Part One INTRODUCTION 1.

Background
We, the students undergoing Bachelors of Business Administration (BBA) under Kathmandu University are required to go through an internship programme of 8 weeks at a reputed organization to learn management skills. So, this report has been prepared as a requirement for the partial fulfillment for the degree of BBA at Kathmandu College of Management affiliated under Kathmandu University. Students come across various theories, management skills, case studies, researches, etc during their bachelors programme. They use books, internet, newspapers, etc to support their learning. They go through various quizzes, examinations, presentations, etc to prove their learning. But, its still unsure that the students will be able to apply it when required at the right place and right time. So, this internship of 8 weeks introduced by the university provides a platform to the students to know how their learning can be applicable in the real business scenario. The 8-weeks internship programme targets to help the students move beyond the four walls of their classes and apply their learning to the corporate world. This internship is aimed to make the students enter the real organizational settings in order to practice and expand their knowledge and skills gained in the classrooms to substantive work situations. This is an excellent opportunity for the students to interact with their prospective employers and leave a great impression on them with their hard work and dedication. The working experience is expected to provide students with the practical exposure, so that students understand the working culture, systems, structure, strategy, operations, methodology and activities that are carried out in an organization. The internship program is aimed at providing those learning and exposure opportunities that cannot be theoretically acquired. In the time period of eight weeks, we tried to maximize our contribution and at the same time take the most out of it.

This particular report sums up our internship at Nabil Bank Limited. We began our internship at the head office of Nabil Bank at Beena Marga, Teendhara, Kathmandu, Nepal from 15th February, 2011 and ended on 13th April, 2011. Nabil Bank is the first foreign joint venture bank of Nepal, which started operations in July 1984. Nabil has been one of the actively growing banks in the banking industry of Nepal. Nabil has been continuously working for developing and incorporating the international standard modern banking services to various sectors of the society. Nabil represents a milestone in the banking history of Nepal. Not only to the society as a whole, it has been acting as a pioneer in introducing many innovative products and marketing concepts within the domestic banking sector too. Nabil provides a full range of commercial banking services through its 49 points of representation across the kingdom and over 170 reputed correspondent banks across the globe. As interns, we started our work in Central Trade Operations Department headed by Mr. Jyoti K.C. We worked under the supervision of one of the senior officers of CTO (Import) Mr. Rajan Manandhar. CTO covers Import and Export Documentary Credits, Documentary Bills, Guarantee and Loans. We focused on learning in the Documentary Credit division, also known as Letter of Credit division. The operation in the DC section is carried out by two units: (a) Centralized Trade Finance Division (CTFD) at Teendhara, Kathmandu and (b) Trade Finance Executive (TFE) at the branch offices. The TFE at the branch office acts as the contact point for the customers. The customers can directly interact with the TFE of the respective branch. And, the CTFD performs the rest of the process of Trade Finance. Both the CTFD and TFE will maintain the time card for each and every step under the trade finance operation. So, both of them go hand in hand and complete transactions for a customer. It was a privilege to work in a renowned organization such as Nabil and a wonderful opportunity to get acquainted with the working environment and the proficiency needed in the banking industry. This experience gave us great chance to gain knowledge in specific area of operation. Nabils culture is highly co-operative, supportive and impressive.
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2. Goals/Objectives of Internship
A man without goal is like a rudderless boat. Having goal in life makes your life meaningful by providing specific direction to your life. We have learnt in our business management course, that goals should be SMART viz. Specific, Measurable, Attainable, Reasonable and Timely in order to accomplish them. We were entering into one of the top 3 commercial banks in the Nepalese banking industry. So, in order to utilize our golden opportunity of working in such a reputed organization in the industry, it was very important for us to set our goals/objectives in SMART way. The objectives of the internship are as follows:

To gain sound knowledge about the workings in Import-LC section of CTO department To gain practical knowledge of the banking activities and the laws governing LC transactions To know the corporate culture and working environment in a renowned commercial bank To enhance personality and communication skills that will help our career To develop public relations skills and networking To test the interest in this industry before permanent commitments are made To experience the professionalism in work culture and bring it in work style To learn practically the knowledge learnt from academic courses To understand and get familiar with the system operated in Nabil To learn customer interaction skills, document management, functioning of the banking activities, legalities in the trade operations, etc.

These objectives need hard core determination and dedication towards work in order to be fulfilled. We planned to keep in mind certain things in order to learn more and achieve our goals. So, we decided we would ask our senior officials about their part of the job when they are free and ask if we can assist them. This will help us gain knowledge and remain busy. We know that many employees work after banking hours too. If required, we must be able to work till late too. This is to support our objective to develop networking as well. At last, we believe that internship will prove a solid learning opportunity for interns like us who aspire to become a business corporate.

3. Roles/Jobs Performed in the Internship

During our internship period, we got an opportunity to work in the Import LC division of CTO department at the head office. From the very beginning, we decided to spend our entire time in one division getting to know it all and utilize our time in specializing in it as much as possible. The major roles/jobs that we performed are as follows: Processing the documents necessary for opening LC: In order to generate a new LC, the information filled in the LC application form by the applicant has to be entered into banking software used by Nabil Finacle. This was done by the employees there. We assisted them in creating new files of the customers. Every file would comprise of basic documents like LC application form, LC application checklist, work card, documents checklist, insurance related documents, etc. The LC checklist comprises of the details of the customers and the LC they are about to open. The work card includes margin amount, commission, telex charge, etc. The documents checklist includes the details of documents inside the file. After filling them, we filed the documents along with the application form and gave to the employees who did the further proceedings. Reporting to NRB through its software: It has been specified by NRB to commercial banks to use a special software and report everyday about the newly opened LCs, major amendments and payments of LC. The reporting is only done for the LC opened in foreign currency. This is done so that, NRB is informed about the entry and exit of foreign exchange in the nation and can prevent capital flight. In the newly opened LCs, we inform about the firm, date of creation, date of expiry, products to be imported, goods value, quantity, harmonic code, country of origin, country of shipment, etc. In the amendment of LCs, we inform about the changes made, if any, in specific details like the goods value, quantity, country of origin, etc. In the payment of LCs, we inform about the goods name, quantity, value, etc.

 Cross-check the LC files: After the LC is opened and reported to NRB, we did the cross-checking of the LCs too. Here, we matched the LC application with the LC created by the employees, swift messages and pro-forma invoice. Any discrepancy would be reported to the senior to take immediate actions. During this cross-checking, we learnt a lot about various terms in LC like types of LC, corresponding banks, time and sight LC, conditions applied, etc. Fill the BI.BI.NI-3 forms: The information to be filled in the BI.BI.NI.-3 forms was divided in two halves. The first half was filled by the applicant himself. The second half was filled by the bank officials. The information that we had to fill is Import L/C No., Date of issue, Date of expiry, Amount of L/C, Payment sources, Exchange rates applied, name of the advising bank, L/C payment term, etc. Use Finacle: The banking software used by Nabil is Finacle. Its not difficult to use but it requires regular practice to work fast. We learnt to verify the reference numbers of newly created LCs in Finacle. Similarly, we also learnt to create new LCs in the software. Close the customer file whose operations have been completed: After the BIBINI and pragyapan patra is received from the customs office, the file of customer is closed. Before closing the files, certain things have to be checked. They are the LC no., signature of the custom officer on the documents returned from custom, TBF no., LC value, etc. After it is found error free, the files are closed and stored.

