Chapter-1
1.1Introduction 1.1Introduction 1.1.1 Concept and Meaning of Bank
The word “Bank” has derived from the Italian word “Banco” which means accumulation of money of stock. It is believed that its origin is from the French word “Banque” whicn means “bench” for keeping, lending and exchanging of money of coins in the market place by money lenders or money changers. It is believed that the ancestors of modern banking system were merchants, goldsmiths and moneylenders. Modern banking sowed its seed in the medieval Italy despite strong Christian prohibitions against charging interest. A bank is a formal institution, which deals with money and credit. Bank collects the scattered money from the public and mobilizes the fund to different productive sectors. It also provides the remittance to transfer money from one place to another. Bank is therefore, known as a dealer of money. In addition to this, bank may be engaged in different types of functions such as exchange currency, joint venture, underwriting, bank guarantee, discounting bills etc. Bank is also the principal source of credit for individuals, organization and government. Finally, we can say that bank is the financial institution whose primary function is the transfer of monetary resources from the savers to the users that is necessary for the industrialization and development of a country. 1.1.2 Development of Banking in Nepal
Banking industries are indispensable for the overall financial development of the country. Without investment of the banks, modern business can never be able to run smoothly. Bank assists in the process from initial level of production to the final level of consumer service. Bank also assists in the development of financial activities of the government owned corporations. It provides important part of financial system i.e. monetary system of making or receiving payment in the country. The history of modern banking in Nepal begins with the establishment of Nepal Bank Limited in 1937 A.D. as a semi-government Commercial Bank. Later Nepal Rastra Bank, the central Bank of the country was established in 1956, with the objective of issuing paper currency, circulation of Nepalese currency all over the kingdom, maintaining stability in exchange rate, mobilizing capital to give boost to economic development and industry and trade, developing banking sector in the country. The second commercial bank of Nepal is Rastriya Banijya bank established in 2022 B.S. as a fully government-owned Bank. With the purpose of enhancing Industry and Agriculture, Nepal Industrial Development Corporation (NIDC) as a specialized institution to finance industries was established in 1959 A.D. Likewise, the 1
cooperative bank established in 1963 A.D. was converted into Agriculture Development Bank in 1968 A.D. with the financial liberalization after restoration of multiparty democracy many financial institutions as well as joint venture banks have been established. At present there are all together 32 Commercial Bank operating in the country. They are as follows:Table no 1: Commercial Banks in Nepal S.N. Commercial Banks 1. Nepal Bank limited 2. Rastriya Banijya Bank 3. Agriculture Development Bank Ltd. 4. Nabil Bank Limited 5. Nepal Investment Bank Limited 6. Standard Chartered Bank Nepal Limited 7. Himalayan Bank Limited 8. Nepal SBI Bank Limited 9. Nepal Bangladesh Bank Limited 10 Everest Bank Limited 11 Bank of Kathmandu Limited 12 Nepal Credit and Commerce Bank Limited Limited 13 Lumbini Bank Limited 14 Nepal Industrial & Commercial Bank Limited 15 Machhapuchhre Bank Limited 16 Kumari Bank Limited 17 Laxmi Bank Limited 18 Siddhartha Bank Limited 19 Global IME Bank Limited 20 Citizen Bank International Limited 21 Prime Commercial Bank 22 Sunrise Bank Limited 23 Bank of Asia Nepal Limited 24 DCBL Bank Nepal Limited 25 NMB Bank Limited 26 Kist Bank Limited 27 Janata Bank Nepal Limited 28 Mega Bank Nepal Limited 29 Commerz & Trust Bank Nepal Limited 30 Civil Bank Limited 31 Century Commercial Bank Limited 32 Sanima Bank Limited
Established (B.S.) 1994/07/30 2022/10/10 2024/10/07 2041/03/29 2042/11/16 2043/10/16 2049/10/15 2050/03/23 2050/02/23 2051/07/01 2051/11/28 2053/06/28 2055/04/01 2055/04/05 2057/06/17 2056/08/24 2058/06/11 2058/06/12 2063/09/18 2064/01/07 2064/06/07 2064/06/25 2064/06/25 2065/02/12 2065/02/20 2066/01/24 2066/12/23 2067/04/07 2067/06/04 2067/08/10 2067/11/26 2068/11/01
Head Office
Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Siddartha Nagar Narayanghat Biratnagar Pokhara Kathmandu Birgunj Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu Kathmandu
(Source: www.nrb.org.np)
1.1.3 Functions of Commercial Bank
The commercial bank plays an important role in the modern economy. The accepting of deposits from individuals and institutions and providing loans to the needy persons and businesses are its two important functions. Besides, it performs many other 2
functions. On the one hand, it helps in capital formation by mobilizing savings. On the other hand it promotes trade and industries by providing loans. Major functions of commercial bank: 1. Accepting Deposits
The commercial banks accept deposits in different accounts. This is the first most important and oldest function of the commercial bank. The main forms of deposit accepted by banks are as follows:a.
