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A Case Study of profitability analysis of Standard Chartered Bank Nepal Ltd.

CHAPTER – I

INTRODUCTION
Background

In the economy life of every nation, Banking has played a vital sale to develop national
economic. Bank has very important for economic development, capital formation,
security of wealth, price stability, transfer of funnels, monetization of economy etc.

The work “Bank” has come from Italian word “Bank” which means the bench which was
used for keeping records and exchanges the money. Bank is the financial institution,
which deals with money by accepting various types of loans by creating credit. The
Banking services are available at different style of human progress.

The main objectives of the banks are development of trade, commerce, industey and
human economic conditions since trade; commerce is the prime factor of the economic
growth. There are different definitions about the banks and some of the definitions are as
follows:

“A bank is an organization whose principal operation is concerned with accumulation of


temporary idle money of the general public for the purpose of advancing to other for
expenditures.”[1]

“Any institution offering deposits subject to with draw on demand and making loan of
commercial or business nature is Bank.”[2]

“Banking is a manufacture of credit and machine for facilitating exchange.”[3]

“A Bank is an institution which collects money from there who have it spark or who’s
saving it out of their income. It lends this out to those who require it”[4]

Sources:

1.1.1 Origin and Growth of Bank In Nepal

In Nepalese context, “Tejarath Adda” was first step toward banking at the time of
Ranadip shah. Banking in the true sense was introduced with the establishment of Nepal
Bank ltd. In 1994 B.S. it becomes single commercial bank for eighteen years. To develop
the banking sector, Nepal Rastra Bank was established as a central bank in 2013 B.S.
under Nepal Rastra Bank Act 2012 B.S. tough Nepal Rastra Bank formulates the
monetary policy, fiscal policy , It has some limitation on 2022 B.S. Rastra Banijya Bank
was established with funky Government owned commercial Bank .

In order to being the foreign investment bank in Nepal has opened it door to all foreign
commercial bank after the introduction of “Liberal and market oriented policy” more
need of competition was felt to enhance the speed of development in banki9ng sectors
which result to establish the joint venture bank after 2040 B.S. The first joint venture
bank was established on 2041 B.S. similarly, Nepal grind lays Bank (2043B.S.)
Himalayan bank Ltd. (2049 B.S.) Nepal Bangladesh Bank ltd. (2051 B.S.) bank of
Kathmandu (2052 B.S.) and many other commercial as well as other development banks
have been established. Due to various range of functions by6 the bank; it has become an
essential part of modern society.

1.1.2 Introduction to Commercial Bank

Commercial Bank are the profit oriented institution that gives lesbian rates of interest to
its depositor and takes certain rate of interest from loan and advances by mobilizing the
deposits . So, commercial bank pools together the saving of the community and arrange
for their productive use. Commercial banks are restricted. To invest their funds in
corporate securities. Their business is confined to finance the short term need to trade and
Industry such as working capital financing. A part from financing, they also render other
services like collection of bills and cheques, safe keeping of valuable financial advising
to their customer etc.

A commercial bank is an immediately which being the gap between the depositor who
have surplus money. The first commercial bank was Nepal bank Ltd. Established in 1994
B.S.
Hence the main objectives of the commercial banks are to be medium of economic and
industrial development and assets in uplifting the community.

1.1.3 Introduction to joint Venture bank

By, Nepalese commercial bank can be classified into categories i.e. domestic commercial
bank and commercial bank with foreign collaboration are also called joint venture bank.
Joint venture means joining of forces between two and more enterprises for the purpose
of carrying out of specific operation. Joint venture is the mode of trading through
partnership among the nation and is also term of notation between various groups and
traitors. If one talks about joint venture, there must be at least two parties and counts of
complimentary and synergy. JVB in Nepal refers to foreign joint venture bank in which
foreign parent bank purchases certain percentage of shares ( not exceeding to 50%) apply
their international management and network .
The govt.’s policy allowing banks JVB to operate in Nepal is basically targeted to
encourage local traditionally run of commercial bank to enhance their banking capacity
through competition of JVB efficiently, modernization, mechanization and prompt
customer services. Act 2021 B.S. and operated under the commercial bank Act 2031 B.S.

