Chapter 1 EXECUTIVE SUMMARY

This paper presents the study of market trends of deposits as prevalent in the Nepalese Banking Sector. The study examines the trends of deposits as it is occurring over the last 10 years in the banking sector of Nepal represented by 7 randomly chosen commercial and development banks. 5 being commercial banks and 2 being development banks. The study also draws a comparison between the commercial and development banks. This paper also highlights how Customer relationship management has a direct effect on the deposits of the bank and also evaluates if word-of-mouth influences individuals from selecting a bank. It also draws an attention towards the market strategy adopted by the banks to allure customers to deposit in their banks in the present market scenario. The paper is quantitative as well as qualitative in nature. Quantitative as it analyses the CRM and deposits relations via. Responses of the questionnaire distributed to 350 customers of the 7 chosen banks and the qualitative as the paper generalises the view amd opinion of eminent individuals of the concerned 7 banks regarding their marketing strategy and that the strategy are directed towards encouraging deposits. The findings clearly state that the market trends of deposits in the Nepalese Banking Sector has an upward trend and that there is a positive relation between CRM and deposits; i.e. better CRM leads to larger loyal customer-base and more deposits and vice-versa, regarding the word of mouth the hypothesis that word-of-mouth is an effective means of selecting a bank for the customers is proven to be wrong. And also that the marketing strategy are all focused upon increasing of deposits of the bank. Finally, it also studies how Ace has been affected by the interest wars and what can be done to overcome the phase of Interest war.
1

Chapter 2 Research methodology 2.1 Primary objectives:

The purpose or objective of every report should be determined before it is initiated and the success and failure of the report is determined by measuring the result against predetermined objectives. So, this report also has some objectives which are short listed below:

General objective:
The main objective of the study is to determine the market trend of deposits in Nepalese private banking sector, to consider the customer relationship management and factors affecting their marketing strategies.

Specific objective:
a. To find out the market trend of deposits in the Nepalese private banking sector. b. To compare the market trend of deposits between commercial and development banks. c. To analyse some factors, i.e.; the degree of loyalty of customers towards the bank, power of word of mouth to win customers, factors that make them choose a bank, their level of satisfaction with the bank that have a direct or indirect effect on the deposit trend. d. To analyze the marketing strategies of various private banks that affect in their deposit trend. e. To see if word of mouth effects the selection of a particular bank or banks.
2

f. To provide recommendations accordingly. For fulfilment of objectives some hypotheses have been designed. Hypothesizes for this study are given below

2.2 Hypothesis:
Hypothesis1: Hypothesis states that Nepalese private banks have an upward trend of annual deposits. (Null hypothesis)H0: The bank does not have an upward trend. (Alternative hypothesis) H1: The bank has an upward trend. Hypothesis2: This hypothesis tests the word of mouth and its relation with the choosing of a bank. H0: There is no significant relation between word of mouth and choosing of a bank. H1: There is a significant relation between the word of mouth and choosing of a bank.

2.3 Research Design

Descriptive and exploratory studies are employed to find out the market trend of annual deposits of Nepalese private banks. Under these studies, quantitative and qualitative researches are applied, where they are necessary.

2.4 Sample Design

To collect a more representative data for the quantitative research, the following operational definitions are used:

Population All the Nepalese private banks are taken as a target population. There are about 99 private banks including both commercial and development banks (Banking and Financial Statistics, Mid-January, 2010, No 54, Nepal Rastra Bank, Nepal). Sampling Frame The up-to-date sampling frame consists of

Sampling Technique Two-stage sampling technique In the first, a stratified random sampling technique was employed to select banks from Commercial and Development banks. 5 commercial banks and 2 development banks were selected by using simple random sampling technique from each stratum. However, the sizes of the samples selected are not proportional in nature due to shortage of time and difficulty to access to permission to collect data. In the second stage, Cluster sampling technique is employed to each bank selected in the first stage such that 7 banks constitute a cluster of 50 customers (being of equal size) visiting during an office hour selected on first cum first serve basis. Sample The sampled banks are Nabil Bank Ltd, Himalayan Bank Ltd, Laxmi Bank Ltd, Nepal SBI Bank Ltd, Nepal Investment Bank Ltd, Ace Development Bank Ltd, and Sanima Bikas Bank Ltd.

Primary Data On the basis of above mentioned technique, there are 350 customers in a sample who give responses for a primary data through a questionnaire and 7 eminent individuals were interviewed ibn accordance to a set of questionnaire prepared for all 7 banks being studied. Secondary Data This data constitute 10 years of time-series data of annual total deposits. Some banks have data less than 10 years due to their late establishment.

2.5 Scope of Study

This study shall be a useful source to all financial institutions ,students, researchers and any institution or individual who are interested in knowing the current situation of the banking sector in Nepal, as it reflects the current scenario of the Nepalese banking sector. The study undoubtedly will also provide me with a better understanding of the banking sectors operation in Nepal. It will state the clear picture of the inside details of where the banking sector which looks perfect from the outside stands, and will help differentiate between fact and illusion . The study will help in understanding the various marketing strategy that companies are using to get deposits in times of interest wars. The study will also state the importance of maintaining CRM and to see if word of mouth influences people/customers in selecting a bank.

However, the scope of the study stands to answer all queries regarding Market trend of deposits in Nepalese Banking Sector.

2.6 Limitation
Every researcher has to face certain limitation and obstacles during their process of completion of the research. The limitations faced during the completion of this research are as following: a. The time given (2 months) was too less for the completion of the research. b. It was difficult to collect data as banks were not too open to allow retrieving their intrinsic information. c. The customers were not very experienced regarding the working of the banking sector. d. The customers (few of them) were not very cooperative at the time of data collection. e. According to stratified random sampling, samples of Commercial bank and Development bank are not proportional as Development banks have strict policies and do not entertain outsiders. If secondary data was to be considered in development banks case, there was very little clarity regarding its financial highlight unlike the commercial bank? f. The research is limited to7 banks and 350 customers of these 7 banks in some of the areas of Kathmandu city. g. Therefore it is not accurate data because it is collected from only few people. h. Nepalese Banking System is the vast explanation therefore it is difficult to collect the accurate data, which is related to my topics.
6

Chapter 3 Critical Review of Literature

Everywhere in this world, banking industry is playing a vital role in the economic development. The banking sector in Nepal was considered dry in the last several years. But the trend has changed. Since recent past, the industry has succeeded to draw attention of investors towards it by its steady performance and tremendous prospects to grow. Goldsmith (1969)
(1)

observes that financial development in different countries of the world

starts with Banking Financial Institutions (BFIs). Bank as the principal source of credit to millions of individuals, families, businesses & many units of government, has attached its own pace of advancement in the development path of economy.

According to several studies by various economists around the world, they have come to a strong find that this financial sector is very vital in facilitating economic growth and development. According to the exponents of financial repression (McKinnon, 1973; Shaw, 1973) (2), financial liberalization can foster economic growth. They argued that the financial sector of the economy matters in economic development as it assists in the breakaway from repetition of repressed economic performance to accelerated growth of the economy (Shaw, 1973). The McKinnonShaw hypothesis postulates that government interventions in various forms in less developed countries lead to financial repression. The economies in these countries have been characterized by control of interest rates, imposition of credit ceilings, use of credit rationing, high levels of inflation and high public sector deficits. The interest
7

rates on deposits have been low and negative and savings have been confined to a narrow range of financial instruments. Government control of interest rates on loans and deposits tends to raise the demand for and curtail the supply of funds. According to Aryeetey, et al. (1997)(3) unsatisfied demand for investible funds forces financial intermediaries to ration credit by means other than the interest rate while the informal market develops at uncontrolled rates.

\
8

All the superscripts represent reference citation code. (Listed in Reference Section) The role of an efficient banking system in economic growth and development lies in savings mobilization and intermediation. Banks, as financial intermediaries, channel funds from surplus economic units to deficit units to facilitate trade and capital formation (Soyibo and Adekanye, 1992) (4). As some scholars argued that an efficient financial system is critical not only for domestic capital mobilization but also as a vehicle for gaining competitive advantage in the global markets for capital. Another reason for a change in the banking sector is that there has been a great influence of the changes in the globalization process, and at the same time it has been highly internationalized. So today, most banks face a market that is extremely dynamic. In this intense competitive market if a bank has to survive successfully, it needs to attract and retain the customers by offering them wider range of services. Zineldin (1995)
(5)

further states in

his writings that banks are no longer in the business of buying & selling money. They are rather in the business of offering complete financial services. Commercial banking also has expanded its range of products & services into what is known as universal banking, thus motivating into new areas. According to Goldsmith (1969), financial development is the outcome of continuous proliferation and diversification of financial institutions as well as financial instruments. But to sell this wide range of products & services, a bank needs to employ different promotions to attract the customers and to make them purchase from the banks. In recent time, increasing competition in the business world has forced firms to become more aware of price and costs, which has resulted in a shift in the promotion mix to a greater use of
9

promotion tools that are cost effective in reaching the customers (Boyd, et.al. 1998)(6). According to Rowly (1998)
(7)

, promotion is used by organizations to communicate with

customers regarding their product offerings, and also to ensure that customers are aware of the available products. Boyd, et. al. (1998), describe the promotion strategy as a controlled & integrated programme of communication methods and materials designed to present the organization and its products to customers, and to contribute to long run profit. Grankvist, Kollberg & Person (2004)
(8)

state that with the growing importance of the

financial sector, pressures are escalating for more effective marketing management of the financial services. Median (1996)
(9)

argues that despite the recent recession, the financial services sector is

continuing to grow in terms of turnover and profits and thus, has a supreme impact on the other spares of the economy. Consequently there is a growing interest in applying marketing techniques and tools in financial services. The role of promotion has been redefined by Dawes & Brown (2000)
(10)

into managing long term relationship with carefully selected

customers, including construction of a learning relationship where the marketer maintains a dialogue with an individual customer. Due to this fact, the personnel are one of the most important resources of a bank. Their competence will determine the quality of the bank and how well it operates (Marquardt 1994) (11). Taking a deeper look at the Nepalese banking industry, it has significantly changed over past decades as a result of liberalization, deregulation, advances in information technology and globalization. The financial sector liberalization resulted into entry of new firms in the market, deregulation widened the scope of activities and delimited the banking activities, advancement in technology resulted into new ways to perform banking activities and globalization added more pressure on competitiveness of individual banks. Moreover, the
10

banks, nowadays, are entering into non-banking markets and other financial institutions are entering into the banking markets that have traditionally been served by the banks. These changes have changed the structure and market behaviour of Nepalese banking industry. Today, there are almost 31commercial banks, 75 development banks & 84 Finance Companies in Nepal and a further few are in pipeline. Alone in Kathmandu there are more than 100 private commercial banks involved in the competition. Opening of branches and the installation of ATM machines has led to more idle cash lying around at branches and machines. Gibson and Tsakalotos (1994)
(12)

say that competitive pressures that result from conditions

of free entry and competitive pricing will raise the efficiency of their intermediation by decreasing the spread between deposit and lending rates. The literature on how foreign bank entry affects the deposit share of domestic banks is rather limited. One line of literature assumes that foreign banks bring new lending resources and do not depend on domestic deposits to support their lending activities in the host country. A second strand of literature, assumes domestic deposits to be highly elastic. As foreign banks offer better financial services and attractive deposit rates, they encourage more savings and mobilize new deposits. Domestic banks are not worse off, it is argued, as foreign banks largely pick up new and additional deposits that they mobilize in the host country. Crystal, et al. (2002)
(13)

, for example, claims that foreign banks generally rely less on deposit-based

funding than private domestic banks. According to their research, the most likely explanation is that foreign banks largely rely on alternative funding sources in their home countries. Another study, however, shows that domestic depositors can punish poorly performing and risky domestic banks by transferring their deposits to more reliable and efficient foreign banks. Martinez-Peria, et al. (1998)
(14)

, for example, says that depositors shifted their

11

deposits to more reliable foreign banks in Argentina, Chile and Mexico. Other studies claim that on-shore presence of foreign banks can facilitate the flight to quality and safety. Clarke, et al. (2000)(15) studied that foreign bank deposits in Argentina increased during the financial turmoil of the mid-1990s, while Kraft (2002) (16) finds that foreign bank subsidiaries acted as havens for depositors during the 1998 Croatian banking crisis. Looking at the balance-sheet data of 1334 banks in 101 countries, Demirg-Kunt and Huizinga (2009) (17) find strong evidence that banks increasingly rely on non-deposit-based or wholesale funding and non-interest income. They show that reliance on non-deposit-based funding can increase bank fragility and instability as the supply and terms of wholesale funding can be highly sensitive to the perceived riskiness of a bank. They also find that reliance on non-deposit funding can lower the return on assets and bank profitability. The paper, however, does not explain why banks are forced to rely on non-deposit-based funding or how the reliance on such funding can increase volatility in the supply of loans. In our analysis, we will show that foreign bank entry, and their market share of deposits, is a key determinant for increased reliance on non-deposit-based funding. At present, a number of different conceptual understandings are associated with the term "Customer Relationship Management (CRM). There understanding range from IT driven programs designed to optimize customer contact to comprehensive approaches for the establishment and design of long-term relationships. The effort to establish a meaningful relationship with the customer is characteristic of this last understanding (Barnes 2003) (18). In marketing literature, the term customer relationship management and relationship marketing are used interchangeably. As Nevin (1995)
(19)

points out, these terms have been used to

reflect a variety of themes and perspectives. Some of these themes offer a narrow functional marketing perspective while others offer a perspective that is broad and somewhat
12

paradigmatic in approach and orientation. A narrow perspective of customer relationship management is database marketing emphasizing the promotional aspects of marketing linked to database efforts (Bickert, 1992) (20). CRM is a holistic process of acquiring, retaining and growing customers. It includes all inline and off-line relationship management. As Gray and Byun (2001) (21) expound; CRM is an abbreviation for customer relationship management, not customer relationship marketing. Management is a broader concept than marketing because it covers strategic management, human resources management, marketing management, service management, knowledge management, sales management and research management and development management. Thus CRM requires organizational and business level approaches, which are customer centric, to doing business rather than a simple marketing strategy. The banking industry is facing an ever-increasing level of competition around the world as the dynamics of the business change. Technology, commoditization, deregulation and globalization forever changed the face of banking (Joyner 2002)
(22)

. Banks have understood

the need to take advantage of on the new technologies to gain an upper hand in the competition by exploiting their customer base, brand value and costly infrastructure investments in order to increase profits, as there's a direct link between the customer satisfaction and the profitability. CRM is the strategy which enables the banks to analyze the customer profiles, to detect their needs and potential profitability areas and establish the necessary actions the achieve customer satisfaction, competitive advantage and thus the profitability. From the customer's points of view, the competition brings them various choices and increases their bargaining power. Today, customers are looking for various benefits from a bank; better service, lower transaction fees, higher interest rates, a sign of prestige, new
13

products access from different channel and etc. this scheme forces the banks to look for new ways a satisfy customers before any other bank or financial institution does. Glazer (1997)
(23)

defines CRM as a strategic bridge between information technology and

marketing strategies aimed at building long-term relationships and profitability. This requires information-intensive strategies (Glazer, 1997). CRM has often been seen, though incorrectly, as being synonymous with technology (Reinartz et al., 2004)
(24)

. As suggested

earlier, opinions that CRM is more similar to service marketing, the difference between them perhaps being in the use of technology. But efforts to incorporate CRM technology have not always resulted in success. A key reason for this failure is viewing CRM as a technology initiative (Kale, 2004) technology, employees of an
(25)