Current or Demand Deposit
The men and the institutions needing cash frequently deposit their money in current account. The amount deposited in this account can be withdrawn by drawing cheque without prior information. Since the bank should keep all money in reserve and cannot make investment, no interest is offered in this account. The bank may instead, take incidental or bank charge for the management of money. The minimum amount to be deposited and maintained in this account is stipulated. The amount varies from bank to bank. If the minimum amount is not maintained, the bank charges some amount of fees. The pass book containing account and cheque book to withdraw money are issued to depositors. b.
Saving Deposit
The low income people and those not needing to draw money frequently deposit their money in the saving account. The money deposited in this account can be withdrawn only once or twice in a week or only in stipulated amount. In this account as well, the minimum amount to be deposited and maintained are stipulated. The amount varies from bank to bank. The pass book and cheque book‟ are issued to depositors. However, at present, the joint venture banks issue financial statement on quarterly basis instead of issuing passbook in both the current and saving account. If the customers draw more than stipulated amount without prior notice, the bank charges interest on the excess amount. The bank provides interest in this account since the bank can use money. A variant of saving account is „Home Saving Account‟. The purpose of this account is to encourage children and illiterate persons to save. These persons drop money in a box supplied by the bank. The bank occasionally opens the box and the amount is deposited in the person‟s account. The interest is offered in this deposit as in saving account. c.
Fixed or Time Deposit
The amount deposited for a fixed period is called fixed or time deposit. As the name implies, the amount deposited cannot be withdraw before the fixed period. However, the depositor can take loan from the bank against the security of fixed deposit receipt. The interest rate is higher than offered by bank. Since the bank can utilize the money 3
for a fixed period, high interest is offered in this account. The fixed deposit in Nepal is of 3 months, 6 months, 1 year and 2 years and above. No cheque book and passbook is issued in this account. Only fixed deposit receipt is given as an evidence of deposit. Beside the above mentioned deposits, the banks have introduced many other types of deposits, like marriage account, education account, and cumulative account and so on. 2. Providing Loans
The second important function of the bank is to provide different types of loans. The bank earns profit by giving the amounts deposited with it in the form of loans. Since the bank creates credit, with its deposits, it is called manufacturer of credit. Likewise, since the bank earns profit by utilizing the deposits it is said “ It is banker’s brain and other people’s money”. Traditionally, a commercial bank can grant only short-term credit. But in present time, it also provides loan of medium and long-term nature to some extent to even industry and agriculture. The bank charges interest on loans which are usually higher than those offered on the deposits. Since the banks in Nepal are how free to fix interest rates, the rate of interest on both deposits and loans varies from bank to bank. The main forms of loan provided by the bank are as follows:a.
Loans and Advances
The loans and advances are provided by the bank to individuals and institutions for various purposes. The bank provides loans only against the securities like gold, silver, government and non-government securities which are easily marketable, stable in value and liquid. Some banks offer the personal loans without security on the basis of honesty and prestige of the customers. The bank charges interest on full amount of the loan. The loans provided against the export bills are called advances. b.
Overdraft
The banks grant overdraft facilities to the honest customers. In this provision, the customer can withdraw the amount more than deposited in his account. But the limit and period of overdraft is stipulated earlier. The borrowers need to pay interest only on the amount actually drawn. Generally, the bank charges more interest on it than in ordinary loans. The bank may demand security in it as in ordinary loan c.
Cash Credit
The practice of cash credit was originated in Scotland. The importance of cash credit to Scotland was shown by H.D. Macleod in these words “Cash credit is to Scotland what the river Nile is to Egypt, a fertilizer ”.
4
The cash credit is not based on personal security. It is provided against the collateral of shares, debentures, cotton, Jute, rice etc. There is only one difference between cash credit and overdraft. In overdraft, more amount can be withdrawn from current account for a temporary period, whereas, a new account is opened in case of cash credit. d.
