CHAPTER I INTRODUCTION

1.1 Background of the study The term bank is derived from Latin word Bancus, Italian word Banca, French word Banque and German word bank which means join stock company. (Neupane, 2065) Money lenders in the streets of major cities of Europe used benches for the acceptance & payment of valuables & coin. The merchants, goldsmith & money lenders are said to be the ancestors of modern banking. The history of modern banks begins from Bank of Venice (Italy) established in 1157 A.D. The major historical development in banking sectors are Bank of Barcelona (Spain) established in 1401, Bank of Genoa established in 1407, Bank of Amsterdam (Holland) established in 1609, Bank of Hamburg established in 1619 (German) & Bank of England established in 1694. There is no concrete evidence that from when the traditional Banking system has been introduce but there are so many evidence of transaction of coinage since the ancient period. In the 879/880 AD (936 BS), Sankhadar Shankhwa introduced a new era after paying all the debts that existed in the country. In 1877 AD(1933 BS), Prime Minister Ranodip Singh established Tejarath Adda with the purpose of providing credit facilities to the general public at a very concessional interest rate, which was the first step towards the institutional development of Banking in Nepal. Kaushi Tosh Khana established during the regime of King Prithivi Narayan Shah is also considered another step towards initiating banking development in Nepal. Banking in modern sense started with the inception of Nepal Bank Limited established in Kartik 30, 1994 BS. It played dual role of commercial bank & central bank till the establishment of NRB, Nepal Rastra Bank was set up on Baisakh 14, 2013, as a central bank under NRB act 2012 BS. & later in 2016 Nepal Industrial Development Corporation (NIDC) was established, in 2022 BS Rastriya Banijya Bank

as a fully government owned commercial bank was established; in 2024 Agriculture Development Bank was established. To operate all commercial uniformly under single act, commercial Bank Act 2031 was enacted. In 2041 B.S., Nepal Government established five rural development banks under the control and supervision of Nepal Rastra Bank. After the reestablishment of democracy, the government has taken liberal policy in banking sector so different private banks are getting permission to establish with the joint venture of other countries. (Neupane, 2065) In 2041 B.S. the first joint venture bank of Nepal, Nepal Arab Bank Limited (NABIL) was established. The number of commercial banks operating in our country is increasing; there are all together 32 commercial banks in Nepal. Similarly, the number of development banks is 89, finance companies are 77 & micro-finance reached 21. Vibor Bikas Bank Limited (VIBOR), a national level category B financial institution licensed from Nepal Rastra Bank (the central bank of Nepal), commenced its operation in October 2007. In less than 3 years since it came into operations, Vibor has earned two distinct reputations: innovative player and trustworthy partner. Successful launch of deposit products like Vibor Super Yield Deposits I and II, successful launch of Vibor Super Share Deposit, successful acquisition of Rabi Bhawan from the US Embassy for Rabi Bhawan Boutique Hotel and Mansions, engagement in building commercial complexes in leased properties from JP School and Nepal Ex-service men Associations are few testimonies to its reputation as innovative player and a trustworthy partner. The mission of vibor bikas bank is to make capital accessible to more and more entrepreneurs and enhance their productivity. (vibor) 1.2 Statement of the Problem The old barter system of Nepal intern changes into loan system. Today various criteria and agreements are made between loan lender and receiver for example the rate of interest and the security provisions, time to return the loan, the legal action if the loan is not paid back in times is predecided. In transferring the loan, the system of security

is always ahead. This study has deal with following problems related to lending procedures of Vibors bank has practiced. What is loan issue or disbursement trend? What types of loan are available in Vibor bikas bank? What is the proportion of lending over deposit of Vibors bikas bank?

1.3 Objectives of the Study The general objective of the study is to find out the lending procedures of vibor bikas bank. However, the study will help us to find out the following specific objectives: To know about the loan types of Vibor Bikas Bank. To analyses the recovery of loans. To analyse the deposits amounts of Vibor Bikas Bank. To analyse and interpret the proportion of lending over deposit of Vibor Bikas Bank

1.4 Significance of the study The project report is useful for every person who is keenly interested to know about the banking history and the lending procedure of vibor bikas bank. This study will be very helpful to the researches for literature review because it will provide basic knowledge about the topic. Policy maker and researchers will know the areas for further improvement in the field of loan of vibor bikas bank & can give some ideas for development of Nepal. This study will mainly visualize the current situation of the vibor bikas bank branch in Pokhara. It will be helpful for the loan department of vibor bikas bank. This study will be helpful for academic requirement of graduates.

