Working capital management of ncc bank ltd. prepared by Munna kumar yadaav

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1. INTRODUCTION
1.1 INTRODUCTION TO BANKING
A bank is a financial institution that accepts deposits from the public and creates credit.
Lending activities can be performed either directly or indirectly through capital market. Due
to their importance in the financial stability of a country, banks are highly regulated in most
countries. Most nation have institutionalized a system know as fractional reserve banking
under which banks liquid assets equal to the only a portion of their current liabilities. In
addition to other regulation intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards, known as
the Basel Accords.
Banking in its modern sense evolved in 14th
century in the prosperous cities of Renaissance
Italy but in many ways was a continuation of ideas and concepts of credit and lending that
had their rosin the ancient world.
Banking began with the first prototype banks of merchants of the ancient world, which made
grain loan to farmers and traders who carried goods between cities. This began around
2000BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire,
lenders based in temples made loans and added two important innovations they accepted
deposits and changed money. Archaeology from this period in ancient china and India also
shows evidence of money lending activity.
The origin of modern banking can be traced to medieval and early Renaissance Italy, to the
rich cities in the centre and north like Florence, Kucca, Siena Venice and Genoa. The Bardi
and Peruzzi families dominated banking in14th century.
In the context of Nepal, it is very difficult to trace the correct chorological history of banking
system in Nepal because there are no sufficient historical records and data about Banking in
Nepal. Nepal Bank Ltd. is the first modern bank of Nepal. It is taken as the milestone of
modern banking of the milestone of modern banking of the country . Nepal bank marks the
beginning of a new era in the history of the modern banking in Nepal. This was established
in1937AD. Nepal bank has been inaugurated by king Tribhuvan Bir Birkram Shah Dev on

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30th
Kartik 1994B.S. Nepal bank was established as a semi government bank with the
authorized capital of Rs.10 million and the paid –up capital of Rs.892 thousands . Until mid
1940s only metallic coins were used as medium of exchange . so the Nepal Government (His
Modesty Government on that time)felt the need of separate institution or body to issue
national currencies and promote financial organization in the country.
Nepal Bank Ltd. Remained the only financial institution of the country until the foundation
of Nepal Rastra Bank in1956AD. 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 1956A.D. as the central bank of
Nepal. Nepal Rastra Banks 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 ass 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 in to Nepal Industrial
Development Corporation ltd(NIDC) in1959A.D.
As the agriculture is the basic occupation of major Nepalese , the development of this
sector plays in prime role in the economy . so , separate Agriculture Development Banks
was established in 1968 A.D. This is the first institution in agriculture financing .
After declaring free economy and privatization policy the government of Nepal
encouraged the foreign banks for joint venture in Nepal .Today , the banking system 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 Banks . Technology is changing day by day . and
changed technology affects the traditional method of the service of bank.
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.

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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

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significant roles in creating banking habit among the people, widening area and business
communities and the government in various ways.
Today’s finicky banking customers will settle for nothing less. The customer has come to
realize somewhat belatedly that he is the king. The customer’s choice of one entity over
another as his principles bank is determined by considerations of service quality rather than
any other factor. He wants competitive loan rates but at the same time also wants his loan or
credit card application processed in double quick time. He insists that he be promptly
informed of changes in deposits rates and service charges and he bristles with customary rage
if his bank is slow to redress any grievance he may have. He cherishes the convenience of
impersonal net banking but during his occasional visits to the branch he also wants the
comfort of personalized human interactions and facilities that make his banking experience
pleasurable. In short he wants a bank that cares and provides great services.
So does NCC bank meet these heightened expectations? What are the customer’s perceptions
of service quality of the banks? Which dimension of service quality of NCC bank is
performing well? To find out answers to these questions I undertook a survey of 2 branches
of NCC bank.
Excel Development Bank Limited (EDBL) 9th
AGM held on Poush 26, 2071 had approved
4:1.0370(25.93%) right shares to their shareholders and now the bank has announced the
book closure date for the same.
The book closure date for 4:1.03 right issues has been set for Poush 28. Only the shares
registered one day ahead of the book closure date i.e. Poush 27 will be eligible for the right
shares.
Excel had earned net profit of Rs 1.73 crore in the first quarter of the current fiscal year
2072/73. Ace Capital Limited has been assigned as the issue manager. Its last traded price
stood at Rs 690 as on December 31, 2015. ICRA Nepal has assigned an “[ICRANP] IPO
Grade 4+”, indicating below-average fundamentals to the proposed rights issue.

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Financial Institutions are slowly moving from Brick and Mortar (Physical branches) to click
and Brick (E-banking). ATM's are the most popular electronic delivery channel for banking
services in Nepal. Only few customers are using internet banking facilities. Nepalese
financial institutions till date have not faced any kind of electronic fraud or risk. Banks have
basic security tools like firewall, lightening/power surge protection. But it is found that the
some banks are in lack of having regular back up of website information and E-banking
policy. Nepalese banks are using E-banking for their own convenience and for the purpose of
retaining exiting customers. The cost analysis of most of the banks in Nepal is seems to be
either inadequate or not applied due to their narrow space of business transaction or lack of
sufficient tools. No significant correlation was found between use of E-banking and gender,
marital status or salary of customer. However, Use of E-banking signification association
was found with age and education.

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1.2 INTRODUCTION TO NCC BANK LTD.
Nepal Credit &Commerce Bank Ltd.(NCC Bank) formally registered Nepal Bank of Ceylon
Ltd(NBOC),commenced its operation on October 14,1996 as a joint venture with Bank of
Ceylon , Sri Lanka . It was the first private sector of Bank with the largest authorized
capital of NRS 1000 million . The Head office of the Bank is located at Siddhartha Nagar,
Rupandehi, the birth place of LORD BUDDHA, while its Corporate office is located at
Bagbazar , Kathmandu . The name was changed to Nepal Credit &Commerce Bank
Ltd.(NCC Bank) on 10th
September , 2002 due to transfer of shares and management of
the Bank from Bank of Ceylon, to Nepalese Promoters.
NCC Bank completed its 20years of banking services on October 14,2016 and recently ,
entered in to a historic merger with four Development Banks (Infrastructure Development
Banks , Apex Development Bank Ltd., Supreme Development Bank Ltd. And International
Development Bank Ltd).
The Bank started its joint transaction from January 01,2017 has now become one of the
largest private sector commercial bank at present NCC provides banking services and
facilities to rural and urban areas of the country through its 96 Branches and 61 ATMs
scattered all over the country from far West to East .The bank has developed
corresponding agency relationship with more than 150 International Banks having world
wide network.
Capital Structure :
Authorized Capital-Rs.10 Billion
Issued Capital-Rs.4.679 Billion
Paid- up Capital –Rs.4.679 Billion

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Technology:
The Bank is using Pumori plus , the most commonly used software by Nepalese banks.
The Bank offers Any Branch Banking Service (ABBS) in all 96 branches. Telex and
SWIFT are other modes of communication for efficient and effective transmission ; of
information . In order to facilities the customer with state of art technology , Bank is
providing Visa Debit Card facilitate . NCC VISA Card can used in any of the ATMs and
POS machines displaying VISA LOGO for cash withdrawal , balance enquire or purchase
of goods & service from various merchants like departmental stores ,hospitals ,retail shops
etc throughout Nepal and India Only. In addition , NCC VISA Debit card enables wider
access to VISA Card acceptable mote than 4,00,000 ATMs and 2.5million point of sales
terminals in Nepal and India.
Global Connection :
NCC Bank has stratify alliance with ICICI Bank , which facilitates customers to remit
their money to more than 670 locations of India through ICICI Bank branches and their
correspondent Banks in India. Its also provides Demand Draft Arrangement through speed
transfer arrangement . Under Speed Transfer Arrangement , money can be credited online to
the beneficiary’s account at more than 400 branches of ICICI Bank ,India. Under the
Demand Draft Arrangement , the Bank can issue draft payable at more than 670 location in
India. NCC Bank globally connected through various prominent Banks in Asia, Europe and
North America like Mashreq Bank , Standard Chartered Bank , Bank of ceylon etc. its
also provide services to the customers across the globe include remittance , draft arrangement
, import and export business, guarantee etc.
Mission:
The mission of NCC Bank is to provide a wide range of banking services and products in
emerging socio –economic environment within and outside the country maintaining high
standards of integrity and efficiency with excellence.