Discounting of Bills
The bank provides loans by discounting bills such as the bill of exchange. In modern days, transactions are made with the help of credit. The sellers draw bill of exchange making borrower to pay after some fixed time. When the seller needs money he submits the bills in the bank. The bank discounts the rate of interest from the face value of the bill and allows drawing the remaining amount by cheque. This is called discounting of bills. After the maturity of the bills, the bank receives full payment of the bill. The commercial bank can make the bills rediscounted by the central bank in case of the need of money. The bill has the guarantee of both drawer and drawee. Hence, the loans against bills are regarded as safe as well as liquid. 3. Investments
Banks also invest in shares and debentures of companies. Nepalese banks have invested on shares and debentures of Nepal Insurance and Transport Company, National Insurance Company, Nepal Oil Corporation, Credit Guarantee Corporation, Agricultural Projects Services Centre, Rural Development banks and so on. Similarly, banks have invested on government securities and NRB bonds. The banks also have entered into consortium financing. Banks earn interest by investing government and non-government securities. 1.1.4 Introduction to Everest Bank Limited
Everest Bank Limited (EBL) started its operations in 1994 with a view and objective of extending professionalized and efficient banking services to various segments of the society. The bank is providing customer-friendly services through a network of 45 branches all over the country. EBL joined hand with Punjab Bank (PNB), India as its joint venture partner in 1997. Drawing its strength from its joint venture partner, EBL has been steadily growing in its size and operations and established itself as a leading private sector bank. The Banker, a publication of financial Times, London, has conferred the bank with “Bank of the year 2006, Nepal”. Similarly, Nepal India Chamber of Commerce also bestowed the bank with the “NICCI Excellence Award” for its spectacular performance under finance sector. The bank‟s performance under all parameter has been outstanding during the financial year 2010. This sustained growth of the Bank is attributable to its strong systems and procedures, professional approach, quality lending and highly motivated staff members. EBL is playing pivotal role in facilitating a complete range of services. EBL is the pioneer in 5
extending various customer friendly products such as Home Loan, Education Loan, EBL Flexi Loan, EBL Property Plus (Future Lease Rental ), Home Equity Loan, Vehicle Loan, Loan Against Share, Loan Against Life Insurance Policy and Loan for Professionals. EBL is the first bank that has launched e-ticketing system in Nepal. All the branches of the bank are connected through Any Branch Banking System (ABBS), which enables customers to do all their transactions from any branches other than where they have their account. EBL in association with Smart Choice Technology (SCT) is providing ATM services for its customers. EBL Debit Card can be accessed at more than 55 ATM and 21 Revenue Collection Counters across the country making it a very efficient and accessible bank for its customers, anytime, anywhere. Ownership Structure of EBL Shareholding
Percentage (%)
Nepalese Promoters
50
Punjab National Bank
20
General Public
30 (Source: www.everestbankltd.com) Table 2: shareholding pattern of EBL
As shown in above table Nepalese promoters, general public and Punjab National Bank hold ownership of EBL. Nepalese Promoters holds 50%, PNB holds 20% and the General Public holds 30% ownership share in the pie chart bellow.
Shareholding pattern
30%
Nepalese Promotors
50% 20%
Punjab National Bank General Public
Figure no 1: Graphic shareholding pattern of EBL
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Capital Structure of Everest Bank Limited
Everest Bank is expanding its services in the major areas of Nepal through the professionalized and efficient banking services. Share capital structure of EBL is as follows:Particulars
1. Authorized Capital A) 18,000,000 nos. of Ordinary Shares of Rs.100 each B) 2,000,000 nos. of 7% Cumulative Convertible Preference Share of Rs.100 each
Amount (In Rs.) 2,000,000,000 1,800,000,000
200,000,000
2. Issued Capital A) 11,214,065 nos. of Ordinary Shares of Rs.100 each B) 1,600,000 nos. of 7% Cumulative Convertible Share of Rs.100 each
1,281,406,500 1,121,406,500
3. Paid up Capital
1,279,609,490
160,000,000
A) 11,196,095 nos. of Ordinary Shares of Rs.100 1,119,609,490 each B) 1,600,000 nos. of 7% Cumulative Preference 160,000,000 Share of Rs.100 each (Source:www.everestbankltd.com) Table no 3: Capital structure of EBL
Presentation in graph 25000
20000
15000
10000
5000
0 Authorized Capital
Issued Capital
Paid-up Capital
Figure no 2: Graphic capital structure of EBL
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Performance of EBL at a Glance Key Financial Highlights Ashadh End 2064
Particular
Ashadh Ashadh Ashadh Ashadh End End 2065 End 2066 End 2067 2068
Total Business. (Rs in Ten Million)
3,185.03
4,231.54
5,720.76
6,448.87 7,278.97
Operating Profit. (Rs in Millions)
577.67
818.17
1,066.04
1,349.10 1516.69
Dividend/Bonus Payments. (In %)
Cash Dividend
30
30
30
30
50
Bonus
10
20
30
30
10
(Source: www.everestbankltd.com)
Table no 4: Key financial highlights over 5years
According to the above data, the EBL has been growing its business efficiently and effectively through customer satisfaction. The total business volume is increasing rapidly since last five years. Through its customer-friendly services it has been able to earn sustainable profit during the last half-decades. 1.1.5 Introduction to Clearing House
Every bank performs the function of paying and collecting. The cheque drawn on other bank by the customers of the bank is collected by the bank for or without charging fee is called clearing. The bank through the clearinghouse performs the function of clearing. Cheque clearing involves the bank in which the cheque was deposited mailing the cheque to the issuing bank. The issuing bank then credits the deposit bank the funds on the cheque, assuming the cheque writer had the funds in his/her account. The deposit bank in turn credits the individual account into which the check was deposited. A clearinghouse is a place where the representative of all banks get together to settle the payment and receipts of Cheques drawn on each other. The aim of the clearing Department is to set the rules for the clearing, to ensure the accomplishment of such 8
rules and to supervise that the clients and members fulfill their obligations. In case that an investor fails to fulfill his/her obligations, the Clearing Department will apply the corresponding procedures. When needed, the department will provide information regarding the clearing process. After the World War II, a rapid growth in banking institution has been taken place. The use of cheque in making payments has also widely increased. The collection as settlement of mutual obligations in the form of cheques is now a big task for all the commercial bank. When cheque is drawn on one bank and the holders (payee) deposits the same in his account at the bank of the drawer, the mutual obligation are settled by the internal bank administration and there arises no interbank debits from the use of cheques. The total assets and liabilities of the bank remain unchanged. This is the age of information, communication and technology. The electronic clearing is the latest development of information and communication in Nepalese Banks. The use of paper cheques is being accelerated through use of electronic methods. Whether the cheque is processed as a paper cheque or processed electronically, however, a bank‟s function in clearing the cheque remains the same. Nepal Rastra Bank, the Central Bank of Nepal, established the clearing house facility to strengthen the relationship between the various financial institutions and provide the better service facility to their customers Due to faster clearing, better reconciliation and more secured services Electronic Clearing System is becoming so popular among the financial institutions.
