CHAPTER I

1. Background: With the main objective of providing institutional credit for enhancing the production and productivity of the agricultural sector in the country, the Agricultural Development Bank, Nepal was established in 1968 under the ADBN Act 1967, as successor to the cooperative Bank. The enactment of Bank and Financial Institution Ordinance (BAFIO) in February 2004 abolished all Acts related to financial institutions including the ADBN Act, 1967. In line with the BAFIO, ADBL has been incorporated as a public limited company on July 14, 2005. Thus, ADBL operates as "A" category financial Institution under the legal framework of BAFIA and the Company Act, 2053.

The new legal framework provides the bank opportunity to operate complete banking business throughout the country. At present, out of 243 branch offices the bank has been operating its commercial business through 118 branch offices with limited product and services. It is necessary for the bank to diversify and extend its product and services to increase its outreach, market share, rate of return, clients' acquisition, satisfaction and retention of customers. ADBL is facing challenges as it is in a transformation phase to a modernized commercial banking from traditional development banking. ADBL is operated mainly under three major resources that are equity, borrowing and deposit which are 21%, 5% and 74% respectively of total available resources. Among many other sources of fund mobilization deposits are the main source of lending in ADBL which mainly comprises three components viz fixed account (30.35%), Current account (7.23%) and saving account (62.42%). In fixed and saving account there are also sub products like Ba Ama Bachat Khata, Sambridhi Bachat Khata, Lakhapati Bachat Yojana etc that add some augmentation to the deposit account. To sustain in the competitive financial market for the financial institution like ADBL deposit collection is one of the major challenges. The bank needs to diversify and extend its deposit products and services resulting in an increased market share and cost of fund. Similarly, the bank should focus on its clients satisfaction and retention as well.

1.1 Problem Statement In order to survive and prosper in the new environment of financial market, ADBL must identify effective resource mobilization strategy with proper implementation modality and appropriate management procedure. In spite of the importance of deposit collection in an extremely competitive business environment, extensive research has not been conducted in ADBL. Furthermore, ADBL is currently holding more than 190,000 Nos. of clients for different loan portfolio which generates high demands of fund. Deposit plays an important role in the contribution of resources allocation as about 74% of the fund comes from the deposit collection. Despite having a largest network all over Nepal, having largest paid up capital and being one of the oldest bank, ADBL share only 5 % of deposit in its financial market and the trend is decreasing having negative growth rate. This situation urges the urgency to explore the possible internal and external factors that affects deposit collection. 1.2 Objective of the Study This research aims to explore the comparative analysis of internal and external factors affecting the deposit collection performance of ADBL. The main objectives of this research are To study the internal factors such as educational background of managers and front desk staff, experiences of managers and front desk staff, no. of staffs, strategy implemented by the branch offices that affects amount of deposit collection in branch offices. To explore the external factors in a competitive environment such as interest rate, policies and strategies implemented by other commercial banks. To recommend the strategic suggestions to the management and concern department for the promotion of deposit collection. 1.3 Rationale of the study: ADBL is the financial institution with the highest paid up capital of NRs. 9.4375 billion so far. Fully government owned bank previously is now converted into autonomous bank which still have 50.78% holding on its share. Rest of the

common stock is owned by general public. The government has planned to sell 30% of its share to the appropriate strategic partner through divestment. In such a changing scenario, bank is being accountable not only for the government but also to the general public as a whole to maximize shareholders' wealth. For this purpose the bank has to consistently maintain significant business growth and enhance efficiency by extending its business and optimizing profit. Bank currently have a loan portfolio of NRs 40 billion and to expand the business bank need huge resources which is not just enough from the internal resources. For this purpose bank need some consistent source of fund that could be a deposit from the customers. The table 1 below highlights that the pattern of Deposit collection in case of ADBL is inconsistent as compared to other banks. The amount of deposit in the
4th

Quarter of FY 2066/67 is increased as compared to the amount of deposit in the

same quarter last year in RBB, NABIL and NIBL; however it is decreases in a radical amount in ADBL. This demonstrates that ADBL is in critical challenge that needs to increase its deposit substantially or find some alternate source of fund for its operation. Likewise, the negative growth rate in case of ADBL also reviles that the deposit collection is the major challenges among other. NRs in billion Table 1: Deposit Growth rate of ADBL and its major competitors
II Qtr FY 2065/66 III Qtr FY 2065/66 IV Qtr FY 2065/66 II Qtr FY 2066/67 III Qtr FY 2066/67 IV Qtr FY 2066/67 Qtr Growth rate

(Rs in million)

Major Competitors

I Qtr FY 2066/67

I Qtr FY 2067/68

Qtr Growth %

NBL RBB NABIL NIBL ADBL National Total

4311.0 6226.0 3385.0 3891.0 3305.0 47846.0

4260.0 6067.0 3578.0 4248.0 3309.0 50256.0

4463.0 6809.0 3735.0 4670.0 3515.0 55514.0

4463.0 6565.0 4117.0 4851.0 3367.0 57677.0

4320.0 6310.0 4402.0 4734.0 3344.0 58656.0

4080.0 6121.0 4252.0 4767.0 3090.0 58600.0

4241.0 6862.0 4641.0 5009.0 3246.0 63128.0

4083.0 6266.0 4635.0 4886.0 3096.0 61950.0

-35.51 23.05 189.30 130.29 -36.62 2063.3 9

-0.87 0.37 4.08 2.67 -1.18 3.33

Source: nrb.org.np

F 1: Qua ig rterly T rendof Deposit collectionof ADBLand its m jor com a petitors

8000 6000 4000 2000 II Qtr F Y 2065/66 IV Qtr F Y 2066/67 IV Qtr F Y 2065/66 II Qtr F Y 2066/67 0

NB L RB B NAB IL NIB L ADB L

The Figure 1 above shows the highest growth rate of deposit collection is found in NABIL followed by NIBL and lowest growth rate is found in case of ADBL. Although ADBL have the highest paid up capital in Nepal, strong past history and about 45 years of experience in banking sector, highest network all over Nepal, the rationale behind decreasing trend of deposit collection is still unknown and major concern of the managers. Not only to attain overall satisfactory growth of an organization but also to meet the requirement of the Nepal Rastra Bank, relating to credit and deposit (CD) ratio the bank must substantially increase deposit. According the NRB directives CD ratio should be maintained as 95% by July 15 2010, 85% in July 15 2011 and 80% July 15 2011. At present, CD ratio of ADBL is 108.93% and downsizing it to 90% is another major challenge for ADBL. For which the capital mobilization needs to have a systematic approach. At the moment, NRB have given approval to use Core capital of Bank to calculate CD ratio due to which CD ratio of ADBL has maintained at 96.69% but this will not help out in a long run. Hence in that scenario, this study is expected to be a worthwhile for developing some concrete measures to maintain financial health of ADBL.