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Vision:
Bankers with the quality services strive for expansion with profitability professionalism
and personalized banking services.
Management Team:
NCC Bank is managed by a professional management have proven track record in banking
sector . The management team consists of the following personalities:
Mr.Ramesh Raj Aryal : Chief Executive Officer(CEO)
Ms.Bandana Pathak : Deputy Chief Executive Officer(DCEO)
Mr.Rewanta Kr. Dahal : Deputy Chief Executive Officer(DCEO)
Mr. Sandip P . Pandey : Assistant General Manager
Mr.Rishiraj Bhatta : Assistant General Manager
Mr. Binod Sharma : Assistant General Manager
Mr. Mukunda Subedi : Assistant General Manager
Board of Directors:
Mr.Upendra Keshri Neupane (Chairman)
Mr.Iman Singh Lama (Member)
Mr. Bishnu Prasad Dhital (Member)
Mr.Chandra Prasad Bastola (Member)
Mr.Madhav Prasad Bhatta (Member)
Mr.Krishna Shrestha (Member)
Mr. Kailash Patindra Amaty (Member)

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Services:
Mobile Banking
NCC International Debit Card
Locker Facility
365 Days Banking
SWOT ANALYSIS:
STRENGTH(S):-
 High Growth Rate
 Reduce Labor costs
 Experienced business units
 Monetary assistance provided
WEAKNESSES(W) :-
 Small Business Units
 Inability to provide mobile banking in backward area
OPPORTUNITIES(O) :-
 New product and services
 New acquisition
 Growing demand
 Venture capital
THREATS(T) :-
 External business risks
 Technological Problems

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BUSINESS FOCUS
NCC Bank’s mission is to be a World-Class Nepalese Bank. The objective is to build sound
customer franchises across distinct business so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank’s risk appetite. The bank is committed to maintain the
highest level of ethical standards, professional integrity, corporate governance and regulatory
compliance. NCC Bank’s business philosophy is based on four core values – Operational
Excellence, Customer Focus, Product Leadership and People.
PROMOTER
NCC Bank is Nepal’s premier housing finance company and enjoys an impeccable track
record in Nepal as well as international markets. Since its inception in 1996, the corporation
has maintained a consistent and healthy growth in its operations to remain a market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units. NCC
Bank has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit facilities.
With its experience in the financial markets, a strong market reputation, large shareholder
base and unique consumer franchise, NCC was ideally positioned to promote a bank in the
Nepalese environment.
MOBILE BANKIN
This Privacy Policy (“Policy”) applies to all Nepal Credit & Commerce Bank’s customers
who have subscribed for Mobile Banking services. The term “Nepal Credit & Commerce
Bank Ltd.” or “we”, “us”, or “our” that may appear in the mobile banking application
distributed, controlled and owned by us refers to Nepal Credit & Commerce Bank. This
Policy describes how our mobile banking application may collect, use and share information
from or about you.
POLICY UPDATES AND EFFECTIVE DATE

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This Policy is subject to change and any changes to this Policy will become effective when
posted on this website. Your use of the application following these changes means you
accept the revised Policy.
The following Services can be obtained from NCC mobile Banking Services
 Account Balance Enquiry.
 Enquiry Account Mini Statement.
 Request Cheque Book.
 Request Account Statement
 Request Banking Hour.
 Request Exchange rate.
 Request PIN Change.
 Fund Transfer.
 Utility Payments:-
RETAIL BANKING SERVICES
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and delivered
to customers through the growing branch network, as well as through alternative delivery
channels like ATMs, Phone banking, Net Banking and Mobile Banking.
The NCC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and
the Investment Advisory Services programs have been designed keeping in mind needs of
customers who seek distinct financial solutions, information and advice on various
investment avenues. The Bank also has a wide array of retail loan products including Auto
Loans, Loans Against marketable securities, personal loans for two wheelers.

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It is also a leading provider of Depository Participant (DP) services for retail customers,
providing customers the facility to hold their investment in electronic form. After successful
launched of NCC VISA Debit Card-Domestic, NCC Bank has also successfully launched
new International VISA Debit Cards effective from Wednesday, January 1, 2014 (Poush 17,
2070) which are NCC Travel Dollar Card and NCC International Debit Card in order to give
more facilities to customers in relation to card services for customer satisfaction. NCC Travel
Dollar Card and NCC International Debit Card can be used in any of the ATMs and POS
machines displaying VISA Logo for cash withdrawal, balance enquiry or purchase of goods
& services from various merchants like departmental stores, hospitals, retail shops etc
throughout Nepal and Worldwide countries.NCC Travel Dollar Card is prepaid debit card
which can be issued to prepaid dollar accounts which are opened by bank itself. There is no
need to open dollar account by the customer. The cards issued are valid for a period of one
year and shall have to be renewed on expiry. NCC International Debit Card can be issued to
both current and saving dollar accounts. The cards issued are valid for a period of three years
and shall have to be renewed on expiry.

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1.3 INRODUCTION TO WORKING CAPITAL MANAGEMENT
Financial Management is that managerial activity which is concerned with the planning and
controlling of the firms financial resources.
Financial management focuses on finance manager performing various tasks as Budgeting,
Financial Forecasting , Cash Management , Credit Administration, Investment Analysis,
Funds Management , etc. which help in the process of decision making . The management
of fixed and current assets, however , differs in three important ways: Firstly, in managing
fixed assets, Time , is very important role in capital budgeting and a minor one in the
management of current assets. Secondly ,the large holdings of currents assets especially
cash, strengthen firm’s liquidity position but it also reduces its overall profitability . Thirdly,
the level of fixed as well as current assets depends upon the expected sales, but it is only the
current assets which can be adjusted with sales fluctuation in the short run.
Working capital is a financial metric which represents operating liquidity available to a
business, organization or other entity, including governmental entity. Along with fixed assets
such as plant and equipment, working capital is considered a part of operating capital . Gross
working capital is equal to current assets. A company can be endowed with assets and
profitability but short of liquidity if its assets cannot readily be converted in to cash . Positive
working capital is required to ensure that a firm is able to continue its operations and that it
has sufficient funds to satisfy both maturing short- term debt and upcoming operational
expenses. The management of working capital involves managing inventories, cash account,
account receivable and payable. Net working capital is calculated as current assets minus
current liabilities. It is a derivation of working capital that is commonly used in valuation
techniques as such as DFCs (Discounting Cash Flow). If current assets are less than current
liabilities, an entity has a working capital deficiency , also called a working capital deficit.
A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted in to cash. Positive working managing inventories and account
payable and receivable . A manufacturing concern needs finance not for only for acquisition
of fixed assets but also for its day to day operation. It has to obtain raw materials for
processing, pay wages, bills and other manufacturing expenses, store finished goods for