1.2Statement of Problem The research seeks of the traditional and modern online cheque clearing system and EBL with the effectiveness of online clearing system at present scenario. Attempts are made shortly to answer the following questions:
How far have EBL bank been success to transfer monetary resources from savers to users through cheque effectively? What are differences between traditional and modern online cheque clearing system? How long does it take to clear a cheque? How have EBL bank been managing their clearing department in relation to modern technology?
1.3Objectives of the Study The general objective of the study is to fulfill the requirements for the degree of Bachelor of Business Studies. The major objective of this study is to make BBS student relevant to the real world situation. Besides this, the specific objectives are as follows:
To get practical insight about the banking activities. 9
To differentiate the traditional and modern online cheque clearing system. To identify the various activities done under clearing department. To know the procedure of cheque clearing. To develop the managerial skills to face the real world situation and problems.
1.4Significance of Study Every study comprises of both merits as well demerits. This study plays an inevitable role in getting important knowledge in the field of business and management to the students of management. This study provides valuable insights in facing the real world situation and the crucial role of banking sectors in the overall economic development of the nation. However, major importances of the study are as follows:
Provide knowledge about the banking functions and clearing procedures. Helps to make an analysis about the performance of clearing functions of EBL. Importance for further study and research activities.
1.5Limitation of the Study The study is conducted for partial fulfillment of the requirement for the BBS. So, the study possesses some limitation. One limitation of the study is that the study is conducted only on Everest Bank Limited among 32 commercial banks and it covers only financial year from 2063/064 to 2067/068. Limitation of study can be listed as follows:
Though the bank has many branches both inside and outside the valley, only the Everest Bank of Baneswor branch was in existence during internship and only the information regarding this branch is included in the report. Time and resource constraint.
Simple techniques have been used in analysis.
The focus has been given more to the qualitative factors.
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Chapter-2 2.1Clearing Department at Everest Bank Limited Everest Bank is one of the leading banks of the country and has been catering its services to various segments of the society since its foundation. In today‟s competitive world, the bank can‟t sustain until it provides the better service facility to its valuable customers. Considering these things, EBL has a separate clearing department since its inception period. EBL started its operation by foreign currency denominated cheque th on 29 December 2011 and started the NPR cheque clearing through NCHL-ECC th system from 9 April 2012. Generally there are two types of clearing. They are as follows:a. Inward Clearing
The cheques of one bank which are deposited into other bank are the inward for that bank. For example: if the EBL‟s cheque is deposited into the Nabil Bank, then it becomes the inward for the EBL. Such cheques are collected from the representatives of those banks collecting the EBL‟s cheques in the clearing house. Then these cheques are brought in the bank and necessary adjustment and transactions are maintained on the account of the respective accountholders/ cheque bearer and also on the bank‟s transaction‟s accounts. Such inward cheques are debited. b. Outward Clearing
The cheques of one bank which are collected in another bank are the outward for that collecting bank. For example: if the cheque of Nabil Bank is deposited in the EBL, than it becomes the outward for the EBL. Such cheques are presented to the representatives of the respective banks after having necessary adjustments and transaction maintenance on the bank‟s accounts. Such cheques are credited. 2.1.1 Manual Cheque Clearing System(MCC)
Manual cheque clearing system requires the cheques to be physically moved from place to place and the time involved in their processing at various intermediate stages increases the length of the clearing cycle of cheques. Nepal Ratra Bank has been playing the role of catalyst in ensuring efficiency in the clearance of cheque. The manual clearing process begins with the collection of cheques from customer for deposition. Representatives of the bank present collected cheques to NRB for outward clearing. When NRB assure the presented cheque validity then NRB transmit cheques to respective paying members (suppose SCBL) for inward clearing. The paying bank replies cheques after examining the account of holder. The representatives of the local commercial banks meet at NRB. NRB officially performs the duties of clearinghouse. The representatives of the commercial banks deliver the cheques payable at other local 11
banks and receive the cheques drawn on their bank. A summary sheet is prepared which shows the names of the banks, the total number of cheques delivered and received by them.