1.4 Scope and limitations of the Study 4

This study has broad scope of its implementability especially to address the internal and external factors that influence the deposit collection as a whole. In the course of action, this study also has the scope to address the problem and prospects especially in the area of strategy implementation for deposit collection of ADBL. The major limitation of the study was the target population. Since target population for this study was too narrow, only 60 respondents, there was a broad chance that the study could be succeeded or gone in vain awfully because respondents were selected from only Kathmandu valley as per proposed proposal. Finally, there are many other factors which can influence deposit collection such as Service quality performance, Image, Technological skills, Network, Financial resources, Customer service capability, Customers perception of interest and profit, Customers trust, Customers attitude toward new financial service, Customers attitude towards service charge, Loyalty, Fairness of management, Customers Perceptions about manager, Customers Perceptions about staffs, Regulation on deposits, Degree of financial risk, Staffs persuasive skills, Competitive intensity, Influence over work, Educational background of staffs, Transaction processing feasibility, Market share, Decision quality, Reward, Tangibility etc; however, these are not considered because of the simplicity of the research.

Chapter II
5

2. Literature Review: This study was undertaken to determine if there was a relationship between the level of educational background of managers, no. of staffs, strategy implemented by the branch offices competitive environment and performance of Deposit collection in ADBL. The concept for this study was based upon the financial management premise that tries to explain deposit is an important part of the financial management function. Basu, Blavy and Yulek (2004) explains that the importance of deposit collection in the development of microfinance services has arisen from the fact that the poor value both deposit and lending services. Surveys have shown that small entrepreneurs seeking micro financing for their projects constitute a relatively smaller subset of the poor population than the segment interested in accessing deposit services. They have identified three main barriers to the use of the deposit facilities commonly offered by banks: (i) high opening and minimum account balances, (ii) high travel time and transport costs involved in making deposits and withdrawals at the bank branch, and (iii) lack of familiarity with bank branch operations and procedures. Amable, Chatelain, and Bandt, (2002) explains that in several less developed countries, depositors lack of confidence in the financial system is an acute problem which inhibits the collection of savings and may contribute to the persistence of poverty traps. The foundation of a customers relationship with a retail banking institution is shaped through the account opening process, as the vast majority of new account openings still take place face-to-face in a branch. From the customers perspective, critical first impressions of the institutions quality, capabilities and trustworthiness are established. In large part, the institutions brand promise is personified by the skills displayed by the front-line employee. From the institutions perspective, the accountopening event provides the best, and possibly only, opportunity to comprehend customers needs and educate them on the appropriate financial solutions. However, some executives acknowledge that they ultimately need to cope with a deeper issue front-line employee selection to improve their organizations abilities to maximize the new account opening opportunity. Nearly eight out of 10 bankers surveyed responded that their staffs lack the adequate sales skills. Bankers broadly 6

recognize that many of the employees hired for front-line branch positions lack the life experience and soft skills required conducting credible conversations with customers about their financial goals. Banks are fine-tuning their recruitment procedures to attract employees who have natural aptitudes for customer service, consultative selling and multi-tasking. Potential employees with prior retail sales experience are often sought. In a study specifically related to the financial services sector Wood and La Forge (1979) segregated fifty (50) large banks into three categories; non-planners, partial planners, and comprehensive strategic planners. They found that the banks that had a comprehensive long-range strategic plan performed significantly better in terms of resource mobilization than those that did not have a comprehensive plan. Sapp and Seiler (1981) in a study similar to that of Wood and La Forge, compared bank performance to the level of planning. They grouped banks as non-planners, beginning planners, intermediate planners, and sophisticated planners. They found that increased levels of strategic planning were related to increased bank performance. Hopkins and Hopkins (1997) looked at a fairly wide array of financial institutions and their strategic planning processes related to the financial institutions performance. They found that the relationship between the intensity of the organizations strategic planning process and its financial performance was very strong. They found that the level of intensity (sophistication) that firms used in their planning process was typically a function of various managerial factors, specifically if managers believe that strategic planning leads to superior financial performance, they will tend to focus on the strategic planning process with greater intensity. There is a reasonable basis for opposition to the empirical support for a positive relationship between a firm's performance level and the degree of sophistication of the strategic planning process used. However, the literature cited above does not explain the deposit collection in terms of bank's performance, it gives an idea that the banks overall performance is directly or indirectly related with the strategic planning.

Geiss, W.C. (2003) in her study found that there was no relationship between the financial performance, as measured by the Return on Assets, the Return on Equity, and the Net Interest Margin, and the level of planning conducted by the financial institutions. It also found that there was no relationship between the six (6) managerial/organizational characteristics: Average Educational Level of managers, Average Number of staff, Average Age of managers, and Average Number of Years of service. Likewise, the study found no relationship between the level of strategy implementation of the financial institutions and the resource mobilization of the financial institutions. Vancil and Lorrange (1975) trying to determine if there is any correlation between several managerial / organizational characteristics and the overall performance of the organization. Most basic management texts refer to several factors of management and organizational features that may have some bearing on the planning and decisionmaking process within the organization. Donnelly, Gibson, and Ivancevich (1998) referred to several characteristics of management which may have some influence on the resource mobilization and decision-making process. They stated that factors such as the educational level of the managers, the age, and the number of persons involved in implementation / decision-making process may have some influence on the overall performance. Hitt, Middlemist, and Mathis (1986) discussed these same basic characteristics when looking at the decision-making and resource mobilizing environment in an organization. They discussed the importance of the number of persons involved in the implementing / decision-making process as well as the potential influence on the strategy formulation process of such factors as age, education, and overall experience of the persons involved with the process. Daft and Marcic (1998) state that decision making choices depends upon a managers personality factors and willingness to accept risk and uncertainty. Again, characteristics such as age, education, and others previously mentioned may have a significant influence on the personality characteristics of a manager. When dealing with these managerial/organizational characteristics, and there was overall agreement among the firms responding to their survey that resource mobilization was an important part of the management process for any firm.

