A Project work Report

ON
Cash management of
NMB Bank Ltd.

Submitted By
Hari Ram Tharu
Reg.no: 7-2-920-41-2015
Danfe college of Management
(BBS 4th Year Symbol No.: 9200031 )

Submitted To
Faculty of Management
Tribhuvan University
Kathmandu

In partial fulfillment of the requirements for the degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Kathmandu, Nepal
April, 2019
 Chapter: 1
Introduction

1.1 Background of study

The word “Bank” has been derived from the Italian word “Banco” which means a place for
keeping, lending and exchanging money, the bank is a financial institution, which deals with
money. It accepts deposits from individuals and organizations and grant loans to them it allows
interest on the deposits made and charges interest on the loan granted. Since, it accepts deposits
and grant loans, it is regarded as the trader of money. Further, it creates credit and supports for
the formation of capital and hence it is regarded as manufacturer of money. The following are
some of the main definitions given by different economist:

“A bank is an organization whose principal operations are concerned with the accumulation of
the temporarily idle money of the general public for the purpose of advancing to others for
expenditure.”

-Kent

“Bank is an institute which collects money from those who have it to spare and who are saving it
out of their income and lends this money out to those who required

-Crowther

“Bank is an organization established for the purpose of exchange money deposit lending money
and participation in transactions.”

1.1.1 Introduction of commercial bank

A commercial bank is regarded as the eldest financial institution in the history of banking. Commercial
bank is the type of bank which is established to promote the industry and trade in the country.
Commercial bank refers to the bank which deposits of public and organization and grants loan to them
against b securities and provide financial service such as agency service ,transfer of money, exchanging
foreign currency, issuing capital , etc. They carry out agency functions for the promotion of trade and
industry and deal with the foreign currency exchange.

Commercial banks are established to improve people’s economic welfare and facility, to provide
loan to agriculture, industry and commerce and to offer banking services to the people and the
country. Commercial bank has been playing a great role for the economic development of the
country directly or indirectly. In Nepal, the commercial banks perform the following functions:
1.1.2 Function of Commercial Bank

Major functions of commercial banks are

 Accept deposit
 Giving the loan
 Agency function
 Credit creation
 General utility functions
 Issuing capital
 Collects credit instrument
 Opens letter if credit

1.1.3 Introduction of NMB Bank Ltd

NMB Bank Ltd (erstwhile Nepal Merchant Banking & Finance Ltd) had been financially
institutionalized in the year 1996 A.D. in Durbarmarg, Kathmandu. Currently it has its head
office situated in Babarmahal, Kathmandu near the CDO office. It is promoted by members of
leading business conglomerates in association with Yong Lian Reality, Malaysia and Employee
Provident Fund of Nepal. It is one of the leading Merchant (Investment) Banker at present in
Nepal. It also enjoys number one status among the existing finance companies in terms of,
profitability, market capitalization, deposits, Risk Assets and Net Worth. Growing from strength
to strength, NMB managed to upgrade itself to a commercial bank in 12 years. It is the first
finance company in Nepal to become a commercial bank. NMB is a public limited company with
NPR 1 billion in paid-up capital including 25% of the shares held by the general public.

1.2 Statement of problem

Nepal is the country which is made up of villages and rural areas mostly and where there is
predominance of agriculture sector. It is very difficult to solve the problem of credit through
commercial banks and very nominal population of the country is using banking facilities

Presently, our economy is in critical phase due to political uncertainty, labor management
collect, power crises and so on. In such a situation banking system are facing different problems
which has created to increase risk in the operation of banking and financial institutions. The
problem like liquidity crisis, uncertain directives by NRB, increase in interest rates, fraud etc.

`This study raise some issued to be examined which are stated as below;
  What are the major factors affecting cash management policy?
 How the Bank is operating its cash management in this competitive management?
 What is the status of credit administration and credit recovery process of the bank?
 How is the nonperforming cash is affecting is cash management? Is writing off
nonperforming assets satisfactory?

1.3 Objective of study

The financial institution play very vital role in the economic development of the nation. The
efficient performance of the banks and financial institution give shape to economic indicators of
the nation. The main purpose of this study is to examine the way and techniques used by NMB
Bank in Cash Management. Study will cover the areas where cash are managed by bank. The
major objectives of the study are to examine the management of cash of NMB Bank. Therefore,
the basic objective is as follows:

 To examine the cash management practice followed by the organization

 To examine how the bank is following the norms of NRB with regard to cash
management
 To analyze the relationship between the deposits collected and loan distributed by the
bank
 To analyze the effective utilization of surplus of cash

1.4 Significance of the study

Banking sector plays an important role in the economic development of the country. Cash
management is a most important and crucial part of business. Business could not run without
having enough cash. Proper management in cash is needed for smooth flow of business. The
expected significance of this study is as follows:

 The finding of the study helps to know the ways of cash management of NMB
 Study will be useful and provide guideline for further researches in similar area
 It is expected that the study will help the people to get information about cash
management strategy in NMB

1.5 Limitations of the study

The study tries to find out the strategy and techniques of cash management of NMB. The
researcher will try to cover most of the information regarding the topic, but still there are certain
limitations. The limitation of the study is as follows:

 Report covers a period of four fiscal years data due to the time constraint.
 The study is based to know the techniques of cash management of NMB bank did not
disclose much.
 Study is based on secondary data.
  Time constraints are one of the main limitations of the study because it must be
submitted within stipulated period of time.
 It is only for partial fulfillment of MBA

1.6 Organization of the study

This whole study will be divided into five chapters, each one focusing on a particular area. The
units will be listed in the contents.

