRB provides fund to that bank which has offered the lower interest rate. f) Reverse Repo When the commercial bank is highly liquid or has excess fund with it, and NRB has low liquidity in this case to overcome this problem commercial banks provides fund to the NRB for short period and NRB asks to quote the rate to the commercial banks for providing the fund to the NRB. g) Funds transfer from one Nostro to another Nostro account Transferring the fund from one Nostro to another Nostro account is also one of the functions of the front office. Nostro account refers to the account that bank has maintained with other banks. The fund is transferable from one nostro account to other nostro account in order to make the payment easier. h) Intervention Intervention means buying or selling of US dollars by the central bank i.e. NRB at the request of the foreign exchange and money dealers of Nepal (FEDAN) in case of surplus or deficit of US dollars in the market. i) Forward Contract Forward contract is a contract whereby an enterprise can lock in an interest rate today for a period of time starting in their future. On the future date the two counterparties in the contract settle up and, depending in which way rated go, one will pay an amount of money to the other representing the difference between the contract rate and the actual rate. j) Inter-branch foreign currency buy and sell Dealing section also deals with the buying and selling of foreign currencies from and to the different branches of EBL as and when required.

k) Deal/ Request Slip Everest Bank Limited 17

Deal/Request slip is the written request generated by the front office upon concluding the departments activities against which the Front office can carry on its activities and it is maintained by the back office. l) Maintaining CRR Maintaining the CRR of the company is also one of the basic function of the Front or the Dealing section of the Treasury Department. According to the ordinance passed by NRB every bank has to maintain 5% CRR of its deposit and in order to fulfill this criterion the Dealing section has to work on it. 3.3.2 Back-up Section or Back Office Back-up section is responsible for the activities carried out by the Front office. It is responsible for timely and efficient accomplishment of requests and deals made by the Treasury Department and is equally responsible for submitting the reports of its activities to the Treasury Department, Management and NRB as per the requirement. The basic functions performed by the Back-up Section are: office, Treasury Bill Maintenance, Maintaining account entries related to deal, Sending and receiving deal confirmation, Preparing Liquidity position and communication it with the concerned department, Sending and settling instructions like SWIFT messages or Telex. Maintaining the data of every activities performed by the Front office as well as Back

3.4 FUNCTIONAL RESPONSIBILITIES Treasury department is the heart of any organization, therefore all its responsibilities is fulfilled responsibly by the people in the department. The functional responsibilities of the Treasury department of the bank can be grouped in following ways:

a) Determining the limits Everest Bank Limited 18

Treasury department is responsible for determining the limit of holding the cash as well as foreign currencies in branches. All the branches of EBL hold cash in their vault as per the limits specified by the bank and policies regulated by the bank and informs the Treasury Department of the bank every day about the cash they have. In case of excess fund such surplus funds are deposited in NRB and then it decides how that fund should be invested to maximize the return. This is done in order to maintain the liquidity and meet the CRR as prescribed by NRB. Treasury Department is also responsible for maintaining the foreign currency position limits. In case of EBL foreign currency is collected by Baneshwor Lazimpat branch and new road branch and all that sent to new road and then sent to NRB. b) Recording and implementation of policies All the transactions carried out in the bank should be recorded properly for the future reference and this is one of the major and unavoidable responsibilities of the treasury department and it should be recorded as per the accounting policies and procedures. c) Foreign Exchange Management Bank is equally responsible for managing the foreign exchange some of is sub functions are: i) Exchange rates One of the major functions related to FOREX management is related to exchange rate determined. The Treasury department finds out the rate of foreign currency from the Reuters which is the software that gives information about the cross currency rate of every currency, LIBOR, SIBOR, TIBOR, gold rate, international market. The rate keeps fluctuating from time to time so stable rate is implemented. In Nepal the USD rate is determined on the basis of rate of INR. In order to maintain uniformity in the rate, all the commercial banks sends their exchange rate to FEDAN and then the standard rate is determined. Every morning this function is carried out by the department. The final rate that is determined should be communicated to every branches of EBL and this is the function of Treasury Department.