. Apart from

organization form an important part of CRM, where

employees interaction with the data and technology processes and systems is critical in determining the return on investment on these processes and systems (Boulding, et al., 2005)(26). Payne and Frow (2005)
(27)

identified a shift in CRM perspectives from a

technology-only focus to a holistic customer-oriented approach that incorporates other strategic aspects of CRM as well. The above brief suggests that CRM activities cover all aspects that fall within four major areas: strategy, people, processes and technology, which is similar to the observation made in service marketing literature. McKenna (1991)
(28)

has professed a more strategic view by putting the customer first and

shifting the role of marketing from manipulating the customer (telling and selling) to genuine involvement with the customer (communicating and sharing knowledge). Berry (1995)
(29)

in somewhat broader terms, also has a strategic viewpoint concerned with CRM. He has stressed that attracting new customers should be viewed only as an intermediate step in the

14

marketing process and that developing closer relationship with these customers and turning them into loyal ones should be equally important aspects of marketing. Another important facet of CRM is customer selectivity. As several research studies have shown, not all customers are equally profitable for an individual company (Storbacka, 2000)
(30)

. The company therefore must be selective in tailoring its program and marketing efforts

by segmenting and selecting appropriate customers for individual marketing programs. In some cases, the outsourcing of some customers could be called for so that a company allocates its resources to those customers it can serve the best in order to create mutual value. However, the objective of a company is not really to prune its customer base but to identify the programs and methods that would be the most profitable as it creates value for the firm and the customer. As is implicit in the above definition, the purpose of CRM is to improve marketing productivity. Marketing productivity is achieved by increasing marketing efficiency and by enhancing marketing effectiveness (Sheth & Sisodia, 1995)
(31)

In CRM, marketing

efficiency is achieved because cooperative and collaborative processes help in reducing transaction costs and overall development costs for the company. Two important processes of CRM include proactive customer business development and building partnering relationships with the most important customers. Previous studies have examined the influence of CRM on intermediate metrics, such as customer satisfaction and loyalty (e.g., Jayachandran, et al. 2005 Fornell (2005))
(33) (32)

; Mithas, Krishnan, and

. However, the impact of CRM implementation on firm profitability has

(34)

not received sufficient attention from academics (Kumar 2008)

. More important, an

examination of the influence of CRM on firm performance using longitudinal data has been

15

lacking (Boulding, et al.2005)

(35)

, thus limiting researchers from making assessments about

the causal relationship between CRM and firm profitability. In addition, prior research has not established a clear relationship between CRM implementation and organizational efficiency, a measure of how well a firm uses its resources in producing outputs. This is particularly surprising because industry analysts predict that 70% of CRM spending in the coming years will be justified by its potential to increase efficiency (Thompson and Maoz 2005) (36).

If CRM implementation improves a firms efficiency in addition to enhancing customer value, the case for its wider adoption can be bolstered. Indeed, considering the issue of dual value creation expected from CRM implementation, enhancement of firm efficiency could be an additional aspect of value creation for firms, supplementing the value extracted from customers by providing more effective solutions to their needs. In general, the academic literature suggests that CRM offers a firm strategic benefits, such as greater customer satisfaction and loyalty (Kumar and Shah 2004) cross-selling efforts (Anderson 1996)
(38) (37)

, higher response to

, and better word-of-mouth publicity. Overall, there

is a strong sense that CRM efforts improve firm performance. It also has a great effect on deposits in the bank and later the report shows various studies and surveys that were carried out to see a deep relationship between CRM and Deposits and how effective CRM Practices in Banks leads to better relationship with its customers and also enhance the amount of deposits in the bank.

16

Chapter 4 Company Profile 4.1. Industry Profile Introduction:

Bank is an institution involved in monetary transaction. Generally, an institution established by law which deals in money and credit is bank. A bank is a financial intermediary that collects deposits from ordinary people with the provision that amount is refunded on demand by issuing cheque and provides loan to the interested parties.

Origin of the word Bank:

The term is derived from the Latin word Bancus, Italian word Banco and French word Banque, which means a bench and a German word Bank which means Joint Stock Company. In simple words, it is as old as the authentic history. The early bankers, the Jews in Lombardy, transacted their business at benches in the market place. When they were unable to meet their liabilities, they used to break the benches. When a banker failed, his Banco was, broken up by the people from which derived the word bankrupt.

History of Banking:
The history of banking is closely related to the history of money. With the civilization of the society, the need for more efficient methods for barter was developed. Most origins of money can be traced back to the building of large structures such as temples, or large undertakings

17

by leaders, such as wars. The concept of an "I owe you" (IOU) preceded the idea of a paper check by several thousand years. The very first banks were probably the religious temples of the ancient world where the gold were stored so that it would be easy to carry compressed plates. Their owners justly felt that temples were the safest places to store their gold as they were constantly attended, well built and were sacred, thus deterring would-be thieves. There are extant records of loans from the 18th Century BC in Babylon that were made by temple priests to merchants. Ancient Greece holds further evidence of banking. Greek temples as well as private and civic entities conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. Interestingly, there is evidence too of credit, whereby in return for a payment from a client, a money Lender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. The earliest banking originated in mediaeval Italy, despite strong Christian prohibitions against usury according to canon low. First of all the Bank of Venice was established in Venice, Italy in 1157 A.D. Originally, it was not a bank in real sense being simply an office for transfer of public debt. Subsequently the Bank of Barcelona and Bank of Genoa were established in 1401 and 1407 respectively. Banking slowly spread to the rest of the Europe. In England, banking began with the English goldsmith only after 1640. After the establishment of Bank of England in 1694 there came a remarkable change in the process of developing the banking institutions. This was a big landmark in the history of banking development. After the establishment of this bank the idea of CBs rapidly spread all over the world. The first Indian Bank established so far was the Bank of Hindustan in 1770 A.D. and Nepal Bank Limited, established in 1937 A.D. was the first Nepalese bank.
18

Evolution of Banking Industry in Nepal:

In comparison to other nations, the history of banking industry in Nepal is relatively a new one. Banking in Nepal can be traced in the form of money lending in the reign of Gun Kama Dev in the early 8th century. According to historical evidence in 723 A.D, Gun Kama Dev, the King of Kathmandu had borrowed money to rebuild and to rule Kathmandu. In around the 12th century, Sadashivadev brought out silver coins that were called as dam. Later on in the 14th century, King Jayasthiti Malla divided the people into 64 castes according to their occupations amongst which TANKADHARI were the one that dealt with the lending of money to the public. Since the main objective of the TANKADHARI was to earn profit, they used to charge the people with higher interest rates. Later, Tejarath Adda was established during the tenure of the Prime Minister Ranoddip Singh (B.S.1933) which was most probably the first step towards the institutional development of banking in Nepal. It was a government financial institution supplying credit to the people. It was not established to accept the deposit from the public but to provide them with loans. Later with the establishment of Nepal Bank Limited in kartik 30, 1994 B.S., the Tejarath Adda was replaced. Nepal Rastra Bank (NRB), fully subscribed by His Majestys Government of Nepal (HMG/N), was established on Baisakh 14, 2013 B.S., as the Central Bank of the country under the Nepal Rastra Bannk Act 2012 B.S. The banking system of Nepal functions under the overall guidelines of this bank and it has contributed a lot to the growth of the financial sector. For the competitive banking service, it has to reach in every corner of the nations. So keeping this thing in mind, the first government owned commercial bank was established as Rastriya Banijya Bank in Magh 10, 2022 B.S. Industrial
19

Development Center (IDC) was established in 2013 B.S. which was converted into Nepal Industrial Development Corporation (NIDC) in 2016 B.S. Similarly to assist in agriculture development, Agriculture Development Bank (ADB) was established in Magh 7, 2024 B.S. to provide finance for agricultural sector so that the agricultural productivity could be enhanced by introducing modern agricultural techniques. HMG/N established five regional rural development banks, one each in Eastern, Central, Western, Mid-Western, and FarWestern development regions. In 2041 BS, Nepal adopted liberal economic policy and allowed joint venture banks under the collaboration with different foreign banks and hence in Asadh 29, 2041 B.S. Nepal Arab Bank, the first foreign joint venture bank was set up with 50 % shares owned by United Arab Emirates and 20 % by financial institutions and rest by the general public which was later known as Nabil Bank Limited. It gave a new ray of hope to the entire sluggish financial sector. The success of Nabil Bank and its marketing concept really influenced other bank to be customer oriented.

As the name suggests, commercial banks are to carry out commercial transaction only. Moreover, security exchange center was renamed Nepal stock exchange in 1990.NEPSE opened its trading floor on 13 January 1994. After the institutionalization and restoration of democracy, consequently a number of joint venture banks have been emerged. Currently there are 25 commercial banks with their many branches operating in different parts of the country. So on 23rd January, 2001 A.D., DCBL was established as a development bank. After maintaining itself as a number one development bank for years it transformed itself to the commercial bank on 25th May, 2008.

20

OR

The history of modern commercial banking industry dates back to 1937 AD in which Nepal Bank Limited was incorporated. The government owned 51 percent of the shares in the bank and controlled its operations to a large extent. It was headquartered in Kathmandu and had branches in other parts of the country as well. In order to regulate the economy and the unregulated use of money Nepal Rastra Bank was created in 1956 as the central bank. Its function was to supervise commercial banks and to guide the basic monetary policy of the nation. Its major aims were to regulate the issue of paper money; secure countrywide circulation of Nepalese currency and achieve stability in its exchange rates; mobilize capital for economic development and for trade and industry growth; develop the banking system in the country, thereby ensuring the existence of banking facilities; and maintain the economic interests of the general public. Nepal Rastra Bank also was to oversee foreign exchange rates and foreign exchange reserves.

After almost 30 years another state owned commercial bank Rastriya Banijya Bank (National Commercial Bank, was established in 1966. The Land Reform Savings Corporation was also established in the same year to deal with finances related to land reforms. During 1967AD the Agricultural Development Bank was also established. Almost 75 percent of the bank was state-owned; 21 percent was owned by the Nepal Rastra Bank and 5 percent by cooperatives and private individuals. Hence it is clear that since the 1960s; both commercial and
21

specialized banks have expanded. More businesses and households had better access to the credit market although the credit market had not expanded. However, the decade of 1980s can be considered as the landmark in the modern banking history for Nepal. It was only in this decade government allowed the excess to foreign joint venture banks to be the part of the Nepalese banking business. During this period, three foreign commercial banks opened branches in Nepal. The first was Nepal Arab Bank established in 1984 AD. It was co-owned by the Emirates Bank International Limited (Dubai), the Nepalese government, and the Nepalese public. After that in 1984 came Nepal Indosuez Bank (currently Nepal Investment Bank) which was jointly owned by the Credit Agricole Indosuez, Rastriya Banijya Bank, Rastriya Beema Sansthan (National Insurance Corporation), and the Nepalese public. Then Nepal Grindlays Bank was the third foreign joint venture to be established in Nepal which was co-owned by a British firm called Grindlays Bank, local financial interests, and the Nepalese public. Although government had started the liberalization of financial sector during the decade of 80s but this process speeded up only in early 1990s. In fact private sector rushed into the banking and financial industry after the restoration of democracy in 1990. Many commercial banks like Himalayan Bank, Everest bank, etc were established during this decade. After the period till date twenty-five commercial banks have been established in Nepal.

22

SECTORS Table 1
Number of Banks opened over the given years.

Types of Financial Institution Number of Institutions in Mid - July. 1980 2 2 1985 3 2 1990 5 2 1995 10 3 2000 13 7 2005 17 26 2006 19 29 2007 20 29 2008 25 58

Year Commercial Banks Development Banks

Highlights on Performance of Banks and Non-Bank Financial Institutions Financial Sector at a Glance
1. The Nepalese Financial Sector is composed of Banking sector and non-banking sector.

Banking sector comprises Nepal Rastra Bank (NRB) and Commercial Banks. The nonbanking sector includes: financial institutions licensed by NRB viz. Development Banks, Finance Companies, Micro-finance Development Banks, Co-operative Financial Institutions, Nongovernmental Organizations (NGOs) performing limited banking activities and financial institutions other than licensed by NRB viz. Insurance Companies, Employees Provident Fund, Citizen Investment Trust, Postal Saving Offices and
23

Nepal Stock Exchange. However, this bulletin contains information of those financial institutions, which are licensed by NRB up to Mid - January, 2010. 2. During the last two and half decades the Nepalese Financial System has grown significantly. At the beginning of 1980s, there were only two commercial banks and two development banks in the country. After the adoption of economic liberalization policy, particularly the financial sector liberalization that paved the way for establishment of new banks and non-bank financial institutions in the country. Consequently, by the end of Mid January 2010, altogether 254 banks and non- bank financial institutions licensed by NRB are in operation. Out of them, 26 are A class commercial banks, 73 B class development banks, 78 C class finance companies, 17 D class micro-finance development banks, 16 saving and credit co-operatives and 45 NGOs as shown in table below:

Table 2: Growth of Financial Institutions

24

3. The structure of financial assets/liabilities shows that Commercial Bank alone holds more

than 80 percent of the total assets and liabilities of the financial system. As of Mid January 2010, Commercial Bank group occupied 80.8 percent of total assets/liabilities followed by Finance Companies 9.6 percent, Development Banks 8.0 percent and Micro-finance Development Bank 1.6 percent. In Mid July 2009, the respective shares were 82.1, 8.8, 6.9 and 1.6 percent respectively. 4. The composition of the total liabilities shows as usual, deposit held dominant share of 68.11 percent followed by capital fund 6.02 percent and borrowings 5.40 percent respectively in Mid January 2010. Likewise in the assets side, loan and advances accounted the largest share of 57.25 percent followed by liquid funds 10.82 percent, investments 6.21 percent and other assets 5.25 percent in the same period. 5. Commercial Banks held dominant share on the major balance sheet components of financial system. Of the total deposits Rs.715859.10 million in Mid - January 2010, the commercial banks occupied 81.91 percent. Similarly, finance companies held 9.49 percent, development banks 8.29 percent and micro finance development banks 0.31 percent. Likewise, on the loans and advances the share of commercial banks stood at 77.05 percent, development banks 9.49 percent, finance companies 11.89 percent and micro finance development banks 1.57 percent in Mid - January 2010. In the same year the share of commercial banks in the borrowings, liquid funds and investments constitute 65.9 percent, 74.3 percent and 96.7 percent respectively.

6. The capital fund, one of the components of liabilities, witnessed a significant growth of 20.03 percent and reached to Rs. 63232.2 million in Mid - January 2010 from Rs.52681.8
25

million in mid July 2009. The borrowings and deposit increased by 63.16 percent and 6.12 percent respectively, while other liabilities decreased by 28.12 percent compared to Mid July 2009. Similarly loans and advances, the major component of assets increased by 17.56 percent and reached to Rs. 601630.0 million in Mid - January 2010 from Rs. 511752.8 million in mid July 2009. While, liquid fund and investment decreased by 20.01 percent and 13.73 percent in Mid January 2010 compared to the previous period Table 3: Growth of Major Balance Sheet Indicators

Commercial Banks
7. The number of commercial bank branches operating in the country increased to 850 in mid

January 2010 from 752 in mid July 2009. Among the total bank branches, 50.59 percent bank branches are concentrated in the central region alone. By the end of Mid January 2010, total 430 branches are being operating in this region. However, in the western, eastern,
26

mid-western and far- western region are 18.94 percent (161), 17.65 percent (150), 7.41 percent (63) and 5.41 percent (46) respectively.

8. Entry of new banks in financial system along with increased in the business, the total assets i.e. sources of fund of commercial banks went up by 4.59 percent compared to 43.30 percent in the previous year. By the end of this fiscal year, the total assets of commercial banking sector reached to Rs. 849412.40 million from Rs 812165.9 million in the last period.

