CASH MANAGEMENT

OF
DEVELOPMENT BANKS IN NEPAL

By:
Gopal Regmi
Post Graduate Campus, Biratnagar
T.U. Registration No: 7-1-218-96-97

A Thesis Submitted to:

Office of the Dean

Faculty of Management
Tribhuvan University

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

DEGREE OF
MASTERS OF BUSINESS STUDIES (M.B.S.)

Biratnagar, Nepal
March 2012
 TRIBHUVAN UNIVERSITY
POST GRADUATE CAMPUS
BIRATNAGAR
NEPAL
Tel: 021-526327, 522204
Ref No. …………….

RECOMMENDATION

This is to certify the thesis

Submitted by:

MR. GOPAL REGMI

Entitled

CASH MANAGEMENT
OF
DEVELOPMENT BANKS IN NEPAL

Has been as prepared as approved by this department in the prescribed format of

faculty of management. This thesis is forwarded for examination.

Thesis supervisor Head of Research Department

Dr. Khagendra Acharya Dr. Khagendra Acharya

Campus Chief
(Harihar Bhandari)
Date :
 TRIBHUVAN UNIVERSITY
POST GRADUATE CAMPUS
BIRATNAGAR
NEPAL
Tel: 021-526327, 522204
[

Ref. No. …………….

VIVA VOICE SHEET

We have conducted the viva-voce examination of the thesis presented by

GOPAL REGMI
Entitled

CASH MANAGEMENT OF
DEVELOPMENT BANKS IN NEPAL

And found the thesis to be the original work of the student written according to
the prescribed format. We recommend the thesis to be accepted as partial
fulfillment of the requirement for
Masters degree in business studies(MBS)

VIVA-VOICE COMMITTEE

Chair Person, Research Committee

Member (Thesis Supervisor)

Dr. Khagendra Acharya

Member (Extern Expert)

Date:
 DECLARATION

I hereby declare that this thesis entitled “Cash Management of Development Banks
in Nepal (with special reference to Vibor Development Bank Ltd. and
Development Credit Bank Ltd.)” submitted to Post Graduate Campus, faculty of
Management, Tribhuvan University, is my original work done in the form of partial
fulfillment of the requirement for the Master’s Degree in Business Studies (M.B.S.)
Under the guidance and supervision of Dr. Khagendra Acharya.

Mr. Gopal Regmi

Date……………… Researcher
T.U. Regd No. 7-1-218-96-97
 ACKNOWLEDGEMENT

This thesis is conducted for MBS program undertaken by Tribhuvan University. This study is
an attempt to analyze the Cash Management of Development Banks in Nepal. This thesis has
come in this shape not only by the sole effort of me but also the contribution of many
individuals and institution. I take this opportunity to acknowledge those contributing hands.

I wish to express gratitude from my soul to the respective Head of Research Department of
Post Graduate Campus Dr. Khagendra Acharya, who was my supervisor throughout my
thesis along with his valuable suggestion, intellectual guidance, during the period of writing
and providing all kinds of aids and moral support to complete this thesis. And my respected
teacher Mr. Ram Prakash Upadhayay for his valuable suggestion and cooperation in
preparing this thesis.

I would also like to express special thanks to my friend Chandra Shrestha, Er. Prem Luitel
and Trilochan Sitaula for the support in computer typing, data collection and some
overshadowed aids. I feel happy for getting help from Mr. Gopal Prasad Ghimire and Staff
members of Post Graduate Campus. I also acknowledge to all the staffs of selected banks,
and also the library staffs of Post Graduate Campus, Biratnagar.

Gopal Regmi
 TABLE OF CONTENTS

RECOMMENDATION
VIVA- VOCE SHEET
DECLARATION
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
ABBREVIATIONS

PAGES
CHAPTER I INTRODUCTION 1-7
1.1 Background of the study 1
1.2 Focus of the study 2
1.3 Introduction of the company under the study 3
1.3.1 Introduction to VDBL 3
1.3.2 Introduction to DCBL 4
1.4 Statement of the Problem 5
1.5 Objective of the Study 5
1.6 Significance of the Study 6
1.7 Limitation of the Study 6
1.8 Organization of the Study 7

CHAPTER II REVIEW OF LITERATURE 8-30

2.1 Theoretical Review 8

2.1.1 Conceptual Framework 8
2.1.2 Cash Management 9
2.1.3 Motive for Holding Cash 10
2.1.4 Different Techniques of Cash Management 11
2.1.5 Determining the Optimum Cash Balance 12
2.1.5.1 Optimum Cash Balance Under Certainty; Baumol's Model 13
2.1.5.2 Optimum Cash Balance Under Uncertainty; The Miller Orr Model 15
2.1.6 Liquidity Management 16
2.1.7 Factors Influencing Bank's Liquidity 17
2.2 Review of Previous Studies 19
2.2.1 Review of Articles (Journals) 19
2.2.2 Review of Related Thesis 23