At present, there are various JVBs in Nepal and the researcher has attempted to take only
one ie. Standard has charter bank ltd. For the purpose of project work research study.
Role of joint venture Bank in Nepal
 To increase the foreign healthy.
 To bring healthy import export trade.
 To promote and expand import export trade.
 To introduce modern and advance banking techniques.

1.1.4 Introduction of standard charter Bank Ltd. Nepal

Standard Charter Bank ltd. Nepal is a joint venture bank in the nation changes its name
from Nepal grind bank in 29th Ashad 2058 B.S. general meeting of last year.

Nepal grindlays bank is the third joint venture bank in the Nepal established in 2043 B.S.
with a view to encourage banking service and to utilize financial resources. It was
established following a joint venture government between Grindlays Bank PCL Landing
London with the wholly owned subsidiary of ANL Bank having 50% ordinary shares.
Nepal Bank Ltd. having 35% ordinary shares.

In the establishment year 2043 B.S. the authorized capital of the bank was only 100
Million and issued capital has reused to 439.549 Million and has fully paid up. The bank
was registered on 4th Poush 2049 B.S. with H.M.G. department of commerce. If obtained
its license from Nepal Rastra Bank on 18th Margh 2042 B.S. and.

It was formally regulated by ministry of state for finance and industries on 16 th Margh
2043 B.S.

The registered head office of Nepal SCBLN is in Nayabaneshwor, Kathmandu. There are
eleven branches of SCBLN in the Nepal. It has three branches inside the KTM valley and
five branches are outside the valley where one is in Biratnagar. And whose branches
manager is Mr. Sanjeev Mishra of consumer banking.

1.1.5 Functions of commercial Bank


The main functions f commercial banks are as follows:

1) Acceptance of Deposits :-
 Fixed Deposit
 Current Deposit
 Call Deposit

2) Advancing of Loan :-
 Cash credit
 Overdraft
 Demand / term Loan
 Bill / cheque purchases / Discounting

3) Agency function
 Transfer to customers funds
 Purchase & sale of shores and securities for the customers
 Paying the insurance premium

4) Purchase and sale of foreign exchange


5) Creation of credit
6) General utility services

1.2 Literature survey (profitability Analysis ) :-

Profitability analysis indicates the degree of success in a achieving derided profit. The
profitability ratio gives answer to how effectively the bank is being managed. The
measurement of profit of JVBs operating in Nepal can be given greatest weight since it is
probably the best indicator of overall efficiency. Also it the profitability ratio mainly
studies the earning power of the firm (bank) it depicts almost entire performance of bank.
The main definitions of the profitability analysis are as follows.

“The operating efficiency and its ability to ensure adequate return its invertors ultimate
depend upon the profit earned by it “[5]

“Profit earning is the main objectives to each business concern. At the same time, it is the
effort at every concern to earn maximum profit only in absolute term but also in relative
term”[6]

“Profitability is an indication of the efficiency with which the operations of the business
are carried on profitability analysis, measure management and overall effectiveness as
shown by the returns of enervated on sales and investment”[7]

1.3 . Objectives of the study

The purpose of the study is to analyze the firms (Banks) actual profitability position. So
the purposes of the study are as follows:

1) To assess important characteristics of SCBLN like profitability.


2) To determine the financial state of SCBLN.
3) To point out the strength and weakness of SCBLN.
4) To introduce with the problems this may occurs in future.
5) To offer information to manager shareholders and public who would contract for the
study f profitability of SCBLN.

Sources

1.4 Assumptions & Limitations of the study

There are some assumption & limitation of the study. There are as follows:
I) This data is mainly collected from annual report of bank i.e. secondary data, therefore, the
result of all analysis depend upon the information provided by the bank.
s study only covered 4 years from 2059/060 to 2062/063
s stud has been confirmed only a standard charter bank Nepal ltd.
IV) Only limited financial tools i.e. ratios are used to analyze the financial statement.

1.5 Project work procedures

Project work procedures are as fallows:


1) Selecting the topic in which the report is to be prepared.
2) Selecting the bank in which analysis to be done.
3) Studying the procedure and process of report which is written from different sources.
4) Presenting the report in prescribed style and for mate and submitting the typed report to
cortege.
5) Survey of the bank in communicating with the branch manager and other staff bank and
collecting the data from bank.

1.6 Methods of data collection

Secondary data
The study is based on secondary data . for this data, annual report, journals, publications,
library previous studies and the information provided by the staff of SCBNL.

