Part I

Introduction
1.1`Background Capital formation is one of the important factors leads to increase in the size of national output income and employment, solving the problem of inflation and balance of payment and foreign debts. Domestic capital formation helps in making a country self sustainable. In the view of many economists, capital occupies the central and strategies position in the process of economic development. In an underdeveloped economy, it lies in a rapid expansion of the rate of its capital investment so that it attains a rate of growth of output which exceeds the rate of growth of population by the significant margin. Only with such rate of capital investment will the living standard begin to improve in developing country. In developing countries, the rate of saving is quite low and existing institutions are half successful in mobilizing such savings as most people have incomes so low that vertically all current income must be spent in maintaining a subsistence level of consumption. Investment is an essence of the national economy. Banking system is the integral part of investment system in productive sector. It involves the sacrifice of current rupees for future rupees. It is concerned with the allocation of present fund for later reward, which is uncertain. Investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security of principle, as well as security of return, within an expected period of time. When people deposit money in a saving account in bank for example; the bank must invest the money in new factories and equipments to increase their production. In addition borrowing from the banks most issues stocks and bonds that they sell to investors to raise capital needed for business expansion. Government also issues bonds to obtain funds to invest in such project such as the construction of dams, roads and schools. All such investments by individuals business and government involves a presto sacrifice of income to get an expected future benefits. As a result, investment raises a nations standard of living. For the development of any country, the financial sector of that country in responsible and must be strong. The financial sector is vast field, which comprises of banks cooperatives, insurance companies, financial companies, stock exchange, foreign exchange markets, mutual funds etc. These institutions collect idle and scattered money from the general public and finally invest in different enterprises of national economy that consequently help in reducing poverty, increase in life style of

people, increase employment opportunities and thereby developing the society and country as a whole. Thus, todays concept, the financial institutions and commercial banks has become one of the bases for the measuring level of economic development of nation. Commercial banks are the main source which motivates people to save their earnings. Bank deals in accepting the saving of people in the form of deposit collection and invest it in the productive area. They give the loan to the people against real and financial assets. They transfer monetary sources from savers to users. In other words, they are intermediate between lender and receiver of fund they mobilize the depositor fund. After the liberalization of the financial sector, financial sector has made a hall mark progress both in terms of the number of financial institutions and beneficiaries of financial services. At present, Nepal Rastra Bank licensed bank and financial institution is 219. Out of them, 31 are commercial banks, 87 development banks, 80 finance companies, 21 micro credit development banks.

1.2 Problem Statement

Nepal is underdeveloped country and rapid economic development is the basic need of the country. Development by its means is not possible within a short period and it takes a long time for the proper development of a country, it has to build up infrastructure. In Nepal, the process of development started only after 1956 A. D. when the first five year plan came into practice. Capital in fact, plays the leading role for the economic development of a country. But in Nepal, there is shortage of capital. There are various sources of accumulating capital internal and external sources. Under external sources: aid, grants and loans are the main sources. In internal sources: accumulating capital, taxes, public enterprises, public debt are the popular in our country. But due to underdevelopment, poverty, lack of banking knowledge the desired capital for the development of the country cannot be accumulated from those internal sources. So, it can be said that in Nepals present situation bank deposit is dependable and permanent sources of capital accumulation. The need of deposit mobilization for economic development of a country is no more to question. But we are facing an acute problem of resources mobilization. We have 31 commercial banks in Nepal which are very much considered to be vital financial institution to mobilize domestic resources. Under the prevalence of these situations the study will try to deal with following problems.

What is the relationship between deposit and loans and advances? What is the effectiveness of fund mobilization of commercial banks? How far the interest rates of deposits have positive relationship with the deposit collection of commercial banks? What is the increasing or decreasing trend of deposit mobilization of commercial banks?

1.3 Research Objective The objective of the study will be to examine relationship between the amount of total deposit and amount of total credit granted by the commercial banks. The main objectives of the study are: To analyze the relationship between deposits and loans & advances. The effectiveness of fund mobilization of commercial banks. To examine how far the interest rates of deposits have positive relationship with the deposit collection of commercial banks. To see the impact of an interest rates of loan on the credit extended by commercial banks.

Part 2 Literature Review Devender Singh on Thu 05th May 2011, in his thesis paper Deposits play a significant role in running a banking industry. A bank purchases deposits in order to produce and sell the loans and advances, therefore, purchases of deposits is an important activity of bank marketing. Survival and development of the banks are mainly influenced by their ability to attract deposits from different segments of the community rather than by the volumes of their capital resources. Thus, it can be concluded that deposits are the life blood of the banking industry and are the mainstay of bank funds. Kinds of Deposit Banks deposits can be divided on the basis of two factors:

Customer Factor - Bank Deposits can be divided into the following categories on the basis of Customer segmentation:

1. Individual. 2. Societies. 3. Primary Banks. 4. Partnership Firms. 5. Joint Accounts. 6. Social Organization. 7. Cash Credit Account. 8. Staff Security (For Bank staff, society managers, loan supervisor) etc.

The Time Factor - Bank deposits are mainly divided into five categories on the basis of time.