ii) Positioning currency Everest Bank Limited 19

Positioning the currency means maintaining the short position or long position of the currency. Bank maintains long position when there is expectation of increase in rate of dollar rate. Because by maintaining the long position they buy the dollars and can sell them to other in higher rate. Likewise bank maintains short position when the dollar rate is expected to decrease in this case bank sells the currency so that they do not have to incur exchange loss in future. Thus depending upon the scenario bank maintains the positioning of the currency. iii) Purchase and sale of INR Treasury Department of the bank is also involved in buying and selling of INR. Bank has to make payment for DDs and TTs in India therefore it has to maintain its INR account in PNB, HDFC and SCB, Calcutta. In order to maintain the account bank sends INR to those banks by purchasing it from PNB and the rate is fixed by NRB itself and should be followed by all commercial banks. The buy and sale of INR in the inter-market is prohibited by NRB, there by, limiting the buy and sale of INR from and to the customers of NRB only. Treasury department purchases NRB based on the position of INR maintained in the bank only. The purchases are made every 4 times a month and the minimum amount is 5 Crores. iv) Purchase and sale of USD USD rate in Nepal is based on the dollar rate in Indian Market. The commercial banks quote their rate and send it to the FEDAN and the standard rate is determined. Usually the rate quoted by all the commercial banks is same because of demand and supply of USD dollar in Indian market. The buying and selling of USD is done through intervention and IBL. In the process of buying USD bank practices the system to charge the mid rate to other parties where as in case of intervention when the bank has to sell the dollars to NRB it has to charge 4 paisa less than the mid rate and during the purchase from NRB the rated is charged according to the quoted rate. v) Purchase and sale of Foreign currency The exchange rate of other foreign currencies is dependant upon the cross rate of other foreign currencies against USD and the base rate between USD and NPR. Because of the

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above underlying factors it is easier to convert other foreign currencies are volatile so treasury department should always remain vigilant and hedge the volatility risk at all times. The department is usually involved in selling the currency; it buys the foreign currency only when it has to make payment of LC. Usually bank is involved in purchasing Japanese Yen for the purpose of LC.

d) Liquidity Management Liquidity management involves working capital management and cash management. It is the responsibility of the treasurer to ensure that the company has sufficient liquid funds and invest surplus fund to avoid the risk of liquidity crisis in. Liquidity should be managed in both local as well as foreign currency. In case of foreign currency liquidity should be managed to meet the business need as well as optimize the treasury incomes. Liquidity management is considered as the main responsibility of the treasury department of the EBL. i) Liquidity Management in Local Currency Treasury Department is responsible for maintaining liquidity in local currency .It maintains liquidity in form of balance at NRB and vaults of every branch. As per the NRB directives, every commercial bank should maintain 5% CRR of its total deposit therefore Treasury Department should focus on maintaining it in order to maintain the liquidity of the company. The portfolio of loans and deposit is the determinant factor for maintaining the liquidity in a company. Therefore the treasury department should review the trends of portfolio of both loans and deposits in order to maintain the adequate liquidity. For this purpose treasury department refers to Account department, Customer Service department and Credit department of all the branches to get updated about the every transaction occurred in the bank. Moreover, the report or information regarding the monitoring of fixed deposits serve as a useful tool for the purpose of efficient, liquidity management and optimizing revenue through inter bank lending/ placement and investments in treasury bills. In some cases if bank fails to maintain liquidity as per NRB directives and meet short term obligations it is covered through inter bank borrowings to the maximum possible extent and thereafter through Repo on outright sale of T-bills, development bonds, whichever is cost Everest Bank Limited 21

efficient. If even in the above cases too, the bank fails to overcome liquidity crisis, the treasury department must inform the EBL management to acquire more deposits or reduce the amount of loans. But referring to the history of EBL it has still not faced such problem and this is the strong aspect of the bank. ii) Liquidity Management in Foreign Currency Like wise maintaining liquidity in local currency, maintaining liquidity in foreign currency is also one of the responsibilities of the bank. It is maintained by positioning the currency for short and long period. e) Risk Management There is a saying No risk no gain, every business has risk and similarly banking sector also has a lot of risk such as Business Risk, Interest rate risk, currency risk, Exchange risk, market risk, financial risk, default risk and many other risk that are faced by the bank during its operation. Risk can also be defined as the variability of possible returns around the expected return of an investment. Therefore to overcome such risk the Treasury department of the bank is involved in managing such risks. These risks have broadly been classified into three categories: Liquidity Risk Management Assets/ Liabilities Risk Management Foreign Exchange Risk Management Market Risk Management i) Liquidity Risk Management Bank must be able to generate sufficient cash to be able to meet its immediate obligations and therefore continue service. Unprofitable businesses can survive for quite some time if they have access to sufficient liquid resources, but even the most profitable business will quickly go under if it does not have adequate liquid resources. Therefore the efficient management of liquidity is important from every aspect of the company. EBL need to be sufficiently liquid to overcome all possible risks arising out of liquidity crisis and to meet business needs and such EBL must maintain adequate level of local currency, INR, USD and other foreign currencies at its disposal at all times. The treasury department Everest Bank Limited 22