1.7 Chapter planning of Project work Study

The project work is prepared in the for mate as required by the faculty of management
entitled “Assessment of profitability analysis of SCBNL” The study has been classified
into three chapters.

The first chapter is introduction which includes background of banking, origin & growth
of bank in Nepal introduction to commercial banks, introduction to joint venture bank,
introduction SCBNL and literature survey objectives of study, project work procedures &
methods of data collection.

The second chapter is presentation and analysis of data, which includes presentation of
data and analysis of those data using various tools and techniques of ratio.

The third chapter is summary, conclusion and recommendation. In this way the chapters
are planed for this project work report.

CHAPTER – TWO

PRESENTATION AND ANALYSIS OF DATA

2.1 Presentation of Data :

In order to evaluate the financial performance of SCBNL four (4) years financial
statement i.e. Balance sheet (B/S) and profit and loss A/e are presented in tabulation form
as follows:

Table No.1
Standard chartered Bank Nepal Ltd.
4 years comparatively Balance sheet
For the financial year 2059/60, 2050/061, 2061/062, and 2062/063
(in thousand)
Particular 2059/60 2060/061 2061/062 2062/063
Fixed and properties
Fixed Assets 1,91,710 136234 71412 101301
Investment 57,77,678 5229875 9702553 12935417
(A) Total fixed Assets 59,69,389 5366109 9773965 13036718
Quick Assets
Cash Balance 1,98,755 187704 195458 279511
Bank Balance 13,13,549 1835458 915658 996730
Investment in HMG T bill 44,38,520 6130452 - 7210500
Money at call 16,57,909 2218599 5089307 1977271
Loan Advanced and purchased bills 56,95,825 6410242 8143207 8935417
(B) Total quick assets 1330455 16782458 16603381 19399429
(C) other assets 1637022 1493492 493697 638564
(D) total current assets (B+C) 14941580 18275950 17097078 20037993
(E) total assets (A+D) 20910970 23642059 26871043 33074711
Current liabilities
Deposit liabilities 16807038 19732946 19363469 23061032
Bills payment 54841 59024 56297 55750
Proposed and unpaid liabilities - - 461337 499979
Other liabilities 436435 629984 290607 405430
(F) total current liabilities 17298316 20421956 20171710 24022191
Loans and Borrowing 79163 78282 27551143 -
Debentures and Bonds( customer deposit) 1948596 1428495 - -
(G) Long term debt 2027759 1506778 27551 -
(H) total debt (P+G) 19326075 21928734 20199261 24022191
Share capital @ Rs 100 each 339548 374640 374640 374640
Reserve & fund 1029357 112198 1207775 1379498
Maintained earning 215987 217586 217586 251335
(I) total shareholders equity 158494 1713325 1800001 2005473
(J) total investment / capital employed 361256 3220103 - -
Sources. Appendix

Table No 2.
Standard Chartered Bank Nepal Ltd.
4 Years Comparatively P/L A/C
For the F/Y 2059/060 to 2062/063
(In thousand)
Particular 2059/60 2060/061 2061/062 2062/063
Income
Interest income 1001359 1042175 1058677 1189602
Commission & Discount earning 215200 198947 178651 222928
Exchange and fluctuation gain 232522 237050 273044 283471
Non operating income - - 2957 1432
Other operating income 55479 69894 29292 25442
Provision for possible loss written back - - 33685 53090
(A) Total income 1504562 1584007 1576306 1175965
Expenses
Provision for staff bonus 76083 85954 88683 93937
Staff expenses 128327 134685 148585 168230
Other operating expenses 311972 279693 256648 221086
Non operating lost / expenses 15529 10755 - -
Provision for possible lose 2339 - 27725 47729
Expenses from extra ordinary expenses 2589 2411
(B) Total expenses 534253 511089 524030 533393
(C) Net income before interest & taxes (CBIT) 970308 1072918 1052276 1242572
or (A-B)
Less interest expenses 255153 275809
(D) Net profit before tax (EBT) 715154 797109 254126 303198
Less provision for income tax - 798150 939374
Current year 20822 235792 258944 274504
Up to previous year 2959 6113
Net profit after tax 506933 537800 536244 658755
Proposed dividend 373503 412104 449568 487032
No. of shares outstanding (NOS) 3395488 3746404 3746404 3746404

Sources. Appendix

2.2 Analysis of Data

The main purpose of this study is the assessment of the profitability of Standard
Chartered Bank Nepal Limited from 2059/063. Here various tools (including dome
ratios) are used to assessment of profitability. There are various tools that can be used in
the evaluation of the level of profitability of SCBNL.