2.1 Conceptual Framework On the way of reviewing the literature from national and international literatures, it is empirical to state that the literatures are focused on the financial indicators which are very much in alignment with the prudential international practices. Some literatures emphasize that the variables such as institutions quality, capabilities and trustworthiness and skills displayed by the front-line staff have significant relationship with financial performance of the bank. Some other literatures show that level of planning are responsible for the financial performance of the banks and financial institutions. In the meantime, some literatures suggest that there was no relationship between the six (6) managerial/organizational characteristics: Average Educational Level of managers, Average Number of staff, Average Age of managers, Average Number of Years of service and performance of the financial institutions. However, the literature cited above does not explain the deposit collection in terms of bank's performance; it gives an idea that the banks overall performance is directly or indirectly related with the amount of deposit collection. This study tries to see the implication of factors affecting deposit collection as this is the major driving force that leads the organization in resource mobilization including financial performance. It is in light of this background this study was undertaken. Questions which were examined are: 1) Is there a correlation between the deposit collection and internal factor such as educational background of the managers and front desk staff, experience of managers and front desk staff, no. of staffs, strategy implemented by the of ADBLs branch offices? 2) Is there a correlation between the deposit collection and the external factors such as interest rate, fast service, location of the branch offices, interior designing of the branch offices and the security assurance?

Fig 2: Conceptual Framework Of the study

Chapter III
10

3. Methodology
3.1 Methodology This research aims to explore the comparative analysis of internal and external factors affecting the deposit collection performance of ADBL. To accomplish this study, deposit collection of ADBL branches is taken as dependent variable with a set of internal factors such as education background of managers, educational background of front desk staff, experience of Managers, experience of front desk staff no. of staff and planning process as independent variables. Likewise, competitive environment of the branch offices could be another independent variable that shows the relationship with interest rate, policies and strategies of other bank that affect deposit collection. Secondary data of quarterly report of ADBL of last 2 years can be studied to analyse the trend of deposit collection as well as its each component viz fixed, current and saving account. Again, each component is further analysed to assess the cost effectiveness of various deposit products. A seven scale questionnaire (1= strongly disagree, 2= moderately disagree, 3=

slightly disagree, 4= neither agree nor disagree, 5= slightly agree, 6= moderately agree, 7= strongly agree) is distributed among the 15 managers and 15 front desk staff of the 15 different branch offices of Kathmandu valley that have been selected randomly. This questionnaire is designed to assess the most significant component of the factors affecting deposit collection. The questionnaire comprises of 46 questions on seven scale which starts with the general information of the respondent such as age, present designation, work experience in ADBL, educational qualification etc. The questionnaire then tries to penetrate on the major issues. The first two questionnaires are designed to assess perception of the respondents as the deposit collection is viewed as major financial indicators or not. The next nine questions are designed to assess the significant of components of deposit collection.

11

Further the questionnaire also helps to intensify the in-depth knowledge about these major components. The major themes in the questionnaire are: Educational Background of Managers Educational Backgrounds of Front Desk staff Experience of Managers Experience of Front Desk staff Strategy Implemented Competitive environment

In this segment, seven questions deal with the educational background of managers and front desk staff. The next set of four questions deal with the experience of managers and front desk followed by number of staff in the branch office. The last segment of questionnaire is especially for the strategy implementation. In this course of action, all questions with their respective inputs in the likert scale are uploaded in the EXCEL where statistical tools such as Mean, Multiple Regression Analysis are used. Trend is used to analyse the growth rate over the period of five years. Further, regression analysis is operated initially by taking deposit collection as dependent variable for the five sets of independent variables (educational background of managers, educational background of front desk, Experience of managers, experience of front desk and number of staff). The second set of regression analysis is performed separately by taking deposit collection as a dependent variable and interest rate, service provided, location, interior designing and security assurance as a set of independent variables. 3.2 Population Table 2: Sample framework Managers Sample size Teller/ Front desk 30 15 (50%) assistant 30 15 (50%) Sample Size Total Sample 30

The population of this study is defined as the 30 outlets of ADBL available in Kathmandu valley. 30 respondents are selected out of randomly selected 15 branch offices, 15 of them are managers, and 15 are teller assistant or front desk assistant who interact directly to the customers. To select the sample, initially the whole 12

population is divided into 3 clusters as ADBL has 3 category of branch offices viz sub-branch, branch office and main branch offices. During the sample selection procedure, a Simple Random Sampling technique is used such that probability of selecting each branch office is equally likely in the process. Similarly, close competitors of ADBL such as Nepal Bank Ltd, Rastrya Badijya Bank, Nabil and NIBL are selected for analyzing competitive environment. For the analysis of competitive environment Program, policies and guidelines of other bank are used as a secondary data source of information.

CHAPTER IV
4. Presentation and Analysis

13

Analysis of this research comprises of two parts, first part is the analysis of internal factors such as Educational Background of Managers, Educational Backgrounds of Front Desk staff, Experience of Managers, Experience of Front Desk staff and planning process Implemented by the branch office. Second part of analysis is the comparative analysis of the ADBL and its major competitor i.e Nepal Bank Ltd (NBL), Rastrya Badijya Bank (RBB), NABIL and Nepal Investment Bank Ltd (NIBL). Comparative analysis is carried out in terms of interest rate, service provided, location, interior decoration of branch office and security assurance. 4.1 Educational Background of managers: While assessing the educational background of managers two major dimensions are measured that are discipline and qualification. Management and Agricultural background and different level of qualification are measured with the 30 different branch managers and front desk staff that were selected randomly. Agricultural background is selected because presently ADBL have around 40% managers having agricultural background. The result below shows that employee preferred the manager with management background which has average score of 5.7 as compared to the managers with the agricultural background that have average score of 3.0 and managers with any other background scored lowest score of 1.8. Table 3: Role of Education Background of Managers in Deposit collection
Manageme nt Background 5.7 Agricultu ral Backgrou nd 3.0 Other Backgrou nd 1.87

F 3 R of E a ig : ole duc tiona B ck roundof Ma g in l a g na ers D epos C it ollec tion