Figure no 3: Manual cheque clearing pictorial presentation
Figure no 4: Manual cheque clearing process 12
MCC process can be summarized as follows:
Receiving the cheques from the customer to be deposited. Collected cheques present to the NRB for outward clearing and NRB assure the presented cheque validity. Transmitting cheques to respective paying members (suppose SCBL) for inward clearing. Receiving replied cheques and rejected cheques from paying members. Transmitting replied cheques and returned cheques to presenting members (EBL) Ending the clearing session of the current business day. NRB settle accounts through the direct member‟s accounts. Starting a new clearing session.
2.1.2 Electronic Cheque Clearing System(ECC)
Under the Electronic Image-based Cheque Clearing Sysetem authorized by Nepal Rastra Bank (NRB) - the Central Bank of Nepal and operated by the Nepal Clearing House Limited (NCHL), Cheques will be processed by Electronic Cheque Scanner (ECS). This shall require all Banks that are participating in the Cheque clearing process to adopt a Magnetic Ink Character Recognition (MICR) line encoded Cheque layout that follows standard specifications that conforms to imaging and security requirements. Improving the quality of MICR printing and using of images for clearing depends on a number of factors viz. Design, layout, background color, screening, background pattern, security features, ink used to print MICR data and other required information and maintenance of MICR printing machines. Therefore, it is imperative that the Cheque design and layout is standardized. ECC is the state-of-the-art interbank cheque clearing solution that has replaced the manual cheque clearing solution in Nepal. It is and image-based, cost-effective, cheque clearing and settlement solution, where the original paper cheques are transferred to scanned images in order to be presented electronically through the secured communication channels from the member in which they are deposited to the member on which they are drawn resulting in a faster access to funds. Lower transportation expenses and increased cheque trust. ECC calculates the multilateral net clearing position and sends to the Settlement System of Nepal Rastra Bank for settlement of the net clearing position of the dilrect member. The Central System of the clearing mechanism lies at Nepal Clearing House Limited.
13
ECC process can be presented in a figure:-
Figure no 5: Electronic cheque clearing pictorial presentation
Figure no 6: Electronic cheque clearing process 14
ECC process can be summarized as following:
Receiving the cheques from the customer to be deposited. Collected cheques present to the NCHL for outward clearing and NCHL assure the presented cheque validity. Transmitting cheques to respective paying members (suppose SCBL) for inward clearing. Receiving replied cheques and rejected cheques from paying members. Transmitting replied cheques and returned cheques to presenting members (EBL) Ending the clearing session of the current business day. NCHL generates the Net Clearing Position (NCP) and submits the file to NRB for settlement through the direct member‟s accounts. Starting a new clearing session.
2.1.3 Comparative analysis between MCC & ECC Clearing System
Both manual and Electronic cheque clearing system consists of same process but way of cheque clearing is different. In manual cheque clearing process, physical paper should be presented so this is time consuming process. But in Electronic clearing, everything is done in computerized system so this is secured and fast clearing process. The differences between Manual and Electronic Cheque Clearing can be shown in figure:
Figure no 7: Manual vs. Electronic cheque clearing process 15
Differences between Manual and Electronic Cheque Clearing
1. Physical position: - Manual clearing system consists of physical paper cheque movement for clearance but ECC turns the physical cheque in a computerized process which speeds up the process of settlement. 2. Presence of NCHL: - All clearing functions are done by NCHL instead of NRB done in manual clearing process but ultimate authority to regulate goes to NRB. 3. Time consuming:- The clearance time for manual system takes 2-3 i.e. T+2 days whereas Electronic system clears within a day i.e. T+0 4. Floatation of cheque: - ECC eliminates the float available to cheque issuing customers through prompt clearing service. 5. Operational risk: - Carrying bunch of cheque is risky; therefore operational riks in manual clearing system is higher than ECC system. 6. Cost: - Electronic devices are costly to purchase & operate; therefore ECC involves higher cost than Manual. 7. Acceptability of cheque: - ECC is more reliable to accept than manual clearing cheque. 8. Extra interest: - Faster clearance earns extra interest for payee as a result of ECC but manual process doesn‟t.
