1.1 Industry Profile

History of Nepalese Banking System

The initiation of formal banking system in Nepal commenced with the establishment in 1937 of Nepal Bank Limited (NBL), the first Nepalese commercial bank.9 The country's central bank, Nepal Rastra Bank (NRB) was established in 1956 by Act of 1955, after nearly two decades of NBL having been in existence. A decade after the establishment of NRB, Rastriya Banijya Bank (RBB), a commercial bank under the ownership of His Majestys Government of Nepal (HMG/N) was established. Thereafter, HMG/N adopted open and liberalized policies in the mid 1980s reflected by the structural adjustment process, which included privatization, tariff adjustments, liberalization of industrial licensing, easing of terms of foreign investment and more liberal trade and foreign exchange regime was initiated. With the adoption of liberalization policy, there has been rapid development of the domestic financial system both in terms of number of financial institutions and as ratio of financial assets to the GDP. As of July 2005, the number of commercial banks has reached 17 and their branches numbered 375. A total of 60 finance companies and other Development Banks and numerous credit cooperatives have also been established. Total financial assets in 2004/2005 reached around 54.09 percent of GDP and the M2/GDP ratio, which shows the financial sector development or financial deepening increased from in 12.4 percent in 1975 to 50.9 percent in 2000.

In the context of banking development, the 1980s saw a major structural change in financial sector policies, regulations and institutional developments. HMG/N emphasized the role of the private sector for the investment in the financial sector. The financial sector liberalization, started already in the early eighties with the liberalization of the interest rates, encompassed further deregulation of interest rates, relaxation of entry barriers for domestic and foreign banks, restructuring of public sector commercial banks and withdrawal of central bank control over their portfolio management (Acharya et al, 2003). These policies opened the doors for foreigners to enter into banking sector under joint venture. Consequently, the third commercial bank in Nepal, or the first foreign joint venture bank, was set up as Nepal Arab Bank Ltd( now called as NABIL Bank Ltd ). in 1984.

There after, two foreign joint venture banks, Nepal Indosuez Bank Ltd. (now called as Nepal Investment Bank) and Nepal Grindlays Bank Ltd (now called as Standard Chartered Bank Nepal Ltd.) was established in 1986 and 1987 respectively. There after, another 12 commercial banks have been established within the period of 12 years. Nepalese banking system has now a wide geographic reach and institutional diversification. Although, Nepalese financial sector is dynamic, a lot of scope for development of this sector exists. This is because the banking and non-banking sectors have not been able to capture all the potentialities of business till this time. It is evident from the Rural Credit Survey Report that the majority of rural credit is supplied by the unorganized sector at a very high cost perhaps being at two or three time of the formal sector - suggesting that the financial sector is still in the path of gradual development. Overdue loans and inefficiency of the older and the larger of commercial banks have aggravated and have been made to compete with the new trim banks with no rural operations. Also, the commercial banks, domestic or joint venture have shown little innovation and positive attitude in identifying new areas of saving and investment opportunities. Following table reflects the present development of commercial banking institutions in Nepal.

Present Scenario:

The Nepali financial system consists of banking and non banking sector. Bankingsector consists of Nepal Rastra Bank (NRB) as the Central Bank and theCommercial Banks. The non banking sector includes, financial institutions licensed by NRB like Development Banks, Finance Companies, Microfinance DevelopmentBanks, Coop Financial Institutions, NGOs undertaking banking activities and thoseunder different Acts like Insurance Companies, Citizens Investment Trust, PostalSavings Offices, Employees Provident Fund, Nepal Stock Exchange andCommodity Markets.

Nepal Bank Ltd. remained the only financial institution of the country until the foundation of Nepal Rastra Bank is 1956 A.D. Due to the absence of the central bank, Nepal Bank has to play the role of central bank and operate the function of central bank. Hence, the Nepal Rastra Bank Act 1955 was formulated, which was approved by Nepal Government accordingly, the Nepal Rastra Bank was established in 1956 A.D. as the central bank of Nepal. Nepal Rastra Bank makes various guidelines for the banking sector of the country.

A sound banking system is important for smooth development of banking system. It can play a key role in the economy. It gathers savings from all over the country and provides liquidity for industry and trade. In 1957 A.D. Industrial Development Bank was established to promote the industrialization in Nepal, which was later converted into Nepal Industrial Development Corporation (NIDC) in 1959 A.D.

Rastriya Banijya Bank was established in 1965 A.D. as the second commercial bank of Nepal. The financial shapes for these two commercial banks have a tremendous impact on the economy. That is the reason why these banks still exist in spite of their bad position.

As the agriculture is the basic occupation of major Nepalese, the development of this sector plays in the prime role in the economy. So, separate Agricultural Development Bank was established in 1968 A.D. This is the first institution in agricultural financing.

For more than two decades, no more banks have been established in the country. After declaring free economy and privatization policy, the government of Nepal encouraged the foreign banks for joint venture in Nepal.

Today, the banking sector is more liberalized and modernized and systematic managed. There are various types of bank working in modern banking system in Nepal. It includes central, development, commercial, financial, co-operative and Micro Credit (Grameen) banks. Technology is changing day by day. And changed technology affects the traditional method of the service of bank. Banking software, ATM, E-banking, Mobile Banking, Debit Card, Credit Card, Prepaid Card etc. services are available in banking system in Nepal. It helps both customer and banks to operate and conduct activities more efficiently and effectively.