2.2.1 Profitability Ratio

Profitability ratio is the indicators of degree of managerial success in achieving the


objective of profit maximization. If shows the overall efficiency and earning capacity of
the business concern.

Profitability is the final result and commercial bank.

(I) profit Margin (PM):-

This ratio shows the relationship between net profit after tax (Net income) and Operating
income profit margin means percentage of net income on operating income. It is good to
be greater profit margin for any business concern.
Profit margin is calculated as follows:-

Profit margin = net profit / operating profit


Where, operating income = Net income + Interest oxp2 + Tax amount

Table No. 3
Profit margin

Year Net income Operating income Profit margin


2059/060 506,933 970,808 52.22%
2060/160 537,800 1,07,2918 50.12%
2061/062 536244 1052276 50.96%
2062/063 658755 1242572 53.02%
Average (mean) 51.58%

Sources Table No: 1

Higher profit margin is better for any bank. The above table shows the profit margin of
SCBNL for 2059/60 to 2062/63 is 52.22% 50.12% 50.96% & 53.02% respectively. In
fiscal year 2060/61 & 2061/62 profit margins is to we & than F/Y 2059/60. But In F/Y
2062/63 profit margin is in covered. It is good far SCBNL.

(II) Net Interest Margin (NIM):-

NIM is another most popular tool of profitability measurement. It shows the relationship
between net interest income and interest earning assets. It means the percentage of net
interest income on interest earning assets.
Net interest margin calculated as follows:-
Net interest margin = Net interest income / Interest earning assets
Where,
NII = Interest income – interest expenses.
Interest earning assets = Investment + Loan, Advance & bills purchased.

Table no. 4
NIM
Year Net income Interest earning NIM
2059/060 506993 11473503 4.42%
2060/061 537800 11640117 4.62%
2061/2062 536244 17845760 3.00%
2062/2063 658755 21870834 3.01%
Average 3.7625%
Sources Table No: 1& 2

Higher net interest margin is better for any book. The above table shows the net interest
margin for year 2059/60 to 2062/63 is 4.42%, 4.62%, 2.00%, & 2.01% respectively. In
F/y 2060/61 NIM is income than F.Y. 2059/60 but the fiscal year 2061/62 & 2062/63
have been discovered And 2062/63 NIM is just greater than F.Y. 2061/62.

(III) Interest spread


Interest spread is also popular tool to measure the profitability of commercial bank.
Interest spread is the difference between coverage rate of return on interest earning assets
and average rate of interest paid on interest paying liabilities.

Interest spread is calculated as follows:


Interest spread = interest income /earning assets – interest expenses / Interest paying
liabilities
Where,
Interest paying liabilities = Loans & borrowing + Deposit

Table no. 5
Interest Spread
Year calculation of spread interest + spread
2059/060 1,0001,859 – 255,153 7.37%
11473503 18,884,770
2060/061 1042,175 – 275,809 7.65%
11473503 18,884,770
2061/062 1058,677 – 254,126 4.62%
17,845,760 19,391,020
2062/063 1189,602 – 303,198 4.12%
21,870,834 23,061,032
Average (mean)
Source: table = 1, table = 2

Higher interest spread is better for any bank because it helps the bank to progress. The
above table shows the interest spread for year 2059/60 to 2062/063 it 7.37%, 7.65%,
4.62%, & 4.12% respectively. In f/y 2060/61 interest spread is greater than f/y. 2059/060
but in f/y 2061/62 & 2062/063 is decreasing trend. It is not good for the book. So, the
bank utilizes their assets effectively.