4. Roles/Jobs of Intern Supervisors

CTO is headed by Mr. Jyoti K.C in Nabil Bank. Mr. Rajan Manandhar, our internship supervisor, is a senior officer at CTO (Import). He has been associated with Nabil for more than 8.5 years for now. Import LC division of the CTO department of Nabil leads the company to achieve its mission, highlighting below are the objective and strategy of the division. The Import LC division leads the companys businesses, thereby realizing Nabils mission and vision to be the first provider of complete financial solutions. The division is dedicated for a quality customer service with a swift and reliable output. It emphasized on understanding the customers' requirement by being equally concerned for the risks to which they are exposed while doing their import transactions. Therefore, the team not only tends to be doing their part of the business by processing their requests but also provide them with useful information for their business. To fulfil the purpose envisaged for the Import LC vertical, the following are the key functions performed by our intern supervisor: 1. Ensure smooth functioning of CTO with due vigilance in operational risks and minimization of the same up to the possible extent maintaining the optimum level of excellence in customer service 2. Acquaint the staff members with the a. internal regulations of the bank like circulars, standard instruction manual(SIM) and b. external regulations like NRB circulars and ICC brochures/publications and ensure application and compliance of such regulations in regular jobs 3. Help reporting staff members know more about their jobs, responsibilities and other banking procedures including latest developments related to their job areas 4. Motivation and grooming of the reporting staff members 5. Effective MIS and NRB and other reporting 6. Ensure perfect customer service and other operational departments including branches 7. Coordinate with credit and other operational departments including branches
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8. Notify relationship managers about the conduct/status of their respective accounts/customers on a regular basis 9. Liaise with related officials at correspondent banks, NRB and government offices like custom offices in course of the regular jobs 10. Timely response to the internal and external auditors queries/reports 11. Presentation of Trade Operation related issues to the concerned authorities 12. Provide feedback to the concerned authorities on different products, policies, organizational structure, etc for appropriate adjustment according to changing corporate environment

Our roles relate to our supervisors role in the sense that it supports the major roles that hes required to do.

Part Two Introduction of industry and company 1. Introduction of Nabil Bank Limited
Nabil Bank Limited commenced operations 26 years ago, on the 12th of July 1984 through a joint- venture with Dubai Bank Ltd marking a turning point in the banking history of Nepal. It started its operation with a team of about 50 staffs and Rs.28 million as capital. NABIL strives to stand as the Bank of 1st Choice in the industry considering its network, a number of branches, a large capital base, diverse customized services and products, a chain of ATMs service points covering a wide regional/local spectrum. It started an era of modern banking with customer satisfaction measured as a focal objective while doing business. The bank provides a range of consumer, retail, SME and corporate banking services and is sole banker to a multitude of large corporates, international aid agencies, NGOs and embassies. It is the largest private bank in Nepal in terms of branches and ATM networks. It is fully equipped with modern technology which includes ATMs, credit cards, state-ofart, world-renowned software from Infosys Technologies System, Internet banking system and Tele-banking system. Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Currently, NABIL has its corporate office at Teendhara, Kathmandu. NABIL serves all from the grassroots to colossal corporate bodies, covering all the stratums of society. They provide uninterrupted services through their 49 points of representations, network of 63 ATMs service outlets and 24 hours of a day and 365 days of a year through extended banking counters. They serve and care for their customers residing in different locations from Far East to Far West (Mechi to Mahakali) covering diverse socioeconomic and multiethnic communities.
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NABIL today is the largest and one of the leading commercial banks of Nepal. It uses banking software named FINACLE and all its branches are integrated into it. It takes pride in its large clientele base, supportive shareholders and high-spirited team of professionals. Mr. Anil Gyawali is the current CEO. Nabil currently provides a full range of commercial banking services through its 557 permanent employees and deals with over 170 correspondent banks across the globe. Nabil Bank has been quite successful in growth over the years. We can see the distinct changes from the figures in Table 1. Table 1: Financial data of Nabil Bank: (figures in millions Nepalese rupees) 1989 (5th year of Operation) 78 779 362 297 25 964 3.4 48.6 2.7 6 2010 (26th year of Operation) 3,835 46,411 32,369 13,671 1,139 52,912 1.47 36.39 2.37 49 63

Ratios Net Worth Deposits Loans Investments Profit after tax Total Assets Non performing loans (as % of total loans) Return on Equity(%) Return on Assests (%) Number of outlets Number of ATMs Source: (Andre de Waal, 2009)

A. VISION, MISSION AND VALUES: Companys Overall Vision: To be a bank for all, across all geopolitical zones and socioeconomic stratums of the nation, that can provide myriads of financial solutions and create values for all our stakeholders, to stand in the community with our economic and civic roles. We look forward to emerge as a first rate bank across all stratums of the nation. This vision statement of the bank shows that they are concerned about having a diversified network in the nation fulfilling the needs of all associates, keeping in the mind the social obligations and responsibilities. They vision towards being provider of myriads of financial solutions. This gives the idea that they highly believe in being innovative and outstanding in order to fulfill their roles in the economy.

Companys Mission: To become the 1st Choice Provider of Complete Financial Solutions The mission statement of Nabil supports their visionary aspirations. Complete financial solutions refers to customized ranges of products catered to all segments of society from financing megaprojects to underprivileged individuals and promoting enterprises. This requires a well-teamed and synergistic workforce. It shows that they are focusing on differentiating their products with best technologies and management. As well as, gaining full customer satisfaction through trained human resources and tailored products and services. In order to be the first choice, the bank would require reaching the nooks and corners of the nation. We can see that these days they are branching out on a national scale through our wide-ranging points of representations. This expansion in various geographic and economic zones supports its mission strongly.

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Companys Values: Nabil always surges with the five basic values: C. R. I. S. P. Customer Focused Result Oriented Innovative Synergistic Professional The 5 core competencies - CRISP looks like a catalytic engine that powers the Spirit of Team Nabil. Being a service industry, every step taken forward should be based on a customer focused approach and the end-result tasks done must create some values for their customers. This is an inseparable value that banks require to take care of the financial needs of their customers. This key term in their list of values shows how they strive to surpass customer expectations in terms of value, product quality and satisfaction. With the rapidly changing time and technology, banks are in extreme need to customize their services and re-engineer products. Customers expect unparalleled service standards. So, it is necessary for the bank to go beyond just making profits. Every activity should be geared up towards result-orientation. Being result-focused, they reflect the idea that they set high performance standards for themselves as individuals and teams. Similarly, its equally important to understand the importance of the human resour ce in meeting the goals and objectives. Staffs are great movers. Their innovative skills and strategies lead the organization. It is seen that they acknowledge that every individual brings a different perspective and capability to the team and that a strong team is driven by the variety of perspectives within it. Therefore, here, we can extract the basic disciplines that a service organization should follow in order to lead ahead and create a mark in the industry.

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B. ORGANIZATIONAL STRATEGIES: Nabil leads the market with its qualitative and differentiated services and products. It aims to achieve maximum customer while doing business. The success behind Nabil is often associated with its special focus on superior and qualitative products which is hugely supported by its sound process and product engineering. This is the reason why competitors are finding it difficult to imitate the companys product. Openness coupled with Action Orientation: People here spend much time on communication, knowledge exchange and learning in order to obtain new ideas to do their work better and make the complete organization performance-driven. Long Term Commitment: It maintains good and long-term relationships with all stakeholders by networking broadly, being generous to society, and creating mutual, beneficial opportunities and win-win relationships. They grow new management from the own ranks by encouraging people to become leaders, filling positions with internal talent, and promoting from within. Focus on Continuous Improvement and Renewal: It continuously simplifies, improves and aligns all its processes to improve its ability to respond to events efficiently and effectively and to eliminate unnecessary procedures, work, and information overload. The organization brings innovative products, processes and services thus constantly creating new sources of competitive advantage by rapidly developing new products and services to respond to market changes. High Workforce Quality: It continuously works on the development of its workforce by training them to be both resilient and flexible, letting them learn from others by going into partnerships with suppliers and customers, inspiring them to work on their skills so they can accomplish extraordinary results, and holding them responsible for their performance so they will be creative in looking for new productive ways to achieve the desired results. It creates a safe and secure workplace by giving people a sense of safety (physical and mental) and job security and by not immediately laying off people (until it cannot be avoided, as a last resort).

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Other organizational strategies are listed below: i. To go for wide geographic diversifications and reach different social segments by establishing many branches inside the valley and beyond covering many strategic economic zones of the nation. ii. To expand the trade operations business to Asian, European and American markets with a focus on further sophisticated services. iii. To enhance the level of services and products rendered with customizations for deposit schemes, cards, ATMs, etc. iv. To give continuity to recovery of written-off loans in an active manner. v. To upgrade the level of existing branches of the bank and seek maximum market share through them. vi. To install more POS machines for the convenience of the debit and credit card customers. vii. Increase the ease of access to them by customers through innovative products. viii. To introduce banking and ancillary services based on technology- driven websites. ix. To reaches out to the masses not only through its products and services that raise direct profits but going beyond profits as well and working actively to support its corporate social responsibility (CSR) through the range of social programs.