For the development of banking system in Nepal, NRB refresh and change in financial sector policies, regulations and institutional developments in 1980 A.D. Government emphasized the role of the private sector for the investment in the financial sector. These policies opened the doors for foreigners to enter into banking sector in Nepal under joint venture.

Some foreign ventures are also established in Nepal such as Nepal Bangladesh Bank, Standard Chartered Bank, Nepal Arab Bank, State Bank of India, ICICI Bank, Everest Bank, Himalayan Bank, Bank of Kathmandu, Nepal Indo-Suez Bank and Nepal Sri Lanka Merchant Bank etc.

The NRB will classify the institutions into A B C D groups on the basis of the minimum paid-up capital and provide the suitable license to the bank or financial institution. Group A is for commercial bank, B for the development bank, C for the financial institution and D for the Micro Finance Development Banks.

Generally banks in Nepal are opened 9 am to 3 pm Sunday to Thursday and 9 am to 1 am on Friday. But nowadays most of banks in Kathmandu are opened throughout the week.

There are 32 commercial banks, 79 development banks, 79 financial companies, 18 micro credit (Grameen) development banks and 16 saving and credit co-operation(licensed by Nepal Rastra Bank) are established so far in Nepal. The bank with the largest network in Nepal is The Nepal Bank Ltd. These commercial banks and financial institutions have played significant roles in creating banking habit among the people, widening area and business communities and the government in various ways.

1.2 Company profile

Himalayan Bank Limited is a commercial bank which 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 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 introduced several new products and services. Millionaire Deposit Scheme, Small and Medium 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.HBL recently completed its 21 years of banking in the Nepalese banking industry. We take great pride in being able to meet the expectations of the Customers, employees, shareholders, regulators and other stakeholders who have been providing relentless support to us through these 21 years. HBL continues to be one of the leading banks in Nepal and we strongly believe we can take the Bank even to greater heights in the upcoming future.

We have been pioneering many products and services in Nepal and innovation continues to be the order of the day for HBL. Like in the past, we feel we stand a good chance of introducing new products and services to the banking industry of Nepal where not only our customers but customers being served by other banks and financial institutions would also benefit. With a strong capital base, quality human resource and strong governance in place, we can only move forward and upward.

Going forward, the focus of the Bank in the next few years will be around capacity building of its human resource, diversification of its portfolio, enhancement of returns, introduction of new products and services and building a robust risk management system to make it resilient and adversity proof.

1.3 Vision, Mission, Goals and Objectives

Vision:Himalayan Bank has the vision of becoming a leading bank of the country by gaining substantial business growth through premium products and services to cus-tomers, thus ensuring attractive and substantial returns to all our stakeholders.

Mission:Himalayan Banks mission is to become the preferred provider of quality financial services in the country.

There are two components to our mission: preferred provider and quality financial services. We believe that our mission will be accomplished only by satisfying these two important components with the customer at the focal point of all our efforts.

Objective:To become the Bank of first choice is the main objective of the Bank.

1.4 Origin of the Report:The purpose of this report is to focus practical experiences of HBL in my day-to-day work as a part of my internship period.

Methodology what I have applied to prepare this Report1. Observation2. Projection Techniques3. Depth Interviews4. Interaction with the Customers and Colleagues

Sources of Data1. Doing practical work in different desks2. Study of old files/documents/formats3. Personal investigation.4. My colleagues and Customers5. Collection of Data from different statements and abstracts6. Internet, Brochures, annual report etc

1.5 Objective of the ReportThe main objective of this report is to fulfill partial requirements of B.B.A degree program. In order to be able to obtain the B.B.A degree program from Christ University of Bangalore, every student is required to do internship program in a well-reputed organization for 45 days in fifth Semester. After the internship period, each student or intern has to submit a report about the respective organization. I have completed my internship program in Himalayan Bank Ltd and prepared a report on the bank.As one of the main objectives of internship is to gather job experience, I have tried to put some of the experiences that I have learnt from my internship in this report.The specific objectives of this report are:

1. To present an overview of Himalayan Bank Ltd.2. To appraise the performance of Himalayan Bank Ltd.3. To apprise financial performance of Himalayan Bank Ltd.4. To identify the problems of Himalayan Bank Ltd.5. To recommend solutions for any problems of Himalayan Bank Ltd.

1.6 Methodology of the study:

Both the Secondary and Primary Sources have been used to collect data for this research paper.1. Collection of Secondary Data:Data regarding the operations of Himalayan Bank Ltd. and analysis of financial statement were collected from secondary sources like annual report, Brochures, Manuals and Publications of Himalayan Bank Ltd.2. Collection of Primary Data:Most of the data and information were collected from my practical experience and queries from the executives while doing our assignment period at Himalayan Bank Ltd. Information and data regarding products & services, interest rates & charges, banking operations, organization structure, management personnel, and policies were collected from these sources.

1.7 Limitations of the report:

To prepare the internship I encountered some limitations. The limitations are given below-1. Limitation of time was a major constraint in making a complete study, due to time limitation. The duration was only twelve weeks. It was too limited to cover all the banking area. Many aspects could not be discussed in the present study. 2. Lack of comprehension of the respondents was the major problem that created a lot of confusion regarding verification of conceptual question.3. Confidentiality of data was another important barrier that was faced during the process of this study.4. As being an intern, it also created some problems as I was unable to acquire hands-on-experience in all the departments, due to the banks policy of maintaining secrecy and also because I did not get the opportunity in all the departments.