6 5 4 3 2 1 0

Ma g ent na em Bcg a k round

AnyOther Bcg a k round

14

Likewise, the qualification of managers also accessed from the participating employee. Table 4 shows Intermediate level is least preferred followed by PhD and Bachelor degree scoring 3.43, 4.23 and 5.37 respectively. Masters degree is highly preferred having the highest average score of 6.67. Table 4: Role of Qualification of managers in Deposit collection
PhD 4.23 Maste rs 6.67 Bachel or 5.37 Intermedi ate 3.43

F 4: R of Qualification of Manag in Depos ig ole ers it C ollection

8 6 4 2 0 PhD Ma sters B chelor a Interm edia te

4.2 Educational Background of Front Desk staff: Two major dimensions of education are accessed while assessing the educational background of front desk staff as in case of managers that are discipline and qualification. Management and Agricultural background and different level of qualification are measured with the 30 different branch managers and front desk staff that were selected randomly. The result below in table 5 shows that employee preferred the front desk staff with management background which has average score of 6.07 as compared to the front desk staff with the agricultural background that have average score of 2.87. Table 5: Role of Educational Background of Front Desk staff in Deposit collection
Manageme nt Background 6.07 Agricultu ral Backgrou nd 2.87

15

Fig 5: Role of Educational Background of Front Desk Staff in Deposit Collection

8 6 4 2 0 Manag ent Backg em round A ricultural Backg g round

Similarly, the qualification of front desk staff also accessed from the participating employee. Table 6 shows PhD level is least preferred followed by Masters and Intermediate degree scoring 2.17, 3.57 and 4.53 respectively. Bachelore degree is highly preferred having the highest average score of 5.27. Table 6: Role of Qualification of Front Desk staff in Deposit collection
PhD 2.17 Maste rs 3.57 Bachel or 5.27 Intermedi ate 4.53

F 6: R of Qualification of F ig ole ront D k S es taff in D epos it C ollection

6 4 2 0

P hD

Masters

Bachelor

Interm ediate

Table 7: Staff by Qualifications Qualifications PhD Masters Degree Graduate Certificate SLC Total
Source: ADBL

Number of Staff 3 390 850 1163 1103 3509

Percent 0.03 11.17 24.22 33.14 31.43

16

Table 8: Staff by background

Educational Background Staff with Management background Staff with Agricultural background Staff with other background Total No of staff
Source: ADBL

Number of staff 1254 1028 1227 3509

Percentage 35.74 29.30 34.97 100

Analysing the qualification of the existing staff, nearly 65% staff have acquired academic qualification either certificate or below where as 35% staff have acquired qualification graduate and above. In the current financial market, certificate level is not considered qualified level of academic qualification taking into account the current cut throat competition and the challenges of the financial market. In the nutshell, ADBL seems to be below par in the academic qualification when comparison with other financial institutions comes into picture. Similarly, nearly 36% of staff has educational background of managers, 30% have agricultural background and another 35% have educational background in various subjects. Hence, ADBL should aim to have appropriately skilled and experienced employees, both currently and into the mid to long term future, in order to meet the objectives of ADBL Strategic Plan. The positions held by the employee and their qualification and job experience should be in line with the job requirement, if not it could not justify that right people are in right place.

4.3 Experience of Managers: To access the significance of role of experience of managers to increase deposit collection, the variable is divided into four categories viz; below 10 years, 10 to 15 years, 15 to 25 years and above 25 years. Results are presented in the table 9 below. Table 9: Role of Experience of Managers in Deposit Collection
below 10 years 6.10 10-15 years 5.80 15-25 years 5.10 Above 25 years 4.03

17

F 7 R of E ig : ole xperience of Ma g inD na ers epos Collection it

8 6 4 2 0 below10yrs 10-15yrs 15-25yrs Above 25

The table 9 and the figure 7 above shows that managers having experience less than 10 years is most preferable as compared to the managers having job experience of 10 to 15 years, 15 to 25 years and above 25 years. Experience of more than 25 years is less likely to prefer as the average score is least in this category. From the data above it could be observed that the preference of managers is decreases as the years of experience increases after certain level. This may be due to the fact that the energy level and enthusiasm of the staff will not remain same after certain years of working in the same organization or in the same position. 4.4 Experience of Front Desk staff: Similar study in is carried out case of front desk staff to access the role of Experience of front desk staff to increase deposit collection. Results are presented in the table 10 below.

Table 10: Role of Experience of Front Desk Staff in Deposit Collection

below 10 years 6.27 1015 year s 5.70 above 25 years 3.10

15-25 years 3.97

18

F 8: Role of E ig xperience of F ront Desksta in ff Deposit C ollection

8 6 4 2 0 below1 0 1 -1 yrs 0 5 1 -2 yrs 5 5 a bove 2 yrs 5

The results in case of Front Desk Staff are found similar as in case of Managers. This means experience with less than 10 years have a highest score of 6.27 as compared to the score of experience of 10 to 15 years, 15-25 years and above 25 years which are 5.70, 3.97 and 3.10 respectively. The experience here represents the job experience in the banking sector. Table 11: Staff by number of years of service Years of Experience < 25 years 20-25 years 15-20 years 10-15 years < 10 years Total
Source: ADBL

Number of staff 323 1427 351 426 982 3509

Percent 9.20 40.67 10.00 12.14 27.99

From the above information it can be concluded that more than half the ADBL staff have been with ADBL for more than 20 years of work experience. Of the total workforce 2398 are over 40 years of age and 17% of the total workforce is over the age of 50. 4.5 Number of Staff in the Branch offices: The respondent viewed differently on the enquiry about the role of number of staff to increase deposit amount in the branch offices. Four questions related to role of number of staff in the branch offices are asked to the respondents in a 7 likert scale questioner model. Results are presented in the table 12 below. 19

Table 12: Role of No of Staff in Branch offices to increase deposit collection

Help to increase volume of Business 4.63 help to increase work efficiency 3.03 more staff = more profit 1.80 more staff = fast service 2.13

F 9 R of No of sta inB to increa depos collection ig : ole ff O se it

5 4 3 2 1 0
.. r... ... i... pr. of t se ffic re e e fas mo um rk f= ff = vol wo f sta s s sta ae ae re ore cre cre o m in in m