2.1.4 Benefits of Electronic Cheque Clearing System
ECC system is the new development for Nepal, which will enable clearing of cheques on the same day irrespective of location of the Banks/Fls and their branches. The benefits of ECC are as follows:Benefits to the customers a. Faster clearing cycle. b. Account gets credited within few hours to same day – Extra Interest c. Better reconciliation / verification process. d. Better customer service – Elongated customer window. e. Elimination of float available to cheque issuing customers Benefits to the Banks/Fls a. Same day clearing and settlement at Nepal Rastra Bank. b. No need to physically move the cheques from the branches which speeds up the process of settlement. c. Limited cheque movement means direct savings on manpower and transportation cost. d. Better reconciliation/verification process as banks/FIs can know their cash position at any point of time. e. Increase in operational efficiency. 16
f. Reduces operational risk of cheque losses. g. Better customer service due to elongated customer window. h. Possibility of extending such services to the entire country with no geographical dependency. Benefits to Economy:a. Improve the efficiency of cheque payment & settlement system provided by the Banks/ FIs. b. Improve the cost efficiency of the Banks & Financial Institutions. c. Increase acceptability of cheques. d. Reduce the usage of cash. e. Induce increased payments through cheques thereby contributing to growth in formal economy. 2.1.5 Nepal Clearing House Limited (NCHL) as a Facilitator
Nepal Clearing House Ltd. (NCHL) is a public limited company established on 23rd December 2008 (9th Mangsir 2065) under the leadership and guidance of Nepal Rastra Bank (The Central Bank of Nepal) and Nepal Bankers Association. It has the equity participation from Nepal Rastra Bank, major commercial banks and Smart Choice Technologies (SCT), a private card switch operator. NCHL will initially implement and operate NCHL-ECC System in Nepal offering banks and financial institutions with an electronic medium of cheque clearing and later, establish a national payments gateway to facilitate electronic payments & financial transactions across banks and financial institutions within the country. Electronic Cheque Clearing (NCHL-ECC) System provides means to electronically transfer cheque images through a secure medium thus completely replacing the traditional physical routine of moving paper-cheques among the banks and clearing house, which result in significant reduction of tedious and time consuming manual process of cheque clearing, both for the banks and for the customers. Individual Banks and Financial Institutions are enrolled within NCHL network as participating members and are responsible for their clearing operations through the NCHL-ECC System. NCHL-FCY introduced on 29th December and has successfully re-started its operational by clearing foreign currency denominated cheques amongst its member rd Banks/Fls since 3 February 2012. Later on it has introduced NPR cheque clearing th through its NCHL- ECC system from 9 April 2012. NCHL share structure is given bellow:-
17
NCHL – Share Structure
Figure no 8: NCHL share structure
2.1.6 Risks for Member Banks/Fls
At Present, ECC has been popular in Nepalese Banks because of its prompt, secured and efficient settlement system. But it has also some limitations regarding its process and requirements. The risks associated with the member banks or financial institutions are as follows. Adherence to session timings(Presentment & Reply Time)
Auto rejection & acceptance at the end of reply time.
Settlement account funding to avoid bank unwind.
Compliance with NCHL-ECC Rule Book and NCHL-ECC Operating Rule. (Stamps, Selection of current sessions; return reasons, etc)
Adhere with the notification from NRB for final settlement.
Arrangement of required infrastructure including backups.
Authorized contact details of members(Deployment Form)
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Chapter-3 3.1Research and Methodology of Study This section generally represents the research methodology adopted to carry out the field work. There are many methods available to gather information, and a wide variety of information sources. Various methods should be adopted for collection.
3.1.1 Sources of Data Collection
The following sources have been used to collect the necessary data. a. Primary Source of Data The required information was collected through the discussion and information provided by the officials of EBL. b. Secondary Sources of Data The secondary data was collected from the secondary sources like: annual report, Boucher, Official Website and other publication.
3.1.2 Data Collection Techniques
Most of the data are collected from the secondary sources. Some of the data are collected through the discussion with the office staff taking interviews and direct observation of the operational tasks. Moreover practical approaches have been applied in collecting the necessary data. 3.1.3 Data Analysis Tools
The presentation and analysis of the collected and managed data has been analyzed and interpreted through analytical approaches. The direct understandings are presented with discussion and suggestion from the operational staffs. The most of the presentation and analysis is in descriptive form; however, Mean, standard deviation & correlation are used as statistical tools.
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Chapter-4
4.1Presentation and Analysis of Data This chapter is the main body of the study. It includes the collected data of cheque clearings and their analyses are done. Different tables, charts and diagrams have been used to make simple and easy readings. Analysis of Cheque Clearing under ECC system
In this chapter, cheque clearing under ECC system over half month is taken into consideration and its mean, standard deviation, coefficient of variation and correlation are computed. 4.1.1 Cheques cleared under ECC system
Cheques cleared under ECC system over half month are given bel low:ECC DATE 17/07/2012 18/07/2012 19/07/2012 20/07/2012 21/07/2012 22/07/2012 23/07/212 24/07/2012 25/07/2012 26/07/2012 27/28 29/07/2012 30/07/2012 31/07/2012 1/8/2012 2/8/2012 3/08/20-12 5-Aug
NO OF CHQ CLEARED NO OF CHQ REJECTED 401 25 383 20 365 20 1-EXPRESS-FRIDAY 0 SATURDAY 568 44 307 24 347 29 380 21 346 25 FRIDAY/SATURDAY 552 32 312 17 281 29 325 22 HOLIDAY FRIDAY/SATURDAY 325 22
(Source: primary) Table no 5: Cheques cleared under ECC
The data represents that the total no of cheques clearing through ECC system over half month (from 17/07/2012 to 5/08/2012) are 4892 cheques. No of cheques rejected is during such period is 330 cheques.