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marketing and grant credit to its customers. It may have to pass through the following stage
to complete its operating cycle:-
Conversion of cash into raw materials may be product either on payment of cash or on credit.
Even if product on credit, cash may have to be paid after a certain period. Capital is
required to ensure that a firm is able to continue is operation and that has sufficient funds
to satisfy both maturing short -term debt and upcoming operational expenses. The
management of working capital involves:
1. Conversion of raw material into stock in progress.
2. Conversion of stock in process in to finished goods.
3. Conversion of finished into receivables/debtors or cash.
4. Conversion of receivable /debtors in to cash
A non –manufacturing trading concern may not require funds for purchase of raw material
and their process, but it also need finance for sorting goods and providing credit to its
customers. Similarly a concern engaged providing services may not have to keep
inventories, but it may have to provide credit facility to its customers. Thus all enterprises
engaged in manufacturing or trading or providing service require finance for their day to day
operation. The amount required to finance day to day operation is called working capital
and assets and liabilities created during the OPERATING CYCLE are called current assets
and current liabilities. The total of all current assets is called GROSS WORKING
CAPITAL and excess of current assets over current liabilities is called NET WORKING
CAPITAL.
While the study of gross working capital indicates the nature and extent of working capital
requirement, the analysis of networking capital indicates liquidity position an enterprise. It
may be observed from the above that working management is essential to carry on day to
operation and to maintain the operating cycle of an enterprise. Fixed assets can not generate
income unless they are used with the help of working capital. Therefore working capital is
considered as a life of blood on an enterprise. As per the study on finance of public limited
companies conducted by reserve bank of India, current assets constitute more than fifty
percent (50%) of total asserts of the companies covered by the study . It indicates that

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current asserts occupy an important place in total assets of an enterprise and safety of the
funds provided by the financial banks .
When banks are approached by entrepreneurs to financing working capital requirement , the
banks have to examine the viability of the project before agreeing to provide working
capital to it. A detailed viability study is done by financial institution and banks while
providing term loan finance to a unit for execution of fixed assets. They have to ensure
that the project will generate sufficient return on the resources invested in it . The viability
of a project depends on technical intimae and proper management of the unit . In brief a
project should satisfy the tests of technical commercial, financial and managerial
feasibilities.
Proper co-ordination amongst banks and financial institutions is necessary to judge the
viability of a project and to provide working capital at appropriate time without any delay.
If a unit approaches banks only for working capital requirement and no viability study has
been done earlier which is generally done at the time of providing term loans , like a
detailed viability study is necessary before agreeing to provide working capital finance . In
scarcity of credit , its increasing demand from various sectors of the economy and its
importance in the development of the economy ,banks should provide working capital
finance according to production of requirements . Therefore, it is necessary to make a
proper assessment if total requirement of the working capital which depends on the nature of
the activates of an enterprises and the duration of its operating cycle. After assessing the
total requirement of working capital , its sources of finance have to be decided . A part of
the working capital requirements should be financed by the long term sources. The task of
banks does not end worth proper assessment of working capital and fixation of credit limits
.Close supervision and follow up are essential to ensure end use of funds lent and also to
anticipate the problem relating to leasing and hire purchase concerns are different than
those of other in manufacturing / trade concerns. In case of certain agro – based seasonal
industries like tea and sugar , working capital requirements may be at the peak during the
season through sale proceeds are realized throughout the year .In such case , working
capital limits are decided on the basis of projected monthly cash budgets.

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OPERATING CYCLE CONCEPT:
Working capital refers to that part of firms of capital which is required for financing short
term or current assets such as cash , marketable securities, debtors and inventories . Funds ,
thus invested in current assets keep revolving fast and are being constantly converted in to
cash and this cash flow out again in exchange for other current assets . Hence , it is also
known as revolving or circulating capital . The circular flow concept of working capital is
based upon this operating or working capital cycle of a firm .The cycle starts with the
purchase of raw material and other resources and ends with realization of cash from the
sale of finished goods it involves purchase of raw material kind store ,its conversation of
labor and services costs, conversion of finished goods through work in progress wit
progressive incensement of labor and services costs conversion of finished stock in to sales
debtors and receivable and ultimate realization of cash and this cycle continues again
from cash to purchase of raw material and so on . The speed / time duration required to
complete one cycle dreaminess the requirements of working capital longer the period of
cycle large is the requirement of working capital.
FIG:1 WORKING CAPPITAL CYCLE / OPERATIG CYCLE
CASH
RAW
MATERI
ALS
WORK IN
PROGRESS
FINISHED
GOODS
SALES

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The gross operating cycle of the firm is equal to length of the receivable and inventories
conversion period , Thus ,
Gross Operating Cycle = RMCP+WIPCP+FGCP+RCP
Where , RMCP= Raw material conversion period
WIPCP=Work in process conversion period
FGCP=Finished goods conversion period
RCP = Receivable conversion period
However , a firm may acquire some resources on credit and thus defer payments for certain
period in that case , net operating cycle can be calculated as
Net Operating Cycle Period =Gross Operating Cycle Period –payable Deferral period
Raw material conversion period =
Work in process conversion period =
Finished goods conversion period =
Receivable conversion period=
Payables deferral period =

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IMPORTANCE OF WORKING CAPITAL:
Working capital is the measurement of the availability of liquid assets a company has to
build its busies . Generally ,companies that have a lot of working capital will be more
successful since the can expand and improve their operation . Companies without working
capital may lack the funds necessary for growth. Small businesses often use working
capital to pay short term obligation such as inventory or advertising but it can also be
utilized for long term project such as renovations or expansion. These are elements in the
business cycle that can quickly absorb cash . Even very profitable businesses can run into
trouble if they lose the ability to meet their short-term obligation . Business financing or
small business loans can be used as a fast cash option to cushion the periods when the flow
is not ideal or readily available .
Cash flow is the businesses life blood and every owners primary task is to help keep it
flowing and to use the cash to generate profits . If a business is operating profitably , then it
should in theory , generate a cash surplus . If it does not generate a surplus the business
could eventually run out of cash and expire . The faster a business expands the more cash it
will need for working capital . Proper management of working capital will generate cash
and will help improve profits and reduce risk.
Working Capital can be divided into two categories on the basis of time:-
1. Permanent Working Capital
2. Temporary or Variable working capital
1. Permanent working capital :-
This refers to that minimum amount of investment in all current assets which is
required at all times to carry out minimum level of business activities . It represent
the current assets required on a continuing basis over the entire year.
Tandon committee has referred to this type of working capital as “ core current
assets”
The following ate the characteristics of this type of capital :-

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1. Amount of permanent working capital remains in the business in one from or
another .This is particularly important from the point of view of financing. The
suppliers of such working capital should not expect its return during the life time
of the firm .
2. It also grows with the size of the business. Permanent working capital is
permanently needed for the business and there fore it should be financed out of
long term funds.
This is the reason why the current ratio has to be substantially more than ‘1’.
2.Temporary or variable working capital :-
The amount of such working capita keeps on fluctuating from time to time on the basis of
business activates . In other words , it represent additional current assets required at
different times during the operating year.
FACTORS INFLUESING WORKING CAPITALREQUIREMENT
All firms do not have the same WC needs .The following are the factors the factors affect
the WC needs:
1. Nature and size of business:
The WC requirement of a firm is closely related to the nature of the business .We
can say that trading and financial firms have very less investment in fixed assets
but require a large sum of money to invested in WC. On the other hand Retail store
for example, have to carry large stock of variety of goods little investment in the fixed
assets . Also firm with a large scale of operation will obviously require more
working capital than smaller firms.
2. Manufacturing Cycle:
It starts with the purchase and use of raw materials and completes with the production
of finished goods. Longer the manufacturing cycle larger will be the WC
requirement; this is seen mostly in the industrial products.