The data analysis shows surprising results in case of role of number of staff in Branch office to increase deposit collection. Four questions were asked to respondents to access is the increase number of staff is significant to increase deposit collection viz does the increased number of staff help to increase the volume of business, does it helps to increase work efficiency, does more number of staff means more profit for the organization or does the more staff means fast service? Mixed kind of responses is observed. Highest score of 4.63 observed in "no of staff help to increase of business" and lowest score is observed in case of increased number of staff will help to increase profit for the organization. This indicates that increased number of staff helps to increase volume of business and work efficiency to some extent however it does not have any influence on profit and fast service. 4.6 Planning Process: Respondents have relatively similar kind of responses in case of planning process. Results are presented in the table 13 below. Table 13: Role of Planning Process to increase Deposit Collection

20

Head office should develop Planning Process 5.37

Branches should develop Planning Process 6.47

PP should be on the basis of best practices 5.63

PP should be on the basis of individual client basis 5.73

Interperso nal skill

6.17

F 10: R of Pla ig ole nningProc sto increa e D es s epos Collection it

7 6 5 4 3 2 1 0

Head office

Branches

bes t practices

individual Interpers onal client bas is s kill

Here, the data shows that the respondent prefers the planning process that is developed by branch offices with an average score of 6.47 followed by the Interpersonal skills with an average score of 6.17. Planning Process developed by Head Office is least preferred by the respondents with an average score of 5.37. Similar kind of responses are observed in Planning process should be best on a best practices and should be developed on an individual client basis. However the data shows that there is no variations in all these aspects of planning process which means that all of them are equally important. A set of questioners was designed to observe the most significant components among the factors affecting deposit collection as studied above. Results are presented in the table 14 below.

21

Table 14: Most Significant components of factors affecting Deposit collection

capability of managers 6.10 Edu of Manage rs 5.47 edu of front desk 5.13 experien ce of mgr 6.07 experience of front desk 5.10 no of staff of BO 4.50 plannin g process 6.17

Fig 11: most Significant Components of factors affecting Deposit Collection 7 6 5 4 3 2 1 0

Ca pa bi lit yo fm gr Ed u of M gr Ed u of FD Ex p of M gr Ex p no of of FD st af fo pl an fB ni O ng pr oc es s

The data shows that among the different factors that affect deposit collection planning process plays significant role in deposit collection with an average score of 6.17 followed by capabilities of managers with an average score of 6.10. A capability is perused as a leadership style of managers. Experience of manager is in a third rank with an average score of 6.07 followed by education of managers and education of front desk staff with an average score of 5.47 and 5.13 respectively. Number of staff in Branch Offices is the least preferred factors affecting deposit collection with the average score of 4.50. Furthermore, for the better understanding of the factors affecting deposit collection Regression analysis is carried out. 4.7 Regression Analysis: To assess the significance of components of factor affecting the deposit collection of ADBL, the perceptual data is employed using questionnaire and summary output of the regression analysis is presented in the table 15 below:

22

Table 15: Summary Output of Regression for Deposit collection and its components
Coefficient s 4.946358 -0.01185 0.356493 -0.1957 0.024118 0.170103 -0.05013 0.031364 Standard Error 1.384722 0.122544 0.161028 0.141895 0.108756 0.111406 0.087251 0.140233 t Stat 3.572094175 -0.09666062 2.213857919 -1.379204298 0.221758149 1.526874238 -0.574535605 0.223656119 P-value 0.001702 0.923871 0.03751 0.181693 0.826548 0.141042 0.571434 0.825089

Intercept Capability of Managers Education of Managers Education of front desk staff Experience of manager Experience of front desk no of staff of Branch offices planning process Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations

0.506773 0.256818 0.020352 0.402677 30

To assess the significance of deposit collection of ADBL branch offices, a multiple regression analysis is performed taking major concern of deposit collection as dependent variable (Y) and other related components such as capability of managers (X1), education of managers (X2), education of front desk (X3) experience of manager (X4), experience of front desk staff (X5), no of staff in the branch(X6) and planning process (X7) as seven sets of independent variables. The coefficient of determination R2 represents how the independent variables under study affect the dependent variable or how the total variation in the dependent variable is explained by the given combination of the independent variables. The perceptual result shows that nearly 26 percent of the deposit collection of the branch of ADBL is explained by its seven components. It explicitly indicates that there are other variables also besides these which are not included in this study as independent variables and they can deeply influence the deposit collection. Some of the possible independent variables could be the current market scenario, liquidity position of the market, interest rate on deposit of the financial institutions, image of the financial institution, capital adequacy, composition of assets portfolios (risk-free to highly risky), transparency & disclosures, good governance practices etc. Inclusion of these additional variables will increase the value of R2 indicating that these variables are equally influencing factors

23

for the deposit collection endeavour of ADBL. In my current study a dimension of deposit collection endeavour is assessed taking the capabilities of managers and front desk staff. As such, my study is more confined to assess which of the given seven independent variables are more crucial and is that variable significant one for the deposit collection endeavour. The value of regression coefficient of each of the independent variable reveals this aspect of analysis as well. The data clearly shows that among the other variables, education of the managers, experience of the managers, experience of the front desk staff and better planning process found to have positive relationship with the deposit collection. In the meantime, education of the front desk staff, numbers of staff in the branch reveal negative relationship. Analysing more precisely, it can be inferred that education of the manager is the most sensitive one with regression coefficient of 0.3564. This coefficient indicates that education of the manager will have nearly 36 percent positive effect on the deposit collection endeavour taking other independent variables constant. Similarly the contribution of the experience of manager and front desk staff for the deposit collection activities are respectively 2.4 percent and 17 percent. This means proper experience of both manager and front desk staff will help to increase the deposit collection by nearly 2 percent and 17 percent respectively. In the meantime, proper planning of the branch in the business execution process helps the branch to increase deposit by nearly 3 percent. The perceptual data also indicates that the variables like ill capabilities of the managers, no of staff in the branch will have negative impact in the overall deposit collection process. More precisely the data suggests that nearly 1.1% deposit collection process wont mark its success because of the ill capabilities of the manager. Similarly the improper educational background of the front desk staff will have 19% negative effect on the deposit collection procedure. Practice and experience shows that excess number of the staff in the branch also have negative effect and perceptual data also tends to signify the same thought showing that excess staff in the branch has nearly 5 percent negative effect on the deposit collection endeavour. This analysis is very useful to test the significance of the regression coefficient at different level of significance using the t value or P value. The summary output of the 24