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Presentation in histogram 600
500
400
300 No of Cheque Cleared 200
No of Cheque Rejected
100
0
Figure no 9: Cheque cleared and rejected under ECC over a half month
Computation of Mean, Standard deviation & Correlation Coefficient. NO OF CHQ CLEARED (X)
NO OF CHQ REJECTE D (Y)
-
-
x2
y2
xy
401
25
24.6923
-0.3846
609.710
0.1479
-9.4970
383
20
6.6923
-5.3846
44.786
28.9940
-36.0355
365
20
-11.3076
-5.3846
127.863
28.9940
60.8875
568
44
191.6923
18.6153
36745.94
346.5325
3568.4260
307
24
-69.3076
-1.3846
4803.556
1.9171
95.9644
347
29
-29.3076
3.6153
858.940
13.0710
-105.9585
380
21
3.6923
-4.3846
13.633
19.2248
-16.1893
346
25
-30.3076
-0.3846
918.556
0.1479
11.6568
552
32
175.6923
6.6153
30867.786
43.7633
1162.2721
312
17
-64.3076
-8.3846
4135.479
70.3017
539.1952
281
29
-95.3076
3.6153
9083.556
13.0710
-344.5739
325
22
-51.3076
-3.3846
2632.479
11.4556
173.6568
325
22
-51.3076
-3.3846
2632.479 ∑x =93474.8
11.4556 ∑y =589.08
173.6568 ∑xy=5273.46 x y 376.31 25.38
Mean Standard deviation(σ Correlation®= 0.711
84.79
6.73
21
Mean is the mathematical average of numbers. Here, average cheque clearing & rejected during half month under ECC system are 376.31 & 25.38 respectively. Likewise, standard deviation measures the variations of the data. Standard deviation of cheque cleared and rejected are 84.79 & 6.73 respectively. The correlation is a statistical concept measuring the extent to which two variable tend to move together. The relationship between number of cheque cleared & number of cheque rejected are measured. Here, correlation is 0.711. Since the value of correlation is closer to one, the cheque cleared and rejected is highly positively correlated.
4.1.2 Cheques cleared under MCC system
Cheques cleared under MCC over half month are given bello:MANUAL DATE 17/07/2012 18/07/2012 19/07/2012 20/07/2012 21/07/2012 22/07/2012 23/07/212 24/07/2012 25/07/2012 26/07/2012 27/28 29/07/2012 30/07/2012 31/07/2012 1/8/2012 02/0/.2012 3/4/20-12 5-Aug
NO OF CHQ CLEARED
NO OF CHQ REJECTED 35 28 26
3 7 2
47 29 28 21 26
1 1 3 3 5
46 27 15 18
4 0 1 1
18
1
NO CLEARING SATURDAY
FRIDAY/SATURDAY
HOLIDAY FRIDAY/SATURDAY
(Source: primary) Table no 6: Cheques cleared under MCC
Above data shows total no of cheques cleared through Manual Cheque clearing system over the half month are 364 cheques. No of the cheques rejected during the period are 32 cheques.