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3. Production Policy:
To maintain an efficient level of production the firms may resort to normal
production even during the slack season. This will lead to excess production and
hence the funds will be blocked in form of inventories for a long time, hence
provisions should be made accordingly. Since the cost and risk of maintaining a
constant production is high during the slack season some firm’s may resort to
producing various products to solve their capital problems. If they do not then they
require high WC.
4. Business Fluctuation:
When there is an upward swing in the economy, sales will increase also the firm’s
investment in inventories and book debts will also increase, it will increase the WC
requirement of the firm and vice-versa.
5. Firm’s Credit Policy:
If the firm has a liberal credit policy its funds will remain blocked for a long time in
form of debtors and vice-versa. Normally industrial goods manufacturing will have a
liberal credit policy , whereas dealers of consumer goods will a tight credit policy.
6. Availability of Credit:
If the firm gets credit on liberal terms it will requires less WC since it can always pay
its creditors later and vice-versa.
7. Growth and Expansion Activities:
It is difficult precisely to determine the relationship between volume of sales and
need for WC. The need for WC does not follow the growth but precedes it. Hence, if
the firm’s is planning to increase its, business activities, it needs to plan its WC
requirements during the growth period.
8. Conditions of Supply of Raw Material:
If the supply of RM is scarce the firm may need to stock it in advance and hence need
more WC and Vice-versa.
9. Profit Margin and Profit Appropriation:
A high net profit margin contributes towards the WC pool. Also , tax liability is
unavoidable and hence provision for its payments must be made in the WC plan,
otherwise it may impose a strain on the WC. Also if the firm’s policy is to retain the

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profits it will increase their WC, and if they decided to pay their dividend it will
weaken their WC position , as the cash will flow out. However this can be avoided by
declaring bonus shares out of past profits. This will help the firm to maintain a good
image and also not part with the money immediately, thus not affecting the WC
position.
10. Depreciation policy of the firm:
Through its effect on tax liability and retained earning, has an influence on the WC.
The firm may charge a high rate of depreciation, which will reduce the tax payable
and also retain more cash does not flow out. If the dividend policy is linked with net
profit, the firm can pay fewer dividend by providing more deprecation . Thus
deprecation is an indirect way of retaining profits and preserving the firms WC
position.
CREDIT POLICY OF BANK:
Objectives:
The main objectives of the credit policy of the bank are to have healthy credit portfolio with
consistent qualitative and quantitative growth and clear understanding of the risk in involved
in lending. The board objective of the policy are to:
 Create a framework to ensure smooth and timely flow of credit to the bank’s
customers, ensure prudent credit growth- both quantitative and qualitative and to
augment interest and non interest income within the statutory framework prescribed
by the Nepal Rastra Bank.
 Adhere to the lending norms prescribed by the bank ,NRB and the government from
time to time.
 Ensure consistency in standardization of credit practices.
 Ensure balanced sect oral and diversified growth of credit so as to have proper risk
spectrum, with no credit concentration and within the prudential exposure norms.
 Evolve a well defined system to identify measure, monitor and control various risks
attached to risks reached to credit portfolio of the bank.

22
 Concentrate on growth of small and medium sized credit including lending under
agriculture, horticulture and ensuring dispersal of risk as well as improvement in
yield of advances.
 Ensure placement of well defined system to identify and manage problem loans
including recovery and ongoing review of norms and guidelines for effective
monitoring and follow-up.
METHODOLOGY OF LENDING:
For the assessment of working capital requirement of borrowers, following method will be
followed:
1. Turn Over Method: Assessment of working capital (fund based ) finance based
on project turnover/sales of the unit will be applicable incase of the following
categories of borrowers, subject to fulfillment of condition described herein:
Category of Borrower Max. Amount of WC
facility under turnover
method
Condition to be fulfilled
i)Micro and Small
Enterprise in the
manufacturing services
sector.
ii)Micro or Small
Enterprise providing or
rendering services.
iii)Export Trade Advance
Non MSE up to 2.00 crore
MSE up to 5.00 crore
The gross working capital
will be assessed at 25% of
projected sales turnover
and bank finance will be
20% of the projected
turnover. The margin
stipulated shall be
minimum 5% of project
turnover of NWC
available in the balance
sheet whichever is higher.
In case NWC falls short of
the margin stipulation

23
same shall be brought by
the borrower in projected
FY.
2. First Method of Lending:
The method should applicable to all loans in the manufacturing /services and trade
with credit limit of Rs 2.00 Crores to Rs 5.00 Crores and all sick and weak units.
3. Second Method of Lending:
The assessment of funds based working capital limits of above of Rs 5.00 crores shall
be strictly followed as per the second method of lending.
4. Cash Budget System:
This system shall be followed in following case:
i. For assessing WC requirement for seasonal industries like tea, coffee and
sugar.
ii. For assessing WC finance above Rs 2.00 crores for borrowers engaged in
information technology and software industry.
iii. Any other borrower who is desirous of shifting to monthly cash budget
system.
iv. Construction Activities.
5. Tailor Made Schemes:
Methodology for assessment of finance as indicated in the relevant scheme will be
followed in case of tailor made schemes.
6. Assessment of Facility Granted under consortium Arrangement:
In consortium arrangement where the bank is a member, the assessment/appraisal
made by the lead bank, If found in order and without any discrepancy shall be
accepted /followed. However in consortium arrangements where the bank is holding
lead responsibility assessment will be made as per methodology indicated above,
irrespective of methodology adopted by lead banks.

24
DELEGATION OF LOANING POWERS:
The bank has formulated comprehensive structure of delegation of loaning powers to
business units /cluster head /zonal office /A&AP,/MCB/ adequate sector wise loaning powers
have been delegated to branch heads/ cluster heads/zonal heads for sanction of the credit
proposals. However sanction of credit proposals at pricing falling outside the ambit of
interest rate structure formulated by the bank from time to time as well as any relaxation in
margin/commission or security etc. shall continue to be vested with A&AP.
SANCTIONING OF CREDIT PROPOSALS:
The credit decisions shall be essentially aimed at ensuring the growth in accordance with the
identified objectives of the bank’s credit policy and without any compromise on the asset
quality. Sanctioning authority shall ensure adherence to the lending norms prescribed by the
bank, NRB, and Government from time to time. The sanctioning authority while exercising
the delegated loaning powers shall continue to take in to consideration cash generating
capacity of the activity financed, volume of activity, risk involved in their mitigation,
viability of activity, repayment capacity of the unit, background of promoters, working out
appropriate amount of finance inconformity of the credit policy, adequacy of security and
margins of appropriate interest rates, ensuring proper end use of funds lent and creation of
security interest in favor of the bank etc.
FORMATION OF CREDIT COMITTEES:
Credit committee/ approval grid system in credit sanction process has introduced by the
bank. At CHQ, two credit committees have been formed which are headed by the chairman
and president. In the credit committee, sanction of fresh loan proposals (other than schematic
loans) falling beyond the threshold limit, is discussed. Depending upon the merits of the

25
proposal for the credit committee approves the proposal for sanction/rejection. The
composition of the credit committees formed at CHQ level is described here under:
Sanctioning Authority Composition of Credit Committee
President 1.Vice President or assistant president
2.Vice president risk or assistant president
risk
Chairman 1.President
2.President (Risk)
CENTRALISED PROCESSING OF CREDIT PROPOSALS:
In order to have further efficiency in disposal of credit proposals a new system has been
devised by the bank. Under this system, credit proposals for limits exceeding the delegated
powers of zonal heads, shall be submitted by the zonal heads to CHQ as under:
i. B/U falling outside of branches office through respective zonal offices.
ii. B /U falling within branch office directly to CHQ.
In case of business mobilized by zonal offices, credit proposals for limits falling within the
scope of their delegated power shall be directly processed by credit department of zonal
offices without routing the proposal through a business unit in the jurisdiction of the zone.
BANK POLICY ON PRIMARY AND COOATERALSECURTY:
The purpose of the loan funds should remain the main criterion while arriving at the credit
decision, however due emphasis shall be laid on safety of funds lent by the bank by creating
charge on the assets procured out of bank finance with prescribed margins as that may be the
cases.