regression explicitly gives the value of t as well as p. The output table shows that Pvalue for independent variable education of the manager for the deposit collection is 0.0375 which is less than 5 percent significance level, i.e., 0.05. This explicitly indicates that there is no relationship between deposit collection and education of the manager and consequently can be inferred that the two variables under study has positive as well as crucial relationship. Other variables such as education of the front desk staff, experience of the manager, experience of the front desk staff as well as number of staff in branch office and proper planning process also do exhibit relationship but their coefficient is insignificant as their P values are more than significance levels at 5% and 1%. Moreover the inference about the regression as a whole can be tested using F value which is calculated by dividing Mean Sum of Square due to regression (MSR) by Mean Sum of square due to error (MSE). This value is then compared with the tabulated value of the F distribution with 7 degree of freedom for numerator and 22 degree of freedom for denominator. Calculated value of F statistics obtained using the relationship MSR/MSE is 1.086 which is less than tabulated value for 7 degree of freedom for numerator and 22 degree of freedom for denominator (2.46). This implies that there is no relationship between dependent and all independent variables and can be concluded that there is relationship between dependent variable and at least one of the independent variables. Table 16: ANOVA Df Regression Residual Total 7 22 29 SS 1.232728757 3.567271243 4.8 MS 0.17610 4 0.16214 9 F 1.08606 6 Significance F 0.405246023

4.8 Comparative Analysis: The unaudited Quarterly data of ADBL along with its major competitors RBB, NBL, NABIL and NIBL are analysed along with its major competitive factors. Table 17

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shows the quarterly data of two consecutive fiscal year that exhibits the growth rate and growth rate percentage of the deposit over the two year period. Table 17: Deposit Growth rate of ADBL and its major competitors
II Qtr FY 2065/66 III Qtr FY 2065/66 IV Qtr FY 2065/66 II Qtr FY 2066/67 III Qtr FY 2066/67 IV Qtr FY 2066/67

(Rs in million)

Major Competitors

I Qtr 2066/67

I Qtr FY 2067/68

Quarterly Growth rate

Quarterl y Growth %

NBL RBB NABIL NIBL ADBL National Total

4311.0 6226.0 3385.0 3891.0 3305.0 47846.0

4260.0 6067.0 3578.0 4248.0 3309.0 50256.0

4463.0 6809.0 3735.0 4670.0 3515.0 55514.0

4463.0 6565.0 4117.0 4851.0 3367.0 57677.0

4320.0 6310.0 4402.0 4734.0 3344.0 58656.0

4080.0 6121.0 4252.0 4767.0 3090.0 58600.0

4241.0 6862.0 4641.0 5009.0 3246.0 63128.0

4083.0 6266.0 4635.0 4886.0 3096.0 61950.0

-35.51 23.05 189.30 130.29 -36.62 2063.39

-0.87 0.37 4.08 2.67 -1.18 3.33

Source: nrb.org.np

The quarterly data for the last two years meticulously shows that deposit of ADBL decreases from Rs. 3305.0 million in Second quarter of FY 2065/66 to Rs. 3096.0 million in First quarter of FY 2067/68 registering the average annual growth rate of Rs. -36.62 million (Decreases by -1.18%). During the study period, the deposit collection has decreased in almost all banks as well as the National total which may be due to the global crisis and liquidity crunch in the country. However, decreases in deposit collection almost by 1.18% revealing the fact that the decreasing trend is highest in case of ADBL among its major competitors. The decreasing trend has a negative impact on overall financial growth of ADBL. In that case, the only option to compensate this decreasing trend is either explore new income generating sources by expanding the business or by substantially develop new policy to lure deposits from general public. In the mean time, market share of ADBL and its competitors in case of deposit collection has been studied. Table 18 shows the quarterly data of two consecutive fiscal year that shows the market share of ADBL and its major competitors in case of deposit collection.

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Table 18: Market Share of ADBL and its competitors in case of deposit collection
Market Share (%)
Major Competitors NBL RBB NABIL NIBL ADBL II Qtr FY 2065/66 9.01 13.01 7.07 8.13 6.91 III Qtr FY 2065/66 8.48 12.07 7.12 8.45 6.58 IV Qtr FY 2065/66 8.04 12.27 6.73 8.41 6.33 I Qtr FY 2066/67 7.74 11.38 7.14 8.41 5.84 II Qtr FY 2066/67 7.36 10.76 7.50 8.07 5.70 III Qtr FY 2066/67 6.96 10.45 7.26 8.13 5.27 IV Qtr FY 2066/67 6.72 10.87 7.35 7.93 5.14 I Qtr FY 2067/68 6.59 10.11 7.48 7.89 5.00

Source: nrb.org.np

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F 1 : Market share of A ig 2 DBLand its m ajor com petitors in 1 qtr of F st Y 06 8 7/6

NL B RB B N IL AB N L IB ADB L

14 12 10 8 6 4 2 0

F 13: Ma ig rket S re of ADBLa its m jor com ha nd a petitors in NBL case of deposit collection

RBB

NABIL
III Qt rF Y 65 IV /6 Qt 6 rF Y 06 5/ 66 IQ tr FY 06 6/ 67 II Qt rF Y0 66 /6 III 7 Qt rF Y 06 6/ IV 67 Qt rF Y 06 6/ 67 IQ tr FY 06 7/ 68

06 5/ 66

NIBL ADBL

II Qt rF Y

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The above table and the pie chart shows that RBB has a major share of deposit among five participating organization over the study period of two years whereas ADBL has a lowest share of deposit. On the other hand, NABIL and NIBL has relatively consistent market share over the period of time.

Furthermore, external environment is also accessed to find out the most influential factors that affect deposit collection. Among the external competitive forces five factors such as interest rate, prompt service, prime location interior decoration of the branch offices and security assurance are selected. The unexpected results are presented in the table 19 below. Table 19: External factors that affect deposit collection
interest rate 5.83 fast servic e 6.17 prime locati on 6.20 Interior Designing of the branch office 5.83 security assuranc e 6.23

F 1 :E ig 4 xterna fa torstha a l c t ffect deposit collection

6.3 6.2 6.1 6 5.9 5.8 5.7 5.6

interes ra t tefa t s s ervice

prime Interior s urity ec loca tion D ig es ningof a s nc s ura e the B O

The results above shows that the security assurance is most preferred among other external factors affecting deposit collection with an average score of 6.23. Likewise interest rate and interior designing of the branch offices are the least preferred with the average score of 5.83 in both cases. The results in the above table 15 are said to be unexpected because the interest rate and branch interiors which are considered as a prime factors by the management have a least preference by the branch offices.