and back office, as and when applicable, adhere to the following procedure for managing liquidity risk: Local Currency Reviews the total credit and deposit portfolio on a daily basis. For review the account Coordinates with the customer service department and branches to tentatively department supplies the uses and sources of funds on a daily basis to the treasury department. ascertain/estimate the liquidity position by being information on bulky inflow/outflow of deposits in seven days to one-month period. credits. Reviews and monitors the maturities of fixed deposits as well as savings in the operative call and current accounts. Large amount of fixed deposit maturities and unusual swings in the operative call and current accounts informs to EBL management credit department, customer service department and the concerned branches for timely checking and necessary actions. Reviews the Nostro account balance on a daily basis. Excessive balance is transferred to NRB. Likewise, the deficit balances are funded through NRB of other appropriate measures. The mirror account balances relating to Nostro accounts is provided by treasury bank office to the treasury department on a daily basis. INR, USD and other foreign currencies Reviews the Nostro account balances on a daily basis. Excessive or deficit balances are transferred from on Nostro to another depending upon the requirements as well as to optimize revenue generation. The mirror account is provided by treasury back office also provides the Nostro balances as available to the treasury department on a daily basis. The branches and the departments involved in dealing with the above currencies report to the treasury department as stated in different parts of this treasury manual. The treasury department and all other concerned departments adhere to the limits prescribed to the domestic and international banks as regard to the placements/ deposits of funds. ii) Assets/ Liabilities Risk Management Everest Bank Limited 23 Coordinates with the credit department and if needed with the branches to tentatively estimate the liquidity position by being informative on bulky repayment/ disbursement of

It is a risk that the bank will encounter difficult in meeting its maturing liabilities with the maturing financial assets. Assets/ Liabilities risk management is analyzed and managed by assets and liabilities management committee in accordance to assets and liabilities management guideline implemented by EBL. iii) Currency Risk Management Currency risk is the risk of loss from movements in exchange rates. Bank has an obligation to sell foreign currency at an agreed rate and on an agreed future date at the same time it also has exposure risk. But in case of a bank, a payable in foreign exchange may be cancelled out by a receivable in the same foreign exchange. Therefore in many cases banks have natural hedging transactions. Foreign exchange risk of a bank in relation to a particular currency is basically determined by is net position in that currency. This term refers to uncovered currency position after taking into account all assets an liabilities and the immature spot and forward contracts in the currency. Devaluation and revaluation of foreign currencies against each other and local currency are the major risks associated with foreign exchange management. The treasury department always endeavors to maintain the foreign currencies positions within their prescribed limits .the treasury department timely and adequately covers the longer short positions of foreign currencies to bring them within their prescribed limits. In order to maintain the foreign currencies positions within the limits, the branches and the concerned departments report to the treasury department on buy or sell of foreign currency. Treasury back office provided the foreign currencies positions of the previous business day to the treasury department. iv) Market Risk Management Market risk is the risk of loss from movements in market prices of investments. Banks need to arrange for hedging in case there are excess liabilities and sales over assets and purchases in case of particular currency.

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3.5 RESTRICTIONS As we know that the Treasury department should perform its functions and responsibilities properly but it is important to note that the department has some restrictions in performing it. Some of the restrictions are as follows: IBL. In case of exceeding the limit the department has to take the approval from the higher authority. The Treasury dealers are restricted from Accounting entries Sending and receiving deal confirmations Sending settlement instructions i.e. SWIFT messages/ telexes. Depending upon the banks capital structure and income EBL has limited the amount of

Similarly the treasury back office is restricted from: Dealing activities Quoting the prices and deciding the exchange rates Raising deal slips Striking deals with counter parties Approving counter party credit limits Approving market risk limits Deciding on Nostro funding Updating position blotters

3.6 DEALING PROCESS In a proper treasury setup, front office or the dealer deals with the other banks and informs back office about the deal, and then the front office fills up the deal slip and gives it to the back office. The back office then arranges for the deal confirmation with the counter party and the other party too sends the deal confirmation to the department in other words we cans say they exchange the deal confirmation, then the further activities carried out by the Front office is checked to ensure that there is no any problem or mistake in the deal made by the Everest Bank Limited 25

front office, and the dealing process ends when the money is back to the department after the maturity period. Therefore the dealing process is very short in EBL. The dealing process can be shown by the following flow chart: 3.7 TREND OF INVESTMENT IN EBL
Particulars 1. Nepal Government Treasury Bills 2. Nepal Government Saving Bonds 3. Nepal Government Other Securities 4. Nepal Rastriya Bank Bonds 5. Foreign Securities 6. Local Licensed Institutions 7. Foreign Banks 8. Corporate Shares 9. Corporate Bonds and Debentures 10. Other Investments Total Investments Provisions Net Investments 2004 2392103694 2005 1873709702 2006 3322443166 2007 361454112 7 109009129 74325000 226580000 226173802 9 1583627004 2008 3237977740