(IV) Return on assets (ROA):-

This ratio shows the relationship between net profit after tax and total assets. This ratio
measures the profitability of all financial resources invested in firms assets. It indicates
capacity of the firm in utilizing its assets to earn a maximum profit.
Calculation of ROA of SCBNL
Return on assets = NPAT / Total assets

Table No. 6
ROA
Year NAPT Total assets ROA
2059/060 506993 20910970 2.24%
2060/61 537800 23624059 2.27%
2061/62 536244 26871043 2.00%
2062/63 658755 33074711 2.00%
Average 2.1275%
Sources Table 1 & 2

Highest the return on assets is better for any bank. The above table shows the ROA for
year 2059/60 to 2062/63 is 2.24%, 2.27%, 2.00% & 2.00% respectively. The ROA for
year 2060/61 is increased and therefore ROA for 2061/62 & 2062/63 are 2.00% constant.

(V) Return on equity (ROE):-

Return on equity shows the relationship between net profit after tax and shareholders
equity. This ratio measures capacity of the firm in utilizing the shareholders fund to cash
maximum profit. It is good far any institution to be higher.
ROE = NPAT / Equity
Table no. 7
ROE
Year NAPT Equity ROE
2059/060 506993 1584894 31.98%
2060/061 537800 1713325 31.39%
2061/062 536244 1809001 29.79%
2062/063 658755 2005473 32.85%
Average (mean) 31.50%

Sources Table No: 1& 2

The above table shows the return on equity for the year 2059/060 to 2062/063 i.e.
31.98%, 31.39%, 29.79% & 32.85% respectively. The position of return is good. The
ROE is decreasing trend but the ROE of fiscal year2062/063 has been increased.

2.2.2. Leverage ratio

The leverage ratios are calculated to judge the long term financial poison. These ratios
are also called “capital structure of Bank.

(I) Debt to total asset ratio (D/A ratio):-


Debt to total asset ratio shows the relationship between the total debt and total asset. It
measures the proportion of total assets financed by the debt.

Debt to total assets ratio calculates as follows:-


Debt to total assets = total debt / total assets

Table No. 8
Debt to total assets ratio
Year Total Dept Total assets Debt to total assets
ratio
2059/060 19326075 20910970 92.42%
2060/061 21,928,734 23,642,059 92.75%
2061/062 20,199,261 26,871,043 75.17%
2062/063 24,022,191 33,074,711 72.63%

Sources table no.1

The above table shows the debt to total assets ratio of F.Y. 2059/060 i.e. 92.42%,
92.75%, 75.17 & 72.63% respectively low debt ratio is relatively good. But in above
table shows that the debt ratio of SCBNL is very high. So, capital structure of SCBNL is
not good. Because more debt means more risk.

(II) Debt to equity ratio (D/E Ratio)

Debt to equity ratio shows the relationship between total debt and equity. This ratio
measures the relative interest of creditors and owners. It depicts an arithmetical relation
between debt fund and owner’s fund.
Debt to equity ratio calculates as follows:
Debt to equity ratio = total debt / equity

Table No.9
Debt to Equity
Year Total debt Equity Debt to equity ratio
2059/60 19326075 1584894 12.19 : 1
2060/061 21928734 1713325 12.80 : 1
2061/062 20199261 1800001 11.22 : 1
2060/063 24022191 2005473 11.98 : 1
Average 12.0475 : 1
Sources Table No.1

Above table shows that debt equity ratio far the year 2059/060 to 2060/063 i.e. 12.19:1,
12.80:1, 11.22:1 & 11.98:1 respectively. In capital structure of SCBNL, debt portion is
much more than owner’s equity. It is an unfavorable signal to the creditors of SCBNL. In
fiscal year’s 2062/063 debt ratio is more than the previous 2061/062.

(III) Equity Multiplier:-

Equity multiplier shows the relationship between total assets and equity. Equity
multiplier ratio is amount of assets for each amount of equity.

Equity multiplier of SCBNL

Table No. 10
Equity multiplier
Year Total assets Equity Equity multiplier
2059/060 20910970 1584894 13.19
2060/061 23642059 1713325 13.80
2061/062 26871043 1800001 14.93
2062/063 33074711 2005473 16.49
Average (mean) 14.6025
Sources Table No.1

The above table shows the equity multiplier of SCBNL of the year 2059/060 to 2062/063
i.e. 13.19, 13.80, 14.93 and 16.49 respectively. The equity multiplier is increasing trend.

2.2.3. Total Assets turnover Ratio:-

The total assets turnover indicates the efficiency with which the firm uses its assets to
generate income. The most importance turnover ratio for commercial banks i9s the total
assets turnover.