C. MAJOR PRODUCTS AND SERVICES OF THE COMPANY: Products and services are always designed in tune with the customers' specific requirements and expectations at Nabil. Its made so that it is suitable for customers of different socioeconomic segments and financial statuses. Nabil is the bank for all. Today's customers are brand-conscious more than ever before and Nabil has been a household name today in Nepal.

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Nabil provides a wide range of products on the basis of the purpose it serves. It can be categorized as follows: Table 2: Major Products and Services of Nabil Bank Major Products and Services Business Banking Privilege Banking
Working capital, Fixed Capital Loan, Import Loan, Export Loan, Hire purchase, Project Finance, Bills Discounting, Project Finance, etc Current, Call Deposit, Time Deposit, Normal Savings Deposit, Nabil Lok Bachhat, Nabil Bachhat, Nabil Student Saving, Nabil Bal Bachat, Nabil Jestha Bachat, Nabil Nari Bachhat, Retirement Fund, Provident Fund, etc

Bancassurance Personal Lending Remittance Trade Finance Clean Bills

Housing finance, Auto Finance, Nabil Property, Personal Finance, Education Loan, etc SWIFT Transfer, Western Union, E-remittance, Travelers cheque, etc Import LC, Export LC, Forward Contact, etc Clearing, Bills Purchase and Bills Collection

Card Products Debit Cards, Credit Cards, Prepaid Cards and ATM Cards E-Banking Others
Nabik Net and Nabil Mpay Safe Deposit Locker, Advance Payment Certificate, etc

Being as the forefront in card service, Nabil provides an array of card products. It is also a principal member of internationally renowned payment agencies: visa and master card. It issues credit , debit and prepaid cards that are accepted directly for the purchase of goods and services and cash withdrawals from ATMs which are accepted through over 50000 merchant outlets and ATMs in Nepal and India. Bancassurance is a newly launched service that acts as an arrangement between a bank and an insurance company to sell insurance products to the bank customers. The trend in this arrangement is the bank acts as an agent for selling the products in order to provide speedy and professional services to the customer under one window system considering the nature of insurance policies the customer need.
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Nabil Bank Limited ventured into capital market related activities and incepted its subsidiary "Nabil Investment Banking Ltd. (Nabil Invest)" which renders investment banking related services to the masses. Personal lending is a product that considers the exclusive personal needs of the individual customer. Nabil Housing features something different beyond market offerings at competitive interest rates through extended loan tenures with flexible repayments and partial repayment features. Nabil has pioneered varied schemes for auto loans with flexible repayment options for a large variety of vehicles withdiverse schemes. Other services like personal overdraft, apartment financing, SME banking and microfinance, etc are also provided. In the interests of the different cross-sections and segments of Nepalese society Nabil has designed a very flexible deposit scheme for various segments of population. Various services like M-Banking, E-Corporate, Internet Banking, etc are also provided. It has remittance products of top-quality and it has a diverse and selected service range. Drafts and SWIFT transfers are some of our expedited services the customers are facilitated at branches through our different renowned correspondent banks in India and abroad.

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D. ORGANIZATIONAL STRUCTURE OF NABIL: The organization has been headed by the BODs consisting of a chairman Mr. Satyendra Pyara Shrestha and seven other directors. Similarly, the management team has been headed by Mr. Anil Gyawali as the recent CEO. Figure 1: Organizational Structure of the Bank
Board of Directors Audit Committee Audit and Inspection Dept. Company Secretary Business Units Infrastructure Finance Dept. Consumer Banking SME Risk Mgmt Dept. Central Operation Central Trade Operations CEO Operation and Support Units Board Committees

Network and Distribution Units

Operational Risk mgmt, Credit Risk mgmt,etc

IT and HR

Branches

Treasury Deposit Relationship Mgmt. Personal Lending Units

Customer Service Department

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2. Organizations General and Competitive Environment

SWOT ANALYSIS: Figure 2: SWOT Analysis of the bank

Helpful

Harmful

Internal Origin

External Origin
Threats: 1. Political Instability 2. NRB interference

Strengths: 1. Service-Oriented 2. Strong IT system 3. Corporate Social Responsibility(CSR) 4. Aggressive in Lending 5. Innovative 6. Larger Market share 7. Brand-focused 8. High tax payer among financial institution

Weaknesses: 1. Motivation and Retention of staffs 2. HR policies 3. Internal Socialization programs 4. Less focus on training and development of employees 5. Job rotation 6. Long channel for decision making

Opportunities: 1. Expansion of branches 2. Focus in tourism business 3. Trade finance 4. Micro finance

3. Market instability
4. High turnover of staffs 5. Security system 6. Retention of customers 7. Increasing trend of new banks

5. Expansion of nabil remit

6. Card businessx

9. Financial benefits to staffs

10. Extended ATM services 11. Share price

The SWOT analysis is based on our observation during the internship period and discussions with the Nabil officials. Nabil being a leading financial institution holds a strong position in the banking sector. With its long term experience in this sector, it has been able to develop itself strongly. As a result, we can see a lot of strengths. Similarly, the expanding market and globalization has brought ample opportunities to its floor. It should focus on grabbing the opportunities by utilizing its strengths. But, as its a highly regulated industry and dynamic changes are taking place, it has to face various threats. These threats push the bank backwards. It should try to work on its weaknesses, so that these threats do not affect the bank in long run.
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PEST ANALYSIS: PEST analysis looks into the key external environmental variables effecting the organization in its operations and decision-making processes. These factors affect not only a single organization but, the industry as a whole. These four factors make up the organizations macro environmental factors and they should be considered while making plans and strategies for business operations. These factors include: i. Political forces: The political forces of any country have huge impact in the functioning of organizations directly as well as indirectly. The political forces include government stability, taxation policies, regulation and policies, macroeconomic policies, trading agreements with other nations and trade unions. These forces influence the degree of control that the regulator exercises in the economy. Banks are highly regulated institutions in the economy. The NRB imposes numerous rules, regulations, directives and policies to control the banking industry. NRB implements its monetary policies through commercial banks and controls their operation through various statutory requirements. Various national and international acts and rules like BAFIA, Directives, Circulars, The Company Act, UCPDC, URR 725, etc. influence banking functions and the L/C procedures. Political instability in Nepal has been a major hindrance in the development of banking industry to a great extent. Strikes and close outs have caused huge losses to business during the last decade. In addition, the lack of law and order in the society and the rise in crime has also affected banking operations in one way or the other. The lack of constitution and ongoing struggle between the political parties for power has made it increasingly difficult for banks to implement long range planning. These conflicts have also reduced trading activities, which have affected the L/C department. ii. Economic Forces: Economic forces comprise of the macroeconomic variables that affect business performance. Economic factors like economic growth, interest rates, exchange rates GDP
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and the inflation rate affect every aspect of a banks operation. The economic growth of the country is taking place at a very slow pace due the political turmoil. Double digit inflation rate, rising interest rates, low GDP growth, unfavorable BOP and devaluation of currency has hampered in smooth operation of businesses. These factors have influenced deposits, loans, investments, profits and other operations. In addition, low volume of trade has severely affected the L/C operations. Moreover, the membership of SAARC and WTO has also affected the banking industry to some extent. iii. Socio- Cultural Forces: The socio-cultural factors affect business in different ways depending upon country to country. These forces include: religions, attitude towards foreign products, language, attitude of the consumers, population parameters, etc. The socio-cultural forces impact the demand for various banking products in the economy. These forces determine consumption, saving and investment patters of the people thus, determining the operational limits of the bank. Similarly, the attitude of the population towards taking loan also affects the banking business. Increasing migration and urbanization has also increased lending opportunities from the banks. The socio-cultural forces also affect the type of import and export that takes place in the economy hence, affecting the popularity and use of L/Cs. iv. Technological Forces: The technological forces include factors like use of IT, automation of services, Internet banking, mobile banking, etc. Banks today cannot survive without using up-to-date IT infrastructure and continuous use them to innovate in their service delivery processes. Banks should constantly improve their business processes and reduce their costs through the use of IT. Almost all of the banking services have a technology component in it. ATMs, Remittance, SWIFT, e-banking, mobile banking, etc. have all been possible due to the technological developments in the banking sector. The bank must be proactive in using these technologies to remain competitive in the market.