26
Various types of tangible securities/assets usually accepted by the bank as primary collateral
security will include charge on stocks and receivables /book debts and other current assets,
hypothecation of movable fixed assets, registered/equitable mortgage of property/immovable
fixed assets, assignment of receivable, assignment of rights and interests available in project
agreements etc.
BENCHMARK RATIO ‘S:
The following are the key ratios:
Key Ratio Minimum In case of MSE
borrowers
Remarks/
Deviations.
Current Ratio 1.33:1 1.25:1 for limits up
to 5.00 crores
1.33:1 for limits
above 5.00 crores.
Up 1.10:1 in case of
export credit
Debt equity ratio 2:1 3:1 for loan above
2.00 lacs.
Maybe relaxed up to:
i.)4:1 in case of MSE
and infrastructure.
ii.)2:1 in case of units
having stable income
and faster generation
of operating profits.
iii.)up to 5:1 in case
of agriculture and
allied activities.
Debt Service
Coverage
1.30:1 minimum and
1.5:1 average under
1.15:1 minimum and Borrower has good
track record of

27
Ratio(DSCR) base case scenario 1.30:1 average repayment and
satisfactory dealing
with the bank.
Interest Coverage
Ratio
1.25:1 1.30:1 The ratio is an
indicator of the
ability of the unit to
repay/service
interest.
CLASSIFICATION OF CORPORATE AND RETAIL SECTORS:
Exposure of Rs 5.00 cores and above shall be treated as corporate sector advances. All other
loan and advance for limits up to Rs5.00 crier shall fall under the retail segment.
Priority sector credit:
Bank will continue to give more focused attention for achieving the targets with regard to
deployment of credit in priority sector, however agriculture will be the thrust are for lending
under priority sector.
Standards for margin:
The standard for margin will vary from case to case bases and are given as follows:
Category of Advance Minimum Margin
Cash credit /SOD against primary security of
hypothetication of stock and book debts
25% on stock and 25% on book debts.
MSE borrowers Up to 5.00 crores 20% on stock and book
debt.
Above 5.00 crore 25% margin will apply.

28
Loan and advances to self and third parties
against the security of bank’s term deposits.
Loans
against own
term
deposits
15% on loan against term
deposit having residental
maturity of more than five
years as on the date of
advance.
Loans and
advance to
entities
other than
individuals.
10% for advance against term
deposits having residual
maturity up to 4 years as on
the date advance
deposit having residual
maturity of more than 4 years
but more than 6 years as on the
date of advance.
Loan and
advance to
entities
other than
individual
10% for advances against term
deposits residual maturity up to
3 years as on the date of
advance.
deposit having residual
maturity of more up years as
on the date of advance.
Loan and advances against the security of life
insurance polices.
25% of the latest surrender value.
Loan and advances against the security of
permitted shares
50% of the latest market price or50% of
average of 52 weeks which ever is lower.
The market value of share to be verified

29
daily basis
Loan under special schemes As prescribed under the scheme.
Bank guarantees and LC’s As per the delegation of powers in vogue and
issued from time to time.
Range of Risk grades:
The mapping for internal rating grades and external rating grades is given as under with
connotation of each rating grade.
External rating grads Banks internal rating
grades
Connotation
AAA and AA+ 1 Highest degree of safety with
lowest credit.
AA 2 High degree of safety.
AA- 3 Same as above.
A+ 4 Adequate degree of safety
with low credit risk.
BBB 5 Moderate degree of safety
with moderate credit risk
BB 6 High risk of default.
B 7 Very high risk of default
C& Below 8 Expected to be in default
soon.

30
RENEWAL OF ACCOUNT:
1. Renewal of all borrower account will be completed at least on yearly basis in the
prescribed manner. In case of account where at the time of renewal has been
observed, the bank shall renew the account for a shorter period as deemed fit and
ensure regular follow up for rectification of the weaknesses.
2. Where complete review is not possible for want of CMA date, the review may be
undertaken on the basis of latest working results and conduct of account. Audited
financial statement must be insisted for, in all borrow account in case of fresh renewal
of account having credit limits of Rs60.00 lacks and above.
3. The jobs relating to the renewal of the credit facility shall be closely monitored by
credit department of concerned cluster office, zonal office and CHQ as the may be,
renewal of the working capital limits shall be ensured within the due dates and not
later than 3 months after due date in the account where it possible due to specific
reason.
MANAGEMENT OF DIFFERENT COMPONENTS OF WORKING
CAPITAL:
Working capital management involves management of different components of working
capital such as, inventories, account receivable, creditor’s,etc.
Management of Inventories:
Inventories are good held for eventual sale by a firm. Inventories are thus one of the major
element ,which help the organization in obtaining desired objective.
Kinds of inventories:
Inventories can be classified in to three categories .

31
i. Raw Material:
These are goods, which have not yet been committed to production in a
manufacturing firm. They may consist of basic raw material or finished so
components.
ii. Work in Progress:
This includes those material, which have been committed to production process
but have not yet been completed.
iii. Finished Goods:
These are completed product a waiting for providing services (sale). They are the
final output of the production process in a manufacturing firm.
The level of the above three kinds; of inventories differ depending upon the nature of the
business.
Inventories often constitute a major element of the total working capital and hence it has
been correctly observed “Good Inventory Management is Good Financial Management”.
Inventory management covers a large number of issue includeing fixation of minimum
and maximum levels determine the size of the inventory to be carried deciding about the
issue price policy setting up receipt and inspection procedure determining the economic
order quantity providing proper storage facilities keeping check on obsolescence and
setting up effective information system with regard to the inventories.
However, management inventories involve two basis problems:
i. Maintaining a sufficiently large size of inventory for efficent and smooth
production and service operation.
ii. Maintaining a minimum investment in inventories to minimize the direct indirect
costs associated with holding inventories to maximize the profitability.
Inventories should neither be excessive nor inadequate. If inventories are kept at a high level,
higher interest and storage costs would be incurred. On the other hand, a low level of
inventories may result infrequent interruption in the production schedule resulting in
underutilization of capacity and lower sales.

32
The objective of inventory management is, therefore to determine and maintain the optimum
level of investment in inventories, which help in achieving the following objectives.
i. Ensuring a continuous supply of material to production department or human
resource department uninterrupted operation.
ii. Maintaining sufficient stock of raw material in periods of short supply.
iii. Maintaining sufficient stock of finished goods for smooth sales operation.
iv. Minimizing the carrying costs.
v. Keeping investment in inventories at the optimum level.
Management of Cash:
It is duty of the finance manager to provide adequate cash to all segments of the
organization. He also has to ensure that no funds are blocked in idle cach since this will
involve cost in terms of interest to the business. A sound cash management schem, therefore
maintain the balance between the twin objectives of liquidity and cost.
Meaning of Cash
The term “cash with references to cash management is used in two senses. In a narrower
sense it includes coins, currency notes, cheques, bank drafts held by a firm with it and the
demand deposits held by it in banks.
In a broader sense it also includes “near-cash assets” such as, marketable securities and time
deposits with banks. Such securities or deposits can immediately be sold or converted into
cash if the circumstances require. The term cash management generally used for management
of both cash and near-cash assets.
Motives for holding cash

33
A distinguishing feature of cash an asset, irrespective of the firm in which it is held, is that it
does not earn any substantial return for the business. In spite of this fact cash is held by the
firm with following motives.
Transaction Motive
A firm enters into a variety of business transactions resulting in both inflows and outflows .
In order to meet the business obligation in such a situation, it is necessary to maintain
adequate cash balance. Thus, cash balance is kept by the firms with the motive of meeting
routine business payments.
Precautionary Motive
A firm keeps cash balance to meet unexpected cash need arising out of unexpected
contingencies such as floods, strikes, presentiment of bills for payment earlier than the
expected date, unexpected slowing down of collection of accounts receivable, sharp increase
in prices of raw materials etc. The more is the possibility of such contingencies more is the
cash kept by the firm for meeting them.
Speculative Motive
A firm also keeps cash balance to take advantage of unexpected opportunities, typically
outside the normal course of the business. Such motive is therefore, of purely a speculative
nature.
Compensation Motive
Banks provide certain services to their clients free of charge. They, therefore, usually require
clients to keep minimum cash balance with them, which help them to earn interest and thus
compensate them for the free services so provided.