9. The share of loans and advances to total assets increased to 54.58 percent in Mid - January 2010 from 49.02 percent in mid July 2009. Similarly, share of investment and liquid funds to total assets registered 7.43 percent and 9.95 percent respectively. In the preceding year, the respective shares were 16.11 percent and 13.05 percent.

10. The composition of liabilities of commercial banks shows that, the deposit has occupied the dominant share of 69.03 percent followed by borrowings 4.48 percent and capital fund 3.94 percent in the Mid - January 2010. The respective shares of deposit, borrowings and capital fund in the previous period were 69.40 percent, 2.26 percent and 3.74 percent respectively.

11. In the Mid - January 2010, the loans and advances increased marginally at lower rate of 16.43 percent compare to 31.44 percent in mid - July 2009. By the end of Mid - January

27

2010, the total outstanding amount of loans and advances of commercial banks reached to Rs. 463574.8 million. It was Rs. 398143.0 million in mid - July 2009. 12. The total investment of commercial banks in Mid - January 2010 decreased by 8.46 percent and remained to Rs. 119784.8 million from Rs. 130856.9 million in Mid - July 2009. Similarly liquid fund decreased by 20.28 percent and amounted to Rs. 84496.2 million.

13. In the Mid - January 2010, total deposit of commercial bank increased by 4.04 percent compare to 32.28 percent growth in the Mid - July 2009. As of Mid - January 2010, it reached to Rs. 586356.8 million from Rs 563604.5 in the Mid - July 2009. Among the component of deposit, current deposit increased with rate of 6.09 percent compare to 27.74 percent in last year. Similarly, saving deposit and fixed deposit increased by 4.25 percent and 11.55 percent respectively. Fig. 1: Deposit Ratio of Commercial Bank

14. The saving deposit comprises the major share in total deposit followed by fixed deposit

and current deposit. As of

28

Mid - January 2010, the proportion of saving, fixed, and current deposits are 46.21 percent, 26.87 percent and 12.96 percent respectively. In the last year the respective share of saving, fixed and current deposit were 46.12 percent, 25.06 percent and 12.71 percent.

15. In the Mid - January 2010, the borrowing increased by remarkably higher rate of 107.77 percent compared to 27.15 percent in the previous year. By the end of Mid January 2010, it reached to Rs.38063.4 million from Rs. 18320.2 million in the Mid - July 2009.

16. Capital fund of commercial banks is increased by 10.11 percent compared to previous year and reached to Rs. 33473.0 million in mid - January 2010. It was Rs. 30399.5 million in Mid - July 2009.

17. Out of the Rs. 466664.3 million outstanding sector wise credits in Mid - January 2010, the largest proportion of the loans and advances is occupied by manufacturing sector. The share of this sector is 20.60 percent followed by wholesale & retailers 18.70 percent, other sector 16.88 percent, finance, insurance & fixed assets by 11.62 percent and construction 10.58 percent. Similarly, transportation, communication & public services comprise 4.96 percent, consumable loan by 4.36 percent, other service industries by 3.94 percent and agriculture by 2.92 percent in the same period.

18. The outstanding of deprived sector credit of commercial banks in the Mid - January 2010 increased by 17.40 percent compared to 76.36 percent in the Mid - July 2009. By the end of
29

Mid - January 2010, it reached to Rs. 15925.8 million from Rs. 13565.1 million in Mid - July 2009. The ratio of deprived sector credit to total outstanding of product wise loans and advances stood at 3.33 percent in the current period. Last year it was 2.96 percent.

19. In Mid - January 2010, the credit to deposit ratio of the commercial banks significantly increased to 79.06 percent compared to 70.64 percent in Mid - July 2009 and 71.09 percent in Mid - July 2008. The non-performing loan of commercial banks declined to 3.01 percent in Mid January 2010 from 3.53 percent in the Mid - July 2009. The total amount of NPA remained to Rs. 13954.9 million from Rs. 13574.6 million in the Mid - July 2009.

Development Banks
21. The total number of development banks increased to 73 in Mid - January 2010 from 63 in

Mid - July 2009. Out of them, twelve are national level and rests are district level development banks.

22. The total assets/liabilities of development banks increased by 23.51 percent and reached to Rs. 83998.85 million in the Mid - January 2010 from Rs. 68009.3 million in Mid - July 2009. The entry of new development banks along with business expansion resulted to increase in the total assets and liabilities.

23. Among the component of liabilities, deposit constituted 70.63 percent followed by capital fund 14.22 percent and borrowing 5.88 percent in mid - January 2010. In the previous year the respective share of deposit, capital fund and borrowing were 70.58 percent, 13.71 percent
30

and 3.86 percent. On the assets side, loans and advances constituted to 67.97 percent, liquid funds 17.13 percent and aggregate investment 7.26 percent in mid - January 2010.

24. During the period of current fiscal year, the deposit collection of Development Banks increased by 23.6 percent and reached to Rs. 59332.15 million from Rs. 48001.6 million in mid July 2009. Similarly capital fund increased by 28.05 percent and reached to Rs. 11940.60 million in the same period and borrowings increased remarkably by 88.19 percent and reached to Rs. 4935.58 million compared to Rs. 2622.6 million in last fiscal year. Fig. 2: Deposit Collection of Development Banks

25. Based on un-audited financial figures, development banks incurred the remarkable profit

of Rs. 1063.91 million during the period from Mid-July 2009 to Mid - January 2010 as against the 1243.4 million in the last fiscal year ending Mid - July 2009.

31

26. The proportion of non-performing loan to total outstanding loan of development banks remained to 1.04 percent in mid - January 2010 from 1.50 percent in Mid - July 2009. Total amount of NPL as end of the Mid - January 2010 is Rs. 584.98 million. It was Rs. 598.7 million in the Mid - July 2009.

Finance Companies
27. The total number of finance companies increased to 78 in Mid - January 2010 from 77 in

Mid - July 2009. During this period, Narayani Finance Ltd. and National Finance Ltd. get merged to Narayani National Finance Ltd. and two new finance companies are started operation.

28. The total assets/liabilities of the finance companies increased by 15.59 percent in mid January 2010 and reached to Rs. 101062.47 million from 87430.08 million in Mid - July 2009. Among the total liabilities deposits held the largest share of 67.23 percent followed by other liabilities 8.91 percent, capital funds 15.58 percent and borrowings 5.32 percent. The respective share of deposit, capital fund and borrowing were 65.28 percent, 12.06 percent and 5.94 percent in the previous year.

29. On the assets side, loan and advances held 70.79 percent of total assets followed by liquid funds 13.22 percent, investments 5.58 percent and other assets 3.65 percent in mid January 2010.

32

30. The total deposit mobilization by the finance companies in the current fiscal year increased by 19.05 percent in Mid - January 2010 and reached to Rs. 67946.14 million from Rs. 57073.4 million in Mid July 2009. Similarly, capital funds increased by 49.37 percent over 41.58 percent in Mid - July 2009 and reached to Rs. 15744.59 million from 10540.9 million. Likewise, borrowing increased by 3.42 percent and reached to Rs. 5371.52 million in mid January 2010.

31. In the Mid - January 2010, liquid fund declined by 18.57 percent and remained to Rs. 13360.64 million. Likewise, loan & advances observed growth of 19.4 percent over 16.37 percent in Mid - July 2009. The total outstanding amount of loan and advances reached to Rs. 71546.17 million in Mid January 2010 from Rs. 59921.22 million in Mid - July 2009. Likewise, the investment is increased by 72.67 percent and remained to Rs. 5638.54 million in mid -January 2010.

32. Credit deposit ratio of finance companies increased to 105.3 percent in Mid - January 2010 from 104.98 percent in the Mid - July 2009.

33

Fig. 3: Deposit/Credit Ratio of Finance companies

4.2 Swot analysis of the Nepalese private banking sector Strength:

1. Increase in level of awareness about the banking sector in the publics mind, leading to increase in the volume of deposit in Nepal. 2. Apart from the food and beverage industry banking sector is the next largest growing industry in Nepal. 3. The performance of the banks in Nepal is good as stiff competition prevails in the market. 4. Concentration in CRM which results in happy and satisfied customers beneficial both for the banks as well the general public.

Weakness:
1. Weakness of banks in Nepal is their urban centered approach. It is evident that cream of creams lies in towns and cities. Despite security concern in the country, banks have more to do for rural development. 2. Existing Interest wars.
34

3. High rate of loans and advances, leading to low fluidity of loans and advances. 4. Low knowledge about IT and its usage as compared to other countries. 5. Poor monitoring of NRB (Nepal Rastra Bank.) 6. Poor mobilization of funds.

Opportunities:
As banks concentrate in the urban areas a wide opportunity of growth lies in the rural area and its development which shall prove to be beneficial for the banking industry as well as the economy.

The Nepalese banking sector has the opportunity to undertake a lot of Merger and Acquisition by doing so it will strengthen the customer-base of the banks and also their market coverage.

Opportunity to expand its geographic reach and become international via. Jointventure, merger and acquisition.

Threats: 1. Due to informal interest wars and cut throat competition there is always a fear of banks
that weak to liquidate.

2. Survival of the fittest exist in the Nepalese banking sector there is a little space for the
new and weak banks to exist and grow.

3. Instability of the political conditions and poor economic performance also proves to be a
threat to the Nepalese banking sectors development.
35

4. Instable NRB directives impose changes that are drastic to the policies of all banks
operating in the country thus leading to loss of customer and fund generation.

In this study the market trends of deposits in the Nepalese banking sector is being represented by the 7 chosen banks namely :

1. Ace Development Bank Ltd. 2. Himalayan Bank Ltd. 3. Nabil Bank Ltd. 4. Sanima Bikas Bank Ltd. 5. Nepal SBI Ltd 6. Laxmi Bank Ltd. 7. Nepal Investment Bank Ltd.

1. ACE DEVELOPMENT BANK LTD.

Ace Development Bank Ltd. has been a leading player in the financial market of Nepal. It was founded in August 1995 as Ace Finance Company Ltd. and was upgraded to Ace Development Bank. Over the years, customers and regulators have been in appreciation of the many financial products and innovations developed by us. Our diversified risk asset portfolio has served the economy in every sector as have the wide choices of deposit account schemes. Our wholesale banking initiatives have assisted numerous commercial banks and private enterprises with risk management.

36

Our resolve to provide client-centric solutions and surpass the expectations of our stakeholders remains firm and unyielding. We are now in a position to provide various products to serve all our customers needs under one umbrella. We are now more competitive than ever with new products and innovations in the pipeline.

Corporate Governance is another aspect which we strongly believe in. The Institute of Chartered Accountants of Nepal has awarded us the Best Presented Account Award . Our employees are all qualified with a minimum of a Bachelors Degree. All our managerial level personnel have a minimum of an MBA degree. Employees are constantly upgraded in seminars, workshops and training programs in the country and internationally. Ace Development Bank prides itself in having the highest productivity in ratio to its size.

2. Himalayan Bank Ltd

Himalayan Bank was established in 1993 in joint venture with Habib Bank Limited of Pakistan. Despite the cut-throat competition in the Nepalese Banking sector, Himalayan Bank has been able to maintain a lead in the primary banking activities- Loans and Deposits.

Legacy of Himalayan lives on in an institution that's known throughout Nepal for its innovative approaches to merchandising and customer service. Products such as Premium Savings Account, HBL Proprietary Card and Millionaire Deposit Scheme besides services such as ATMs and Tele-banking were first introduced by HBL. Other financial institutions in the country have been following our lead by introducing similar products and services. Therefore, we stand for the innovations that we bring about in this country to help our Customers besides modernizing the banking sector. With the highest deposit base and loan
37

portfolio amongst private sector banks and extending guarantees to correspondent banks covering exposure of other local banks under our credit standing with foreign correspondent banks, we believe we obviously lead the banking sector of Nepal. The most recent rating of HBL by Bankers Almanac as countrys number 1 Bank easily confirms our claim.

All Branches of HBL are integrated into Globus (developed by Temenos), the single Banking software where the Bank has made substantial investments. This has helped the Bank provide services like Any Branch Banking Facility, Internet Banking and SMS Banking. Living up to the expectations and aspirations of the Customers and other stakeholders of being innovative, HBL very recently introduced several new products and services. Millionaire Deposit Scheme, Small Business Enterprises Loan, Pre-paid Visa Card, International Travel Quota Credit Card, Consumer Finance through Credit Card and online TOEFL, SAT, IELTS, etc. fee payment facility are some of the products and services. HBL also has a dedicated offsite Disaster Recovery Management System. Looking at the number of Nepalese workers abroad and their need for formal money transfer channel; HBL has developed exclusive and proprietary online money transfer software- HimalRemitTM. By deputing our own staff with technical tie-ups with local exchange houses and banks, in the Middle East and Gulf region, HBL is the biggest inward remittance handling Bank in Nepal. All this only reflects that HBL has an outside-in rather than inside-out approach where Customers needs and wants stand first.

3. Nabil Bank Limited

Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in July 1984. Nabil was incorporated with the objective of extending international standard modern banking services to various sectors of the society. Pursuing its objective, Nabil provides a full range of commercial banking services through its 47 points of representation across the
38

kingdom and over 170 reputed correspondent banks across the globe.

Nabil, as a pioneer in introducing many innovative products and marketing concepts in the domestic banking sector, represents a milestone in the banking history of Nepal as it started an era of modern banking with customer satisfaction measured as a focal objective while doing business.

Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Bank is fully equipped with modern technology which includes ATMs, credit cards, state-of-art, world-renowned software from Infosys Technologies System, Banglore, India, Internet banking system and Telebanking system.

4. Sanima Bikas Bank Limited

Sanima Bikas Bank Limited (Sanima) was established in 2004 by the enterprising and dynamic Non Resident Nepalese (NRN) with a vision to mobilize required resources for the national development process. Sanima is the first private sector national level Bikas Bank in the country to be capitalized at NPR 320 million (equivalent to USD 4.5 million). The current shareholding pattern of the Bank constitutes of promoters holding 70% and general public holding 30%.

We value our customers and our policies are adapted to meet the best interest of our costumers and our stakeholders by catering pragmatic and reliable services. As our slogan suggests, we have put in all our efforts to insure that our customers make the best out of our services, in the simplest way possible. Hassle free banking is what we are proud to be offering.
39

The Bank has been in forefront in the country for mobilizing its resources in financing hydro power projects. Its objective stands to provide banking and financial solutions in a simplified way with customer focus while adding value to stakeholders' interests.It has an authorised capital of Rs. 2, 10,00,00,000,an issued capital of Rs. 2,01,60,00,000 and paid-up capital of Rs. . 2.,01,60,00,000.

5. Nepal SBI Ltd

Nepal SBI Bank Ltd. (NSBL) is the first Indo-Nepal joint venture in the financial sector sponsored by three institutional promoters, namely State Bank of India(SBI), Employees Provident Fund(EPF)and Agricultural Development Bank Ltd.(ADBL)through a Memorandum of Understanding signed on 17th July 1992. NSBL was incorporated as a public limited company at the Office of the Company Registrar on April 28, 1993 under Regn. No. 17-049/50 with an Authorized Capital of Rs.12 Crores and was licensed by Nepal Rastra Bank on July 6, 1993 under license No. NRB/l.Pa./7/2049/50. NSBL commenced operation with effect from July 7, 1993 with one full-fledged office at Durbar Marg, Kathmandu with 18 staff members. The staff strength has since increased to 511. Under the Banks & Financial Institutions Act, 2063, Nepal Rastra Bank granted fresh license to NSBL classifying it as an "A" class licensed institution on April 26, 2006 under license No. NRB/I.Pra.Ka.7/062/63. The Authorized,Issued and Paid-Up Capitals have been increased to Rs. 200 Crores,Rs. 186.93 Crores and Rs. 186.93 Crores, respectively. In terms of the Techhnical Services Agreement concluded between SBI and the Bank, SBI provides management support to the bank through its 3 expatriate officers including Managing

40

Director who is also the CEO of the Bank. A core management team viz. Central Management Committee (CENMAC) consisting of the Managing Director, Chief Operating Officer, Chief Financial Officer and Assistant General Manager(Credit) oversees the overall banking operations in the Bank. ADBL divested its stake in the Bank by selling its entire 5% promoter shares to SBI on 14th June, 2009. Consequently,the Bank's corporate status has undergone change from its previous status as a Joint-venture Bank to a Foreign Subsidiary Bank of SBI.Presently fifty five percent of the total share capital of the Bank is held by the SBI, fifteen percent is held by the EPF and thirty percent is held by the general public.