22
Presentation in histrogram 50 45 40 35 30 25 No of Cheque Cleared
20
No of Cheque Rejected
15 10 5 0
Figure no 10: Cheque cleared and rejected under MCC over a half month Computation of Mean, Standard deviation & Correlation Coefficient. NO OF CHQ CLEARED (X)
NO OF CHQ REJECTE D (Y)
-
-
x2
y2
xy
35
3
7
0.537
49
0.288369
21
28
7
0
4.537
0
20.584369
0
26
2
-2
-0.463
4
0.214369
-4
47
1
19
-1.463
361
2.140369
19
29
1
1
-1.463
1
2.140369
1
28
3
0
0.537
0
0.288369
0
21
3
-7
0.537
49
0.288369
-21
26
5
-2
2.537
4
6.436369
-10
46
4
18
1.537
324
2.362369
72
27
0
-1
-2.463
1
6.066369
0
15
1
-13
-1.463
169
2.140369
-13
18
1
-10
-1.463
100
2.140369
-10
18
1
-10
-1.463
100 ∑x =1162
2.140369 ∑y =47.23
-10
Mean Standard Deviation( σ Correlation®= 0.1921
∑xy=45 x 28 9.45
Average cheque clearing & rejected during half month under MCC system are 28 & 2.46 respectively. Likewise, standard deviation of cheque cleared and rejected are 23
y 2.46 1.91
9.45 & 1.91 respectively. Correlation measures whether the relationship between two variables is positive or negative or near to. Here the correlation between number of cheque cleared and number of cheque rejected under MCC system is 0.1921. This represents that the cheque cleared and rejected has lower degree of positive correlation. 4.1.3 NCHL-ECC Current Status Current status of NCHL-ECC is given bellow:-
(Source: Report of NRB) Table no 7: NCHL-ECC current status rd
Above data represents the current status of electronic cheque clearing till 3 april 2012. Now, the total number of NCHL-ECC users is 391 and there are 37 ECC members, among them, Commercial Bank -32, Development Bank -3 and Finance Companies -2. Graphical presentation
Figure no 11: NCHL-ECC current status 24
Chapter-5
5.1Summary, Conclusion and Recommendation 5.1.1 Summary and Conclusion
Everest Bank Limited is one of the prominent and successful banks of Nepal and which has been rendering its service to people in different parts of the country by mobilizing the financial resources. Most of the people are interested to deal with this bank because of the facilities provided to the customers as well trustworthiness. The entire customers are treated with utmost good faith. EBL is a national level commercial bank promoted by highly prominent business personalities and reputed individuals of the country who have excellent in their field of business with very good integrity and social standings. It has been observed that EBL started its banking services with a view to minimize the customer‟s needs by offering products and services which are easy and affordable for all level of customers. To that extent, EBL always emphasizes its customer service, product development, resource management, branch networking and the contribution to the economic development of the country. The EBL has adopted advanced and new version of software in their system. It has also adopted ECC system in cheque clearing. ECC clearing service is an electronic image based system of clearing various inward and outward cheuqes through which a bank can provide prompt, secured, risk diversified and efficient services to customer. Today, amount of cheque can be debited and credited on respective accounts within a day through ECC system whereas it takes 2-3 days in Manual Clearing system. The customer inflow in EBL is increasing progress fully both customer deposit and customer withdrawn. The daily average cheque clearing through ECC system (except Friday & Saturday) is 376 cheques whereas through Manual Clearing system is 28 cheques. But daily rejected cheque through ECC system is 25 cheques whereas through Manual system is 2cheques. Though ECC system is prompt and secured system of clearing, it contains more rejection due to its additional verification requirement. It is also costly to the bank because of its electronic process. Manual system of cheque clearing takes more time than ECC system but the rejection of cheque is low. Overall analysis concludes that the ECC system is prompt, low risk, secured and efficient process which system is mostly preferred by customer. In conclusion, EBL is the bank with effective management, well-trained and experienced office personnel established for the development of the nation as a whole with some physical condition and effective and well managed availability of necessary materials needed for office. It is the service oriented business where different jobs and activities of an organization are carried to achieve the organizational targets. EBL is efficient in providing service through advanced and new version system developed in 25
information and communication which enables baking procedures and their recording more specific and effective. 5.1.2 Recommendation
EBL with modern technology and experience staff within a short period of its operation about to provide satisfaction to their client to achieve more goal, it should adopt more new technology considering their client facilities based on the findings and conclusion draw from study following recommendation has to be made towards EBL.
Recently EBL has started ECC system of cheque clearing; the awareness should be given to their customer through campaign regarding new clearing system. ECC system is costly than manual, so, efficient utilization of ECC system is important to minimize the possibility of cheque rejection and provide prompt service. Now ECC system is implementation within the valley, therefore, it should be expanded within all branch of EBL. It has been found that ECC system results higher rejection of cheque rather than the MCC system, therefore, EBL should give more concern to minimize the technical barriers. ECC system is also said as a tedious system of cheque clearing, so, research study for minimizing such type of problem should be done.
Branches existing in some limited areas will not enable a bank to boost up its campaign of implementation of ECC system as desired. Therefore, EBL is recommended to open new branches at certain places after making feasibility study and make technological available to all banks so as to the customer get prompt, secured and efficient services. Besides these, it should launched various services such as branchless banking services, extended banking hours, different program of deposit etc. so as to collect maximum amount of funds from general public.
26
Bibliography Books: rd Thapa, Kiran:F inancial I nstituti ons & M arkets, Januka Publishers . 4 ed. 2011. . Tara McGraw-Hill, New-Delhi Bhole, L.M.: F inancial I nstituti ons and M arkets DP, Gupta:Th e Ban ki ng System,Sul tan & Sons Publishers. Weston and Brigham: Essenti al of M anager ial F in ance . Shrestha, Sunity: Portf oli o Behaviour of Commer cial Bank s in Nepal, M andala Publishers. Alexander:F undamentals of I nvestment , Person Education :New Dilhi.
Journals: th 13 annual report 2063/064, EBL Bank. th 14 annual report 2064/065, EBL Bank. th 15 annual report 2065/066, EBL Bank. th 16 annual report 2066/067, EBL Bank. th 17 annual report 2067/068, EBL Bank. Websites: www.everestbankltd.com.np www.google.com.np www.bizcovering.com www.howbankswork.com
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Appendix:
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