Total assets turnover ratio calculates as follows. Total assets turnover ratio = operating
income / total assets
Where,
Operating income = net income + interest + tax

Table no.11
Total assets turnover ratio
Year Operating Total assets Total assets turnover ratio
2059/060 970308 2091097 4.47%
2060/061 1072918 23642059 3.92%
2061/062 1052276 26876043 3.92%
2062/2063 124272 33074711 3.76%
Average (X) 4.215%
Sources Table No. 1 & 2

The above table & figure shows the total assets turnover ratio for the year 2059/060 to
2060/063 i.e. 4.64%, 4.54%, 3.92% and 3.76% respectively. The total assets turnover
ratio but it is decreasing trend.

2.3 Study result

Particular 2059/060 2060/061 2061/062 2062/063


(A) Leverage ratio:
Debt to total asst ratio 92.42% 92.75% 75.17% 72.63%
Debt to equity 12.19:1 12.80:1 11.22:1 11.98:1
Equity multiplier 13.19:1 13.80:1 14.93:1 16.49:1
(B) Turnover ratio:
Total assets turnover ratio 4.64% 4.54% 3.92% 3.76%
(C) profitability ratio
Profit margin 52.22% 50.12% 50.96% 53.02%
Net interest margin 4.42% 4.62% 3.00% 3.01%
Interest spread 7.37% 7.65% 4.62% 4.12%
Return on assets 2.24% 2.27% 2.00% 2.00%
Return on equity 31.98% 31.39% 29.79% 32.85%

CHAPTER -THREE

SUMMARY, CONCLUSION AND RECOMMENDATION

3.1 SUMMARY:

SCBNL is one of the major joint venture bank of Nepal is playing a vital role in the
economic growth of the nation. It is one of the successful commercial bank of Nepal. It
has provided various kinds of facilities to its customers as ATM facility, tale banking
facilities remittance, bank guarantee etc.

This study has been undertaken to evaluate the financial performance of assessment of
profitability of analysis of SCBNL. The financial statement of 4 years has been
considered for the performance analysis of the bank. This project work report has been
divided into three main chapter in which first chapter discussed about the background,
origin and growth of bank in Nepal, introduction to commercial bank, introduction to
joint venture. Bank, introduction to SCBNL, functions of commercial banks, literature
survey objectives project work procedures methods of data collection & chapter planning
of project work. In second chapter tabulated of B/S and P/L A/c analysis of data and
study result.

The leverage ratio shows that the SCBNL as has used more debt profit than equity capital
turnover ratio shows the good position of bank success to earn profit to it god. At overall,
the bank’s position is good and it is succeed to get earn profit.

3.2 CONCLUSION
Establishment of the bank is very god sign for the nation because it plays vital role in the
development of nation. The banking service provided by SCBNL is very effective,
influence and broad. The bank had also been fulfilling the Nepal Rastra Bank in
investment to priority sector.

The major findings of this study which cover the period of four years of SCBNL are
listed below:

(a) Leverage ratios:-


The leverage ratios show that the debt financing of scbnl is extremely high volume of
capital, the high debt equity is the risk to the creditors of scbnl and the firm itself.

(b) Turnover ratio :-


The turnover ratio shows the position of bank is positive but it is decreasing trend.

(c) profitability ratios:

Profitability ratio show the profitability position of SCBNL is good because its profit
margin has increased in F.Y. 2062/063 and all ratios shows the positive position of the
SCBNL so; the investors of SCBNL are receiving higher return on their fund.

(d) Calculation of the different ratios shows that the SCBNL has been mobilizing its
resources very effectively.

3.3 RECOMMENDATION

At the end of the study of the following recommendations are highlighted in this project
work report, as a narrator I recommend about the SCBNL. There are as follows:

(1) Capital structure shows that portion of debt capital is more than equity capital. So, it
should increase in equity portion and reduce the debt capital far the stander.
(2) The bank should also maintain present sound management and extend more facilities to
its customers to increase its customers to increase its transactions.
(3) The bank should keep eye as the factor that is causing lens profit to the business.
(4) The management of SCBNL should formulate proper plan and strategy and corrective
action by utilizing of financial resources effectively.
(5) Although it is a profit oriented bank, it should not forget the social responsibility. So, the
bank should render its services in rural area to promote and mobilize small investors.