34
Business firms normally do not enter into speculative activities and therefore, out of the four
motives of holding cash balances, the two most important motives are the compensation
motive.
Management of Account Receivables:
Account receivable (also properly termed as receivables) constitute a significant portion of
the total current assets of the business next inventories. They are direct consequences of
“trade credit” which has become an essential marketing business.
When a firm sells goods for cash payment are received immediately and therefore, no
receivables are credit. However, when a film sells goods or service on credit, the payments
on open account, which means that, no formal acknowledgement of debt obligation are taken
from the buyers. The only documents evidence the same are a purchase order, shipping
invoice or even a billing statement. The policy of open account sales facilities business
transaction and reduces to a great extent the paper work required in connection with credit
sales.
Meaning of Receivable:
Receivable are assets account representing amount owed to the firm as a result of sale of
goods /services in the ordinary of business. They therefore, represent the claims of a firm
against its customer and carried to the assets of the balance sheet under titles such as account
receivable, customer receivable or book debts. They are as stated earlier, the result of
extension of credit facility to then customers, a reasonable period of time in which they can
pay for the goods purchased by them.
Purpose of Receivable:
Account receivable are created because of credited sales. Hence the purpose of receivable is
directly connected with the objectives of making credited.
Management of Accounts payable:

35
Management of accounts payable is as much important as management of accounts
receivable. There is a basic difference between the approaches to be adopted by the finance
manager in the two cases. Whereas the underlying objective incase of accounts payable is to
slow down the payments process as much as possible. But it should be noted that the delay in
payment of accounts payable may result in saving of some interest costs but it can prove
very costly to the firm in the form of loss credit in the market.
The finance manager has, therefore to ensure that the payments after obtaining the best credit
terms possible.
SOURCE OF WORKING CAPITAL:
The working capital requirements should be both form short-term as well long-term sources
of funds. Source of long term financing are shares, debenture, preference share, retained
earnings and debt from financial institution, sources of short term finance include bank loan
commercial paper etc. Its will be appropriate to meet at least2/3rd
(if not the whole) of the
permanent working capital requirements from long-term sources and only for the period
needed.
The financing of working capital through short-term sources of funds has the benefits of
lower cost and establishing close relationship with bank and customers. Financing of
working capital from long-term resources provides the following benefits:
i. It reduce risk, since the need to repay loans at frequent intervals is eliminated.
ii. It increase liquidity since the firm has not worry about the payment of these funds

36
2. REVIEW OF LITERATURE
The purpose of this chapter is to present a review of literature relating to the working capital
management. Although working capital is an important ingredient in the smooth working of
business entities, it has not attracted much attention of scholars. Whatever studies have
conducted, those have exercised profound influence on the understanding of working capital
management good number of these studies which pioneered work in this area have been
conducted abroad, following which, Indian scholars have also conducted research studies
exploring various aspects of working capital. Special studies have been undertaken, mostly
economists, to study the dynamics of inventory investment which often represented largest
component of total working capital.
Studies adopting a new approach to wards working capital management are reviewed here.
 Sagan in this paper (1995), perhaps the first theoretical paper on the theory of
working capital management, emphasized the need for management of working
capital account and warned that it could vitally affect the health of the company. He
realized the need to build up a theory of working capital management. He discussed
mainly the role and function of money managers inefficient working capital
management. Sagan pointed out the money manager’s operation were primarily in
the area of cash flows generated in the course of business transaction. However,
money manager must be familiar with what is being done with the control of
inventories, receivables and payable because all these account affect cash position.
Thus, Sagan concentrate mainly on cash component of working capital . Sagan
indicated that the task of money manager was to provide funds as and when needed
and to invest temporarily surplus funds as profitable as possible in view of his
particular requirement of safety and liquidity of funds by examining the risk and
return of various investment opportunities.
 Walker in this study (1964) made pioneering effort to develop theory of working
capital management by empirical testing, though partially, there propositions based
on risk-return trade –off of working capital management. Walker studied the effect of
the change in the level of working capital on the rate in nine industries for the year

37
1961 and found the relationship between the level of working capital and the rate of
return to be negative.
 Chakra borty(1973) Approached working capital as segment of capital
employed rather than a mere cover for creditors. He emphasized that working capital
is the pond to pay all the operating expenses of measure of overall efficiency in
running a business, would be adversely affected by excessive working capital.
Similarly, too little working capital might reduce the earning capacity of the fixed
capital employed over the succeeding periods. For knowing the appropriateness of
working capital amount, he applied Operating Cycle (OC) Concept. He calculated
required cash working capital by applying OC concept and compared it with cah
from balance sheet data to find out the adequacy of working capital in Union Carbide
Ltd. and Madura Mills Co.
 Misra(1975) Studied the problems of working capital with special reference to six
selected public sector undertaking in India over the period 1960-61 to 1967-68.
Analysis of financial ratios and responses to a questionnaire revealed somewhere the
same results as those of NCAER study with respect to composition and utilization of
working capital. In all the selected enterprises, inventory constituted the more
important element of working capital. The study further revealed the overstocking so
inventory in regard to its each component, very low receivables turnover and more
cash than warranted by operational requirements and thus total mismanagement of
working capital in public sector undertakings.
 Lambrix and singhvi (1979) Adopting the working capital cycle approach to
the working capital management, also suggested that investment in working capital
could be optimized and cash flows could be unproved by reducing the time frame of
the physical flow from receipt of raw material to shipment of finished goods, i.e
inventory management and by improving the terms on which firm sells goods as well
as receipt of cash.
 Aggarwal (1983) Studied working capital management on the basis of sample of
34 large manufacturing and trasing public limited companies in ten industries in
private sector for the periods 1966-67 to 1976-77. Applying the same techniques of

38
ratio analysis, responses to questionnaire and interview, the study concluded the
although the working capital per rupee of sales showed a declining trend over the
years but still there appeared a sufficient scope for reduction in investment in almost
all the segment of working capital.
 Vijaykumar and Venkatachalam(1995) Studied the impact of working
capital on profitability insugar industry in Tamil Nadu by secting a sample of 13
companies: 6 companies in co-operative sector and 7 companies in private sector over
the period 1982-83 to 1991-92. They applied simple correlation and multiple
regression analysis on working capital and profitability ratio.
 Jain p.k. and Yadav Surendra S.(2001) Study the corporate practices related
to management of working capital in India, Singapore and Thailand . In this paper the
authors have to trued to understand the working capital management and current
assets and current liabilities and their inter-relationship. Further the authors have
shown an aggregative analysis of current assets and current liabilities in terms of
major liquidity ratios. It also states working capital position in terms of these ratio
pertaining to various industries. From the paper one can infer that the available data
in respect of the sample companies from the three counters confirm the wide inter-
industry variation in liquidity ratios. Towards the end the authors suggest that serious
consideration needs to be given by the respective government as well as industry
groups in these three countries in order to take corrective measures to take care of and
rectify the area of concern.
 Thappa Sankar(2007) Focus on the importance of proer working capital
management of sun pharmaceutical company. The paper throws light on the concepts
working capital, working capital policy, components of working capital and factors
affecting working capital in the Sun pharma Industries Ltd. during the last five years
and identifies certain factors which are responsible for the improvement of working
capital of the company. The article concludes with a warning to the Company that if
satisfactory level of working capital is not maintained, the company would become
bankrupt.