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Instead the security assurance which is not even noticed by the management top the priority list. In addition to this the perceptual data is again analysed taking deposit collection endeavour as dependent variable (Y) and following five factors associated with competitive market environment as independent variables: Interest Rate (X1) offered in deposit to the depositors Prompt service (X2) of the financial institutions Prime location (X3) of the financial institutions Interior designing of the branch office (X4) Security assurance (X5) of the depositors

Table 20: Summary Output of Regression for Deposit collection and its external factors SUMMARY OUTPUT Coefficient Standard s Error t Stat P-value 6.3558130 1.215539 5.228798 2.33E25 881 432 05 0.0022181 0.136151 0.016291 0.9871 37 974 623 36 0.1135487 0.122765 0.924922 0.3642 49 701 42 13 0.0622383 59 0.0075361 94 0.1125603 48 0.142053 859 0.131407 414 0.109919 957 0.438132 127 0.057349 839 1.024021 038 0.6652 09 0.9547 41 0.3160 37

Interce Regression Statistics pt 0.24306245 interest Multiple R 3 rate R Square Adjusted R Square Standard Error Observati ons 0.05907935 6 0.13694577 8 Prompt service

Prime location Interior of 0.43380194 Branch 7 offices Security assuran 30 ce

The coefficient of determination R2 for the given perceptual data shows that the deposit collection endeavour using the given five set of independent variables only explained around 6 percent where as rest 94 percent of the deposit collection can be explained by other variables such as role of internal audit & control mechanism,

30

management philosophy towards risks, MIS mechanism, growth plan, strategic vision, good governance practices, etc. which are not included in this study. The regression coefficient of perceptual variables shows that among the five variables the most crucial one is security assurance of the depositors. The plausible reason for such awareness may be the incident of Nepal Development Bank Limited which was liquidated by the central bank due to malfunctioning activities of the bank. The regression value of 0.1125 simply shows that overall 11 percent of depositors tendency to choice financial institutions for deposit depends on the security assurance of their hard earn money. The second crucial variable among the five is the location factors which simply mean the accessibility of the financial institutions at the time when they are needed. The regression value of 0.062 shows that overall 6 percent of the deposit collection endeavours is affected by the location of the financial institutions. In addition to these, the perceptual data of 0.002 and 0.007 shows that interest rate on the deposited amount and interior designing of the branch office shares very nominal effect on the deposit collection endeavour. Table 21: ANOVA df Regression Residual Total 5 24 29 SS 0.28358090 9 4.51641909 1 4.8 MS 0.05671618 2 0.18818412 9 Significance F F 0.30138663 8 0.907192665

Additionally, the inference about the regression as a whole can be tested using F value which is calculating by dividing Mean Sum of Square due to regression (MSR) by Mean Sum of square due to error (MSE). This value is further compared with the tabulated value of the F distribution with 5 degree of freedom for numerator and 24 degree of freedom for denominator. Calculated value of F statistics obtained using the relationship MSR/MSE is 0.301 which is less than tabulated value for 5 degree of freedom for numerator and 24 degree of freedom for denominator (2.46). This implies there is no relationship between dependent and all independent variables and can be concluded that there is relationship between dependent variable and at least one of the independent variables.

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4.9 Major Findings: 4.9.1 Findings in Internal Factors: From the study above it was found that the Manager with management background have more important role in deposit collection than the managers with Agricultural and any other background. Likewise it was also found that the managers with masters' degree could play important role to increase deposit collection in branch offices. From the secondary data it was found that among the qualification of the existing staff, nearly 65% staff have acquired academic qualification either certificate or below where as 35% staff have acquired qualification graduate and above. Similarly, only 36 % of staff has educational background of management whereas other 65% have a different educational background. In another similar study of educational background of front desk staff it was found that the front desk staff with management background could have better influence in collecting more deposit than the educational background with agricultural background and any other discipline. Likewise, it was also found that front desk staff with Bachelors' degree could perform well to increase deposit collection in branch offices. The improper educational background of the front desk staff will have 19% negative effect on the deposit collection procedure

From the study it was also found that the preference of managers is decreases as the years of experience increases after certain level. This may be due to the fact that the energy level and enthusiasm of the staff will not remain same after certain years of working in the same organization or in the same position. Experience of less than 10 years in the banking sector is the most ideal for better performance while the most experienced managers of the experience with more than 25 years have the lowest performance in terms of deposit collection. Similar kind of observation was found in case of front desk staff as in case of Managers which explains that the front desk staff having experience with less than 10 years could perform better than the experience with more

32

than 25 years. From secondary information it was found that more than half the
ADBL staffs have been with ADBL for more than 20 years of work experience.

In another observation it was found that the increased number of staff helps to increase volume of business to some extent however it does not have any influence on profit and fast service.

In case of the study of planning process, it was found that the planning process developed in branch office could be more relevant as compared to the planning process developed in central level.

Experience of manager is in a third rank to increase deposit collection in branch office followed by education of managers and education of front desk staff. Number of staff in Branch Offices is the least preferred factors affecting deposit collection.

It was also found that among the other variables, education of the managers, experience of the managers, experience of the front desk staff and better planning process found to have positive relationship with the deposit collection. The education of the manager is the most sensitive one with regression coefficient of 0.3564. This coefficient indicates that education of the manager will have nearly 36 percent positive effect on the deposit collection endeavour taking other independent variables constant. Similarly the contribution of the experience of manager and front desk staff for the deposit collection activities are respectively 2.4 percent and 17 percent. This means proper experience of both manager and front desk staff will help to increase the deposit collection by nearly 2 percent and 17 percent respectively. In the meantime, proper planning of the branch in the business execution process helps the branch to increase deposit by nearly 3 percent.

The ill capabilities of the managers, no of staff in the branch will have negative impact in the overall deposit collection process. The data further suggests that nearly 1.1% deposit collection process wont mark its success because of the ill capabilities of the manager.