1.5 Limitation of the study

The study is done under the following limitations: It is concerned only with the lending procedure of Vibor Bikas bank, Pokhara branch. Study will be based on the data provided by the concerned authorities. Time and resources put constraints for the study. The study will be based on the secondary and recent data.

1.6 Literature review

Bhattarai (1978) in her thesis paper lending procedure of commercial bank in Nepal has examined the lending practice of the commercial banks. The researcher found the result that utilization of resources is more important than the collection of the deposits. So, the recommended the banks to give more attention on the efficient utilization of the resources which help in the economic development of the country but she has concluded that utilization of resources is more important than the collection of the deposits. So, the recommend the banks to give more attention on the efficient utilization of the resources which help in the economic development of the country but she has concluded the efficient utilization of resources is more important means that lowers capital formation that hampers economic development of the people and the country. So the recommended that banks should give emphasis on effective utilization of resources (Bhattarai, 1978)

Pandey (2004) studied on his study An evaluation of loan disbursement and collection of Agriculture Development Bank. The main objectives on his study has been to try and expose the target of loan disbursement and collection ,achievement of purpose-wise ,term-wise and region wise loan disbursement, out standing and collection. He concluded that the achievement of loan disbursement and collection is

the growth rate of disbursement is fluctuated over the study period and achievement of collections is found increasing throughout the study. He found that the actual loan out standing is increasing and loan increasing in loan disbursement and out standing loan of ceral crop, bio-gas, tea-coffee than agri-business in terms of purpose-wise. in the term-wise short term and medium term loan disbursement, collection and outstanding are increasing trend over the period and long term disbursement and outstanding is fluctuated where as loan collection is in increasing trend throughout the period. (Pandey, 2004)

Shrestha (2007) focused on Deposit collection and loan disbursement of Agricultural Development Bank of Nepal. Total deposit collection and total loan disbursement trend has increased in each year. So, loan disbursement shows the increasing demand of agricultural credit. The loan collection of short term is higher than medium and long term loan. She concluded that the bank is moving to positive direction due to the Reform programme , implemented. Although the bank has not enough fund and internal resources for its extensive programmes, it has developed its ability to refuse the assistance provided by foreign donor agencies, if the banks consider the assistance out of its priority. Her major analysis and findings is that the market of commercial bank has become competitive everyday because of the participation of private sector deposit in the tough competition. ADB of Nepal, Head office and Kathmandu has been successfully collecting the deposits from customer. (Shrestha,2007)

1.7 Research methodology 1.7.1 Research design The design of this research is descriptive and analytical in nature intentionally it is a small process of finding facts about the loan procedure of 5 years of vibor bikas bank. The research was based on the data provided by the concern bank i.e. vibor bikas bank.

1.7.2 Sources of data collection The study was based on the secondary data like; the annual reports about the loan issuance, the bad debt accounts arise in the fiscal year and the profit arise in term of interest earned.

1.7.3 Data collection procedure The information required were collected from the data like brochure, documents, and related journals and publication books related to banking and annual reports of the bank related to the topic.

1.7.4 Data processing and analysis The obtained raw data from different sources were converted into required form. Only after that the data was present for this study. Different tables & graphical presentation were used to represent the data. Computer software program will also use.
Participations Market scenario

1.8 Theoretical framework

Banks capital

The lending procedure of Vibor Bikas Bank will be dependent variable and the
Lending independent variables are: Procedure

Independent variables Lending policies

Expected yield

Technology

1.9 Organization of the study For the systematic presentation of the report, the research is divided into following three chapters: Chapter I: Chapter II: Chapter III: Introduction Data analysis and presentation Summary and conclusion

CHAPTER II DATA ANALYSIS AND PRESENTATION

2.1 Data Presentation and Analysis In this chapter, presentation, analysis and interpretation of relevant and available data of vibors bikas bank has been dealt in order to fulfil the major objectives of this study. It presents various financial data in tabular, graphical and mathematical way. The data has been analysed according to the research methodology as mentioned in chapter one to get the best result.

2.2 Concept of credit The term credit refers to the amount of money borrowed by the individuals from the bank. Basically, bank offers two types of credit facilities namely funded facility and non-funded facility. In the case of funded facility offered, cash is involved such as in OD facility, Demand loan, Time loan, Short-term loan, Long-term loan etc. In the

case of non-funded facility, cash is not involved but only the contingent liabilities increase such as LCs and Guarantee facilities. There are different types of credit facilities offered by vibors bikas bank, under the analysis of study are; 1. 2. 3. Gold and silver loan Fixed deposit(FD) Hire purchase loan a. Hypo-Com(Hire purchase commercial) b. Hypo-Ind(Hire purchase individual) 4. Overdraft a. OD-Com(Overdraft commercial) b. OD-Ind(Overdraft Individual) 5. 6. Cash credit Consumer credit a. Margin lending b. Auto loan c. Home loan

Brief explanations of different types loans listed above are given below: 1. Gold and silver The loan provided to consumers against the security of gold and silver is known as gold and silver loan.

2. Fixed deposit(FD)

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Some individuals and commercials put the certain amount as FD for short and long term. The loan provided to those individuals and commercials against their FD as security is called FD loan.

3. Hire purchase loan Loan given for the purchase of new vehicles is called hire purchase loan. It is of two types: a. Hypo-com The hire purchase loan given to the commercial sectors such as the industries and business houses is called hypo-com loan.

b. Hypo-Ind: The hire purchase loan given to the ordinary persons or individual is called the hypo-Ind loan.

4. Overdraft A recurring (revolving) credit facility, offered to the loyal and regular and faithful customers for meeting fluctuating working capital needs for funding current assets, overheads and administrative expenses is called overdraft loan.

a. OD-Com: The OD loan provided by bank to the commercials like industrialist and business houses is called OD-com loan.

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b. OD-Ind: The OD loan provided by bank to the ordinary persons or individuals is called OD-ind loan.

5. Cash credit Credit provided by bank depending upon the volume of inventory or stock of the consumer is called cash credit loan.

6. Consumer credit Loan given to the consumer in different is consumer credit. The different types of consumer credit offered by vibors bikas bank are:

a. Margin lending The loan given to the consumer to purchase the land and to hire the land for the development of infrastructure is called margin lending.

b. Auto loan The loan given to the consumer to buy the vehicle against the other security and vehicle itself as a security is called auto loan.

c. Home loan

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The loan given to the customer to buy or build the home against the capacity of consumer to pay the loan and interest such as monthly salary, gold and silver security etc is called home loan.

2.3 Ratio Analysis

The secondary data collected through the vibor bank is tabulated and the needed ratio is obtained and present in various figure. On the basis of figure various analysis is made.

2.3.1 Loan

Loan is the sum lent to others for certain time period with the agreement to charge the interest on principal. The interest is charged certain percentage on the principal. When money belonging to one is advanced to another to be used for certain period, it is called loan. The basic of loan advancement is to earn interest as the reward for lending the sum for specific period. The following table shows the total loan made by Vibors Bikas Bank invested in different sectors of 3 years:

Table 2.1: Loan amount of Vibor Bank Amount in (000) Types of loan FD loan Hire purchase loan 2066/67 1,49,647 4,77,101 2067/68 53,678 1,399,226 2068/69 16,493 9,10,694

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Overdraft loan Cash credit Consumer loan

7,084,60 1,118,229 6,26,748

1,367,285 1,343,455 1,452,904

1,371,834 5,23,611 9,27,187

Source: Annual report of Vibor bank Table 2.1 shows that bank has its highest portion of lending is made on overdraft loan (in aggregate) which have an increasing trend as the years increases. The second highest portion of the bank lending is made in consumer loan (in aggregate) which increases in fiscal year 2067/68 from the amount of fiscal year 2066/2067 and again decreases in the fiscal year2068/2069. The third highest portion of bank lending is made in cash credit (in aggregate) which increases in the fiscal policy 2067/68 from the amount of fiscal year 2066/67 and then decreases with the great amount in the fiscal year 2068/69. The second lowest portion of the bank lending is made on the hire purchase loan (in aggregate) which has same trend as consumer loan. The lowest portion of the bank lending is made on the FD loan (in aggregate) which has a decreasing trend as the years increases. Figure 2.1: Total loan of Vibors bikas bank of fiscal year 2066/67

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Figure: 2.2 Total loan of Vibors bikas bank of fiscal year 2067/68

Figure: 2.3 Total loan of Vibors bikas bank of fiscal year 2068/69

2.3.2 Deposit

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Deposit is the funds collected by the bank from account holders for the security and transaction motives. It is the amount of money or a valuable item that is received into a bank as security against possible loss. Deposits are the foundation upon which banks thrive and grow. They are a unique banks balance sheet that distinguishes it from other types of firms.

Deposits provide the most of the raw material for the banks loan. It represents the ultimate source of bank profits and growth. Deposits creates cash reserves fund. Maintaining required cash reserves, the excess cash fund, a bank holds is lent to borrowers. Thus, deposits create loans. Therefore the management should be able to use deposits efficiently.

Table 2.2: Deposit of Vibor Bikas Bank

Deposits (source) Domestic Foreign 2066/67 3,015,252 -

Years/Amount 2067/68 2,776,055 2068/69 2,981,286 -

Source: Annual report of Vibor bank

The given table clearly reveals that the domestic deposits collection of VBB in the fiscal year 2066/67 is higher than of later years. It has been decreased in the year

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2067/68 and again increased in the fiscal year 2068/69. However, bank has no foreign deposit collection in any of the fiscal year.

2.3.3 Loan to deposit ratio

The following table shows the amount of loan and deposit made by VBB along with ratio of loan to deposit which measures the capacity of VBB to manage its fund. It is the amount of a banks loan divided by the amount of its deposits at any given time. The higher the ratio, the more the bank is relying on borrowed funds, which are generally more costly than most type of deposits.

Table 2.3 Loan to deposit ratio Year 2066/67 2067/68 2068/69 Loan(1) 3,080,185 5,616,548 3,749,819 Deposit(2) 3,015,252 2,776,055 2,981,286 Ratio(1/2x100) 102.153% 202.321% 125.778%

Source: Annual report of Vibor bank

Figure: 2.4 Loan to deposit ratio

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Loan to deposit ratio

29%

24%

2066/67 2067/68 2068/69 47%

The above table shows that VBB have higher loan to deposit ratio in 2067/68 than in 2066/67 and 2068/69. The total loan and advance has increase from 3,080,185 to 5,616,548 and 3,749,819 in 2066/67 to 2067/68 and 2068/69 respectively. Loan to deposit ratio is 102.153% in 2066/67, 202.321% in 2067/68 and 125.778% in 2068/69.

2.4 Sanctioned Procedure

When a potential borrower applies for the credit facilities, credit department interviews the client. The credit department makes the tally of the information provided in the proposal by the potential customer. If the proposal submitted looks ok, the credit department prepares the appraisal report. The credit appraisal report will be prepared based on the following information:

Personal inquiry.

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Credit Information Bureau (CIB) report, CIB report can be waived if amount of facility is up to Rs.500,000/ Financial statement of the applicant for last three years, to the extended applicable including income statement, profit and loss account, balance sheet. Bank accounts of the applicant for last six months from the ongoing concern. Project report to the extended applicable. Legal documents such as company registration, income tax registration, industry registration, memorandum and article of association, resolution to obtain loan etc to the extended applicable. If the credit department finds the proposal viable it forwards the proposal to the credit committee headed by the Executive Director. If the proposal is within the authority limit of credit committee, it approves or rejects the proposal. If the authority is beyond the limit of credit committee, it will be forwarded to the investment committee.

2.5 Basic Lending Procedure

The basic procedures to follow for all types of loan are similar in nature. The basic procedure to be followed includes the activities such as: Form filling. On the spot assets. Evaluation of assets.

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Obtaining of credit information from other financial institution. Cessation of collateral at Land Revenue office (LRO). Make bond (Tamasuk) and release of first instalment.

For obtaining bank loan, one should have opened his/her current account for at least six months. Step-wise activities to be followed while obtaining the bank loan involves: Step 1: Contact to the loan section of the bank The concerned person at the loan section of bank will ask you, generally the following question: What type of business are you going to operate? Where are you going to operate? How much money do you want and for what purpose? What is your collateral for the loan?