Chapter I
The first chapter includes general background, statement of the problem, objectives of the study,
significance of the study, and limitations of the study and organization of the study.

Chapter II
The second chapter includes conceptual framework along with review of published and
unpublished reports, booklets, journals, magazines, research work and thesis and useful website
relating to liquidity.

Chapter-III: Research Methodology:

It represents the Methodology adopted for the research design, sources and technique of data
collection, population and sample.

Chapter-IV: Data presentation and analysis:

Chapter four includes presentation and analysis of secondary and primary data. Major findings
from secondary data have been also presented in the last portion of this chapter.

Chapter-V: Summary and Conclusion:

It states summary and conclusion of the study based on the data presentation and its analysis
using the tools used in the analysis.

Bibliography
 Chapter: 2
Review of literature

2.1 Review
Conceptual framework provides tentative map of this study while literatures including books,
study reports, previous thesis and the articles found during this study which directly or indirectly
highlight the “cash management of NMB Bank”.

2.2 Conceptual framework

Following topics have been described in the conceptual framework:

2.1.1 Cash management

Before knowing about „Cash Management‟ is better to know about “Cash”. Cash is the money,
which the firm can disburse immediately without nay restriction. The term cash includes coins
currency and cheque held by the firm and balance in its bank accounts. Sometimes near cash
items, such as marketable securities is also included in cash. Cash is the important current assets
for the operations of the business organization and public organization. Cash is the basic input
needed to keep the business running on a countries basis. It is also the ultimate output expected
to be realized by selling the service or product manufactured by the firm. The firm should keep
sufficient cash neither more nor less. Cash shortages are disrupting the firms manufacturing
operations while excessive cash is simply remaining idle, without contributing anything towards
the firms profitability. Thus, a major function of the financial manager is to maintain a sound
cash position. The term „Cash Management” is concerned with the management of current assets
and current liabilities of the business, which is necessary for day- to day operation. “Cash
management is concerned with the decision regarding the short-term funds influencing overall
profitability add risk involving in the firm. The management of cash has been regarding as one of
the conditioning factors in the decision making issues”. It is no doubt, very difficult to point out
as to how cash is needed by particular company, but it is very essential to analyze and fine out
the solution to make efficient use of funds for minimizing the risk of loss to attain profit
objectives. Good cash management means knowing when, where, and how your cash needs will
occur knowing what the best sources are for meeting additional cash needs and Being prepared
to meet these needs when they occur, by keeping good relationship with bankers and others
creditors. Cash flow management is the process of monitoring, analyzing and adjusting business
cash flows. For business, the most important aspect of cash flow management avoiding extended
cash shortages, caused by having too great a gap between cash inflow and outflows. We won’t be
able to stay in business if we can’t pay our bills for extended length of time. Therefore, we need
to perform a cash flow analysis on a regular basis, and use cash forecasting so you can take the
steps necessary to head off cash flow problems. Most software accounting programs have built in
reporting features that make cash flow analysis easy. One of the most useful strategies for
business is to shorten cash flow conversion period so that business can bring in money faster.

2.1.4.1 Functions of cash management

 To cash planning
 To design and manage cash flows
 To maintain cash level marketable securities in amount close to optimal level
 To place the cash and marketable securities in the proper institutions and in the proper forms:

2.1.4.2 Important of Cash management

‘cash’ the important asset, is of vital importance to the daily operations of business. Firm ‘cash’ is the
both the beginning and end of the working capital cycles cash inventories, receivables and cash; its
effective management is the key determinant of efficient working capital management. The steady and
healthy circulation of cash throughout the entire business insolvency ‘’according to J.M. Keyns ‘it is cash,
which keeps s business going. The highest the level of idle cash greater is the cost of holding it in manner
the loss of interest, which could have been earned by investing it and securities or reducing the burden
of interest charges by paying off loans taken previously. Therefore, for its smooth running and maximum
profitability proper and effective cash management in a business is for paramount importance

Efficient and optimal cash flow management is important to all firms, ‘’cash is a nonearning asset in the
sense that through it is needed to pay for labor and raw materials to buy fixed assets, taxes, to serve
deb, to pay dividends and so on. Cash management is to holdings to the necessary level to conduct
business.’’ (Weston and Copeland, 1981:428).