6. Laxmi Bank Ltd

Laxmi Bank was incorporated in April 2002 as the 16th commercial bank in Nepal.

In 2004 Laxmi Bank merged with HISEF Finance Limited, a first generation financial company which was the first and ever merger in the Nepali corporate history.

Laxmi Bank is a Category A Financial Institution and re-registered in 2006 under the Banks and Financial Institutions Act of Nepal. The Banks shares are listed and actively traded in the Nepal Stock Exchange (NEPSE).

We are a technologically driven progressive Bank with strong risk and corporate governance foundations. We are known for our innovation and claim to many firsts in the Nepalese financial market. We have the best asset quality among all financial institutions in the country and our technology has been rated Highly Secure by an independent internationally accredited information system auditors.

41

Laxmi Banks award winning Annual Reports has set the standards for quality, presentation and disclosure for the Nepalese corporate sector to follow since 2005.

Laxmi Bank promotes a separate life insurance company Prime Life Insurance Limited which came into operation in 2009.

7. Nepal Investment Bank Ltd. (NIBL)

Nepal Investment Bank Ltd. (NIBL), previously Nepal Indosuez Bank Ltd., was established in 1986 as a joint venture between Nepalese and French partners. The French partner (holding 50% of the capital of NIBL) was Credit Agricole Indosuez, a subsidiary of one the largest banking group in the world. With the decision of Credit Agricole Indosuez to divest, a group of companies comprising of bankers, professionals, industrialists and businessmen, has acquired on April 2002 the 50% shareholding of Credit Agricole Indosuez in Nepal Indosuez Bank Ltd.

The name of the bank has been changed to Nepal Investment Bank Ltd. upon approval of banks Annual General Meeting, Nepal Rastra Bank and Company Registrars office with the following shareholding structure.

A group of companies holding 50% of the capital Rashtriya Banijya Bank holding 15% of the Capital. Rashtriya Beema Sansthan holding the same percentage. The remaining 20% being held by the General Public (which means that NIBL is a Company listed on the Nepal Stock Exchange).
42

We believe that NIBL, which is managed by a team of experienced bankers and professionals having proven track record, can offer you what you're looking for. We are sure that your choice of a bank will be guided among other things by its reliability and professionalism.

43

Chapter 5 Data Data

Out of the 99 banks including both commercial and development banks this report flashes specific attention to 7 best working banks selected randomly from the population being studied. Data that is considered here represents the scenario for the entire Nepalese private banking sector.

5.1 Data Collection Procedure

1. Creation of questionnaire for analysing the concept of Customer relationship management. The questionnaire contains 12 questions each question testing the relevance of CRM and its effect on the Trends of annual deposit. 2. Visited the selected banks to collect data /response over the questionnaire. 3. Personally asked the customers the questions in the questionnaire. 4. Took personal interviews of eminent individual in the banks selected to analyse the marketing strategy. In accordance to the set of questions prepared in a questionnaire. 5. For details about the deposit pattern over the years for the banks selected secondary data was referred to i.e. through websites and annual reports of the selected banks.

44

5.2 Primary Data:

a. Questionnaire. On the basis of above mentioned sampling technique, there are 350 customers in a sample who give responses for a primary data through a questionnaire that were personally interviewed.

b. Personal interview. Done for the 7 eminent individuals of the selected banks for
analysing the market strategy through a questionnaire...

5.3 Secondary Data:

a. Websites. b. Banks annual reports. This data constitute 10 years of time-series data of annual total deposits. Some banks have data less than 10 years due to their late establishment.

45

Chapter 6 Findings and Analysis Ace Development Bank Ltd.

Fig.4. The trend of deposits

Interpretation:

This is a scatter-diagram of annual total deposits plotted against 10 years from 2001 to 2010. This diagram reveals an exponential relation better than a quadratic relation between them. Moreover, the exponential graph is showing an upward trend on the average from the beginning of the existence of the bank. This relation is also supported by the exponential regression model described below.

46

Exponential
Table 4: Exponential table

Model Summary Std. Error of the R .947 R Square .897 Adjusted R Square .884 Estimate .228

The independent variable is Year of deposit.

This table explains how the model has gained a better fit of exponential type of relation between them. Here, R is a correlation coefficient explaining a higher positive correlation between the annual total deposits and years of deposits. R Square is the square of R, correlation coefficient and is also called the coefficient of determination. It shows that the year of deposits explains 89.7% variation in the total variation of the annual total deposits. Adjusted R Square is a slight modification of R Square and is useful for the model, which contains more than one predictor. Std. Error of the Estimate is 0.228. It explains the variability of differences between the observed and predicted annual total deposits on an average. The smaller it is, the better the model is.

Table 5: ANOVA table

ANOVA

Sum of Squares Regression Residual Total 3.618 .417 4.035

df 1 8 9

Mean Square 3.618 .052

F 69.481

Sig. .000

47

ANOVA

Sum of Squares Regression Residual 3.618 .417

df 1 8

Mean Square 3.618 .052

F 69.481

Sig. .000

The independent variable is Year of deposit.

This table shows whether a model (here an exponential model is assumed based on the scatter plot) is fitted or not. According to this table, the p-value (sig.) is .000. Alpha, level of significance considered is 0.05. So, it is concluded that the model is fitted to the exponential model as p-value is less than alpha.

Table 6: Coefficients table

Coefficients Standardized Unstandardized Coefficients Coefficients

B Year of deposit (Constant) .209 35.386

Std. Error .025 5.516

Beta .947

t 8.335 6.415

Sig. .000 .000

The dependent variable is ln(tot.depo.in.millions).

The exponential model so assumed is: Loge Y = Loge 0 + 1 X, where Y is the total annual deposits and X is years of deposits. 0 and 1 are the parameters of the model. This coefficient table shows whether parameters of the exponential model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than alpha (0.05), they are significant and can be included in the model.
48

Therefore, the estimated or fitted model is: LogeY = (35.386) + (.209) X, Where, Loge 0 (=35.386) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=.209) shows upward trend with the loge of total deposits of .209 per year of deposits on an average.

Himalayan Bank Ltd

Fig.5. Trend of deposits

Interpretation:

This is a scatter-diagram of annual total deposits plotted against 10 years from 2001 to 2010. This diagram reveals three scatter plots of quadratic, exponential and linear relation between
49

them. Moreover, the quadratic and exponential plots seem to be a better fit to the data than linear plot even though all the plots are showing an upward trend on the average from the beginning of the existence of the bank.

This relation is also supported by the two models quadratic and exponential described below.

Exponential and Quadratic

Table 7: Exponential and Quadratic

Model Summary

Model R R Square Adjusted R Square

Std. Error of the Estimate

Exponential

.998 .999

.997 .998

.996 .997

.016 373.805

Quadratic

The independent variable is Year of deposit.

This table explains how the model has gained a better fit of exponential and quadratic type of relation between them. They show that the year of deposits explains 99.7% and 99.8% variation in the total variation of the annual total deposits respectively. Moreover, the quadratic model is considered here a better model on the basis of R Square.

50

Table 8: ANOVA table

ANOVA

Sum of Squares Regression Residual 404835147.690 978113.411

df 2 7

Mean Square 202417573.845 139730.487

F 1448.629

Sig. .000

Total

405813261.101

The independent variable is Year of deposit.

The ANOVA table has shown a better fit to the quadratic model since the p-value is less than alpha (=0.05).

Table 9: Coefficients
Coefficients Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 (Constant) 1441.187 69.725 15856.430

Std. Error 183.617 16.268 439.652

Beta .650 .355

t 7.849 4.286 36.066

Sig. .000 .004 .000

The quadratic model so assumed is: Y = 0 + 1 X+ 2 X2, where Y is the total annual deposits and X is years of deposits. 0, 1 and 2 are the parameters of the model. This coefficient table shows whether parameters of the quadratic model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the

51

parameters are less than alpha (0.05), they are significant and can be included in the model .Therefore, the estimated or fitted model is: Y = (15856.430) + (1441.187) X+ (69.725) X2 Where, 0 (=15856.430) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=1441.187) shows a rapid upward trend of total annual deposit in the initial years and then it rises slowly by 2 (=69.725) per year.

Nabil Bank Ltd

Fig.6.Trend of deposits.

Interpretation:This is a scatter-diagram of annual total deposits plotted against 10

years from 2001 to 2010. This diagram reveals a quadratic relation better than a linear relation between them. Moreover, the quadratic graph is showing an upward trend on the average from the beginning of the existence of the bank.

This relation is also supported by the quadratic regression model described below.
52

Quadratic
Table 10: Quadratic table

Model Summarya Std. Error of the R .995 R Square .990 Adjusted R Square .987 Estimate 1240.221

The independent variable is Year of deposit. a. Name of the bank = Nabil Bank Ltd

This table explains how the model has gained a better fit of quadratic type of relation between them. Here, R is a correlation coefficient explaining a higher positive correlation between the annual total deposits and years of deposits. R Square is the square of R, correlation coefficient and is also called the coefficient of determination. It shows that the year of deposits explains 99.0% variation in the total variation of the annual total deposits. Adjusted R Square is a slight modification of R Square and is useful for the model, which contains more than one predictor. Std. Error of the Estimate is 1240.221. It explains the difference between the observed and predicted annual total deposits on an average. The smaller it is, the better the model is.

Table11: ANOVAa table.

ANOVAa

Sum of Squares Regression Residual Total 1080916776.441 10767030.460 1091683806.901

df 2 7 9

Mean Square 540458388.220 1538147.209

F 351.370

Sig. .000

53

ANOVAa

Sum of Squares Regression Residual 1080916776.441 10767030.460

df 2 7

Mean Square 540458388.220 1538147.209

F 351.370

Sig. .000

Total

1091683806.901

The independent variable is Year of deposit.

a. Name of the bank = Nabil Bank Ltd

This table shows whether a model (here a quadratic model is assumed based on the scatter plot) is fitted or not. According to this table, the p-value (sig.) is .000. Alpha, level of significance considered is 0.05. So, it is concluded that the model is fitted to the quadratic model as p-value is less than alpha.

Table 12: Coefficientsa

Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 (Constant) -3906.585 648.469 19451.108

Std. Error 609.210 53.974 1458.688

Beta -1.074 2.012

t -6.413 12.015 13.335

Sig. .000 .000 .000

a. Name of the bank = Nabil Bank Ltd

The quadratic model so assumed is: Y = 0 + 1 X + 2X2, where Y is the total annual deposits and X is years of deposits. 0, 1 and 2 are the parameters of the model.
54

This coefficient table shows whether parameters of the quadratic model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than alpha (0.05), they are significant and can be included in the model. Therefore, the estimated or fitted model is: Y = (19451.108) + (-3906.585) X + (648.469) X2, Where, 0 (=19451.108) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=-3906.585) shows declining trend for first few years with the total deposits of 3906.585 per years of deposits on an average. Then, 2(=648.469) shows that the total annual deposits rise with the rate of 648.469 on an average.

Sanima Bikas Bank Ltd

Fig 7: Trend of deposits.

55

Interpretation:

This is a scatter-diagram of annual total deposits plotted against 7 years from 2004 to 2010. This diagram reveals scatter plot of linear relation between total deposit and square of years of deposit. The plot is showing an upward trend on the average from the beginning of the existence of the bank.

Why the year of deposits is transformed into square of years of deposits is explained by the coefficient table of quadratic model.

Table 13:Coefficients
Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 (Constant) -261.956 106.775 -492.531

Std. Error 193.510 13.718 641.065

Beta -.210 1.207

t -1.354 7.784 -.768

Sig. .247 .001 .485

Here, two parameters, 0 and 1 are insignificant at 5% level. Therefore, the relation is also supported by the linear model for total deposit and square of years described below through transformation.

56

Linear
Table 14:Linear Model Summary
Std. Error of the R .999 R Square .998 Adjusted R Square .997 Estimate 135.787

The independent variable is x2. X2 is the square of years of deposits.

This table explains how the model has gained a better fit of linear type of relation between them. It shows that the square of year of deposits explains 99.8% variation in the total variation of the annual total deposits. Table 15:ANOVA

ANOVA

Sum of Squares Regression Residual 43489378.299 92191.112

Df 1 5

Mean Square 43489378.299 18438.222

F 2358.654

Sig. .000

Total

43581569.410

The independent variable is x2.

The ANOVA table has shown a better fit to the exponential model since the p-value is less than alpha (=0.05).

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Coefficients Standardized Unstandardized Coefficients Coefficients

B x2 (Constant) 88.346 -1349.484

Std. Error 1.819 109.221

Beta .999

t 48.566 -12.356

Sig. .000 .000

The independent variable is x2, which is the square of years of deposits.

The linear model so assumed is: Y = 0 + 1 X2, where Y is the total annual deposits and X2 is the square of years of deposits. 0 and 1 are the parameters of the model. This coefficient table shows whether parameters of the linear model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than alpha (0.05), they are significant and can be included in the model .Therefore, the estimated or fitted model is: Y = (-1349.484) + (88.346) X2 Where, 0 (=-1349.484) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=88.346) shows an upward trend of total annual deposit per square of year.

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Nepal SBI Bank Ltd

Fig 8: Trend of deposits.

Interpretation:

This is a scatter-diagram of annual total deposits plotted against 10 years from 2001 to 2010. This diagram reveals two scatter plots of quadratic and cubic relation between them. Moreover, the cubic plot seems to be a better fit to the data than quadratic plot even though both plots are showing an upward trend on the average from the beginning of the existence of the bank.

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This relation is also supported by the two models quadratic and cubic described below. Table 16:Cubic
Coefficients Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 Year of deposit ** 3 (Constant) 501.039 -231.991 42.710 5950.530

Std. Error 3699.038 762.986 45.753 4935.029

Beta .177 -.927 1.717

t .135 -.304 .934 1.206

Sig. .897 .771 .387 .273

The ANOVA table (not shown here) has shown a good fit to the quadratic model. However, all the parameters of this model are insignificant at 5% level. So, this model is discarded and the quadratic model is assumed for a better model for the data.

Table 17:Quadratic

Model Summary Std. Error of the R .966 R Square .932 Adjusted R Square .913 Estimate 2519.333

The independent variable is Year of deposit.

This table explains how the model has gained a better fit of quadratic type of relation between them. Here, R is a correlation coefficient explaining a higher positive correlation between the annual total deposits and years of deposits. R Square is the square of R, correlation coefficient and is also called the coefficient of determination. It shows that the year of deposits explains 93.2% variation in the total variation of the annual total deposits. Adjusted
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R Square is a slight modification of R Square and is useful for the model, which contains more than one predictor. Std. Error of the Estimate is 2519.333. It explains the variability of differences between the observed and predicted annual total deposits on an average. The smaller it is, the better the model is. Table 18: ANOVA
ANOVA

Sum of Squares Regression Residual 613520413.446 44429271.175 657949684.621

df 2 7 9

Mean Square 306760206.723 6347038.739

F 48.331

Sig. .000

Total

The independent variable is Year of deposit.