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Part Three PRESENTATION OF MAJOR PROJECT UNDERTAKEN Project - Study of Import LC A Case of Nabil Bank Limited

Section I: Introduction 1. BACKGROUND

In this global village, no one is self sufficient. It is seen that people in one part of the world trade with people in the other part frequently. During this process, letter of credit gives importers the most extensively used and conventional international trade payment means and finance instrument. We started our analysis in this department because of its a very important part of the trade operations in the banking business. It generates huge revenue for the firm. It is one of the safest and most convenient means of international trade, both for the importer and exporter. So, we wanted to analyze in it to know more about it. During this period of 8 weeks as interns in this department, we focused ourselves on studying about the operating procedures in import LC, rules and regulations associated with it, actions to be taken in various situations, NRB reporting and the managements subjective analysis. Our project is concentrated on analyzing about the import LC at Nabil. This includes various areas associated with import LC. We came to analyze the major reasons for which import LC is opened by the applicants. We also analyzed how the LC is processed in the division which includes our observational analysis regarding volume of LC transactions issued in a year. We also analyzed how the import LC contributes to the total revenue generation of Nabil. We also compared it with the other top commercial banks in the LC business to reflect its competitiveness in the financial sector. After analyzing the figurative areas, we focused on studying the divisions working environment and comparing with other major banks in the industry.

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2. OBJECTIVES OF THE PROJECT:

The objectives of this project are highly correlated with the objectives of this internship programme. We can highlight a few as under: a) To learn how L/C assists in the transactions of goods and services internationally b) To have a practical knowledge about the processes of LC Operation at Nabil c) To observe and analyze about the LC transactions operated in a year d) To develop understanding of the various reasons for opening L/C e) To find out the current status of Nabils Import LC in the banking industry f) To develop understanding of the competitors and trend regarding import LC of Nabil g) To study the divisions working environment and compare with the other major banks in the industry

3. SCOPE AND LIMITATIONS OF THE PROJECT:

a) Scope of the Project: The study focuses on understanding the working procedures of import LC. The study focuses on exploring different aspect of L/C procedure and on finding if the import L/C provided by Nabil is competitive in regard to other top commercial banks of Nepal. This helps to understand how the LC operations help in international trade and prevent capital flight. The study on this area will help to identify the importance of L/C in economic and social growth of the country. This study will also try to put new perspective about the divisions working environment and comparative analysis with other major banks in the industry. It also measures the current status of import LC and presents the preference of customers regarding the service. However, the banks studied for the purpose of this project are limited to few top commercial banks. And, the study is based on the views and preferences of the limited customers met at the moment of visit.

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b) Limitations: Despite our effort to make the study as detailed as possible, the following limitations were encountered during the course of study: i. Due to short span of 8 weeks, the study could not be extended. ii. In-depth analysis got affected as some matters were to remain confidential and couldnt be revealed to the general public. iii. Assumptions are made on the basis of observations due to the absence of data from the reliable source. iv. Reluctance of the sources to reveal data for determining the annual L/C volume of commercial banks and also to know the market size and market share for the same. v. The research purely reflects the views of limited customers met at the point of visiting banks, so the output of the certain sections of the report based upon them.

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Section II: Conceptual Framework Literature Review

Letter of Credit is the document issued by the buyers bank in which the bank promises to pay the seller a specified amount under the specified conditions. (Donald A. Ball, 2009) The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as: "An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf : is to make a payment to or to the order third party ( the beneficiary ) or is to accept bills of exchange (drafts) drawn by the beneficiary. authorises another bank to effect such payments or to accept and pay such bills of exchange (draft). authorises another bank to negotiate against stipulated documents provided that the terms are complied with. (International Chamber of Commerce, 2007) In simple terms, a letter of credit is an undertaking by a bank to make a payment to a named beneficiary within a specified time, against the presentation of documents which comply strictly with the terms of the letter of credit. Therefore, the risk to the seller of nonpayment by the buyer is transferred to the issuing bank (and the confirming bank if the letter of credit is confirmed) as long as the exporter presents the documents in strict compliance with the credit. It is important to remember that all parties in the letter of credit transaction deal with documents, not goods. The importance/advantages of LC are as follows: (Nabil Bank Limited) To the Buyer Assurance his Bank will refuse payment to seller unless terms and condition given by him to his Bank as stipulated in the credit are met. Extended terms of payment which in any other form of payments would not be available. Refinance of goods until they are marketed.

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To the Seller Relies more on the credit extending bank or the confirming bank rather than on the buyer. Less apprehensive that payment for goods might be delayed or jeopardized by political acts or other problems in the buyer's country. Enable to obtain loan from Banks to prepare goods for shipment prior to making a shipment or just after the shipment.

All the parties involved in LC transactions are highlighted below: i. The Applicant is the party that arranges for the letter of credit to be issued. ii. The Beneficiary is the party named in the letter of credit in whose favor the letter of credit is issued. iii. The Issuing or Opening Bank is the applicants bank that issues or opens the letter of credit in favor of the beneficiary and substitutes its creditworthiness for that of the applicant. iv. An Advising Bank may be named in the letter of credit to advise the beneficiary that the letter of credit was issued. The role of the Advising Bank is limited to establish apparent authenticity of the credit, which it advises. It is also termed as Correspondent Bank. v. Negotiating Bank is a bank named in the credit; examines the documents and certifies to the issuing bank that the terms are complied with. vi. Nominated Bank is the bank authorized, within the letter of credit, to make payment to the exporter and to whom the documents are presented. The payment undertaking, however, is purely from the issuing bank so the country risk is not covered. vii. The Paying Bank is the bank nominated in the letter of credit that makes payment to the beneficiary, after determining that documents conform, and upon receipt of funds from the issuing bank or another intermediary bank nominated by the issuing bank. viii. The Confirming Bank is the bank, which, under instruction from the issuing bank, substitutes its creditworthiness for that of the issuing bank. It ultimately assumes the issuing banks commitment to pay.
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LC Flow Chart: Figure 3: Issuance of a Letter of Credit

Figure 4: Payment under a Letter of Credit

Source: (Nabil Bank Limited)

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The above mentioned parties of LC work in a certain order to trade goods and services. The Letter of Credit flow is shown below: 1. Applicant approaches issuing/opening Bank with LC application form duly filled and requests issuing Bank to issue a LC in favor of beneficiary. 2. Then, the issuing bank issues a LC as per the application submitted by the applicant and send it to the advising bank, located in Beneficiarys country, to formally advise the LC to the beneficiary. 3. Then, the advising bank advises the LC to the beneficiary. 4. Once the beneficiary receives the LC and if it suits his/ her requirements, he/ she prepares the goods and hands over them to the carrier for dispatching to the applicant. 5. He/ She then hands over the documents along with the transport document as per LC to the negotiating bank to be forwarded to the issuing bank. 6. Issuing Bank reimburses the negotiating bank with the amount of the LC post negotiating banks confirmation that they have negotiated the documents in strict conformity of the LC terms. Negotiating bank makes the payment to the beneficiary. 7. Simultaneously, the negotiating bank forwards the documents to the issuing bank to be released to the applicant to claim the goods from the carrier. 8. Applicant reimburses the issuing bank for the amount, which it had paid to the negotiating bank. 9. Issuing Bank releases all documents along with the titled transport documents to the applicant.