4.9.2 Findings in external factors: During the study period, the deposit collection has decreased in almost all banks as well as the National total which may be due to the global crisis and

33

liquidity crunch in the country. However, decreases in deposit collection almost by 1.18% revealing the fact that the decreasing trend is highest in case of ADBL among its major competitors. Likewise it was also found that among five participating organization over the study period of two years ADBL has a lowest share of deposit. On the other hand, NABIL and NIBL has relatively consistent market share over the period of time. Among the various external factors that affect deposit collection security assurance is most preferred whereas interest rate and interior designing of the branch offices are the least preferred variables. The interest rate and branch interiors which are considered as a prime factor by the management have a least preference by the branch offices. Instead the security assurance which is not even noticed by the management top the priority list. From the analysis it was found that 11 percent of depositors' tendencies to choose financial institutions for deposit depends on the security assurance of their hard earn money. The second crucial variable among the five is the location factors which simply mean the accessibility of the financial institutions at the time when they are needed. In addition to these, the interest rate on the deposited amount and interior designing of the branch office shares very nominal effect on the deposit collection endeavour. 4.10 Conclusions: From the study and findings above it is recommended for the senior manager to set a criteria for new entrance exclusively from management background only for managers and front desk staff. For the existing staff who have different background should provided with EMBA program for managers and diploma in management for front desk staff. Reviling from the fact that the young employee are more energetic and creative it is recommended to release old or the employee having enough experience in the same field by introducing VRS (voluntary Retirement Scheme) program. It is also recommended to develop a policy to provide authority to the young and less experienced (experience less than 10 yrs) employee as a managers. ADBL really lacks implementable policy to assess the requirement of staff for operating the standardized volume business. In the other financial institutions, 34

especially in private and joint ventures bank, they have been operating a branch office with the help of 6/7 table worker staff. It is suggested to adapt standardized criteria for the operation of the outlets as shown in the table 22 below. Table 22: Business operation standard Category of Office Outstanding Loan Main Banking Type A Type B Branch Between Type C Type D

Office Branch Excess of Rs. Between 400 million Rs. 400)

Branch Branch Rs. Between Rs. Less than Rs. (50-100) million 18 15 50 million

(200- (100-200) million 22

Staff

32

million 27

It is also recommended that the planning process and the strategy for the deposit collection should be develop in branch offices rather than imposing by the head office.

Capabilities of managers in terms of leadership should be developed by providing leadership development training and espouser. The decrease in market share of ADBL has been on the back of improvements in its customer service, product range and distribution network. ADBL should offer a wider product range through a broader distribution channel mix. It should increase its branch expansion, which in turn will attract retail deposits. Strong deposit franchise will aid the bank to attract retail deposit. Continuous improvement in service quality, innovative product portfolio and increased distribution network could help ADBL to continuously increase its market share. The bank should focus on consumer banking (current account, savings account, childrens account, super accounts, fixed deposits, call account, personal loans, cards, etc.), corporate banking (project finance, trade finance, overdraft, revolving credit facilities, etc.), treasury & investments (funds, etc.), international banking (correspondent banking, payments, collections, cash management and foreign exchange transactions, etc.).

Likewise, ADBL should focus more to provide security assurance to the depositors, by marketing not only the ADBLs' products and services but also 35

its financial structure such as ADBL has a more than 50 % government share, it has a largest paid up capital so that the capital adequacy is high in case of ADBL. It won't be bankrupted by minor changes in market policy and liquidity crunches.

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CHAPTER V
5. Proposed Change Programs
From the data analysis and the conclusions in the previous chapter it was found that the human resource is a vital element of an organization. It is like a nucleus of an organization as every part of an organization is interrelated with HR. To gain competitive edge in the industry, human resources plays a key role in helping companies dealing with a fast-changing competitive environment and efficient and potential employees. Human Resource has been a major part of ADBLs concern. The bank has a culture which has grown with people who have been in the bank for a long time and there is resistance to change. It is getting difficulty to ensure from the current working condition of the bank that the employees are highly skilled, both technically and in terms of knowing ADBL business, and its corporate aims and objectives, policies and strategies, to deliver a high level of service to the customers. Education plays a vital role in enhancing the performance of the branch offices in terms of deposit collection. ADBL have a provision of providing EMBA course to the non management background managers in the past. The finding shows that this should be continued to get a competitive advantage and for the better performance of the organization. To observe the impact more precisely it is advisable to introduce one or two deposit collection centre in the area where maximum transaction takes place. The managers and the front desk staff of that Branch Office (collection centre) should have masters' degree and bachelors' degree respectively in management background. The branch manager and the front desk staff should less than 10 years of experience and there should be no more that 8 staff to operate that branch office. They should be provided with the authority to develop their own strategy however target should be fixed by the management. Regular monitoring and supervision should be done by the senior management in coordination with the marketing and branch development division to monitor the product they are introducing and the for the effective market promotion.

37

After the completion of one year their performance should be evaluated and replicate in other area as well if it gives a satisfactory results. Before that the senior management team should be making aware and convinced that the ADBLs' market share in terms of Deposit collection is in decreasing trend having only 5% of the pie. This data reflects the market scenario in terms of the 'A' class banks' only. The deposit and its market share in terms of other category bank and financial institution are on the dark side of information due to the unavailability of the actual data. The information presented here are far enough for management concern to create motivation and readiness for change. The findings of this study will be shared as a presentation program to the senior management team of ADBL who are directly involved in the policy formulation. Likewise, a half day interaction program will be conducted for Union leaders who have the most influential pressure group will be informed about the finding. After the successful completion of the pilot phase program of one year further Program and policies will be developed on the basis of the experience on that collection centre to offer a wider product range through a broader distribution channel mix. The program and policy will be focus on consumer banking (current account, savings account, childrens account, super accounts, fixed deposits, call account, personal loans, cards, etc.), corporate banking (project finance, trade finance, overdraft, revolving credit facilities, etc.), treasury & investments (funds, etc.), international banking (correspondent banking, payments, collections, cash management and foreign exchange transactions, etc.).

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CHAPTER VI
Implementation Plan
The sharing of the findings will be conducted immediately after the submission of the report to the KUSOM. It was assumed that the senior management team will be convinced as decreasing deposit is everyone's concern and the proposed change program on this regard will be beneficial to increase deposit in a short term and market share in terms of deposit in a long run. After convincing the location for the two branch office with the deposit collection activity only inside Kathmandu valley will be selected in coordination with Planning division, Branch development division and Marketing Division so that it will be easy for regular monitoring and supervision. After that the young EMBA and management background staff will be selected. The number of staff should not be extended from 8 including manager and other non table worker. Regular monitoring, supervision should be done by concerning division by fixing target in coordination with branch office. Evaluation of Branch office as well as the performance of the staff will be carried out at the end of the year.

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Fig 15: Implementation Flow Chart of the proposed Change Program

40