39
 Rahaman Mohammad M. (2011) Focuses on the co-relation between working
capital and profitability. An effective working capital management has a positive
impact on profitability of firms. Form the study it is seen that in the textile industry
profitability and working capital management position are found to be up the mark.
 Joseph Jisha(2014) Closely examines the study of working capital management
in Ashok Leyland and points out the liquidity and profitability position of the
company is not satisfactory, and needed to be strength in order to be able to meets
obligation in time.
 Madhavi k.(2014) Makes an empirical study of the co-relation between liquidity
position and profitability of the paper mills in Andhra Pradesh. It has been observed
that inefficient working capital management makes a negative impact on profitability
and liquidity position of the paper mills.

40
3. RESEARCH METHODOLOGY
Research commonly refers to the search for knowledge. It is the scientific and systematic
search for collection of information on a specific topic. In fact research is an art of scientific
investigation.
According to Clifford Woody “Research comprised of defining and redefining the problems,
formulating hypothesis or suggestion solution, collecting, organizing and evaluating the
data, making deductions and reading the conclusion and at last carefully testing the
conclusion to determine whether they fit formulated hypothesis”.
Research Methodology is to systematically solve the problem. It may be understood as a
sconce of studying how research is done scientifically. The research methodology includes
the research methods or techniques used to solve the research problem and the logic for using
a particular technique so that the research are capable of being evaluated either by the
researcher himself or by others.
TITLE OF STUDY
A study on “Working Capital Management of Nepal Credit Commerce Bank Ltd”.
3.1 OBJECTIVES OF STUDY:
The study was conducted keeping in mind the following objectives:
 To study the different components of working capital and its impact on the
performance of the firm.
 To study how NCC bank finances working capital requirements of the firms.
 To understand the financial position of selected companies.
 To study how bank assesses the requirements of the firm.
 To study debtors trend in past years

41
STATEMENT OF PROBLEM
Working capital risk refers to the possibility of a negative impact on the financial situation of
enterprises and financial results due to lack of working capital and other reasons, resulting in
economics losses. It is one of the major financial risks facing enterprises. Management of working
capital is important as it directly affects the functioning of the business any disturbance here will not
only affect the operation and profits but also it affects the reputation of the business.
3.2 RESEARCH DESIGN
Descriptive research, also known as statistical research, describes data and characteristics
about the population or phenomenon being studied. Descriptive research answers the
questions who, what, where, when and how.
In this report, exploratory and descriptive research design are used to fulfill the objectives.
Source of data:
Two types of data were taken into consideration i.e. Primary and Secondary data. But major
emphasis was given on gathering secondary data as the project is based on financial aspects.
The primary data was used only on to supplement the secondary data to make things clear.
1. Primary:- The data observed and collected directly from first hand experience or
purpose for research project is called primary data.
2. Secondary:- The data collected by someone other than user.
 Previous Report
 Magazines
 Journals
 Website
 Balance sheet and Profit & Loss Account.

42
Statistical Tool:
The tool for obtaining the information was Interview. The interview was based on the various
aspects and trends that were shown on balance sheet and interview with the related
authorities of finance has fulfilled objective of study.
Sampling:-
I used convenient sampling for the collection of the data, where the sample is neither selected
by judgment nor by chance but by convenience.
3.3 SIGNIFICANCE OF STUDY:
Following are the significance of this research:
 Firm with an efficient supply chain will often be able to sell their product at discount
versus similar firms with inefficient sourcing.
 An efficient working capital management will help a firm to survive through a crisis
or ramp up production in case of unexpectedly large order.
 Firms with more efficient working capital management will generate more free cash
flow which will result in a higher business valuation and enterprises value.
 A firm paying its suppliers on time will also benefit from a regular flow of raw
materials, ensuing that the production remains uninterrupted and clients receive their
goods on time.
 The ability to meet short-term obligation is a pre-requisite to long-term solvency and
often a good indication of counterparty credit risk.

43
3.4 LIMITATION OF STUDY
The study was conducted with the following limitation:
1. The data used in this study is mostly based on secondary data.
2. The study is conduct within a short period. During the limited period the study may
not be detailed, full-fledged and utilized in all aspects.
3. The study is limited to NCC Bank, and its strategies for funding working capital
needs.
4. The study is done only on the customers of NCC Banks .
5. Only the printed data about the company are available and not the back end details.

44
4. DATA ANALYSIS AND INTERPRETATION
Data
Analysis
Method
Proposed
Task Flow
Existing
Product
Analysis
Comparitive
Analysis
Detailed
Task
Definition

1. Current assets pattern of the NCC Bank Ltd. of
Year
2015
2016
2017
INTERPRETATION
After the observation it clearly shows that the amount of current assets is
year of 2015 and less in 2017
0.00
20,000,000.00
40,000,000.00
60,000,000.00
80,000,000.00
100,000,000.00
120,000,000.00
140,000,000.00
2015
Current Assets Position
45
Current assets pattern of the NCC Bank Ltd. of last 3 years.
Current Assets in Rs. (Cr.)
136,647,640.09
120,576,041.64
100,790,115.99
After the observation it clearly shows that the amount of current assets is much higher in the
2017.
2016 2017
last 3 years.
Current Assets in Rs. (Cr.)
much higher in the

2. Current Liabilities pattern of the NCC Bank Ltd. of last 3 years but the
current liabilities in year 2016 are shown in provisional balance sheet the
amount of current liabilities will be audited in September 2016.
Current Liabilities
2015
2016
2017
INTERPRETATION
After analyzing the amount of current liabilities of NCC Bank Ltd. It shows that it has less
amount current liabilities in 2017 as compared to 2015 and 2016
has decreased its current liabilities but the
provisional balance sheet the amount of current liabilities w
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
2015
Current Liabilities Position
46
Current Liabilities pattern of the NCC Bank Ltd. of last 3 years but the
Amount Rs. (Cr.)
131,148,039.44
132,843,103.61
38,843,103.61
ount current liabilities in 2017 as compared to 2015 and 2016 it shows that the company
has decreased its current liabilities but the current liabilities in year 2017
provisional balance sheet the amount of current liabilities will be audited in September 201
2016 2017
Current Liabilities pattern of the NCC Bank Ltd. of last 3 years but the
that the company
current liabilities in year 2017 are shown in
ill be audited in September 201.

3. Profit of the NCC Bank Ltd. for the last 3 years.
Year
2015
2016
2017
INTERPRETATION
The profits of NCC Bank Lt
decreased continuously for three years. The only reason for that is there were only 2
dealerships in the valley in year 2015 now in year 2017
the valley and a tough competition in the
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
90000000
2015
47
3. Profit of the NCC Bank Ltd. for the last 3 years.
Profits Rs. (Cr)
85827260.69
39222080.58
26258420.13
The profits of NCC Bank Ltd. are too high in the year 2015 but with the passage of time it
ships in the valley in year 2015 now in year 2017 there are more than 7, 8 dealership in
the valley and a tough competition in the valley.
2016 2017
Profit
but with the passage of time it
there are more than 7, 8 dealership in
Profit

4. Inventory position of NCC Bank Ltd. in the following years.
Years
2015
2016
2017
INTERPRETATION
The inventory position of NC
and 2016.
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2015
48
Inventory Position in Rs. (Crores)
46301978.00
50981511.00
63788709.00
The inventory position of NCC Bank Ltd. is good in year 2017 as compared to the year 2015
2016 2017
Inventory (In Crore)
Inventory Position in Rs. (Crores)
compared to the year 2015

5. Sales analysis of NCC Bank Ltd. for the following years.
Years
2015
2016
2017
INTERPRETATION
The sales of NCC Bank Ltd. are too high in
other 3 years that is 2015, 2016 and 2017
0.00
100,000,000.00
200,000,000.00
300,000,000.00
400,000,000.00
500,000,000.00
600,000,000.00
700,000,000.00
800,000,000.00
900,000,000.00
2015
49
Sales analysis of NCC Bank Ltd. for the following years.
Inventory Position (Rs/cr)
481,961,775.58
785,048,071.04
815,924,654.73
INTERPRETATION
d. are too high in the year 2017 in the year 2016
other 3 years that is 2015, 2016 and 2017
2016 2017
Sales Analysis
Inventory Position (Rs/cr)
the year 2017 in the year 2016 as compared to
Sales Analysis