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The parties involved in LC needs to fulfill basic documents in order to perform the transactions in a legitimate and smooth manner. The major documentations required are as follows: i. Bill of Lading: It is a document used in foreign trade, similar in some respects to a delivery note. Bill of lading forms are supplied by the carrier (a steamship company). Bill of lading is a contract for delivery from one port of shipment to port of destination. ii. Transport Documents: Rail Receipt, Truck Receipt, Parcel Post Receipt, Inland waterway bill of Lading (Canal, river, etc.), Airway Bill, etc iii. Bill of Exchange: It is an unconditional demand for payment made by one party to another. A bill of exchange must be in writing and signed and dated. It is also called draft. iv. Commercial Invoice: A commercial invoice serves as an authoritative description of the goods shipped like cost of items per unit and total, description of items, number of items supplied, various transport charges & fees, date of shipment and mode of transport, prices and discounts (if any), and delivery and payment terms. v. Insurance Policy: It is a document issued by an insurance company, it certifies that an insurance policy has been brought and shows an abstract of the most important provisions of the insurance contract. But it is not a substitute for the actual policy, and is normally a non-negotiable document it cannot be assigned to third party, and is unacceptable under the terms of a letter of credit and in making a claim. vi. Certification of Origin: Normally issued by Chamber of Commerce. vii. Packing List: It is the itemized list of articles usually included in each shipping package, giving the quantity description, and weight of the contents. Prepared by the shipper and sent to the consignee for accurate tallying of the delivered goods. It is also called bill of parcels, packing slip, or unpacking note. viii. Official Documents: All the official documents should be presented when undertaking international trade through Letter of Credit. This includes License, Embassy legalization, Origin Certificate, Inspection Certificate. vii. Other Documents (if any): Weight Certificate, Packing List, Inspection Certificate, etc
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In International trade, the buyer and the seller located in different countries may not know each other and hence, the problem of creditworthiness of the buyer might hamper the trade. In general, we see that in any international trade the buyer will always try to delay the payment while the seller would like to receive funds at the earliest. In order to mitigate this problem, seller always requests buyer to arrange for a Letter of Credit to be issued by buyers bank. There are several types of Letter of Credit. The differences are found in the wording. The various types of LC are as follows: A. Revocable: Revocable LC may be amended or cancelled any time by the buyer without the approval of the seller. It does not provide any protection to the seller. Its rarely used these days.

B. Irrevocable: It can be neither be amended nor cancelled without the agreement of all the parties (Donald A. Ball, 2009). The Issuing bank gives a binding undertaking to the Beneficiary provided all the credit terms and conditions are fulfilled. An

irrevocable L/C provides for the beneficiary a high degree of confidence that his goods or services will be paid for as soon as he fulfills the conditions of the L/C. Under UCP 600, all letters of credit are irrevocable.

C. Unconfirmed: A letter of credit forwarded by the Advising bank directly to the exporter without adding its own undertaking to make payment or accepting responsibility for payment at a future date, but confirming its authenticity. Advising Bank do not have any liability even if the LC issuing Bank does not pay.

D. Confirmed: A confirmed letter of credit is one in which the correspondent bank usually in the Beneficiary's country may confirm the letter of credit for the beneficiary, at the request of the issuing bank. Confirming Bank must pay to the Beneficiary's as long as compliant documents are presented at their counter. This commitment holds even if the Issuing bank or the Applicant fails to make the payment. Confirmation gives the exporter added security, particularly if the standing
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of the Issuing bank is unknown or the current political and economic state of the importer's country is uncertain. Note: Banks may not wish to confirm letters of credit issued in certain countries. A bank will make an additional charge for confirming a letter of credit. Confirmation costs will vary according to the country involved, but for many countries considered a high risk it will be between 2%-8% p.a.

E. Revolving letter of credit: Used for regular shipments of the same commodity between the same exporter and importer. The credit must state that it is a revolving letter of credit. It may revolve either automatically or subject to certain provisions. Avoids the need for repetitious arrangements for opening or amending letters of credit.

F. Transferable letter of credit: The exporter has the right to request the paying or negotiating bank to make part (or all) of the credit value available to third parties. Useful for those acting as middlemen. At the request of the (first) Beneficiary, it may be made available in whole or in part to another (second) Beneficiary. A credit may be transferred in part to more than one second Beneficiary.

G. Back to back letter of credit: Can be used as an alternative to the transferable letter of credit. A letter of credit is used as security to establish a second letter of credit issued by the Advising Bank in favor of the exporters merchandise supplier rather than transferring the original letter of credit to the supplier. Many banks are reluctant to issue back to back letters of credit due to the level of risk to which they are exposed. Comply documents presented under the Import LC while a discrepancies documents where presented under the Export LC. in this case payment will be effect for the comply documents while no payment will be received under the export LC.

H. Sight LC: Payment should be made at sight (within 5 working days) after receipt of credit compliant original documents at the counter of LC issuing bank.

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I. Time LC: Payment to be made at maturity after receipt of credit compliant original documents at the counter of LC issuing bank.

J. Standby LC: The standby letter of credit serves a different function than the documentary (commercial) letter of credit. The commercial letter of credit is the primary payment mechanism for a transaction where as the standby letter of credit serves as a secondary payment mechanism. A bank will issue a standby letter of credit on behalf of a customer to provide assurances of his ability to perform under the terms of a contract between the beneficiary and applicant. The standby letter of credit assures the beneficiary of the performance of the customer's obligation. Standby LC is issued in lieu of Guarantee in America. Source: (www.scribd.com/doc/55012722/Letter-of-Credit-Explained)

Upon issuance of Letter of Credit, the Buyers bank replaces its own Creditworthiness to that of the Buyer, it undertakes to reimburse the Seller for the value of the Letter of Credit Irrevocably provided two underline conditions are fulfilled by the Seller: All the documents stated in the LC are presented; All the terms and conditions of the LC are complied with.

The beauty of the LC is that if above two conditions are fulfilled, Issuing Bank will effect payment to the Beneficiary, irrespective of Applicant reimburses the Issuing Bank or not. Along with these two basic conditions, other terms and conditions of LC are as follows: As banks deal in documents not with the goods, non documentary conditions should thus be avoided Terms and conditions mentioned in the LC should be precise and practically feasible Terms and conditions requiring documentary evidence should clearly mention the issuers of such documents Regulatory conditions should be ensured
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Amendment of LC: It is necessary to scrutinize the basic and mandatory requirements in LC/Amendment application at one shot before processing failing. Such errors delay the processing of LC/ Amendment request resulting in poor customer service. Seller may ask for amendment if any of the conditions mentioned in the LC is practically not possible for him to comply with. LC will also be amended if the underlying contract between the seller and the buyer is amended. An irrevocable LC can be amended only by the consent of the all the concerned parties i.e. the buyer, the seller, the issuing bank and the confirming bank (if any). Amendment must be advised to the same bank to which the original LC is advised. Use of SWIFT for Communication: SWIFT stands for Society for Worldwide Interbank Financial Telecommunications. Its considered to be the fastest and most secured mode of transmission of financial messages. Specific message types (MTs) as per the nature of the transaction can be transferred. Certain characters are not allowed. Such characters are - !, @, #, $, %, &, * etc. USE OF INCOTERMS: The word INCOTERM is the abbreviation of International Commercial Terms. Incoterms are the price terms used to define the responsibilities of the buyer and seller as to the cost, insurance, freight, export and import clearance and other charges incurred during the shipment of goods from the sellers warehouse to buyers place. Incoterms were first published in 1936---INCOTERMS 1936---and it is revised periodically to keep up with changes in the international trade needs. The complete definition of each term is available from the current publication---INCOTERMS 2000. Incoterm 2000 has defined following incoterms to be used in international trade - EXW (EX-Works), FOB (Free On Board), CFR (Cost and Freight) also known as CNF, CIF (Cost, Insurance and Freight), CIP (Carriage and Insurance Paid to), DAF (Delivered At Frontier), DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid). Source: (International Chamber of Commerce, 2007) Appendix 3 has the INCOTERM chart for every Incoterm showing the person responsible for bearing the various costs associated with the transaction.

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Section III: Methodology

This part of the report deals with methodology that was adopted for preparation of the project. It comprises of the nature of data that was collected and the study approach that was used. Further it includes the type of research that was conducted. 1. Study Approach: The approach majorly is based on the observation and learning of various aspects of import L/C at Nabil. LC operations are majorly handled in the head office of Nabil. As we did our internship at the head office, we got to have a wider perspective of the import LC operation. While working in this division, we had regular Q/A sessions with our supervisor and informal conversations with the employees and clients. We also carefully studied the data available at the bank. These sessions and informal conversations enabled us to gain valuable information to support our observational data. 2. Research Design: Our research was exploratory in nature. In addition, preliminary research and secondary research were also carried out to aid the exploratory research. Observation and factfinding were the major tools used in this research. We began with some preliminary researches on import L/C, its operation, the problems associated with it, and the volume of transactions taken place. We collected the required information through the officials of the the L/C department. We also referred to internet browsing, journals, and past projects related to the import L/C. We gathered the valuable and important information so extracted to conduct our research work. After the first stage of preliminary research, we referred to the annual reports of various banks like Nabil Bank, Nepal Investment Bank Ltd., Himalayan Bank, etc. This secondary data analysis helped us to learn about the competition in the industry. The annual reports provided us only with financials. In order to perform some subjective analysis, we took a convenient sample using simple random sampling. A convenient sample of 15 clients was pooled up for the study in which respondents were interviewed using a set of questionnaire. Basically, the respondents were questioned with the questions from the questionnaire so as to gain additional insights.
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After completing this, the observation study was conducted. This observation was done to determine the LC transactions generated by Nabil in a year. While doing the observation study, we observed the documentation, work flow, different kinds of problems encountered, etc. This included informal interviews with our supervisors and the clients. We also got opinions of experts in the matter through informal meetings. Finally, further information was collected from the annual reports of the bank, the Internet and documents published by UCPDC600 and URR725, NRB circulars, etc.