After seeing the projects potentially, the person will provide the brief of the necessary documents to be submitted by the entrepreneur for applying loan to the bank. The necessary document to be submitted to the bank includes: Bio-data Citizenship certificate of loanee, guarantor, proprietor, director and partner Details of security such as lal purja, revenue receipt, registration documents should be provided Land survey map Land boundary certificate/ certificate of building

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Passport size photograph-2 Address of the borrower and sketch of the place of residence Income details Land/ building lease agreement Third party collateral Driving license If security is vehicle Blue book Tax book Details of vehicle Quotation

Other credit facilities

In case of company/ following additional documents needed to be submitted: Details of guarantors Bio-data of proprietor/ Partner/ Directors Registration Certificate Income tax registration certificate Memorandum and Article of association or Partnership deed Annuals accounts for last three years Project report

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Minute of board/ partners and authority to deal with company

Step 2: Submission of necessary documents and on the spot investigation by the bank After collection and submission of the above mentioned documents by the borrower, the bank will check it whether the documents provided meets their standards or not. If the document meets the standard of the bank, they will let the borrower know the date of the investigation of project site and collateral location also known as site visit. After, spot investigation, they will give the next contact date to the borrower.

Step 3: Evaluation of the assets by bank After spot investigation, a bank employee does the valuation of the underlying collateral assets on the basis of their official pricing norms considering the fair market value of the underlying collateral assets. If bank thinks that collateral assets are enough for investment, they will give the borrower a form to be filled. Bank personnel or employees will also to fill up the form, if the borrower has any confusion in filling the form. For the purpose of valuation of the security, bank also can hires the experts that who have the license to do so and approved by the bank.

Step 4: Obtain the credit information of the borrower from other financial institution In order to find out the credibility of any borrower and to know whether he/ she is a defaulter or not, bank obtains credit information from other financial institution located nearby area before sanctioning the loan. The bank can obtain the credit information about the borrower from credit information bureau (CIB), other banks

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with whom the borrower has the past transactions and others public and private organization.

Step 5: Sanctioning/Approve of loan After evaluation of assets and the borrowers demand of loan (as filled in the form), bank will notify the borrower about the amount of loan sanctioned.

Step 6: Cessation of collateral at Land Revenue Office (LOR) After the approval of loan, official procedure will be followed to cease the collateral put at the bank by the borrower from sales and transfers to other person at Land Revenue Office (LRO).

Step 7: Make Bond (Tamasuk) and release of first instalment After cessation of first phase work, borrowers have to apply for the release of second instalment of the bank. Bank personnel will examine through site inspection whether the first instalment amount has been properly utilized or not? After satisfactory report, the second instalment will be released.

2.6 Problems And Constraints In Loan Disbursement And Loan Acquirement

After advancing loan to the customer, the loan situation may change significantly. Such unexpected change in loan situation may create great problems for banks. Loan problem situation is related mostly to the problem in the recovery of loan along with

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interest. Despite the safeguards most banks build into their lending programs, some loan on the banks book will become problem loans. Usually this means the borrower has missed one or more promised payments. The second most common loan problem is collateral pledged behind the loan that has declined significantly in value. Expect these common loan problems, there are several other diffident loan problems that may also arise in the bank that may trouble the loan officer are: Unusual and unexplained delay in receiving promised financial reports and payments or in communicating with the borrower. Adverse change in the price of a borrowing customers stock. Deviations of actual sales or cash flow from those projected when the loan was requested. Sudden, unexpected and unexplained changes in the deposit balances maintained by the customer. Net earnings losses in one or more years, especially as measured by returns on the borrowers assets (ROA), or equity capital (ROE) or earnings before interest and taxes (EBIT). For business loans, restructuring outstanding debt or eliminating dividends, or experiencing change in the customers credit rating. For business loans, any sudden change in the methods used by the borrowing firm for deprecation, make pension, plan contributions, value inventories, account for taxes, or recognize income. Adverse changes in the borrowers capital structures (equity/debt ratio) liquidity level (current ratio) or activity levels (the ratio of sales to inventory).(Singh, 2010) Generally, the major sector of this branch is overdraft. The creditors borrow the overdraft to proper development. However, for last few years, land business has gone down, so it is difficult for the creditors to pay back their loan. Similarly, overdrafts are taken for unproductive purpose i.e. for social welfare. So, sometime they find it

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difficult to pay back loan. If the borrowers fails to pay back the amount within the given time, bank has right to auction the goods or collateral. Before auctioning, the bank has to give the notice of reminder to the borrower about the repayment of loan. The auction process is done on the presence of the different representatives in the form of government, VDC or municipality. If the amount received from the auction is not enough for recovery, other goods are required by bank. The value of other goods must be equal to the amount which is actually in sufficient recovery.

2.7 Criteria For Providing Loan

The bank provides the loan with the proper examination and investigation otherwise it losses the principle and interest. Generally, most of the banks follow the credit standards to provide loan to the public as well as the corporate houses. Credit standard means the minimum criteria for extension of credit to the customer. Generally, there are 6 Cs credit standards to be followed by any bank. a. Character Responsibility, truthfulness, serious purpose, and intention to repay all money owed make up what a loan officer calls character. First of all, the loan officer must be convinced that the customer has the well-defined purpose for requesting bank credit and serious intention to repay. The loan officer must determine that the borrower has the responsible attitude towards using borrowed funds and is truthful in answering the banks questions.

b. Capacity A loan agreement signed by unauthorized persons can prove to be uncollectible. So it must be sure that the applicant requesting credit has the authority to request a loan and the legal standing to sign a binding agreement. This customer characteristic is known as the capacity to

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borrow money. Minors cannot legally be held responsible for a credit agreement. So, they do not bear the capacity to be borrower of bank. Similarly, applicant from organization should have proper authority from the board of directors to negotiate a loan. c. Cash It is the flow of liquid funds that is normally the principal means that borrowers use to repay their loan. The borrower should have the ability to generate enough cash to repay the loan. In general, the loan applicant has three sources to draw upon to repay their loans: Cash flow from sales or income Sales or liquidation of assets Funds raised by issuing debt or equity securities

d. Collateral Collateral refers to assets that can be sold if the customers defaults and collection efforts fail. Collateral is an important, but it serves only to limit the loss. The loan officer must answer the question: Does the borrower possess adequate net worth or enough quality assets to provide adequate support to the loan? The loan officer is particularly sensitive to such features as the age, condition, and the degree of specialization of the borrowers assets.

e. Condition The bank must be aware of trends in the borrowers line of work or industry. It must be clear that how changing economic condition might affect the loan. A loan can look very good in paper, only to have its value wear down by declining sales or income in a recession or by the high interest rate occasioned by inflation.

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f. Control It is the least factor for assessing the creditworthy of applicant. It should be clear that the change in law and regulation can adversely affect the borrower and that the loan request meets the loan quality and the standard determined by the bank and the regulatory authorities. 2.8 Loan Review

Loan review is the examination of outstanding loans to make sure that borrowers are adhering to their credit agreement and the bank is following its own loan policies. After loan has been endorsed by the borrower and the bank, what should the bank do with the loan file? Should the bank keep the loan file in the self and forgotten, until the loan falls due? Obviously not, after advance of loan, bank should maintain continuous relationship with the borrower until the principal and interest are fully recovered. For this purpose, vibors bikas bank conducts the loan review of all borrowers. As we know that time, conditions and environment are always changing and this change in condition has the great affects to the borrowers financial condition and his/her ability to repay a loan. Fluctuation in the economy weakens some business and increase the credit needs. In case of individual loan, people may lose their jobs and serious health problems imperilling their ability to repay any outstanding loan. The loan department of the vibors bikas bank must be sensitive to these developments and should periodically review all the loans until they are fully recovered.

Principle of loan review There are certain general principles that are followed by the vibors bikas bank while conducting the loan review. These principles are:

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a. Regular There must be regular loan review especially for all types of loans. It is important especially for large and criticized loan. Loan review should be carried on periodic basis such as monthly, quarterly, halfyearly, or yearly. b. Large loans In the case of large loan, the more frequently the loan review must be done, because default on these loans can seriously affect the banks own financial condition.

c. Troubled loan Even adequate carefulness and precautions the bank has taken, some loan may fall into trouble due to uncontrollable environmental circumstances. Such troubled loan should be reviewed more frequently.

d. Deflation If the economy slows down or if the industries in which the bank has made a substantial portion of its loan develops significant problem, the frequency of loan review should be increased to safeguard the bank from unexpected risks.

e. Restructuring To make the loan review perfect, it should be structured carefully to ensure all the important aspects of loans and borrowers are checked

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properly. The loan review should be able to check the following aspects of loan:

The completeness of loan documentation, to make sure that the bank has access to any collateral pledged and possesses the full legal authority to take action against the borrower in the courts if needed. An assessment for whether the loan conforms to the banks lending policies and to the standards applied to its loan portfolio by examiners from the regulatory agencies. The record of borrower payments, to ensure that the customer is not falling behind the planned repayments schedule. The quality and the condition of any collateral pledged behind the loan. An evaluation of whether the borrowers financial condition and forecasts have changed which may have increased or decreased the borrowers need for bank loan.

Significance of loan review

Loan review is not a luxury, but a necessity for a sound bank lending program. It not only helps management spot loan problem more quickly, but also acts as a continuing check on whether loan officers are adhering to the banks loan policy. For this reason, and to promote objective in the loan review process, many of the largest bank separate their loan review personnel from the loan department itself. Loan review also aid senior management and the banks board of directors in assessing the banks

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overall exposure to risk and its possible need for more capital in the future. Separate loan review division also helps to detect any mishaps and undue influences in the lending process, if any. (Singh, 2010)

2.9 Recovery of Loan

Every borrower is required to pay the interest payment or principal payment of the loan as per the repayment schedule provided. In the case of lease facility the lessee is required to pay the lease rental as per the lease agreement.

2.9.1 Recovery of defaulted loan If interest or instalment of loan or lease rental is not paid by the borrower on the due date, vibors bikas bank may issue a reminder notice asking the borrower for payment.

If the borrower fails to pay the interest or instalment or lease rental due within one month from due date vibors bikas bank may issue a notice asking for payment of instalment or lease rental within 35 days.

In case of failure of payment of interest or instalment or lease rental due by the borrower on previous notice, the bank issues a notice asking for payment within 15 days. And, in the case of failure of payment of interest or instalment or rental lease on previous notice, the bank may issue the notice asking for the payment of amount with the additional time of 7 days. Again, if there is failure of payment of interest or instalment or lease rental due the bank may publish 35 days notice in national daily newspaper and then again 15 days notice asking the borrower to pay due. The notice

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may also fix the date, place and time of auction of collateral security or project assets if the borrower fails to pay the due amount prescribed time frame. Whenever the notice is issued or published, NSLMB must also serve the notice to the personal guarantor, corporate guarantor, and person providing the collateral security. Vibors Bikas Bank shall declare such borrower as defaulter and charge penal interest and initiate immediate recovery action in the following circumstances also:

Closure or discontinuation of whole or major part of the business of the borrower. Violation of major terms of the facility agreement by the borrower. If material facts or statement submitted by the borrower is found false. If, after publication of auction notice the borrower proposes to settle the loan with part payment and if the management is convinced on the repayment program proposed, the management mat defer the auction at its discretion.

2.9.2 Auction of collateral security or assets mortgage or leased Vibors Bikas Bank may auction the collateral or assets mortgaged or leased to it by publishing the notice in the national daily newspaper as per the procedure laid down by NRB.

Auction of the collateral or assets should take place either in the head office of the vibors bikas bank or at the place where the collateral is located. Auction should be done by the auction committee formed by the Board of Directors (BOD). 2.9.3 Procedure of Auction

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The bidders in auction should quote the price for the property to be auctioned. Vibors bikas bank may sell the property to the highest bidder at its discretion. However, the minimum starting bid price is quoted by the bank itself.

The highest bidder has to deposit at least 10% of the bid amount immediately. If the highest bidder is unable to deposit the listed amount his bid will be disqualified and vibors bikas bank may consider the second highest bidder as the bidder.

The bidder to whom the property is sold has to deposit the remaining balance amount within 7 days from the date of accepting the bid by vibors bikas bank. In case of failure in depositing the balanced amount by the bidder to whom the property is sold, the previous deposited amount will be forfeited.

If no bidder participates in the auction or vibors bikas bank decides not to sell the property to the bidder, the auction committee may recommend the management for the following action:

Re-auction the property in the later date. Acquire the property in the name of the company

The due from the borrower including the cost of the advertisement, auction etc. and all other expenses related to the recovery will be adjusted against the amount arrived. In case of deficit, it will be recovered from the borrower and/or guarantors.

2.10 Major Findings and Discusssions

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This study shows that bank has its highest portion of lending is made on overdraft loan (in aggregate) which have an increasing trend as the years increases. The second highest portion of the bank lending is made in consumer loan (in aggregate) which increases in fiscal year 2067/68 from the amount of fiscal year 2066/2067 and again decreases in the fiscal year2068/2069. The third highest portion of bank lending is made in cash credit (in aggregate) which increases in the fiscal policy 2067/68 from the amount of fiscal year 2066/67 and then decreases with the great amount in the fiscal year 2068/69. The second lowest portion of the bank lending is made on the hire purchase loan (in aggregate) which has same trend as consumer loan. The lowest portion of the bank lending is made on the FD loan (in aggregate) which has a decreasing trend as the years increases. In fiscal year 2066/67, the amount of deposit is Rs 3015252. In 2067/68, the amount of deposit is Rs 2776055. In 20 68/69, the amount of deposit is Rs 2981286. The given table clearly reveals that the domestic deposits collection of VBB in the fiscal year 2066/67 is higher than of later years. It has been decreased in the year 2067/68 and again increased in the fiscal year 2068/69. However, bank has no foreign deposit collection in any of the fiscal year. VBB have higher loan to deposit ratio in 2067/68 than in 2066/67 and 2068/69. The total loan and advance has increase from 3,080,185 to 5,616,548 and 3,749,819 in 2066/67 to 2067/68 and 2068/69 respectively. Loan to deposit ratio is 102.153% in 2066/67, 202.321% in 2067/68 and 125.778% in 2068/69.

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CHAPTER III SUMMARY AND CONCLUSIONS

3.1 Summary Vibors Bikas Bank (VBB) is a development bank established in 2007 A.D. from the established period of time, the bank has tried to diversify its lending sectors and make effective lending procedure policies and programmes. The study that, I have done is about the lending procedure of Vibors Bikas Bank (VBB) that provide valuable signs regarding the loan management of the bank. A modern and dynamic banking system is an essential part of life, which makes all economy always alive and smart to run and maintain day to day commercial, economic and banking transaction. Data of lending and other data relating to Vibors Bikas Bank (VBB) from 2066/67 to 2068/69 has been analyzed. The report has some objectives like to find out the types and areas of loan investment made by the bank in different sectors. From the data presentation and analysis chapter, the figures and tables of the lending sectors of the bank become clearly and easily understandable. The presentation of data shows the progress of the bank in dynamic environment. There is up and down in the lending amount of loan in different sectors. So in this project the researcher made the small effort of analysing the loan management of loan of Vibors Bikas Bank (VBB). The information for this purpose is taken from the annual report of Vibors Bikas Bank (VBB) and the face to face conversation with the Branch Manager and staffs of the related bank. The lending procedure involves series of activities from filling up the application form to the sanction of the loan. This also includes the various analyses of customer or clients during the process. The major steps in loan sanction procedure are: i. Contact to the loan section.

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ii. Submission of necessary documents and spot investigation. iii. Evaluation of assets. iv. Obtain credit information from other financial institution. v. Sanction of loan vi. Cessation of collateral of LRO. vii. Release of the first instalment.

The objective of the study was to identify the trends, problems, to access the contributions and utilization of proper lending procedure to tackle the wide range of problems in the credit sector of the bank. This knowledge is further applied to obtain conclusion and recommendation.

3.2 Conclusions The report work is conducted to meet the certain objectives like to identify the lending procedure and loan portfolio of the Vibors Bikas Bank (VBB). The study shows that the loan diversification is the main reasons for the success of the bank. Along with this the effective and developmental lending policies and procedure and proper utilization of the funds are the nutrition for the sound banking system. Efficient and effective management of these factors leads to the sound banking operation. This study has concluded that the lending process must be simplified and easily understandable by the customer. It also concludes that the bank must decrease its loan to deposit ratio. While loan to deposit ratio is high the bank are highly exposed to the liquidity risk. In order to decrease loan to deposit ratio the bank should find the other source of funds to make the loan. It also provides the effective way of reviewing the sanctioned loan and the procedure of recovery of defaulted loan. Moreover, it also concludes that there are some deficiencies however; the performance of the bank seems to be good and satisfactory.

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