This table shows whether a model (here a quadratic model is assumed based on the scatter plot) is fitted or not. According to this table, the p-value (sig.) is .000. Alpha, level of significance considered is 0.05. So, it is concluded that the model is fitted to the quadratic model as p-value is less than alpha.

Table 19: Coefficients

Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 (Constant) -2749.210 472.728 9615.068

Std. Error 1237.523 109.640 2963.118

Beta -.974 1.889

t -2.222 4.312 3.245

Sig. .062 .004 .014

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The quadratic model so assumed is: Y = 0 + 1 X+ 2 X2, where Y is the total annual deposits and X is years of deposits. 0, 1 and 2 are the parameters of the model. This coefficient table shows whether parameters of the quadratic model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than alpha (0.05), they are significant and can be included in the model although 1 is marginally significant. Therefore, the estimated or fitted model is: Y = (9615.068) + (-2749.210) X+(472.728) X2 Where, 0 (=9615.068) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=-2749.210) shows downward trend of total annual deposit in the initial years and then it rises by 2 (=472.728) per year.

Laxmi Bank Ltd Fig.9: Trend of deposits

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Interpretation:

This is a scatter-diagram of annual total deposits plotted against 8 years from 2002 to 2010. This diagram reveals a quadratic relation better than a linear relation between them. Moreover, the quadratic graph is showing an upward trend on the average from the beginning of the existence of the bank.

This relation is also supported by the quadratic regression model described below.

Quadratic
Initially, the proposed model was Y = 0+ 1X+ 2X2.

Table 20:ANOVA
Sum of Squares Regression Residual 324400999.078 6064324.122 330465323.200 df 2 6 8 Mean Square 162200499.539 1010720.687 F 160.480 Sig. .000

Total

The independent variable is Year of deposit.

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Table 21:Coefficients
Standardized Unstandardized Coefficients Coefficients

B Year of deposit Year of deposit ** 2 (Constant) -584.269 237.211 196.444

Std. Error 699.564 57.285 1882.109

Beta -.249 1.234

t -.835 4.141 .104

Sig. .436 .006 .920

This model was significantly fitted according to ANOVA table. But, the coefficient table showed that 0 and 1 were insignificant but 2 was significant at 5% level. In order to get better model, X is transformed into X square and then the new linear model was run for total annual deposits against this X2. Now the new proposed model is Y = 0+1X2. The results with this new model are as follows.

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Model Summary Std. Error of the Model 1 R .990a R Square .980 Adjusted R Square .977 Estimate 983.38663

a. Predictors: (Constant), x2

This table explains how the model has gained a better fit of linear type of relation between Y and X2. Here, R is a correlation coefficient explaining a higher positive correlation between the annual total deposits and square of years of deposits. R Square is the square of R, correlation coefficient and is also called the coefficient of determination. It shows that the square of year of deposits explains 98.0% variation in the total variation of the annual total deposits. Adjusted R Square is a slight modification of R Square and is useful for the model, which contains more than one predictor. Std. Error of the Estimate is 983.38. It explains the variability of the difference between the observed and predicted annual total deposits on an average. The smaller it is, the better the model is.

Table 22:ANOVAb
Model 1 Regression Residual Sum of Squares 323695978.360 6769344.840 df 1 7 Mean Square 323695978.360 967049.263 F 334.725 Sig. .000a

Total

330465323.200

a. Predictors: (Constant), x2

b. Dependent Variable: tot.depo.in.millions

This table shows whether a model (here a linear model of the total annual deposits and square of years of deposits is assumed based on the scatter plot) is fitted or not. According to this
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table, the p-value (sig.) is .000. Alpha, level of significance considered is 0.05. So, it is concluded that the model is fitted to the linear model as p-value is less than alpha. Table 23: Coefficientsa
Standardized Unstandardized Coefficients Model 1 (Constant) B -1303.276 190.198 Std. Error 551.537 10.396 .990 Coefficients Beta t -2.363 18.296 Sig. .050 .000

x2

a. Dependent Variable: tot.depo.in.millions

The linear model so assumed is: Y = 0 + 1 X 2, where Y is the total annual deposits and X2 is the square of years of deposits. 0 and 1 are the parameters of the model. This coefficient table shows whether parameters of the linear model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than or equal to alpha (0.05), they are significant and can be included in the model. Therefore, the estimated or fitted model is: Y = (-1303.276) + (190.198) X2, 1 (=190.198) shows upward trend with the total deposits of 190.198 per square of years of deposits on an average.

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Nepal Investment Bank Ltd Fig.10.Trend of deposits

Interpretation:

This is a scatter-diagram of annual total deposits plotted against 10 years from 2001 to 2010. This diagram reveals scatter plot of exponential relation between them. The plot is showing an upward trend on the average from the beginning of the existence of the bank.

This relation is also supported by the exponential model described below. Table 24: Exponential

Model Summary Std. Error of the R .988 R Square .977 Adjusted R Square .974 Estimate .146

The independent variable is Year of deposit.

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This table explains how the model has gained a better fit of exponential type of relation between them. It shows that the year of deposits explains 97.7% variation in the total variation of the annual total deposits.

Table 25: ANOVA

ANOVA

Sum of Squares Regression Residual 7.108 .170 7.277

df 1 8 9

Mean Square 7.108 .021

F 335.011

Sig. .000

Total

The independent variable is Year of deposit.

The ANOVA table has shown a better fit to the exponential model since the p-value is less than alpha (=0.05). Table 26: Coefficients

Coefficients Standardized Unstandardized Coefficients Coefficients

B Year of deposit (Constant) .294 3095.801

Std. Error .016 308.039

Beta .988

t 18.303 10.050

Sig. .000 .000

The dependent variable is ln(tot.depo.in.millions).

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The exponential model so assumed is: Loge Y = Loge 0 + 1 X, where Y is the total annual deposits and X is years of deposits. 0 and 1 are the parameters of the model. This coefficient table shows whether parameters of the exponential model are significant. This table decides for their significance on the basis of t-test. Here, since p-values for all the parameters are less than alpha (0.05), they are significant and can be included in the model .Therefore, the estimated or fitted model is: Loge Y = (3095.801) + (.294) X Where, Loge0 (=3095.801) present the initial deposits on an average but this is only useful for prediction of Y when X is given. 1(=.294) shows an upward trend of log of total annual deposit per year. Total Analysis: Fig.11 Analysis of Market Trend of the Annual Total Deposits.

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As the graph above clearly shows that there is undoubtedly been an upward trend of deposit in the Nepalese banking sector, be it the commercial banks or be it the development banks all of these entities are showing an upward trend in the deposit pattern but its pace does vary from bank to bank some banks have been slow and constant in gaining deposits, whereas some have banks have had a tremendous increase in their deposit pattern.

The graph above has 7 top banks that represent the Nepalese banking sector all of which show an upward trend in the deposit pattern. Lets slowly analyse each starting from Ace .

Ace has a constant growth ,ace has the lowest deposit amongst all the other banks, then talking of Sanima bikas bank it has an upward trend which seems to be highly smooth as stated by the line above in the figure, and its growth has been increasing tremendously over the years.

Nabil and NIBL have had a steep increase in their growth rate of annual deposit, which they start off slow but quickly catch up pace and therefore show a steep increase in the deposit trend .

Nepal SBI, Laxmi and Himalayan bank show an upward trend which is constant but however there has been shaky moments in the middle for Nepal SBI and Laxmi as they show a slight downfall in their trend in the graph above. However Himalayan bank has shown a remarkable and a constant growth rate.

This clearly states that there is an upward non-linear trend in the Nepalese banking sector.

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Reason could be various : the growing competition and the thrive to be the best, large growing knowledgeable customers, the need for people to deposit their money, increasing value of banks in the Nepalese people mind , the increasing interest rates. The reason could be several as stated before but there is no doubt that there has been an increase in the deposit trend in the Nepalese banking sector

Fig.12 Average Total Annual Deposits of Commercial and Development Banks

Description of fig.12. Fig.2 shows the average of total annual deposit of the top 7 banks. Where Himalayan bank has the highest average deposit i.e.26467.37 millions and ace development has the lowest deposit i.e.136.73 millions. Himalayan has the highest average deposit reason could be its years of existence, credibility, large and loyal customer-base etc , and most importantly a

71

leading commercial bank. Aces drawback could be it started off later than Himalayan and the other commercial banks and that it is a development bank. Nabil and NIBL have an average deposit of 22930.93 million and 21422.11 millions respectively. Nepal SBI and Laxmi have a deposit averaged at 12694.43 and 6811.83 million respectively. As for Sanima Bikas Bank a development bank similar to that of Ace has a average deposit of 3332.84 reasons of the low deposit is similar to that of Ace. Fig.13 Comparison of Annual Average Deposit and their Trend for Commercial and Development Banks

As one can clearly see from fig.13 the annual average deposit trend between development bank and commercial has a vast difference though both have an upward trend. Development bank has a slow growth whereas; commercial banks have a rapid growth rate.

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There could be several reasons as to why this difference exists between the deposit patterns of the two:

1. The first and the main reason is the fact that commercial banks are always stronger than a development banking most of the economies of the world. The contribution of commercial bank as a financial institution is generally higher than a development bank. 2. The other feasible reason can be the period of their existence, the trend of development banks started off after commercial banks came into existence in Nepal. The commercial banks started off early and created a stronger base than a development bank in the economy. 3. The question of credibility is another reason, customers generally feel secured in depositing their savings into a commercial bank rather than a development bank. 4. The purpose served by both is another strong reason , a commercial bank exist to facilitate and secure its general customers (public) money whereas a development bank exist to facilitate development firstly and then create deposits and customer-base , no doubt development bank need customers but they need customers to channelize and get money to facilitate development. Therefore general public prefer to choose commercial banks over development banks. 5. Commercial banks are huge and they have larger expansion strategy whereas development banks do not generally operate on such wide range. 6. Commercial banks main focus is the general public but a development banks focus and strategy lies to facilitate and inject development in the country through loans in development sectors.

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7. Ranking is another factor, commercial banks are graded as KA a higher class of banks and development banks are graded as KHA which comes after the commercial banks by the Nepal Rastriya Bank. 8. Most of the commercial banks have a foreign promoter or investors for eg. Nepal SBI, Everest bank etc. which definitely does improve the brand recognition and image of the bank. And commercial banks also have a larger shareholder-base along with a loyal customer-base.

However, these points clearly support the reason as to why there is a vast difference in the annual average deposit trend and deposit pattern.

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Analysis of Customer Relationship Management and its relation to the deposits into the banks by distributing set of questionnaire to 350 customers, of the 7 chosen banks. 50 customers of the chosen 7 banks (7*50=350).

Loyalty Multiple Response Analysis Table 27: Testing of customers loyalty towards the bank.

name.of.bank*$Loyalty Crosstabulation $Loyaltya Is this your first do you switch banks bank? Name of Bank Nepal SBI Bank Count % of 4.5% Total Nepal Investment Bank Ltd Count % of 11.4% Total Sanima Bikas Bank Ltd Count % of 5.3% Total Nabil Bank Ltd Count 20 16 36 9.8% 15.1% 13 24 37 6.5% 18.0% 28 16 44 6.9% 11.4% 11 easily 17 Total 28

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% of 8.2% Total Himalayan Bank Ltd Count % of 8.6% Total Laxmi Bank Ltd Count % of 6.1% Total Ace Development Bank Ltd Count % of 5.3% Total Total Count % of 49.4% Total Percentages and totals are based on responses. a. Dichotomy group tabulated at value 1. It accounts only Yes responses. 50.6% 100.0% 121 124 245 9.8% 15.1% 13 24 37 5.3% 11.4% 15 13 28 5.7% 14.3% 21 14 35 6.5% 14.7%

Analysis: The table above shows the responses that state the loyalty of customers with the bank. The table above has just taken into consideration the responses stated as YES . However we can clearly see that NIBL i.e. Nepal Investment Bank Ltd has the highest percentage of yes under the question Is this your first bank? and low percentage of YES under the question do you switch bank. This shows the loyalty of the customers towards

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the bank and as studied earlier it is NIBL that has the highest deposits and now one can state why it is, as it has the highest percentage of loyal customer-base. Now talking of the bank that has the highest response as YES for do you switch banks and lowest response for is this your first bank?as YES are both the development banks i.e. Ace and Sanima with 9.8% and 5.3% responses respectively. The deposit of both banks are also lower in percentage as compared to the commercial banks above.

To support the table above and provide more clarity a Stacked bar diagram are given below.

Percentage based on total cases of 350 (=7X50).

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Why are the customers loyal? Table 28 :The reason for their loyalty name.of.bank*$Why.Loyal Crosstabulation Why.Loyala word interest brand of family good

credibility rate recognition mouth association services Total Name Nepal SBI of Bank Nepal Investment Bank Ltd Sanima Bikas Bank Ltd Nabil Bank Ltd Bank Count % of 1.4% Total Count % of 2.5% Total Count % of 1.9% Total Count % of 2.0% Total Himalayan Bank Ltd Count % of 4.8% Total 4.5% .8% .6% .4% 5.3% 16.3% 38 36 6 5 3 42 130 2.0% 2.8% 1.1% 1.1% 3.5% 12.5% 16 16 22 9 9 28 100 2.9% 3.0% 1.5% 1.4% 4.8% 15.4% 15 23 24 12 11 38 123 3.0% 1.8% .9% 1.5% 4.8% 14.4% 20 24 14 7 12 38 115 2.1% 2.3% .4% .4% 4.0% 10.5% 11 17 18 3 3 32 84

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Laxmi Bank Count Ltd % of

31

34

12

39

132

3.9% Total Ace Count 21

4.3%

1.1%

1.5%

.9%

4.9%

16.5%

31

16

31

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Development % of Bank Ltd Total 2.6% Total Count % of 19.0% Total Percentages and totals are based on responses. a. Dichotomy group tabulated at value 1. It accounts only Yes responses. Analysis: The above question sates the factor that is highly prevalent for causing people to be loyal towards a bank. Question being What makes you choose your bank and earn your loyalty? The responses are considered on the basis of all 799 total responses of type Yes of all 350 customers of all the 7 banks together and according to the customers Good services is the most essential factor for customers to remain loyal to a bank with 31.0% supporting it. And the lowest being 6.5% i.e for family association as a factor that leads to loyalty of a customer towards it. However people also think interest rate and credibility are important factors for keeping a customer intact with a particular bank with 22.7% and 19.0% responses respectively. 22.7% 13.6% 7.1% 6.5% 31.0% 100.0% 152 181 109 57 52 248 799 3.9% 2.0% 1.1% .9% 3.9% 14.4%

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Table 29: Level of Satisfaction

Name of Bank * how.happy Crosstabulation how.happy Satisfied Average Dissatisfied Total Name of Bank Nepal SBI Bank Count % of 11.1% Total Nepal Investment Bank Ltd Count % of 10.9% Total Sanima Bikas Bank Ltd Count % of 12.6% Total Nabil Bank Ltd Count % of 11.7% Total Himalayan Bank Ltd Count % of 14.0% Total Laxmi Bank Ltd Count 46 4 0 50 .3% .0% 14.3% 49 1 0 50 2.3% .3% 14.3% 41 8 1 50 1.4% .3% 14.3% 44 5 1 50 2.9% .6% 14.3% 38 10 2 50 2.6% .6% 14.3% 39 9 2 50

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% of 13.1% Total Ace Development Bank Ltd Count % of 10.0% Total Total Count % of 83.4% Total The table above states the level of contentment or satisfaction with the bank as per the total responses of all 350 cases of all 7 banks. The question being analysed is How happy are you with the banks? the response to which was out of 100% 83.4% customers of all 7 banks collectively were satisfied with their current bank and 1.7% customers were dissatisfied with their bank. The number of percentage clearly shows that all banks be it development or commercial are highly devoted towards maintaining large number of satisfied customer-base, as they are the only means of survival for the banks in present competitive banking industry scenario. As happy customer = higher and continuous flow of deposits to the bank. 14.9% 1.7% 100.0% 292 52 6 350 4.3% .0% 14.3% 35 15 0 50 1.1% .0% 14.3%

1. Testing the effectiveness of word of mouth. It is hypothesized that word of mouth is highly influential and important factor that lead the customer to choose a bank. Chi-square test of independence of two attributes (choosing a bank and word of mouth) is used for testing of hypothesis. The null hypothesis is: Two attributes are not associated to each other.
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Against the alternative hypothesis is: They are associated to each other. The SPSS outputs: Table 30: Testing the effectiveness of word of mouth. Name of Bank * word of mouth Crosstabulation word of mouth yes Name of Bank Nepal SBI Bank Count % of Total Nepal Investment Bank Ltd Count % of Total Sanima Bikas Bank Ltd Count % of Total Nabil Bank Ltd Count % of Total Himalayan Bank Ltd Count % of Total Laxmi Bank Ltd Count % of Total Ace Development Bank Ltd Count % of Total Total Count 3 no 47 Total 50

.9% 13.4% 14.3% 7 43 50

2.0% 12.3% 14.3% 12 38 50

3.4% 10.9% 14.3% 9 41 50

2.6% 11.7% 14.3% 5 45 50

1.4% 12.9% 14.3% 12 38 50

3.4% 10.9% 14.3% 9 41 50

2.6% 11.7% 14.3% 57 293 350

% of Total 16.3% 83.7% 100.0%

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Chi-Square Tests Asymp. Sig. (2Value Pearson Chi-Square N of Valid Cases 10.101a 350 df 6 sided) .120

a. 0 cells (.0%) have expected count less than 5. The minimum expected count is 8.14.

Level of significance considered here is 5% or 0.05. The p-value of chi-square statistic (Asymp. Sig. (2-sided)) is .120. Since this p-value is more than the alpha, the null hypothesis is accepted. It means that word of mouth has no relevance in selecting a particular bank.

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Market strategy
Marketing is one of the important function in any organisation. Marketing has become important function in banking industry because of the existence of intense competition, not only within the industry but also from development banks, finance companies, insurance companies, capital markets, etc. This has resulted in banks concentrating on marketing strategy. Banking industry has unique nature compared to that of manufacturing or trading industry dealing with tangible products. Marketing of banking products is a field of study that is evolving rapidly. Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. It should be centred around the key concept that customer satisfaction is the main goal. Starting from 2001 Nepal has been a victim of turbulent times due to instable political conditions which has had an adverse effect on the economy which indirectly has affected all commercial as well as other sectors of the economy. Banking sector is no exception to this, however the banking sector was adversely affected in 2008, the period that marks the beginning of liquidity crunch in the Nepalese market[source :http://arbhattarai.blogspot.com].

The opening of various banks that undertook rapidly and in a short span has led to stiff and cut throat competition in the Nepalese banking sector. The scenario today is that banks are fighting each other on the basis of low interest rates, rightly quoted as interest war. During the completion of this report few eminent personals of the related 7 banks were interviewed regarding their marketing strategy in the prevalent turbulent times , the study has grouped their views into two categories , one thought reflecting that of the Development bank and the other reflecting that of the Commercial bank.
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As stated by Ms.Priya Singh Thapa, head of marketing of Ace development bank , and Mr.Joshi,senior officer of the Sanima Development bank, the banks marketing strategy since 2008 evolves around (1). Increasing of deposits, (2)facilitating liquidity in the country, (3) encourage savings. (4). And effective Customer Relationship Management.The effect of which has been that there has been a constant increase in the deposit and through maintenance of old customers and earning their loyalty the bank has the felling of security in the prevalent stiff competitive market.Even at Sanima they had similar views . However undoubtedly commercial banks have a rapid growth rate than the development banks but development banks even though operating at a smaller scale are equally doing well as the commercial banks.

Commercial banks strategy are also similar to that of the development bank with a slight alteration as remarkably stated by Mr.Niraj Thapa, senior officer Himalayan bank limited. Our marketing strategy revolves around major depositors retention, innovative products, maintaining of the cash debt ratio as stated by RBN, and to encourage and promote institutional deposits.

One can see that both the commercial and development banks are working towards an increase in deposits and their strategy sorely revolves around it, therefore the trend of deposits is also marked upward which clearly states that their strategy is surely not a failure. The essentials for an effective marketing strategy must involve market segmentation, focused action plan strategy, maintain good rapport in the form of CSR and PR, proper utilization of resources, and most importantly reviewing and maintaining all above.as stated by Mr.Siddhant Raj Pandey [CEO of Ace Development Bank Ltd.]

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Whereas Mr.Sushil Shrestha, the bank manager of the Nabil Bank at putalisadak stated that the three important essentials are to state the customers our presence and status in the market, and maintain a good CRM that will increase the present and future customers, innovative products and specification of how our product is different from the rest.

The informal interest war has affected both the commercial as well as the development banks as all the individuals agreed when asked if the interest wars have affected their banks and their strategy and they stated that because of the unhealthy practice of interest increase the banks have to come up with high interest rates and low minimum balance.

Shubhana Rana at Laxmi bank stated that a good marketing strategy is one that focuses on CRM because today all the banks are working towards gaining customer base for their survival and a bank with satisfied customers=a safe and secured bank with high deposit.

Undoubtedly as all the above high officials have stated their views one must note that there is little or no difference between the strategies od development and commercial banks the difference lies in their operation and scale of operation that causes difference in the level of their deposits. The strategy of both the type of banks is to collect high deposits at lowest possible cost and strive to be the best bank with the highest number of loyal and customers.

The key essentials for marketing strategy that has come handy in the times of liquidity crisis to various development and commercial banks are:

1. Maintenance of Customer Relationship Management. 2. Undertaking various CSR and PR activities to gain an edge over the rest. 3. Innovative products. 4. High interest rates for deposits at lowest possible cost.
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5. Specification of how a banks product is distinct than the rest. 6. Creating an effective brand name and image.

However the entire above factor is solely done for an important reason by both the Commercial and Development bank that is for their existence which is affected and determined by the rate of deposit. Thus it is correct to state that marketing strategy is built in a manner to facilitate higher deposits in the bank.

DISCUSSION
This study has confirmed that there is an upwards trend of deposits prevailing in the Nepalese Banking Sector, which is represented by the 7 chosen banks being studied. Note - Deposit decisions are rationally based and followed the price-elasticity-of demand theory, which asserts that deposit balances should decrease when interest rates on deposits decrease and vice versa. Based on this concept the banks in Nepal, to fight the existing competition have involved themselves into an informal interest war. Offering high interest rate to allure more deposits and survive the competition. This study also states how the marketing strategy are evolving around methods to encourage deposits and it also confirms the importance of CRM and how better CRM helps increase deposits and in improving t he Nepalese Banking Sector. The study also denies to the myth that todays customers are influenced by word-of-mouth for selecting banks.

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Implications of the study:

This study firstly helps the banks in Nepal to realise the importance of CRM and train their officials in activities related to CRM. Secondly, the top management can use this framework to develop marketing tactics and strategy as it presents the actual scenario of where the bank stands and how a bank can improve. Thirdly, it makes one realise that even though the country is hit by the economic and political crisis by building a strong CRM and strategies to support its effectiveness the bank can still attain high deposits and break through crucial times. And finally, that this study provides a clarity to the real picture of where our bank are leading to and the efficiency of our banks via. their upward trend of deposits, which is handy to customers and investors as well.

CONCLUSION
One cannot deny to the fact that the Nepalese Banking Sector is highly affected by the economic and political instability with high level of liquidity crunch the Banking Sector is finding it hard to survive and excel and on the other hand the increasing number of bank in the country is just making the scenario worse. But undoubtedly, even in times of crisis the Nepalese Banking Sector has an upward trend of deposits the means of attaining it may be a little wrong i.e. via. Informal interest wars as it is the only way of alluring deposit left with the banks, the banks will do anything to fight for their survival. Today the scenario in the Nepalese Banking Sector is such that it states the proverb Survival of the fittest. to be true in all its sense. This study also states the importance of CRM and how an effective CRM can help in increasing deposits and todays customers are smart enough not to be under the influence of word-of-mouth, what they demand from the bank is: 1. Credibility,2. Good interest rates, 3.
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Good services,4. Good brand image. Today top management of various banks also orient their strategies on these lines and their sole objectives stands to attain increasing deposits. Thus I would conclude by saying that the banks in Nepal today stands in a position where a slightest of mistake could lead to its liquidation, so every step it takes is important, the means for attaining its upward trend of high interest rates could lead to severe downfall of the banks and overall banking sector. The banks must concentrate on CRM and create an effective marketing strategy accordingly. As the study states the banks are fighting well for their survival and they must continue to do so for the betterment of the Nepalese banking Sector and Nepal as a whole.

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Chapter 7 Recommendation
Now we exactly know how the scenario of the Nepalese banking sector is.. There is no doubt that over the past 10 years there has been an upward trend in the deposit of the banks but if one looks into the reason the main cause that draws attention is the hike in the interest rates . It is clearly known to us that the banking sector is one of the most rapidly growing industry in Nepal and with its rapid growth this sector has also invited stiff cut throat competition ,and with liquidity crunch existing in the economy the scenario has gotten worse and the very means for existence of bank is fight in the ground of interest rate which is highly un- healthy. Yes , no doubt the increase in the interest rate has lead to increase in deposit of the bank but till when , this unhealthy competition needs to end. Certain recommendation could be :1) Firstly , the government needs to put in the unused 5 billion NPRS money that it has in its account at NRB (as stated in the finance and statistic in www.nrb.org.np ) into the economy to inject liquidity into the economy.

2) The banks must understand the pros and cons of the unhealthy interest wars that they are fighting and adopt other healthy measures like introduce innovative products, create awareness ,involve in (CSR and PR ) etc .

3) The banks must concentrate more on improving their credibility and services by training their employees well .

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4) The officials must be trained in the banks to effectively handle and manage customer relation ,as the study states that existence of a bank and its deposits depends on loyal and satisfied customers .

5) The NRB should not issue fluctuating policies like it is doing at present as based on them . the banks frame their policies ,and policy making is an expensive job .Thus NRB should understand the situation and make favourable and stable policies accordingly.

6) There are way too many unnecessary entries of banks in the country which leads to a scenario where supply is way greater than the demand ,the NRB should make strict policies to reduce the number of entries of banks into the country. The number to be decided should be as per the required demand in the market this reduces unnecessary competition and unnecessary liquidation is also abolished .

7) The banks must understand , the needs of their customers and where their customers stand . Customers today are street-smart and knowledgeable .They are not just interest driven , today s customer demand credibility , good services and good brand-recognition of the bank they want to be associated with . Banks should understand their customer need for the hour and work accordingly.

8) Coming to the marketing strategy, a marketing strategy determines the market success of a bank: strategy of a bank today should be customer-oriented wherein the differentiation of the products and their specification should be clearly stated in the

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market and instead of interest rates the customers should be driven by the products of the banks , then a healthy competition could prevail in the banking sector.

9) The banks are concentrated just in the urban areas, the rural areas of the country are still untouched whereas the fact is rural areas constitutes a large section of the countrys economy. The market trends of deposit will be highly favourable and affected if the banks undertook expansion strategy in the rural untouched areas this would certainly reduce competition and also encourage savings in the rural society both highly beneficial for the economy.

10) As the study states that word-of-mouth is not really effective in driving the customers to select a bank , gone are the days when people were blindly influenced by others vie, now people are smart and personal choices based on knowledge and experience, thus banks should aware themselves to this fact and concentrate more on customer satisfaction and innovative products.

To summarise it into one line NRB must take thorough control over the Nepalese banking sector and make feasible and practical policies which are stable in nature and that the government must utilise the 25 billion un-used money that it has in its account at the NRB into development to inject liquidity in the economy through an economic cycle and that the banks must put an end to the interest war and focus on customer retention and attraction via. Good services and brand name recognition that facilitates high credibility.

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Chapter 8 Bibliography
1. www.ace.com.np 2. www.nrb.org.np 3. www.scribd.com/doc/39381110/final-thesis 4. http://arbhattarai.blogspot.com/ 5. http://books.google.co.in/books?id=TdAwy3C898IC&pg=PA28&dq=literature+r eview+on+market+trends+in+deposits&hl=en&ei=2CUOTqiQIdDsrQfQ5uieCw &sa=X&oi=book_result&ct=result&resnum=9&ved=0CFYQ6AEwCA#v=onepa ge&q&f=false 6. www.sdbl.com.np/pages/about-us.plup 7. www.nabil.com.np 8. www.himalayan.com.np 9. www.laxmi.com.np 10. www.sanima.com.np 11. www.nibl.com.np 12. www.nsbi.com.np 13. http://www.seiofbluemountain.com/upload/product/200911/2006scyxhy01a7.pdf 14. www.scribd.com/.../deposit-analysis-of-nabil-bank-ltd

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References
1. Goldsmith (1), R.W. (1969), Financial Structure and Development, New Haven, CT: Yale University Press. 2. Financial Repression (2) (1973) Mckinnon & Shaw. 3. The Relationship between the Formal & Informal Sectors of the Financial Market in Ghana, by E. Aryeetey (3). 4. Financial System Regulation, Deregulation and Savings Mobilization in Nigeria, by A. Soyibo and F.Adekanye (4), Research Paper 11. 5. Mosad Zineldin(5) (1995), Bank Company Interactions and Relationship, International Journal of Bank Marketing, Volume 13, No. 2. 6. Boyd, J., C. Chang, and B.D. Smith, 1998 (6), Moral Hazard under Commercial and Universal Banking, Journal of Money, Credit, and Banking, 7. Jennifer Rowley(7), (1998) "Enhancing the customer experience: contributions from information technology", Management Decision 8. Anna Grankvist, Carolina Kollberg and Anna Persson(8) (2004), Promotion Strategies for banking Services, Lulea University of Technology. 9. Meidan(9), A. (1996). Marketing Financial Services Hampshire and London. 10. Dawes, J. & Brown(10), R. B. (2000). Postmodern Marketing: Research Issues for Retail Financial Services. Quantitative Market Research: An International Journal 11. Marquardt(11), R. (1994). Banketableringar i frammande lander, Doctoral Thesis, Uppsala: Uppsala University. 12. Gibson, H.D. and E. Tsakalotos(12). 1994. The scope and limits of financial liberalization in developing countries: A critical survey. Journal of Development Studies, 30 (3).
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13. Crystal, Jennifer, Gerard Dages, and Linda S. Goldberg(13) (2002). Has Foreign Bank Entry Led to Sounder Banks in Latin America? Current Issues in Economics and Finance, vol. 8, issue 1. 14. Martinez-Peria Maria S., and Sergio L. Schmukler(14) (1998), Do Depositors Punish Banks for Bad Behavior? Examining Market Discipline in Argentina, Chile, and Mexico. Washington, D.C.: The World Bank. 15. Clarke, George, Robert Cull, Laura DAmato, and Andrea Molinari(15) (2000). On the kindness of strangers? The impact of foreign bank entry on domestic banks in Argentina. In the internationalization of financial services. Stijn Claessens and M. Jansen (eds). Kluwer Law International. 16. Kraft(16), E. (2002). Foreign Banks in Croatia: Another Look. Croatian National Bank Working Paper W-10 17. Demirg-Kunt, Asli, and Harry Huizinga(17) (2009). Bank Activity and Funding Strategies: The Impact on Risk and Returns. Policy Research Working Paper Series 4837, World Bank, Washington, DC. 18. Barnes cited in stauss, B & Seidel (18l, W.(2004),"Complaint Management :the heart of CRM", 1st Edition, Thomson, America. 19. Nevin(19), J. R. (1995, Fall) Relationship Marketing and Distribution Channels: Exploring Fundamental Issues. Journal of the Academy Marketing Sciences. 20. Bickert(20), J. (1992, May) The Database Revolution. Target Marketing. 21. Gray, P. and J. Byun(21) (2001). Customer Relationship Management. Centre for research on Information Technology and Organisations, University of California, Irvine. 22. Joyner(22), E .(2002),"Customer Relationship Management in Banking ", SAS White paper, North Carolina offices.
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23. Glazer(23), R. 1997. Strategy and structure in information-intensive markets: The relationship between marketing and IT, Journal of Market Focused Management, vol. 2, no. 1, pp. 65-81. 24. Reinartz, W., Krafft, M. and Hoyer(24), W.D. (2004). The customer relationship management process: Its measurement and impact on performance, Journal of Marketing Research, vol. 41 (August). 25. Kale(25), S.H. 2004. CRM failure and the seven deadly sins, Marketing Management, vol. 13 (September October). 26. Boulding, W., Staelin, R., Ehret, M. and Johnston, W.J. 2005 (26). A CRM roadmap: What is known, potential pitfalls, and where to go, Journal of Marketing, vol. 69 (October). 27. Payne, A. and Frow, P. 2005 (27). A strategic framework for customer relationship management, Journal of Marketing, vol. 69 (October). 28. McKenna(28), R. (1991) Relationship Marketing: Successful Strategies for the Age of the Customers. Addison-Wesley. 29. Berry(29), L. L. (1995, Fall) Relationship Marketing of Services--Growing Interest, Emerging Perspectives. Journal of the Academy of Marketing Science. 30. Storbacka(30), K. (2000) Customer Profitability: Analysis and Design Issues. In J. N. Sheth & A. Parvatiyar (Eds.), Handbook of Relationship Marketing. 31. Sheth, J. N. & Sisodia(31), R. S. (1995) Improving Marketing Productivity. In J. Heilbrunn (Ed.), Encyclopedia of Marketing in the Year 2000. Chicago, IL. 32. Jayachandran, Satish, Subhash Sharma, Peter Kaufman, and Pushkala Raman (32) (2005), The Role of Relational Information Processes and Technology Use in Customer Relationship Management, Journal of Marketing, 69 (October).

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33. Mithas, Sunil, M.S. Krishnan, and Claes Fornell (33)(2005), Why Do Customer Relationship Management Applications Affect Customer Satisfaction? Journal of Marketing, 69 (October). 34. Kumar(34), V (2008), Managing Customers for Profit. Upper Saddle River, NJ: Wharton School Publishing. 35. Boulding, William, Richard Staelin, Michael Ehret, and Wesley Johnston(35) (2005), A Customer Relationship Management Roadmap: What Is Known, Potential Pitfalls, and Where to Go, Journal of Marketing, 69 (October) 36. Thompson, Ed and Michael Maoz(36) (2005), What Is Hot in the World of CRM Applications, Gartner Group, Report No. G00124558. 37. Kumar, V (2008), Managing Customers for Profit and Denish Shah(37) (2004), Building and Sustaining Profitable Customer Loyalty for the 21st Century, 38. Anderson(38), Eugene W. (1996), Customer Satisfaction and Price Tolerance.

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Chapter 9 Annexure
Note: - Along with the tables and graphs a sample of CRM and Marketing strategy questionnaire and deposits of all banks have been provided.

9.1 Tables: Table Number 1. Name of the table Number of banks opened over the given years. 2. Growth of financial institution. 3. Growth of major balance-sheet indicators. 4. Exponential table (Ace) 5. 6. 7. ANOVA(Ace) Coefficient (Ace) Exponential and Quadratic (Himalayan) 47 48 50 47 26 24 23 Page no.

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8.

ANOVA(Himalayan)

51

9.

Coefficient(Himalayan) 51

10.

Quadratic (Nabil)

53

11.

ANOVAa (Nabil)

53

12.

Coefficienta(Nabil)

54

13.

Coefficient (Sanima)

56

14.

Linear model summary (Sanima)

57

15.

ANOVA (Sanima)

57

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16.

Cubic(NSBI)

60

17.

Quadratic(NSBI)

60

18.

ANOVA(NSBI)

61

19.

Coefficient(NSBI)

61

20.

ANOVA(Laxmi)

63

21.

Coefficient(Laxmi)

64

22.

ANOVAb(Laxmi)

65

23.

Coefficienta(Laxmi)

66

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24.

Exponential(NIBL)

67

25.

ANOVA(NIBL)

68

26.

Coefficient(NIBL)

68

27.

Testing of customers loyalty towards the bank.

75

28.

The reason for their loyalty

78

29.

Level of Satisfaction

80

30.

Testing the effectiveness of word of mouth.

82

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9.2 Graphs/Fig: Graph/Fig.no 1. Name of the graph/Fig Deposit ratio of commercial banks 2. Deposit collection of development banks 3. Deposit/credit ratio of finance company 4. 5. Trend of deposits (Ace) Trend of deposits (Himalayan) 6. Trend of deposits(Nabil) 7. Trend of deposits(Sanima) 8. Trend of deposits(NSBI) 9. Trend of deposits(Laxmi) 10. Trend of 67 62 59 55 52 46 49 34 31 Page no. 28

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deposits(NIBL) 11. Analysis of Market Trends of the Annual Total Deposits 12. Average total annual deposits of Commercial and Development Banks 13. Comparison of Annual Average Deposits and their trend for Commercial and Development Banks 72 71 69

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Questionnaire on Customer Relationship Management.

Dear Sir/Madam,

This is to inform you that I am undertaking a MBA program in International business for the completion of which I am undertaking a research named Market Deposit Trends in the Nepalese Banking Sector focusing specifically on 5 private banks representing the private banking sector in Nepal. Therefore, you are kindly requested to fill this questionnaire. In this connection, your valued contributions and suggestions would be highly appreciated and the information provided will be highly confidential and will only be used for my research.

Name of bank: _______________________________________.

Name: _______________

Occupation: ______________

Gender: M

Age: ____________

Q.1. Is this your first bank? (If no answer question number 2.) a) Yes b) No

Q.2.Which was your first bank? _____________________________

Q.3. Do you switch banks easily? a) Yes b) No

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Q.4. What makes you switch your bank? a) Poor interest rate. b) Declining brand image. c) Low credibility d) Poor and unsatisfactory services. Q.5. How long have you been with your present bank? a) 1-5. b) 6-11. c) 12-15. d) 16 and above. Q.6. What makes you choose your bank and earn your loyalty? (You can choose one or more options) a) Credibility. b) Interest rates. c) Brand recognition. d) Word of mouth. e) Family association. f) Good services. Q.7. How happy are you with your bank? (please tick one of the following .) a) Strongly satisfied. b) Satisfied. c) Average. d) Dissatisfied. e) Strongly dissatisfied.

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Q.8. Do you believe that word of mouth has high influence in choosing your bank? a) Yes b) No

Q.9. Do you have accounts in other banks as well? (If yes please specify the bank name.) a) Yes b) No

Q.10. Out of all the banks you have an account with which bank do you prefer the most and why?

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

Q.11. Do you think that the interest wars are a beneficial scenario for the banking sector, customer and economy? (Please state the reason as well.) a) Yes b) No

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________
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Q.12. On a scale of 1 to 10 (where 1 stands for poor and 10 for excellent where do you rank your current bank? (Any suggestion that would help the bank to develop please state below.)

a) ______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________

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Questions for an interview over the marketing strategy

Dear Sir/Madam, This is to inform you that I am undertaking a MBA program in International business for the completion of which I am undertaking a research named Market Deposit Trends in the Nepalese Banking Sector focusing specifically on 5 private banks representing the private banking sector in Nepal. Therefore, you are kindly requested to fill this questionnaire. In this connection, your valued contributions and suggestions would be highly appreciated and the information provided will be highly confidential and will only be used for my research.

Q.1. What does your marketing strategy evolve around?(choose any or all as suitable.) a. to increase deposits. b. to facilitate liquidity and break the liquidity crunch in the market. c. to encourage savings over loan. d. to ellure new customers and retain old customers. Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________
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Q.2. Do you think that the market is highly affected by the interest wars? Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ _________________________________. Q.3.How do you recommend in improving the situation ? Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ _______________________________________. Q.4. What are your views on the market deposit trends in the Nepalese banking sector ? Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________

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___________________________________________________________________________ ____________________. Q.5. What do you recommend as the utmost essentials for an effective marketing starategy? Ans._______________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ______________.

Q.6. Do you think that the increase in excessive bank entries is a threat to your bank and the banking sector ? (please support our answer with a reason. ) Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________

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Q.7. Do you that the existing interest wars is a healthy business practice that prevails in our Nepalese banking sector ? Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ __________________________________ Q.8. To what extent has the interest wars affected your marketing strategy? Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ____________. Q.9. The ideology that loans should be discouraged and savings should be encouraged is that healthy in your point of view ? Ans._______________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________
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___________________________________________________________________________ ______________. Q.10. Please provide an open view on your companys marketing strategy. Ans. ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ ________.

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Deposits of the 7 chosen banks.

Year of deposit Name of the bank Total deposit in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year of deposit

Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Ace development bank ltd Name of the bank

55.53 49.72 62.54 65.99 77.94 171.04 194.90 148.15 218.61 322.84 Total deposit in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year of deposit

Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Himalayan bank ltd Name of bank

17613.67 18595.20 21002.80 22760.90 24831.10 26456.20 29905.80 39805.30 34681.00 37021.80 Total deposit in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd Nabil bank ltd

15838.90 15370.60 13437.70 14098.00 14586.80 19348.40 23342.40 31915.00 37348.30 44023.20

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Deposits of the 7 chosen banks.

Year of deposit Name of the bank Total deposit in millions

2004 2005 2006 2007 2008 2009 2010 Year of deposit

Sanima bikas bank ltd Sanima bikas bank ltd Sanima bikas bank ltd Sanima bikas bank ltd Sanima bikas bank ltd Sanima bikas bank ltd Sanima bikas bank ltd Name of the bank

238.36 750.00 1822.70 2800.87 4417.50 5760.20 7540.29 Total deposit in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year of deposit

Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Nepal SBI bank ltd Name of the bank

6618.40 5572.20 6522.80 7232.10 8645.80 10852.70 11445.20 13715.40 27457.20 28882.50 Total deposit in millions

2002 2003 2004 2005 2006 2007 2008 2009 2010

Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd Laxmi bank ltd

112.60 691.80 1684.30 3028.60 4444.30 7611.70 10917.20 16051.30 16764.70

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Deposits of the 7 chosen banks.

Year of deposit Name of the bank Total deposit in millions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

NIBL NIBL NIBL NIBL NIBL NIBL NIBL NIBL NIBL NIBL

4256.20 4174.80 7922.80 11706.30 14254.80 18927.30 24488.90 34451.80 46697.90 47340.30

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Chapter 10 Case study Interest wars a curse to the Nepalese banking sector
The banking industry of Nepal doesnt seem to be going in right track. The ongoing interest war and expansion of banking network unprecedentedly has further aggravated the problem. Till date there are already 31commercial banks, 75 development banks & 84 Finance Companies in the country. Further few are in pipeline. Alone in Kathmandu there are more than 100 private commercial banks involved in the competition. Opening of branches and the installation of ATM machines has led to more idle cash lying around at branches and machines.

With the liquidity crunch banks are having a run for deposit. Banking and financial institutions are facing tough time to honor customers obligations. Liquidation of Nepal Development Bank Ltd., liquidity crunch of last September and recent charge sheet filed against top honcho of two of the development bank still haunts the depositors. They would rather feel safe to keep money in their home than to put in bank. The banks/FIs are luring depositors with higher interest rate. The interest rates vary from 10.25 % in savings to 12% in fixed deposits. Today the Nepalese banking sector due to stiff competition and excessive saturation face an informal interest wars where to allure the mass they provide competitive edge through high interest rates. Banks today are fighting for existence and their bread to keep them alive is the high interest they are providing to the customers against deposits.

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The wave of currency and banking crises that began in 2008 had come across as bearish with regards to the prospects for the Nepalese economy, but it's worth asking what exactly "bearish" means. It is the expectation below-trend growth. Is this real risk to the Nepalese economy? I see some of them as being fatal. And the opportunity cost is high. Years of economic slack mean missed chances at investment, innovation, and opportunity. Recent liquidity crunch in the money market has caused enormous pressure on banks and financial institutions to adjust the interest rate to a new high as there were no options left. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic markets as well as international markets, has brought pressure on the management of banks to rethink spreads between profitability and long-term viability. It is painful and the recoveries will be uneven that it can further cause deterioration of microeconomic stability.

NRB recent staunch stand on real estate sector in order to protect the economy as whole has further pushed bank note away from bank. Buying and selling of land has started taking place in personal capacity of an individual. As the liquidity crunch since December was a result of over-aggression in lending particularly in the real estate sector.

Decline growth of inflow of remittance in country, decreasing foreign reserves, trade deficit, rise in import of Gold, dwindling political atmosphere of country in terms of substance and mean, capital flight and etc., are contributing factors of economic slowdown. People with abundance disposable income was left with choice of either kept the money in bank or

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investment in some fixed assets (lack of invest opportunity). People resorted to second; as a result we have witness whooping growth in real estate sector.

It is not a light scenario this galloping interest rates is a high threat to the countrys banking sector credibility and existence. Industrialists have warned that the higher interest rates and liquidity crunch are likely to shutdown businesses. Deeply concerned about their investments, they have urged the Nepal Rastra Bank (NRB) to lower the interest rates and counter liquidity crunch.

Investors and industrialists from various business sectors are increasingly concerned about the galloping interest rates, shortage in Indian currency coming into the country and the increasing cost of doing business. They fear that the country is heading for a sure shot economic meltdown.

In order for NRB to counter the unfolding scenario, they have suggested that a regularized system be put in place and the ever-increasing interest rates be checked. They argued that lack of investments has been propelled by higher interest rates which they said is hurtling industries.