CHAPTER III RESEARCH METHODOLOGY 31-55

3.1 Introduction 31
3.2 Research Design 31
3.3 Populations and Sample 32
3.4 Data Collection Procedure 32
3.4.1 Primary Data 32
3.4.2 Secondary Data 32
3.5 Tools of Data Analysis 32
3.5.1 Financial Tools 33
3.5.1.1 Ratio Analysis 33
3.5.1.1.1 Liquidity Ratio 33
3.5.1.1.2 Activities or Turnover Ratio (Utilization Ratio) 36
3.5.1.1.3 Profitability Ratio 38
3.5.1.1.4 Leverage Ratio 39
3.5.2 Statistical Tools 41
3.5.2.1 Mean or Average 41
3.5.2.2 Standard Deviation 41
3.5.2.3 Coefficient of Variation 42
3.5.2.4 Correlation Analysis 42
3.5.2.5 Regression Analysis 45
3.5.2.5.1 Simple Regression 46
3.5.2.5.2 Multiple Regression 48
3.5.2.6 Test of Hypothesis 50
3.5.2.6.1 t-statistic 50
3.5.2.6.2 Analysis of Variance (ANOVA) 53
CHAPTER IV DATA PRESENTATION AND ANALYSIS 56-115
4.1 Financial Tools 56
4.1.1 Liquidity ratio 56
4.1.1.1Cash and bank balance to total deposit ratio 57
4.1.1.2 Current Ratio 58
4.1.1.3 Quick Ratio 59
4.1.1.4 Cash and Bank Balance to Deposit Ratio (Exc. Fixed Deposit) 61
4.1.1.5 Fixed Deposit to Total Deposit Ratio 62
4.1.1.6 Saving Deposit to Total Deposit Ratio 63
4.1.1.7 Cash and Bank Balance to Current Liabilities (CL) Ratio 64
4.1.1.8 Cash and Bank Balance to Current Assets (CA) Ratio 65
4.1.1.9 NRB Balance to Total Deposit Ratio 67
4.1.2 Activities or Turnover Ratio (Utilization Ratio) 70
4.1.2.1 Loan and Advances to Saving Deposit Ratio 71
4.1.2.2 Loan and Advances to Fixed Deposit Ratio 72
4.1.2.3 Loans and Advances to Total Deposit Ratio 73
4.1.2.4 Investment to Total Deposits Ratio 74
4.1.3 Profitability Ratio 77
4.1.3.1 Return on Total Assets Ratio (ROA) 77
4.1.3.2 Net Profit to Total Deposit Ratio 79
4.1.3.3 Return on Common Shareholders' Equity 80
4.1.3.4 Return on Working Capital 81
4.1.4 Leverage Ratio 84
4.1.4.1 Total Debt to Equity Ratio 84
4.1.4.2 Total Debt to Total Assets Ratio 85
4.1.4.3 Interest Coverage Ratio 86
4.1.4.4 Long-term debt to Net worth Ratio 87
4.2 Statistical Analysis 90
4.2.1 Mean or Average 90
4.2.2 Standard Deviation 90
4.2.3 Coefficient of Variation 91
4.2.4 Simple Correlation Coefficient 91
4.2.5 Regression Analysis 96
4.2.5.1 Simple Regression Analysis 96
4.2.5.1.1 Cash and Bank Balance (CB) on Current Liabilities (CL) 97
4.2.5.1.2 Working Capital (WC) on Total Assets (TA) 98
4.2.5.1.3 Loan on Total Deposit (TD) 99
4.2.5.1.4 Working Capital (WC) on Total debt (Td) 100
4.2.5.1.5 Quick Ratio (QR) on Debt Ratio (DR) 101
4.2.5.1.6 Cash and Bank Balance (CB) on Total Deposit (TD) 101
4.2.5.1.7 Quick Assets (QA) on Current Liabilities (CL) 102
4.2.5.2 Multiple Regression Analysis 103
4.2.5.2.1 Cash and Bank Balance on Total Deposit (TD) and Net Profit (NP) 103
4.2.5.2.2 Quick Ratio (QR) on Saving Deposit Ratio (SDR) and Debt Ratio (DR) 104
4.2.6 Test of Hypothesis 105
4.2.6.1One Way ANOVA Analysis 105
4.3 Major Findings 111

CHAPTER –V SUMMARY, CONCLUSION AND RECOMMENDATION 116-121

5.1 Summary 116
5.2 Conclusions 118
5.3 Recommendation 120

BIBLIOGRAPHY
ANNEXES
CURRICULUM VITAE
LIST OF TABLES
PAGES

Table 4.1 Cash and Bank Balance to Total Deposit Ratio 57

Table 4.2 Current Ratio 59
Table 4.3 Quick Ratios 60
Table 4.4 Cash and Bank Balance to Total Deposits (Exc. FD) Ratios 61
Table 4.5 Fixed Deposit to Total Deposit Ratio 62
Table 4.6 Saving Deposit to Total Deposit Ratio 63
Table 4.7 Cash and Bank Balance to Current Liabilities Ratio 64
Table 4.8 Cash and Bank Balance to Current Assets Ratio 66
Table 4.9 NRB Balance to Total Deposit Ratio 67
Table 4.10 Loan and Advances to Saving Deposit Ratio 71
Table 4.11 Loan and Advances to Fixed Deposit Ratio 72
Table 4.12 Loan and Advances to Total Deposit Ratio 73
Table 4.13 Investment to Total Deposits Ratio 74
Table 4.14 Return on Total Assets Ratio (ROA) 78
Table 4.15 Net Profit to Total Deposit Ratio 79
Table 4.16 Return on common shareholders' equity 80
Table 4.17 Return on working capital 81
Table 4.18 Total Debt to Equity Ratio 84
Table 4.19 Total Debt to Total Assets Ratio 85
Table 4.20 Interest Coverage Ratio 86
Table 4.21 Long-term debt to Net Worth Ratio 87
Table 4.22 The simple correlation analysis of VDBL between different variables 92
Table 4.23 The simple correlation analysis of DCBL between different variables 94
Table 4.24 CB on CL 97
Table 4.25 WC on TA 98
Table 4.26 Loan on TD 99
Table 4.27 WC on Td 100
Table 4.28 QR on DR 101
Table 4.29 CB on TD 101
Table 4.30 QA on CL 102
Table 4.31 CB on TD and NP 103
Table 4.32 QR on SDR and DR 104
Table 4.33 calculation in one-way ANOVA of CB on TD 106
Table 4.34 calculation in one-way ANOVA of CR 107
Table 4.35 calculation in one-way ANOVA of QR 108
Table 4.36 calculation in one-way ANOVA of WC 109
Table 4.37 calculation in one-way ANOVA of Investment to TD Ratio 110
LIST OF FIGURES
PAGES
Figure 2.1 Baumol's Model for Cash Balance 14
Figure 2.2 Relationship Between Average size of cash balance & cash maintenance 15
Figure 2.3 Miller Orr model 16
Figure 2.4 Determinants of Liquidity Needs of Bank 17
Figure 2.5 Motives for banks’ Liquidity Need 18
Figure 4.1 Liquidity Ratios of VDBL 68
Figure 4.2 Liquidity Ratios of DCBL 69
Figure 4.3 Activities or Turnover Ratio (Utilization Ratio) of VDBL 75
Figure 4.4 Activities or Turnover Ratio (Utilization Ratio) of DCBL 76
Figure 4.5 Profitability Ratio of VDBL 82
Figure 4.6 Profitability Ratio of DCBL 83
Figure 4.7 Leverage Ratio of VDBL 88
Figure 4.8 Leverage Ratio of DCBL 89
 ABBREVIATIONS
AD: Anno Dominie
ATM: Automatic Teller Machine
BS: Bikram Sambat
CAs: Current Assets
CB: Cash and Bank Balance
CL: Current Liability
CRR: Cash Reserve Ratio
CV: Coefficient of Variance
DCBL: Development Credit Bank
DDC: Dairy Development Corporation
DR: Debt Ratio
EBIT: Earning Before Interest and Tax
EBL: Everest Bank Ltd.
EPF: Employee Provident Fund
FSRP: Financial Sector Reform Program
FY: Fiscal year
HCCL: Himal cement Company Ltd.
IDBI: Industrial Development Bank of India
JVB: Joint Venture Bank
KTM: Kathmandu
MSS: Mean sum of square
NABIL: Nepal Arab Bank Ltd.
NBBL: Nepal Bangladesh Bank Ltd.
NBCL: Nepal Battery Company Ltd.
NBL: Nepal Bank Ltd.
NEPSE: Nepal Stock Exchange
NIBL: Nepal Investment Bank Ltd (Previously Nepal Indosuez Bank
Ltd.)
NLL: Nepal Lever Ltd.
NPAT: Net Profit after Tax
NRB: Nepal Rastra Bank
NSCL: Nepal Co-operative Society Ltd.
NTC: Nepal Telecommunication Corporation
NTDC: Nepal Tea Development Corporation
PEs: Public Enterprises
QA: Quick Assets
QR: Quick Ratio
RBS: Rastriya Beema Sansthan
ROA: Return on Assets
ROE: Return on Equity
S.E.: Standard Error
SD: Standard Deviation
SDR: Saving Deposit Ratio
ss: Sum of squares
TAs: Total Assets
Td: Total debt
TD: Total Deposit
TU: Tribhuvan University
VDBL: Vibor Development Bank
WC: Working Capital