3. Sources of Data/Information: Our main sources of information can be classified as primary and secondary. These sources are well reliable and authentic, that made our information and data collection more accurate. The sources are briefed below: i. Primary Data: Primary data are those collected by the researchers on the concerned topic, which are original in nature. Questionnaire was used as one of the important instrument for data collection. While studying about our project we came across primary data from different authentic sources which are as follows: Direct one-on-one interview:

We conducted a one-on-one interview with few customers of three banks Nabil, NIBL and HBL. A formal questionnaire was made. The interview was structured in nature. It was done to support the subjective management analysis of the banks. A total of 15 random customers available in the LC business units of the banks were chosen for interview. The respondents were a little hesitant when we approached them, but as they got to know about the simple questions they became cooperative. Appendix 1 has the survey questionnaire that we used for the analysis of the banks.

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In-depth interview:

We conducted an in-depth interview with our intern supervisor Mr. Rajan Manandhar. We took nearly 30 minutes after the lunch hour to interrogate our supervisor. It was a formal interview session. Appendix 2 has the interview questionnaire that we used to gain information from our intern supervisor. Informal Conversations with the employees of Nabil and bank experts: We

used the same questionnaire of Appendix 2 to interview few other officials of Nabil who has been associated with the unit for long time. It was totally informal and unplanned in nature. We usually took advantage of the lunch hours and free time of officials for such conversations. Bank experts include renowned bankers whom we met while working in the bank as well as during outside activities.

ii. Secondary Data: Secondary data are those collected by the researchers on the concerned topic which are not original in nature or are originally collected for some other purposes. The main sources of secondary data are as follows: Annual Reports of Nabil, NIBL and HBL of the past consecutive 5 years, Brochures, Policy Manuals, Articles published in different newspapers and magazines about LC operations, Literatures and lectures on LC, Paper documents used by the bank like LC application, checklist, etc NRB Directives and Circulars on commercial banks, Journals and reports on the internet, etc.

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Table 3: Sources of Data Primary Sources Internal Sources Interviews and conversations Observation at the head office Experience External Sources Informal Interview with experts Secondary Sources Annual Reports Circulars and Directives of NRB Brochures Paper documents used by the bank like LC application, checklist, etc The Internet Articles published in different

newspapers and magazines about LC operations, Literature and lectures on LC

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Section IV: Presentation and Analysis of Import LC at Nabil

1. Analytical Presentation of the Project: On the Foreign Trade front, the deficit in this fiscal year soared to 46.5% compared to 33.3% last year with a steep increase in imports and drop in exports in the fiscal year. The BOP marked a deficit of NPR 32.35 billion compared to a surplus of NPR 41.44 billion last year. This substantiates the fact that the overall economic outlook is depressing in the country. Source: (Nabil Bank Limited, 2010) Despite this outlook, LC has been contributing a remarkable stand in upgrading the position to a better level. LC is used primarily in international trade transactions of significant value. A huge amount of foreign currency gets illegally traded by people for their personal benefit. We can see many instances when people order for foreign goods, send the payment but eventually do not receive the goods. The citizen here loses their money and the nation loses its foreign currency. A no-win situation occurs. But, when such transactions are operated through banks, its more convenient and safer. It is because banks, through its global networking, make sure that all involved parties along with the transaction are genuine. They perform the transactions abiding the rules and regulations of the central bank. Similarly, they report to the central bank about the inflow and outflow on timely basis. With the help of the details given by banks, the central bank manages its deposit of foreign exchange to use it properly when required. As a result, a win-win situation is created. In this way, LC helps in international trade and prevents capital flight. At Nabil, we could practically experience the important role that LC plays in international trade. Nabil performed the role of a security guard who checks all the related parties, documents, goods to be imported, rules and regulations to be followed, etc to prevent the nation from any social or economic loss. We could see how it helped NRB to manage its foreign exchange. Daily reporting of the transactions involving foreign exchange helped NRB to get information about the inflow and outflow of funds at Nabil. Most prominently global trading has a whole lot of money involved and if done appropriately could build up a turnover capable of running a nation states budget; hence it is significant that it is managed with care. So, this service of Nabil assists the economy to develop ahead.
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a. Presenting the work flow of LC at Nabil: A small error during the LC processing can result to larger discrepancies, repetition of jobs and increased costs. So, special attention and care is needed during the LC processing. We examined the work flow of LC at Nabil. The first half is expressed in Figure 5 and the other half in Figure 6. Figure 5: LC work flow at Nabil (Part I)
On the basis of the credit worthiness, collateral, cash deposits etc, a certain line of credit is issued to the customer LC Application is construed to be the contract between the applicant and Nabil Bank The LC application at Nabil is made as per the prevailing version of UCPDC 600 Every field of the application should be properly filled up by the applicant to avoid any dispute The proforma invoice/sales contract should clearly mention the name of the contracting parties, tenor (sight, usance or otherwise), description of Imported Goods, 8-digit harmonic Code, proper INCOTERM, country of origin, Validity of contract, Unit Price and total amount It should be signed and stamped by both the parties

Line of Credit

Customer fills the LC application

Customer attaches Proforma Invoice

Customer attaches the important document

Insurance Certificate Firm registration certificate Bi Bi Ni Form -3

Goods being imported are not prohibited by the central bank or other regulatory authorities Staffs do the Permission of the concerned authority is obtained wherever applicable cross Proper credibility report of the beneficiary is obtained wherever applicable checking The submitted application is error free and as per the request of the customer

Using Finacle, LC is created by the staffs LC creation The LC is then communicated to the advising/confirming bank through and SWIFT communicati on

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Figure 6: LC Work Flow at Nabil (Part II)

The confirming bank checks the received LC and passes

Advising/ Conf irming bank checks it to the beneficiary to get the goods ready.

The beneficiary goes to the transport company. Transport documents are generated here by the shipping company and given to the beneficiary. Beneficiary The shipping company ships the goods to the destination port. gets his part The beneficiary presents the transport documents along with other done documents to the advising/confirming bank. The advising/confirming bank rechecks the documents received from beneficiary. Then, it sends the documents to the issuing bank i.e.Nabil Bank Limited.

Advising/ Confirming bank sends

Nabil re-checks the received documents with the LC terms and conditions. Issuing bank If any discrepancies are found, it consults with the applicant. receives and If not, it gives the documents to the applicant and forwards the payment to the advising/negotiating bank checks
The applicant uses the transport documents from the bank to the destination port and releases the goods. After that, h/she uses the BI.BI.NI - 4 to clear the goods through the customs and get the duty clearing certificate The applicant then sends all the remaining documents to Nabil along with the duty clearing certificate

Applicant gets the goods

File is closed

After examining all the documents received from the applicant, the bank then closes the file.