LET'S take a step back for a moment. Early ninety, one area identified by economists as important for financial sector reforms is the banking sector reform. The environment in the financial sector in those years was characterized by segmented and underdeveloped financial markets coupled with paucity of instruments. Nepal has brought about vast changes in
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banking sector. The reforms have accorded greater flexibility to banks to determine both the volume and terms of lending. Since the onset of the reforms process, monetary management in terms of framework and instruments has undergone significant changes, reflecting broadly the transition of the economy from a regulated to liberalized and deregulated regime. Early 2000 the acceleration of economic growth and the reduction of interest rates and interest rate spread lead to upward phase of the business cycle reduce expected project risks and the cost of funding. These conditions increase both the demand for credit and the rate of return on loans, leading banks into a process of escalating credit expansion. During the stage of buoyant activity banks usually underestimate the risk of future losses, a phenomenon the literature refers to as disaster myopia. The overestimation of credit quality increases the speed of credit growth, which helps to amplify the cycle. Under the pressure of increased competition, banks often relax their standards of risk appraisal and accept borrowers with lower credit quality. The tightening of monetary policy that usually takes place at the end of the boom has also induce more rather than less risk taking for some time, due to problems of adverse selection, since borrowers with riskier projects willing to pay higher interest rates. With the high interest rates at the end of the boom and the outbreak of the downswing has accelerated the deterioration of nonfinancial firms balance sheets and, thus, of credit quality. Experience indicates that the subsequent deterioration of banks balance sheets becomes apparent after a credit boom with a lag of approximately three years. In the absence of new capital, which is hard to raise when balances have deteriorated, banks are forced to constrain lending even if borrowers are willing to pay higher interest rates. The severity of the credit crunch that follows will depend on the magnitude of the credit boom. Once risks have accumulated authorities have little room to choose between these effects
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resulting from falling market confidence and domestic monetary contraction. External constraints to the banking system in terms of the some of the statutory requirement have been stepped up. And I do think that if things took a major turn for the worse the authorities would finally step up and take additional action. Big policy challenges would await the country. Fiscal issues will be very difficult to tackle in this case, and the country would face structural investment issues. All this has meant lesser lendable resources at the disposal of banks. Therefore major goals for financial sector reform should be to prevent liquidity and banking crises and better manage them when they occur and to support low-income earners. Prudential regulation and supervision should take into account not only microeconomic, but also the macroeconomic risks associated with boom-bust cycles. Ace Development Bank Ltd . Has also been one of the victims of interest wars a brief introduction of Ace prior to seeing how it has been affected by the interest wars. INTRODUCTION

Ace Development Bank Ltd. has been a leading player in the financial market of Nepal. It was founded in August 1995 as Ace Finance Company Ltd. and was upgraded to Ace Development Bank. Over the years, customers and regulators have been in appreciation of the many financial products and innovations developed by us. Our diversified risk asset portfolio has served the economy in every sector as have the wide choices of deposit account schemes. Our wholesale banking initiatives have assisted numerous commercial banks and private enterprises with risk management.

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Our resolve to provide client-centric solutions and surpass the expectations of our stakeholders remains firm and unyielding. We are now in a position to provide various products to serve all our customers needs under one umbrella. We are now more competitive than ever with new products and innovations in the pipeline.

Corporate Governance is another aspect which we strongly believe in. The Institute of Chartered Accountants of Nepal has awarded us the Best Presented Account Award .

Our employees are all qualified with a minimum of a Bachelors Degree. All our managerial level personnel have a minimum of an MBA degree. Employees are constantly upgraded in seminars, workshops and training programs in the country and internationally. Ace Development Bank prides itself in having the highest productivity in ratio to its size. MISSION Mission Statement: BANKING ON INNOVATION AND INTEGRITY

- To be the preferred provider for financial services by introducing a wide range of banking products. Hereby enhancing and maintaining quality service to our clients - To serve a larger base of customers by expanding geographically - To participate in the economic development of Nepal by providing services in micro finance, infrastructure development financing etc. - To ensure maximum value to stakeholders
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- To focus on good corporate governance and corporate social responsibilities - To diversify revenue stream - To continue to invest in talent - To become a financial conglomerate

Ace turned into a development bank in the year 2005 ever since when it started to maintain current accounts. The interest rates of Ace have varied over the years and at an increasing rate.

Year

Interest rate for Interest rate for Interest rate for lending deposit deposit

Savings 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 5%-7.5% 5%-8.25% 5%-7.25% 5%-10.25% 8.25%-10.25%

Fixed 5.5%-7.00% 5.5%-8.00% 7.25%-9.00% 8.5%-12% 8.5%-12% 8%-12% 9%-13% 10%-13% 14%-17% 15%-18%

The liquidity crunch started in the year 2008 in the Nepalese market but it had a slow pace its vital impact with force showed its colors in 2009-2010 that was the time when deposits became next to impossible . Also with a lot of bank liquidating the trust over banks with the customers became low they preferred securing their money at home then depositing it in the banks. Thirdly with the banks giving out enormous loan to the unproductive sector i.e. the
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real sector market turned out to be of a great loss as the inability of repayment of loan left banks with low source of funds. The only means out was increase in interest rates to allure deposits. Banks involved themselves into unhealthy practice of interest rates hike which went up to 16% in some cases. This unhealthy practice for survival had several affect on the working of banks Ace was also victimized by it.

Effect of interest wars on Ace:

1. Declining profit growth rate:

Rising interest rate and high cost of funds could hurt the profitability of the banking sector. Going ahead, with hardening interest rates and the imminent increase in cost of funds due to it, the credit growth slowing down, which adversely has affected the profitability of the bank recorded from 2008-2010.

Any Bank earns its profit out of the investments (loans) it gives and since there has been a drastic fall in the growth rate of loans and advances at Ace the profitability has also declined. Evidence being that the profit of Ace as recorded in 2009-2010 was 7.97 crores, where as I the last quarter (9 months) 2010-2011 the profit recorded has been 3.3crores. This clearly shows the decline in the profit growth rate.

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2. Increase in the cost of deposit:

In the last three years the average cost of deposit incurred by Ace has been as follows:

2007-2008 4.4%

2008-2009 5.15%

2009-2010 9.7%

One can clearly see from the above figure how the cost of deposit incurred by Ace has increased resulting out of the various products and their high interest rates provided by Ace to beat the competition in the market 2009-2010 being the peak of liquidity crisis in the economy .

3. Increase in the operation cost

Ace to meet the competition in the market and for its survival has provided products such as Ace saving deposit account where the minimum held amount is nill/0. To allure customers just to encourage savings and customer base Ace opens accounts at zero balance but provides all services that a bank should provide free cheque issuance, free Atm card issuance for a year the cost of which the bank has to bear ultimately increasing its operating costs.

4. Decline in the growth of loan and advances:

There has been a decline in the growth rate of loans and advances at Ace. The interest rates provided by Ace on loans and advances over the last three years have been:

2007-2008 6.8%

2008-2009 11.84%

2009-2010 13.28%

The increase in the interest rate has been a result of the increase in the interest rate on the deposits issued by Ace. Profit of the bank=interest on loans it collects interest on the
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deposits it gives. Therefore hike in the interest rates of the deposit has a direct impact on the interest rates of loans and advances of the bank thus there is an increasing in the interest rate on the loans and advances and with the increase in the loans and advances the growth of giving it out by Ace is slowing down .

Another reason for the slow growth of loan and advances is the instable political and economic conditions of the country, investors do not want to deposit and thus discouraging investments and hampering the growth of loan and advances at Ace.

5. Slow growth of customer:

Unlike other banks Ace has not really lost its clients and there has not been a great decline in the customer base but however the growth rate has slowed down reasons being too many banks providing the same interest rates and products as Ace provides with different names and the customers are less so there is always a threat of customers switching banks easily and it is happening as well.

Another reason for low deposits or customers is that there is a rumor in the market that many banks are liquidating this has created a fear in the hearts and minds of the customer and today they prefer keeping their accounts either at home or in a government bank and ace being a private banks is faced with problems of alluring customers.

6. Change in policy:

Another issue faced by Ace as a result of the interest war is that since interest war has created a scenario where in all banks provide similar interest and similar products competition stands tough to break so in order to break this wall Ace has changed its policies and the bank has

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become more service oriented to differentiate itself from the rest of its competitors. Its policies, investment etc is concentrated more today to improve its services.

Competitor Analysis

Analysis of Ace competitors under following grounds in which they yield competitive advantage. 1. Interest rate It is apparent to all that interest rate in both lending and deposits are increasing in all banks/FI and Local banks/FI seems to be leader in this context. With as high as 9% in daily balance in saving and 12%+ in FD has ruin the market of other banks/FIs 2. Innovative product/service Those banks which dont want to get in interest war are coming up with new innovative products & service. Like, Everest bank doing Ghar-Dailo Banking Sewa & Bank on Wheel service whereby it can provide banking facilities to nearby village. Nabil banks Miss Players Nabil Nari Bachat whereby it provides a discount card and a gift voucher of NPR 500 on the opening of account. Kist banks Tax Free Savings Scheme where bank itself pays a tax of depositors & Peace Savings & FD where bank contributes certain amount on Mr. Pushkar Shah's "Peace Expedition Fund" account on behalf of customer. Laxmi banks Green saving & Online Trading through Mercantile Exchange Nepal Nepal SBI banks Saral Bachat Khata whereby it provides free UTL sim to every account holder.

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Nepal Bangladesh Banks Griheni Bachat whereby it provides free medical insurance worth Rs. 10,000 to its account holders.

Sunrise Banks Sunrise Pink Deposit Account whereby it provides free dinner coupon and discount card.

3. Service with extra package In addition to providing better interest rate some banks are providing services with extra packages like, Discount on processing fee on loan. Accidental insurance, discount on life insurance Discount cards e-ticketing service, paying telephone, GSM mobile bill, Insurance premium etc Evening counter, 365 day banking etc.

4. New entrants There are still few upcoming banks/FIs like Janata Bank Nepal, Megha Bank, Century Bank, Consumer Development Bank etc. With the entry of these new banks competition is going to be stiffer & it is obvious that they are going to share the same market. 5. Branch expansion There are some banks which are moving aggressively in the race of branch expansion. There are more than 100 branches (including HO) of different commercial banks, development banks & Finance Companies in and around Kathmandu valley and many more are in pipeline. Kist bank is a leader in this field with 44 branches and 43 ATM outlets all over Nepal. Further 3 more branch & 6 ATM outlets are on pipeline.
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Machhapuchhere bank has 32 branches & 36 ATM outlets. Further 10 upcoming branches.

Sangrila Development Banks 13 branches Fewa Finance 4 branches including HO. Further 2 upcoming branches . Kamana Bikas Bank 4 Branches Kaski Finance 2 braches both in Pokhara Global banks 23 branches and 4 in pipeline. 35 branches of Everest (32 ATM). 29 branches of HBL & 7 upcoming. 27 branches Sanima bank, 37 of Nabil bank etc.

6. Strategic alliance Few banks have come up with strategic alliance with other organizations (including competitors) to cope up with current stiff competition and can be a driver of superior growth. Everest Bank Tie Up With Morang Auto Works For Yamaha Bike Finance. The bank will finance upto 70% of quotation price or maximum Rs 2.00 Lac at 10.00% interest rate for tenure of 3 years. HBL, BOK and Laxmi Banks Alliance Partnership for Extended Services whereby customers of any one of the banks will be able to deposit / withdraw / transfer their money from any branch to other branches of all three banks. Nabils Co-branding arrangement with Miss Players. The account holders receives a gift voucher from Surya Nepal Pvt. Ltd. further gets special discounts/offers from various organizations/outlets/shops/restaurants/hotels within the valley.

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7. Relationship marketing The marketing strategy in banking industry is focused more on relationship marketing. Every businessman has some investment in some banks & finance companies (this is even more in Pokhara). Hence the deposit of those businessmens and their relatives flow towards their own banks/FIs. Recommendation to Ace. There is no doubt that the tag of NRN is sellable in the market. However there are still some places where other external factors rules and diminish this goodwill. Hence we have to come up with some innovative new ideas that can dramatically attract the customers. Some recommendations have been placed below. 1. Medical insurance The focus of Ace always seems towards push strategy for selling their deposit products. New innovative products should be launched which the customer give high preference. Like, adding medical insurance package in some of our product. 2. 365 banking/ Free ABBS There is no doubt that due to high competition more and more financial institutions are going on 365 days banking & free ABBS. We can also think for the same for all/some of our branches. 3. Mobile/Home Banking Due to the busy schedule or branch being far from the residence, the individual depositors may not be willing to deposit their money. Or if they deposit, there is always a problem of withdrawing small amount of money. This problem can be solved if we provide weekly

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collection/payment for some special areas. However, payment shall be done only upto Rs. 10,000/- if call is made before 12:00. Possibility of the mobile/home banking can be seen. 4. Discount card A product can be launched whereby we can offer special discount in monthly fee or admission fee of colleges/schools to our depositors or their family members. To increase our customer base we can also apply this for existing students. 5. 3 in1 Saving deposit Scheme We can enter in to agreement with any of hydro power company or any big company , where Ace will be a lead bank. An individual can open an account with us with minimum deposit of NPR 25000.00 This will attract interest rate of 7% p.a. Every account holder under this scheme will directly qualify to be share holder (10-20% of total capital) of any of the Hydro Power Project, where Ace will be involved. Saving, Investment and earning will be the major highlights of this scheme.

6. Strategic Alliance We can go for strategic alliance with other banks for sharing ATM machines whereby customers of both the banks can use ATM machine without paying any additional service charges. Though Ace has such a strategic alliance with the Himalayan Bank but still a charge of 10/- is deducted in every transaction.

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Conclusion
However to enclose interest war has definitely proven to be a bad omen to the banking sector of the country. Not just the banking sector but the entire economy as a whole. Measures should definitely be taken by the apex banks which has 25 billion kept idle in its bank by utilizing this amount it can aid in injecting liquidity in the economy and resolving the interest war problem. Ace is fighting well with this scenario but it should be very careful ion every measure it takes because one wrong move can cause in the collapsing of the bank.

No doubt survival under this scenario depends on the holding capacity of the bank. The real challenge now is to reorient Ace from lending to deposits. The strategy has to be to bring the households outside the valley (Kathmandu) into banking and turn them from customers to savers.

Ace undoubtedly is making good and healthy efforts and has innovative products to encourage savings . This is a war and the fighters in the battle are the banks now it is up to them to decide whether to practice the right method of winning the war or to undertake malpractices and strategies of winning i.e. interest wars all banks should get together and try putting an end to this war of interest because if not done it will destroy everyone .

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Chapter 11 Synopsis

Ace Development Bank Ltd.

Market Trends of Deposits In The Nepalese Banking Sector.

My research paper analyses whether the market trend of deposits in the Nepalese banking sector is an upward or downward trend. It finds out whether the study of CRM and its applicability has a positive and direct impact on deposits and it tests the myth word-ofmouth is an effective tool that facilitates the customers to select a bank.

The study comes up with results stating that there is an upward trend of deposits in the Nepalese Banking Sector and that there lies a positive and a direct relation between CRM and Deposits. It states that better CRM=loyal customer-base=greater volume of deposit. And finally that the word-of-mouth is no longer an instrument that causes customers to select a particular bank. Customers look for 1.credibility2.good brand name and good services today to select and to be associated with a particular bank.

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Though the Nepalese banking sector may be suffering from a crisis yet if the Government of Nepal invest the 25 billion it has lying in the NRB account kept unused into the economy for development it will inject liquidity thus breaking the liquidity crisis and resolving the issues faced by banks in Nepal .The NRB must also build strict and stable policies that are practical in nature. Banks must concentrate on training their employees in CRM and improve terms with their customers and create innovative products as well .At last instead of banks indulging into informal unhealthy interest wars they must cling onto healthy measures in growing and developing themselves their customers and the economy they operate in .

This study firstly helps the banks in Nepal to realise the importance of CRM and train their officials in activities related to CRM. Secondly, the top management can use this framework to develop marketing tactics and strategy as it presents the actual scenario of where the bank stands and how a bank can improve. Thirdly, it makes one realise that even though the country is hit by the economic and political crisis by building a strong CRM and strategies to support its effectiveness the bank can still attain high deposits and break through crucial times. And finally, that this study provides a clarity to the real picture of where our bank are leading to and the efficiency of our banks via. their upward trend of deposits, which is handy to customers and investors as well. About my Industry guide: Priya maam is one of the major reasons behind the completion of my project she has supported me in all possible ways. She has been a great help getting me appointments at various banks as she had great contacts.

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She has a very dynamic personality. She is great at her job. A great communicator and orator. She excludes an immense level of confidence a very vibrant and active personality. Very friendly and professional at the same time . Strikes a great balance between fun and work. She is just perfect I am glad I got her as my industrial guide and got to learn a lot from her.I thank her from the bottom of my heart .

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