52115000 17114000

9255150 19387000

632816092 19887000

260600000 19887000

138400800 16225000

498511942 2535657694 2128931852 4201320060 -804840 4200515220 6 -804840 498431458 6 5061157544 -1600000 5059557544

2535657694

2128931852

Particulars
1. Investment in Shares: 1.1 31,200 Shares of Rs.100/-each in Rural Micro Finance Co. Ltd. 1.2 33,000 shares ( including 3000 bonus shares) of Rs. 100/- each in Nirdhan Utthan Bank Ltd. 1.3 1,34,140 ordinary shares of Rs. 100/each in Himalaya Distillery Ltd. 1.4 3,530 Shares of Rs.100/- each in Credit Information Center Ltd. 2. Investments in Debentures Total Investments

2002/03

2003/04

2004/05

2005/06

2006/07

2500000 1200000 1341400 0

2500000 1200000 1341400 0

3120000 2500000 1341400 0 353000 1938700

3120000 3000000 1341400 0 353000 1988700

3120000

7752000

353000 84927000 10115200

1341400

1711400

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0 3.Provisioning 3.1 Up to last year 3.2 This Year Total Provision Net Investments 0 -

0 -

0 -

0 804840 804840 1908216 0

0 1600000 1600000 99552000

1341400

1711400 0

1938700 0

Table 3: Trend of Investment in Ebl

The above table clearly indicates the trends of investment in EBL which is continuously increasing every year. These table shows that the bank has constantly been investing its money in different sectors thereby maintaining liquidity also it has not kept its fund idol.

CHAPTER 4 FINDINGS & CONCLUSIONS

4.1 FINDINGS AND CONCLUSIONS The Treasury Department of EBL has widely applied the theoretical aspects of Treasury management as well as foreign exchange management. EBL has widely been applying the concepts of Forward Contract, Intervention, Positioning, Inter Bank Borrowing and lending in the Treasury Department as one of the major activities of it. Treasury Department has two sections Front Office and Back Office. Both the sections of the department require highly skilled and specialized staffs. The dealer of the bank is involved in risk management as well as the fund management and making dealings with the parties which is considered as the important responsibility of the Front officer and they are expected to make best possible decisions in complex situation. Everest Bank Limited 27

The work of the treasurer is complex, risky, and stressful and requires high devotion because a small mistake in a job would lead an individual in a big trouble, therefore the senior management should be cautious during recruiting the employees for the departments. They should be able to cope and adopt the changes as todays business is globalized and for this purpose the staff of EBL has been constantly been providing training to the employees and has highly skilled employees in the bank. There is a proper management of funds in EBL; they invest the funds that are in surplus in all the branches in government bonds, securities and T-bills receiving certain interest rate. Reviewing the history of EBL, the bank has still not been suffered from any liquidity crisis this clarifies that the bank has effectively managed its liquidity therefore we can conclude that the department has been effectively managing or performing its responsibility.

4.2 RECOMMENDATIONS With reference to the above findings and analysis, following recommendation are suggested to overcome the weaknesses and drawbacks to help the bank improve its performance and efficiency. it. Employees are the real asset of the organization, therefore they should be provided various training on the job as well as off the job from time to time in order to increase the level of their performance. The main activities of the bank is accepting deposits and providing loans. Therefore in order to increase the deposit bank should revise the system of maintaining minimum balance during opening an account because it may not be applicable in case of low income people and rural areas at the same time interest rate also definitely has lot of impact in increasing the number of accounts in the bank. Though the treasury department of the bank has been applying most of the theoretical aspect of Finance, lots of derivatives and hedging tools are not implied in the banking sectors of the country. International Market are making huge profits using different kinds of derivatives. Now, the Central Bank has given the opportunity to increase the treasury market so Everest Bank Limited 28 Bank has constantly been providing quality services to its customers and has to continue

we strongly recommend bank to use this concept in their activities. This would definitely add up value in their activities and can be used for the benefit of the organization. Two way quote system in the exchange rate has to be implied in the banking sector, this would provide inflows and outflows of foreign currencies and can maintain the exchange rate risk and flexibility in exchange rates. Trading in international shares and bonds should also be done, which as per my Concept of Mutual Fund can be implemented for better prospects of the Organization. information the central bank is taking necessary steps to extend the market.

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