1. Fixed Deposits. 2. Saving Bank Deposits. 3. Current Deposits. 4. Recurring Deposits 5. Money at short call and short notices. Republica Opinion by Prem Khanal, it states that The whopping rise in deposit mobilization by commercial banks in recent months has once again proven that Nepals deposit mobilization is in fact interest elastic, which means that interest rate plays a vital role not only in sustaining but also

attracting additional deposits to banks. When Nepali banking industry suddenly started facing shortage of liquidity mainly as a result of over two-fold growth in loan disbursements compared to mobilization of additional deposits about nine months ago, some traditional bankers made arguments that the problem was a product of eroding confidence in Nepals banking system due to the prolonging political instability and pointed fingers toward a new central banks provision that required a valid source of income while depositing amount worth more than 1 million rupees. In the last quarter of 2009, numerous reports appeared in local newspapers, highlighting the disappearance of over Rs 10 billion rupees from the banking system. Many bankers argued that depositors were withdrawing their bank deposits and stockpiling them in their homes as they felt their deposits were not secure in the banking system. As per May 2011, Micro Save & International Finance Corporation (IFC), It examines the macroeconomic environment, legal and regulatory framework and financial infrastructure, the out reach, of methodologies and products of micro deposit service providers and clients needs and preferences. Findings indicate that: People in Nepal save in multiple institutions in formal, semi-formal and informal sectors in order to be eligible to take loans from any one of them and to diversify risk. Commercial banks and development banks rarely serve low income clients: Saving and credit cooperatives, micro credit development banks and financial intermediary. NGOs are the most relevant players in the formal and semi-formal sectors for micro deposit mobilization. Nepal has a large number of informal institutions, with almost every person depositing their money in an array of informal groups. Formal institutions are beginning to focus on rural and remote areas and are developing mechanisms. Like low balance savings accounts, to serve low income clients. The paper concludes that regulation and supervision is still an area of concern in micro deposit mobilization in Nepal. It recommends investment in capacity building, system development and technology to scale up micro deposit mobilization in Nepal. Karmacharya M.N. (2005), in his thesis paper A Study on the Deposit Mobilization by the Joint Venture Banks has mentioned that the bank has successfully maintained its liquid asset position but could not mobilize its resources efficiently. He has concluded that Nepal Banks utilization side is weak as compare to the collection of resources. He suggested for extending its branches, so NBLs deposit collection and also long-term as well as short-term credit may increase. He has recommended not to consider security factor only but to provide loan to genuine projects without securing. Sharma Bhaskar (2000, p 13) has found same results that all the commercial banks are establishing and operating in urban areas, in this study, Banking the Future on Competition. His achievements are:

Commercial banks are establishing and providing their services in urban areas only. They do not have interest to establish in rural areas. Only the branch of Nepal Bank Ltd. and Rastriya Banijya Bank Ltd. are running in those sectors. Commercial banks are charging higher interest rate on lending They have maximum tax concession They do not properly analyze the system

According to him, Due to the lack of investment avenues, banks are tempted to invest without proper credit appraisal and on personal guarantee, whose negative side effects would show colors only after four or five years. He has further included that private commercial banks have mushroomed only in urban areas where large volume of banking transaction and activities are possible. RE 2 Research Design There are altogether 31 commercial banks functioning all over the kingdom. The list of commercial banks represents the population of this study. Among all the banks , only four banks, 3 from joint venture banks and one from local investment bank are taken as a sample for comparative study. They are: 1. Himalayan Bank Ltd (HBL) 2. Siddhartha Bank Ltd (SBL) 3. Nabil Bank Ltd (NBL) 4. Standard Chartered Bank Nepal Ltd. (SCBNL) These banks are compared as per deposit mobilization procedure, that they are adopting to mobilize their collected funds as well as own funds. Two kinds of tools have been used to achieve the certain goals. Financial Tools Ratio analysis Statistical Tools Mean Liquidity Ratio Assets Management Ratios Profitability Ratios Risk Ratios Growth Ratios

 5. Data Analysis

Karl Pearsons of Coefficient of Correlation Analysis(r) Coefficient of Variation (C.V) Standard Deviation (S.D) Probable Error (P.E)

6. Limitation of Study This study is conducted for the partial fulfillment of MBA in Banking and Insurance. and prepared within time constraints which will weaken adequacy of the study. Whereas, researcher will try to keep the report more feasible, accurate and fulfill even there are some limitations. The report may not be generalized over long time as the nature, feature of the data and respondents vary over time. These limitations can be point out in the following points: The accuracy of the finding depends on the reliability of available information. This study covers only limited years period i.e. only 5-6 years. The qualitative factors such as growth, expansion, policies, quality of services, effectiveness of management etc have been ignored. The non availability of various resources also acts as constraints. This study concentrates on deposit collection and utilization by commercial banks.

Bibliography

1. http://www.investorwords.com/955/commercial_bank.html
2. http://www.Review\Monetary policy aimed at reducing inflation fnn_com_np News, Article, Science, Sports, Economy, Business, Entertainment, Audio, Video, Movies, Lifestyle.mht 3. http://MYREPUBLICA_com - News in Nepal Fast, Full & Factual.mht Sharma, Bhaskar (2000), Banking the future on Competition, Business age, October. 5. Nepal Commercial Bank Act 1974.
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