The above figure shows the LC processes at Nabil Bank Limited. There are 13 staffs, in total, in the Import LC section. Every staff is given their share of job to perform. They perform their jobs individually and as a team the whole process is completed.
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b. Presenting the number of LCs issued in a year at Nabil: The employees were a little reluctant to display the true picture of the number of LCs issued due to its confidentiality. So, we observed the number of staff and number of applications. With the help of it, we generated the number of LCs issued by Nabil in a year to be 4480. It is further presented in Table 4. Table 4: Number of LC issued i. ii. Number of employees issuing LC Average number of LCs issued in a day by each 4 4 16 4480 373

iii. Average number of LCs issued in a day (iii) iv. Average number of LCs issued in a year (iii280*) v.
*

Average number of LCs generated in a month (iv/12)

Number of working days in a year = 280

c. Presenting the analysis of purpose for opening LCs: We found that majorly people came to open two kinds of LCs product and service LCs. LC opened to import any tangible product is considered as product LC. On the other hand, few LCs were opened to import training materials in the form of CDs or manpower whose payment was done through this division of the bank. Unlike product LCs, a bank pays special attention in opening service LCs. Since there no tangibility associated, its highly risky. Only few highly credible customers are issued such LCs. So, we found many product LCs but few service LCs. As per our observation, the bank issued nearly 1 service LC for nearly 170 product LCs. Another, basis for analysis of purpose was the items among the various products for which the LCs were opened. We can categorize majorly in 3 categories as under: i. Industrial Raw materials - includes the materials that are imported by the organizations for further processing like crude oil, construction items, minerals, iron ore, pharmaceutical raw materials, etc.
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ii.

Capital Items

- includes the fixed assets like machinery, equipments,

generators, and vehicles which depreciates over the years iii. Trade Items - includes items that are directly sold to the consumers without any processing. It consists of items like confectionary products, stationary, alcohol, medicines, etc Approximately out of the 4800 L/Cs opened in a year, 60% of the L/Cs are opened for the trading of industrial raw material. Mostly the manufacturing companies open L/Cs for the trading of industrial raw materials. Figure 7: Purpose of opening LCs

25% Industrial Raw Materials Capital Items 15% 60% Trade Items

In our nation raw materials are imported in huge quantities. Due to this L/Cs regarding the trade payment of raw materials are opened in large numbers as compared to others (refer to Figure 4). We can see from Figure 4 that the L/Cs for trade items constitutes 25% of the total L/Cs and below that 15% for capital items. Out of these three items, raw materials are basically imported from India whereas capital items are from foreign countries like Singapore, China, etc.

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d. Presenting the major players in this market and their subjective management analysis: There are currently 31 licensed banks under NRB providing L/C services in Nepal. Being associated with only one bank for a long time, we were not able to do in-depth analysis of all the players. Through the conversations with the employees of Nabil and annual reports of banks, we came to know there are few top players in this business. It includes HBL, NIBL and Nabil who cover major market share. We took the above mentioned three major players for our analysis. We conducted a direct one-on-one interview session with a total of 15 customers randomly selected from the three banks. Some filled up the questionnaire and we filed up for the rest by asking questions. We asked them to rate the various factors that affect managements ability to perform in the three banks. Therefore, our analysis focuses on the impact of customers attitude towards the basic subjective management factors on the performance of banks. Table 5: Subjective Management Analysis of the top commercial banks S.N. 1 2 3 4 5 6 7 8 9 10 Total Rank Competitive Tools Front desk response Customer Service Security Office area/ space Friendly environment Neatness International status Location Spacious and lighting Hospitality Nabil 5 5 6 6 6 5 6 5 3 5 52 2nd NIBL 4 6 6 6 4 5 5 6 6 5 53 1st HBL 6 4 3 3 5 5 4 4 6 5 45 3rd

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Figure 8: Subjective Management Analysis of Nabil, NIBL and HBL - I

Nabil NIBL HBL

Front Desk response

Customer Service

Security

Office Area/Space

Friendly Environment

From the Figure 5, we can see that Nabil has strong side on the Security, Office Space and friendly environment. The customers can easily access Nabil and theres good office space and parking facility too. The security has also been given special preference. Some of our respondents said the main reason for these positive strong aspects was due to its recent investment in infrastructure. As per few respondents, the friendly atmosphere was from the very beginning in Nabil staffs. They have always been very welcoming and cooperative to work with. This can be a really strong point for the department to facilitate future growth and promote its services. On the other hand, few factors need to be strengthened to beat the competition and remain in a strong position. They include the front desk response and customer service. Few complained that they had to wait for long time at times to meet the respective staff. From our own experience, we can say that during the peak hours, there was huge rush of customers. Sometimes a single staff had to handle many jobs at a time. They need more personnel at the front desk as assistants to the existing ones.

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Figure 9: Subjective Management Analysis of Nabil, NIBL and HBL - II

Nabil NIBL HBL

6 6

3 Spacious and Lighting

Neatness

International Status

Location

Hospitality

From the above figure 6, we can see that Nabil, having international recognition, attracts the customers as its strength. As, LC transactions involve a lot of money being traded globally, having a good international status is very important. The locations, neatness and hospitality are considered good till now. But, the competitors are very aggressive. They can affect these strong aspects if not taken proactive steps. We can see that the respondents prefer the spacious and lighting facilities of the competitors to Nabil. This can affect the service a lot. Its not yet too late to work on. Nabil has enough potential to maintain its strengths with its proactive and innovative nature and work on its weaknesses. By analyzing both Figure-5 and Figure-6, we can see that NIBL has been able to leave quite a trademark on its customers relating to the management of the trade operations. HBL has not been able to grab the position. So, Nabil should take steps to beat its neck to neck competitor NIBL. This was the managements subjective analysis at the trade operations of the banks.

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The above data was based on subjective analysis of the management. Now, we can see that how this is correlated with the revenue generated from the three banks over the past 5 years. The revenue generated from the three banks over the past five financial years are highlighted in Table 5 below: Table 6: Revenue generated from LC over the past 5 consecutive years 2006 Nabil NIBL HBL 31,413,940 26,045,155 36,806,449 2007 34,462,484 32,259,455 34,039,845 2008 35,060,994 35,917,161 37,406,089 2009 38,217,054 45,478,281 64,670,167 2010 44,383,330 61,527,062 40,276,536

Source: (Nabil Bank Limited, 2007, 2008, 2009, 2010)

Figure 10: Revenue generated from LC over the past 5 consecutive years
70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 2006 2007 2008 2009 2010

Nabil NIBL HBL

From the Table 5 and Figure 7, we can see the current status of Nabils Import LC in the banking industry.

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The revenue shows increasing trend but the growth is very steady comparing it with the competitors. We can see that the industry has been growing and has huge potential. Nabil has only been able to grab certain share of this potential. HBL has been showing huge growth in the past years, but suddenly came to a decline in the recent year. On the other hand, its cut-throat competitor NIBL has grabbed a lot of the market potential. Now, we can actually use both the subjective and financial analysis, to determine competition in the industry and the competitive edge of Nabil. When analyzing the financials and the non financials (management factors), we clearly see the huge correlation. Nabil has a clear competition with NIBL in both factors. Nabil has to face HBL majorly in the financial terms rather than the management facilities. NIBL has been leading in both the factors. The decline in the recent year of HBL can be considered as the decline in the management affecting factors. We can, therefore, derive this conclusion that the management (qualitative factors) highly affects the revenue (quantitative factors) of the firm. The growth of both Nabil and NIBL is due its qualitative service which has attracted customers to it. Yet, on Nabils side, despite good management, its not being able to grab a good market share. It needs to work on the customer service to attain larger revenue in the future for which proactive steps has to be taken today.

e. Presenting the Central Banks Rules and Regulations in LC: Nepal Rastra Bank, the Central Bank of Nepal has imposed various rules and regulations regarding DC transactions in Convertible Foreign Currency. These rules are normally devised to control the Foreign Exchange mechanism and the Balance of Payment. It, thus, helps to control the Foreign Currency Reserve of the country. On the basis of the information we extracted from the circulars of NRB and the guidelines received from our intern supervisor, we were able to make a draft of the rules and regulations to be abide by for LC. If the employees are sent such drafts, they can save their precious time in reading out all the circulars and yet get the summary of it easily.
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Timely changes are made to these rules, so they have to be reformed too on frequent intervals. The basic rules and regulations are presented below: Only manufacturing industries can open DCs in convertible FCY (other than INR) in favour of beneficiaries in India. Such beneficiaries must also be manufacturing industries. However the payment for freight and insurance can be effected in Indian Rupee only. Only the goods permitted by NRB can be imported from India by paying convertible foreign currency. Opening of sight DCs for value more than USD 50,000.00 or more requires credibility report of the beneficiary which should be taken from International Rating Agencies or the correspondents of the issuing bank. The custom entry point through which the goods are to be imported needs to be mentioned in the DC itself. Any amendment in the custom entry point requires approval of Department of Commerce. Import of milk items, packaged water, edible oil, alcoholic drinks, poppy seed, old clothes, goods made from old metal scraps and plastics and old machineries, goods affecting the ozone layer need prior approval of concerned authority before opening DC. Opium and other drugs, alcoholic drinks with alcohol content more than 60%, explosives and arsenals, wireless equipments, walkie-talkies and other transmission apparatus, precious metals and jewelleries, beef, plastic scraps and recycled plastic granules are completely restricted to import. Commercial Banks should closely monitor that the goods for which the payment has been made are properly being imported to Nepal. For this security margin of 2% of document value in case of Industrial unit and 10% in case of trading unit (in the form of NRB Cheque) is to be kept till the proof of importation of goods into Nepal is submitted by the importer. No DC is required for import of goods worth USD 50,000.00 or equivalent. The importer can send advance payment to the supplier. This is valid for import from third countries other than India.
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At Nabil, we could see that the rules and regulations were highly followed. There is one staff that is allocated with the job of re-checking the documents submitted by the applicants. He checks if they are as per the specified rules and regulations of NRB. He checks every document in detail so that no rules are violated. This is a very important job, as any such violations can lead to serious actions from NRB to the bank. Apart from this, it was seen that all the latest rules were informed to the staffs through the intranet. So, all the information about the rules was disseminated through mails. If required, informal meetings were held too.

2. Major Findings: The major findings can be highlighted below: a. The booming service industry has given the clear idea that people these days prefer the service provider and its hospitable nature first and then look for the required product. Therefore, customer satisfaction has to be always kept in mind. b. The cut-throat competition is leading to innovation and larger market coverage. c. Proper mechanisms like use of checklists with detail information during the LC opening process can reduce errors to a high extent and prevent from unnecessary amendments and its associated costs. d. Frequent changes in the rules and regulations cause the industry to be highly regulated. This highly helps to reduce capital flight through illegal trade and promote international trade in a legible manner. Such regulations do monitor the business but highly affects the daily functioning too. e. As per the observation, the number of LCs issued in a year in Nabil Bank was found to be approximately 4480, where 60% is covered by the import of industrial raw materials, 25% of trade items and 15% of capital items. f. The management of a firm highly affects the revenue generation of it. The management affects the branding and good-will of the firm to generate future sales. g. Particularly for Nabil, it has shown steady growth regarding the revenue generated over the past years. But, it has good management ability. It should utilize its potential to grab higher revenue. h. The overall increasing volume of LC shows that newer markets are being covered.
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Section V: Conclusions
Since the banking sector is booming and providing a great platform for globalization, it has highly helped in upgrading the nations economy. One of the most regulated sectors of the Nepalese economy is the banking sector. Yet it is the highly innovative service providing sector in Nepal. Letter of credit is one of the major divisions in the trade operations. It has highly helped in the international trade and reduces capital flight from the nation. We can see from the above included data that the international trade of Nepal has been increasing every year. Especially in case of import of goods, there has been a rapid increase in inflow of merchandise to the country. This has resulted in increase of import L/C transactions of the banks. Among the various banks in the industry, there are a handful number of banks that has been mainly involved in international banking. And, Nabil Bank is one of them. Few of our recommendations would be for the bank. As people these days are looking for faster and qualitative service, they should keep their hold in this factor. These days the people prefer quality to quantity. Due to huge number of choices available to the customers, customer retention has become huge problem. So, we would recommend like the bank not to lose it customers in the first place and keep generating hospitable environment with good customer service. For this, they can employ few assistants to the employees at front desk, so that when the staffs leave their seats, the assistants can take their positions. This will help them deal the peak hours better. During the trough hours, those added assistants can be used to work on the other divisions of the department where required to minimize the cost of added assistants. Similarly, the steady growth is currently not alarming. But, proactive measures for growth should be considered as the industry is growing rapidly. We would also like to recommend them to focus a little more on the documentation part. As the numbers of LCs are increasing year by year, the filing will become difficult. So, paper documents can be reduced and technological documentations can be promoted. It can be, therefore, concluded that the import L/C of Nabil has highly been helping the nation in its international trade and reducing capital flight as well as giving good competition to the other industry players.
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Part Four Reflection of the internship

When we got selected as intern for Letter of Credit division in the head office of Nabil Bank, we had higher expectations in relation to learning and working environment. Our focus was the optimum utilization of two months to generate sound knowledge about the workings in Import-LC section of CTO department along with development of the self for future. When we entered, we had little knowledge about the working procedures of the department. Our knowledge was limited to books, lectures of professors and newspaper articles relating to Letter of Credit. These sources just oriented us with the theoretical aspect of LC. We were completely unaware of the practical side which included the calculation of commissions, goods that can be imported and that are prohibited, legal requirements, processing of LC transaction, etc. Since our knowledge was limited, our expectations were very high. We expected a co-operative working environment suitable for learning and personal development. We expected to develop our networking and public relations along with equal emphasis on our communication skills. The internship period turned out to be highly valuable for us. We could highly connect the literature taught by our professors in classes regarding LC to the practical world. Like mentioned earlier, we studied LC as a part of our subject - International Business. LC was just a part of the course, not a full course of credits. So, our learning was limited to books and cases. But, when we entered in the real trade operations department of Nabil, our learning touched greater heights. We got to know the practical side of the literature. We got to know about the laws as per Nepal Rastra Bank and UCPDC 600 that govern LC transactions. We never got to read such laws and regulations in our regular course books. There are things that cannot be taught but are learnt through observation. Some of these are personality and communication skills, public relations skills, networking, etc. We interacted with the customers at front desk and responded to their requirements. This helped us to boost up our confidence level during interaction along with special emphasis on communication abilities. We saw that work was passed from one person to another.
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Through this we could see the corporate culture and teamwork along with the idea of how things went inside the corporate environment. Interaction with the bank personnel was always fruitful. We regularly had question and answer sessions with our senior officials there. This interaction provided us with insights regarding the rules, actions to be taken in various situations, etc. Like we set our goals and objectives, we got to understand and get familiar with the system operated in Nabil. We got to learn customer interaction skills, document management, functioning of the banking activities, legalities in the trade operations, etc. We were able to achieve our goals and fulfill our earlier set objectives to a large extent. We gained confidence in handling customers and meeting deadlines of work. We gained knowledge about the processing of LC transactions. We gained a lot of knowledge about the use of LC in international trade. We began by working with a scratch and ended up with a lot of knowledge on the subject of study. We were able to boost up our confidence level while dealing with senior officials and regular high potential clients. We became acquainted with the corporate culture and working environment of a renowned commercial bank. Since, our internship was a fixed period of association 2 months, we got to test the industry and know more about it too. The infrastructure and office space is also very admirable. In comparison to other banks, Nabil has been able to provide a clean and hygienic environment to work for both employees and clients. Though, we were a little disappointed about the learning to use the software Finacle. We didnt get to use it much. A little more emphasis on use of technology rather than total paperwork would have been appreciated. Similarly, the compensation facility to interns was also very discouraging. There was no monetary compensation for lunch or general travelling allowances. When we interrogated a few intern of other banks, we got to know that a minimum compensation in monetary term or free lunch facilities was available. Since the interns give their time and hard work to the firm, some compensation plans should be there be it - monetary or non-monetary terms. A minimum salary as Travelling and Daily Allowance (TADA) is appreciated. This can boost up their motivational level at workplace highly.

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REFERENCES
Andre de Waal, M. F. (2009). Working on high performance in Asia. Measuring Busines Excellence , 13 (3). Donald A. Ball, W. H. (2009). International Business - The Challenge of Global Competition. New York: Tata Mc-Graw Hill Edition. International Chamber of Commerce. (2007). Uniform Custom and Practice for Documentary Credit (UCPDC) 600. Nabil Bank Limited. (2009). Annual Report 2008/09. Kathmandu. Nabil Bank Limited. (2010). Annual report 2009/10. Kathmandu. Nabil Bank Limited. (2007, 2008, 2009, 2010). Annual Report of 2007/08, 2008/09, 2009/2010. Kathmandu. Nabil Bank Limited. (n.d.). Import LC: Nabil Bank. Retrieved from Nabil Bank Limited Website: http://nabilbank.com/ImportLC/16/ www.scribd.com/doc/55012722/Letter-of-Credit-Explained. (n.d.). Retrieved from http://www.scribd.com

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