6. Working capital analysis of NCC Bank Ltd. for the following years.
Year
2015
2016
2017
INTERPRETATION
The working capital of NCC bank ltd is too high in year as the current exceeds current
liabilities with the high margin as the current assets are valued in the provisional balance
sheet and this amount is not audited.
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
2015
Working Capital Analysis
50
Working Capital (Rs/cr)
24353247.09
5499600.65
61947012.38
sheet and this amount is not audited.
2016 2017
Working Capital (Rs/cr)

7. Sundry debtor’s analysis of NCC Bank ltd for the following years.
Years
2014
2015
2016
2017
INTERPRETATION
On analysis of sundry debtors of NCC Bank ltd. as it is seen that the amount of sundry
debtors is much higher in the year 2017 and 2016 as compared to year 2014 and 2015
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
2014
51
analysis of NCC Bank ltd for the following years.
Sundry Debtors (Rs/cr)
6457503.06
18955567.00
16253786.14
17598071.28
higher in the year 2017 and 2016 as compared to year 2014 and 2015
2015 2016 2017
Sundry Debtors
Sundry Debtors
analysis of NCC Bank ltd for the following years.
higher in the year 2017 and 2016 as compared to year 2014 and 2015.
Sundry Debtors

8. Cash and bank balance analysis of NCC Bank ltd. for the following
years.
Years
2014
2015
2016
2017
INTERPRETATION
Analysis of cash & bank balance of NCC Bank ltd. it is clear that cash & b
high in year 2017 compared to other three year.
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
16000000
18000000
20000000
2014
52
Cash and bank balance analysis of NCC Bank ltd. for the following
Cash & Bank
1714304.03
14672856.43
11662899.93
19403355.71
Analysis of cash & bank balance of NCC Bank ltd. it is clear that cash & b
compared to other three year.
2015 2016 2017
Cash & Bank Balance
Cash & Bank Balance
Cash and bank balance analysis of NCC Bank ltd. for the following
Analysis of cash & bank balance of NCC Bank ltd. it is clear that cash & bank balance is
Cash & Bank Balance

9. Investment by NCC Bank ltd. for the following years.
Years
2014
2015
2016
2017
INTERPRETATION
Investment made by NCC Bank ltd. has been increased year by year that is good for the bank
as it is seen from the past years from the above graph.
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
2014
53
NCC Bank ltd. for the following years.
Investment (Rs/lkhs)
1625151.83
2476142.98
3155134.87
3880526.74
seen from the past years from the above graph.
2015 2016 2017
Investment
Investment

10. Debtors Period
Particulars Audited
31.03.201
Debtors Period 810
INTERPRETAION
Debtor’s level stood at 100 days for the
debtor’s level has been projected at 136 days for
0
100
200
300
400
500
600
700
800
900
2014 2015
54
Audited Audited Provisional
31.03.2015 31.03.2016 31.03.2017
100 93
l stood at 100 days for the 2014-15 and 93 days for the year 2015
debtor’s level has been projected at 136 days for the year 2016-17.
2015 2016 2017
No. of Days
Projected
31.03.2018
136
15 and 93 days for the year 2015-16 the
No. of Days

11. Stock Holding Period
Particulars Audited
31.03.201
Stock Holding Period 636
INTERPRETATION
The inventory holding level in respect of raw materials, semi finished good and finished
goods show smooth trend. The inventory holding of the firm
2015-16 and 181 days in the year 2016
to the increasing
0
100
200
300
400
500
600
700
2015 2016
55
Stock Holding Period
31.03.2015 31.03.2016 31.03.2017
636 35 107
goods show smooth trend. The inventory holding of the firm was at 133 days in the year
days in the year 2016-17. The inventory holding level has increased owing
2016 2017 2018
Provisional Projected
31.03.2018
107
was at 133 days in the year
. The inventory holding level has increased owing

12. Creditors Period
Particulars Audited
31.03.201
Creditors
Period
451
.INTERPRETAION
The creditor’s level was at 101 days for 2015 and 83 days for 2016
been projected at 18 days for 2018
that it intends to make cash purchases at preferred rates a
projected 18 days. As such the creditors level of 18 days has been accepted for calculation if
MPBF.
0
50
100
150
200
250
300
350
400
450
500
2015 2016
56
31.03.2015 31.03.2016 31.03.2017
101 83
s level was at 101 days for 2015 and 83 days for 2016 the creditors level has
en projected at 18 days for 2018. The matter was taken up with the party who has informed
that it intends to make cash purchases at preferred rates and as such the level has been
2016 2017 2018
Creditors Period
Creditors Period
Projected
31.03.2018
18
-
the creditors level has
. The matter was taken up with the party who has informed
nd as such the level has been
Creditors Period

57
5. FINDINGS AND SUGGESTION
5.1 FINDINGS
Followings are the findings given as below:
 It appears from the analysis that the amount of current assets are decreased in year
2017 as the figures are shown in provisional balance sheet year ended 31 march 2016.
 It is observed that the amounts of current liabilities are very less the amount is Rs7
38843103.61 shown in provisional balance sheet 2017.
 It observed that the amount of profits has been decreased in year 2017 because the
dealerships have been increased in the valley so the completion has been increased.
 Inventory position is very high in year 2017 as compared to past year.
 Sales position is very high in year 2017 as compared to past year.
 The amount of working capital in the year 2015 the amount of working capital are
very high.
 Sundry debtor’s position of NCC Bank are high in year 2016 as compared to year
2016.
 Cash and bank balances position of NCC Bank are too high in year 2017 as compared
to past 3 years.
 Investment in NCC Bank has been increased in year 2017 as compared to past years.
 As per debtor’s of NCC Bank is high in the year 2015 as compared to 2016.
 Stock holding position of the NCC Bank is high in 2015 as compared to 2016 and
2017.
 The creditor’s level at project 18 days in 2018.

58
5.2 SUGGESTIONS
In the light of the findings of the study the following suggestions are made for the
improvement of the working capital management of NCC Bank Ltd.
 NCC Bank Ltd. should provide modern way of service to customers in order to
maintain goodwill in the area
 There should be a proper service schedule to the customers in order to avoid
customers shifting to the other banks.
 There is always overcrowding in the NCC Bank Ltd. so it should expand its existing
capacity by establishing more branches in the districts.
 There should be more demo sessions for customers and safety to the customers
 NCC Bank Ltd. need/ should start more installment schemes for the increase of
deposits
 NCC Bank should adopt more digital services to the customers in order to increase
profits

59
6. CONCLUSION
From the survey regarding “Working Capital Management” I concluded that major role is
played by NCC Bank Ltd., because of the better sale and service of customers and better than
their competitors in the area. More than 75% of the respondents have supported NCC Bank.
But still there are some loopholes, like the company have not yet opened pre-owned branch.
The competitors like Everest Bank , Nepal SBI , Nepal Investment Bank etc. have to do lot
many things if they think of beating NCC Bank in the competition in that area.

60
7. BIBILIOGRAPHY
Websites
www.nccbank.com.np
www.google.com
www.yahoo.com
www.allprojectsreport.com
Books
1. Author: Dr. SN Maheshwari
Name of the book: Financial Management
Publisher name: SULTAN CHAND & SONS
Page no: D.290 onwards
2. Author: I.M. Pandey
Name of the book: Financial management
8th
Edition 2009
Publisher name: VIKAS PUBLISHING HOUSE PVT. LTD.
Page no: 820

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