Therefore we need to perform a cash flow analysis on a regular basis, and use cash flow forecasting so
you can take the

2.1.4.3 Efficiency of cash management

2.1.4.4 Different technique of Cash management

2.1.4.5 Cash management Models

2.1.4.6 Cash conversion cycle

2.3 Review of previous work

Pant, R.P. (2001), Pant has studied on “A study of deposit and its utilization by Commercial
Bank in Nepal.”

The main objective of the study is to test whether lending process is significant and to find out
the way to encourage mending by increasing bank deposit. The finding of the study is;
commercial banks in Nepal are not able to satisfy the financial need of the economy, commercial
banks in Nepal are not playing active role to utilize their resources collected from different
sector, according to the need of the economy. He has recommended the new branches should be
open.

Acharya, N. (2001), “Deposit mobilization of commercial bank in Nepal”

The main objective is to analyze the impact of interest rate on deposit mobilization as well as
credit ratio increase or decrease as the change in interest rate. Besides this, the objective is to
know the efficient utilization of the accumulated deposits. She has found that the commercial
bank have not been successful in the mobilization of the deposits collected by the commercial
banks. It is because of the fact that the commercial banks have not able to motivate and facilitate
to their cents except at change in the rate of interest. The problems are to attracting the savings to
the maximum possible extent to channeling these savings into these savings into those sectors of
the economy where there are most needed and to extending banking facilities in the country to
unbanked areas. The changes of interest rates in loan are also recommended. Commercial banks
should extend long term and medium term credit in addition to short term credit.
 Chapter: 3
Research Methodology
3.1 Research design
"Research design is the plan, structure and strategy of investigation conceived so as to obtain
answer to research question and control variance. The plan mean now researcher investigator
collect the data structure in term controlling the data in term of money and time." The plan mean
now researcher investigators collect the data structure in term controlling the data in term of
money and time. We can say that the research design is specific action of methods and
procedures for acquiring the information needed. It is the plan, structure and strategy of
investigation conceived so as to obtain answer to research questions and to control; variances. It
is the overall operational pattern of framework of the projects that stipulates what information is
to be collected from which sources by what purpose. A good design will ensure that the
information obtained is relevant to the research question and that it was collected by objective
and economically procedure. The main objective of research design is to make analysis of
financial performance of commercial banks with reference to NMB Bank Ltd. The research
analyzes the financial performance of commercial banks in Nepal and provides valuable
recommendation. In other words, this research is aimed at studying profit through analyzing
financial ratio of NMB Bank Limited. This will follow analytical and descriptive research
design. It also analyzes the composition of trend of total deposit, total assets, investment and
profitability condition of commercial banks. The design for this research is made by collection of
information from different sources by using various financial and statistical tools

3.2 Population and sample

All a commercial banks currently operation in Nepal is the population. On the basis of the
researcher's judgment, the study will cover only 1 sample out of all the banks, viz. NMB

3.3 Sources of data

There are two sources of data, primary and secondary. But only secondary data has been used in
this search.

 Primary data: Primary source of data is questionnaires, observation, interviewing

personally on site. The data regarding the organization, its feature and structures were
received primary through officer of Nepal SBI Bank.

 Secondary Source: In this study, main source of data is secondary which are
collected from pre-published data sources. The secondary data used in this study are:

 Annual report of Nepal NMB Bank.

 Unpublished official’s record
  Banking and financial statistics report of NRB magazines
 Other banking and financial journals
 Also the website of the bank
 Book publications

3.4 Data collection technique

The data analysis tools are applied as simple as possible. Data obtained from various sources
cannot directly be used in their original form. They need to further verify and simplify the data
for the purpose of analysis. Data, information, figures and facts obtained need to be checked,
rechecked, edited and tabulated for computation. According to the nature of data, they have been
inserted in meaningful tables, which have been shown I appendices. Homogeneous data have
been sorted in one table and similarly various tables have been prepared in understandable
manner, odd data are excluded from the table. Data have been analyzed and interpreted using
financial and statistical tools. The detail calculations that cannot be shown in the body part of the
report are presented in appendices at the end of the report

3.5 Analysis of data

Financial and statistical tools were used to analyze the data. Ratio analysis was used in the study.
Results are tabulated; listed under various headings. The results were compared with the
corresponding result of the past in order to interpret them in a meaningful way. A brief
description of the tools is given below.

As this study is related to cash management financial tools are more useful they help to identify
the financial strength and weakness of the firm in spite of various financial tools available the
research has primarily stressed on ratio analysis assuming it the most suitable tools.
 Chapter: 4
Presentation of Data and analysis

4.1Presentation of Data in table and figure

Table 4.1
Cash and bank balance to Total Deposit (Rs.in million )

Year Cash and Bank Total Deposit Ratio (%)

balance
2070/71

2071/72 3391.244 36722.918

2072/73 817.585 64781.464

2073/74 1703.496 73224.063

2074/75

(Source: annual report of NMB bank from207/71 to 2074/75)

Figure 4.1
Cash and bank balance to Total Deposit

Cash and bank balance

Cash and bank balance to total deposit = × 100%
total deposit

In the above table and figure,

4.2Major findings
 Chapter: 5
Summary, Conclusion and Recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation