Research Journal of Management Sciences _____________________________________________ISSN 2319–1171 Vol. 3(3), 1-9, March (2014) Res. J. Management Sci. International Science Congress Association 1 An Analytical Study of the Role and Function of a Rural Development Bank in the Perspective of Nepal Yadav M.N. and Chakrabarti S.K.Department of Management Science, MMAM Campus, Tribhuvan University, Biratnagar, NEPAL Department of Physics, MMAM Campus, Tribhuvan University, Biratnagar, NEPALAvailable online at: www.isca.in, www.isca.me Received 20th November 2013, revised 31st December 2013, accepted 17th February 2014 Abstract Rural development banks may be considered as a boon for the third world countries. Its vivid example is the neighbouring Bangladesh. Once it was supposed to be a ‘great ditch’. All the foreign aids were found to be futile for its economic development. But the rural development banks have shown there the vista of financial upliftment. The country has bagged Nobel prize also due to the success of such banks in theory and practice. Geographically Nepal is more or less of the same size of Bangladesh. Its population is even less than one-fourth of that of Bangladesh. But what is the role of rural development banks in Nepal? In the present paper we have considered a rural development bank as established under the initiative of the government of Nepal. The first eight years of its establishment have been taken into account. Our analytical study shows how the situation in Nepal has turned the whole system a flop. Keywords: Rural development bank, third world countries, financial upliftment. Introduction The term ‘bank’ is originally derived from the German word ‘back’ meaning a joint stock fund. It was Italianised to ‘banco’ after the German invasion into Italy. The Babylonians developed the banking system as early as 2000 B.C. Initially temples were used as banks and out of all Greek banking institutions the great temples of Ephesus and Delphi were the most powerful ones. But due to lack of morality of the priests the people gradually lost confidence on such ‘temple banks’. The origin of the modern banking may be traced to the money dealers of Florence. Bardi, Pitti, Medici etc. became famous throughout Europe as bankers in the 14th century A.D. There were eighty such bankers in Florence but not a single public bank. The present banking institutions in SAARC countries are mainly modelled on the British type. It is probably true to say that the base of modern banking in England was erected during the Elizabethan period due to influx of gold from America and flourish in foreign trade. Land was no more considered as the only form of wealth and the merchants began to keep their surplus cash with the goldsmiths who in those days had strong rooms and armed watchmen. The goldsmiths used to issue the receipts thereof called as “goldsmith’s notes” in which there remained an undertaking to return the sums of money on demand to the depositors or bearers. Such goldsmith’s note can be said to be the origin of bank note. Gradually the goldsmiths realised that it was more profitable to invest a part of the sum retained with them instead of collecting the service charge for safeguarding the money. So, with a view to attracting larger amounts they began to offer interest on deposits. In this way the ‘issue and deposit’ banking began in England. And this ultimately gave rise to commercial banking when joint stock companies came into this business. In the SAARC countries Kolkata agency houses were the first trading firms which undertook banking operation for the benefit of their constituents. Among them Alexander & Co. and Fergusson & Co. were the premier firms. They combined banking with their other kinds of business in order to have sufficient liquidity for the later. The Bank of Hindostan, an appendage of Alexander & Co., was the earliest bank started in India under European direction. The failure of the agency houses during great depression of 1829-32 A.D. gave rise to collapse of the banking departments run by them. Ultimately the Indian legislation recognised the necessity of separation of banking from any other kind of business activity and, accordingly, Companies Act, 1913 was amended in 1936 A.D. to that effect. Latter on similar provisions were incorporated in the Banking Companies Act, 1949, renamed since 1966 A.D. as Banking Regulation Act. In Nepal institutionalised banking operation started after the establishment of Nepal Bank Ltd. in 1994 Bikram Sambat (hereinafter abbreviated as B.S.). Gradually in the banking sector also specialisation in different fields cropped up viz. commercial banking, industrial banking, agricultural banking, export-import banking etc. Accordingly, different banks were established in Nepal also. Under the Development Bank Act, 2052 B.S. the rural development banks have been functioning in different development regions of the country. Nepal is a country in which majority of the people live in rural area. Agricultural income is the main source of earning for Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 2 them. The initiation of institutionalised agricultural credit system in this country goes to the credit of co-operative banks. The operation of co-operative banks was confined to co-operative sector only. So, the growing need of agricultural finance could not be met up by such limited activity of the co-operative banks. In 2022 B.S. Land Reform and Saving Corporation was set up. Its function, inter alia, was to arrange for compulsory saving by the country people. In the year 2024 B.S. the Agricultural Development Bank Act was passed. Accordingly, Agricultural Development Bank was established in Nepal. Land Reform and Saving Corporation was merged with Agricultural Development Bank in order to avoid the possibility of dual financing to farmers. Thus Agricultural Development Bank became the sole financing institution in the country in the fields of agriculture and allied agriculture. In 2031 B.S. Nepal Rashtra Bank, the central bank of Nepal, instructed all the commercial banks to allocate 12% of their deposits for the purpose of priority sector advances. But in the rural sector commercial banks are scanty. Moreover, the overdue loans figure began to increase steeply in the Agricultural Development Bank. In this perspective, looking into the havoc success of rural banks in Bangladesh, the government of Nepal decided to establish ‘grameen bikash banks’ in the country. Such rural development banks were originally initiated through Prof. M. Yunus’s masterminded project which has brought Nobel prize in Bangladesh. This encouraged the government of Nepal to institute ‘grameen bikash banks’ in all the development regions of the country as a replication programme. In this way Purwanchal Grameen Bikash Bank Ltd. was established in the year 2049 B.S. in Biratnagar, second largest city of the country, to cater to the needs of the eastern region. In 2052 B.S. Development Bank Act came into force. Since then this bank has been functioning under that Act instead of Commercial Bank Act, 2032 B.S. Within four years of its establishment the Purwanchal Grameen Bikash Bank Ltd. (abbreviated as PGBBL) became the third largest bank of its kind in the world. But what are the role and function of the Bank? Has it fulfilled the expectations and motive with which it was established? For this paper we have considered the first eight years of PGBBL since establishment and studied analytically the performance of such a bank in the perspective of Nepal. Profile of the Bank: Purwanchal Grameen Bikash Bank Ltd. started functioning with an authorised capital of 60 millions Nepalese rupees. However, the issued and subscribed capital was NRs. 30 millions only300,000 ordinary shares @ NRs. 100/- each. In the next year i.e. 2050-51 B.S. the bank issued the remaining shares. But it could collect NRs. 22,500,000/- and NRs. 1,500,000/- only from Nepal Rashtra Bank and Nepal Bank Ltd. respectively. In the fiscal year (F.Y.) 2051-52 B.S. the authorised share capital was increased to NRs. 120 millions. Likewise, its issued and subscribed capital was increased to NRs. 60 millions600,000 equity shares @ NRs. 100/- each. In Table–1 the capital structure of the bank as at the end of the study period has been furnished. The board of directors of the Purwanchal Grameen Bikash Bank Ltd. is headed by the chairman deputed by Nepal Rashtra Bank. This board is formed of five members. Out of the remaining four, one director is deputed by the ministry of finance and two are deputed in turn by two commercial banks holding its share. The bank itself deputes the managing director. As per the decision of the board PGBBL opened 40 branches under 7 area offices within eight years of its inception. There were 1,293 centres under these branches, out of which 797 being full-fledged. The bank was providing rural banking service, directly or indirectly, to 270,800 persons in 259 village development committees of 6 districts (Jhapa, Morang, Sunsari, Saptari, Sirha and Udaypur) in 3 zones (Mechi, Koshi and Sagarmatha) forming the eastern development region of the country. Table–1 Capital Structure Serial number Shareholder Number of shares Amount (in million NRs.) Percentage 1 2 3 4 5 6 7 Nepal Rashtra Bank Government of Nepal Nepal Bank Ltd. Rashtriya Banijya Bank Ltd. Nepal Grindlays Bank Ltd. Nepal Arab Bank Ltd. Nepal Indosuez Bank Ltd. 400,500 49,500 30,000 30,000 30,000 30,000 30,000 40.05 4.95 3.00 3.00 3.00 3.00 3.00 66.75 8.25 5.00 5.00 5.00 5.00 5.00 Total 600,000 60.00 100.00 Source: Chairman's report in the 5th A.G.M. of PGBBL Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 3 The objectives of the bank followed by its activities are as follows: i. To disburse short-term loans to poor women in the rural sector especially where the commercial banks do not provide any service, ii. To save the villagers from the grip of private money-lenders who use to provide loan at a high rate of interest, iii. To provide agricultural loans to the farmers without any security, iv. To provide finance without any security in the allied agricultural sector also, v. To assist in small business and small scale industries, vi. To help the country women at the time of emergency like medical treatment, obsequies, school admission etc., vii. To run adult education and vocational training programmes for the country women, viii. To teach the would-be loanees the code of conduct, morality and ethics, ix. To grow the civic sense among the villagers, x. To grow the sense of co-operation among the rustics by arranging for group loans, xi. To encourage the people in rural sector for small savings, xii. To reduce the poverty level of the people in the rural sector, xiii. To try for overall rural development in the entire eastern region of the country. Following the theory of the Bangladeshi Nobel laureate M. Yunus, the Purwanchal Grameen Bikash Bank Ltd. offers clean loans to groups instead of individual women. A group is comprised of five personsa chairperson, a secretary, a middle class member and two poor members. A nine-day training is imparted by the concerned branch office of the bank. In this training the would-be loanees are taught the code of conduct and ethics. Special stress is given for improving their morality, sense of co-operation as well as civic sense. Then a test is taken by the branch. If all the group members are successful in the test, then the final examination is conducted by the area manager. When all the members of the group pass the examination, loan is granted by the branch to the two poor members. The branch as well as the remaining three members watches how the loan is being utilised by them. After seven weeks the secretary and the middle class member are disbursed loan, if found satisfactory. In the opposite case the observation period is extended. Again the branch observes their activities for seven weeks. And in the eighth week loan is given to the chairperson. Each member of the group is given 50 weeks time to repay the loan. Every weekly instalment comprises of 2% of the principal plus interest. If somebody be defaulter (when all the five members enjoy loan), her instalment is to be paid to the branch by the remaining members of the group. On liquidation of the loan the group becomes eligible to borrow further even with higher limit. Research Methodology This study is designed in an analytical-cum-explanatory manner. The main sources of data for this research work are profit and loss accounts and balance sheets of the Purwanchal Grameen Bikash Bank Ltd. for eight consecutive years from 2049-50 B.S. Different annexure to balance sheets has provided additional information for computation. The chairman’s reports for different annual general meetings have also furnished some important data. Simply bylooking into the final accounts prepared at the end of a financial year, the performance of a business enterprise cannot be comprehended. With regard to the financial performance of a firm so many related matters come into play viz. effectiveness in capital management, efficiency and profitability in operation, risk and uncertainty in competition etc. The collected data, as mentioned above, are hence analysed and tabulated in table–2 and table–3. These tabulated data are then processed under the modern tools and technique of management accounting and financial management i.e. fund flow analysis, ratio analysis and trend analysis. Table–2 Composite Balance Sheet as at the End of Different Financial Years Liabilities and Capital Particulars B.S. 2049-50 2050-51 2051-52 2052-53 2053-54 2054-55 2055-56 2056-57 Share capital Reserve fund Borrowings Deposits Other liabilities and provisions 30.00 --- --- --- 0.02 54.00 --- 10.00 3.14 4.25 60.00 0.58 36.12 10.76 10.46 60.00 0.78 85.53 23.32 16.85 60.00 0.75 144.12 40.49 18.06 60.00 0.72 165.03 60.63 12.87 60.00 0.70 199.27 79.06 8.81 60.00 0.68 196.14 91.42 16.70 Total 30.02 71.39 117.92 186.48 263.42 299.25 347.84 364.94 Assets and PropertiesFixed assets Investments Loans and advances Cash and bank balances Other assets Profit and loss account 1.47 19.46 --- 9.07 0.20 (0.18) 3.78 36.10 18.85 5.56 2.42 4.68 4.63 --- 71.46 14.42 9.75 17.66 4.86 --- 119.18 15.93 17.89 28.62 5.26 20.00 166.83 15.41 17.61 38.31 6.08 38.00 198.07 13.20 7.84 36.06 5.50 53.80 221.51 12.28 10.85 43.90 5.09 25.80 246.34 15.65 15.02 57.04 Total 30.02 71.39 117.92 186.48 263.42 299.25 347.84 364.94 Source: Annual Reports of PGBBL. (in million NRs.) Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 4 Table–3 Composite Profit and Loss Account Expenses Particulars B.S. 2049-50 2050-51 2051-52 2052-53 2053-54 2054-55 2055-56 2056-57 Interest on borrowings and deposits Staff expenses Office expenses Other expenses Provision for doubtful advances --- 404 285 4 --- 147 3,625 2,452 --- --- 1,435 9,517 5,413 11 175 4,507 13,558 5,746 95 117 10,807 16,930 6,852 99 127 12,799 21,342 6,568 1 117 15,727 23,280 7,003 --- 515 19,415 28,455 8,124 --- 344 Total 693 6,224 16,551 24,023 34,815 40,827 46,525 56,338 IncomeInterest on loans and investments Other income Capital grant Net loss 806 65 --- (178) 1,127 236 --- 4,861 3,535 40 --- 12,976 11,946 998 116 10,963 24,997 96 31 9,691 42,174 885 25 (2,257) 37,989 674 20 7,842 42,232 950 16 13,140 Total 693 6,224 16,551 24,023 34,815 40,827 46,525 56,338 Source: Annual Reports of PGBBL. (NRs. in '000) Fund Flow Analysis: In case of a business enterprise a question naturally arises: what has the firm done with the money it had? The statement of sources and uses of fund answers to this question. For the Purwanchal Grameen Bikash Bank Ltd. the sources and uses of fund are calculated from its balance sheets as on the last day of the fiscal years for eight consecutive years since establishment. Ratio Analysis: One cannot arrive at a definite conclusion about the financial health of an enterprise simply by studying and scanning the absolute figures contained in the conventional form of financial statements viz. revenue statement (i.e. profit and loss account) and balance sheet. The same is possible only when the absolute figures are analysed in terms of ratios. For the present study the ratios are analysed by time series analysis. Different ratios are calculated for the above-mentioned eight years. Trend Percentage Analysis: In course of analysis of the financial performance of a company a question naturally comes: what is the trend of the performance of it? In order to evaluate the financial performance of PGBBL trend percentage analysis is also done. Such analysis is performed by looking into its balance sheet, income statement and activities for eight consecutive years from the beginning. In the very first year it could not start the business activities due to its establishment near the end of the fiscal year. That is why the second year is considered as the base year for the trend percentage analysis. Results and Discussion Fund Flow Analysis: There are different sources of fund for the Purwanchal Grameen Bikash Bank Ltd. e.g. increase in capital, increase in borrowings, increase in deposits, increase in other liabilities and provisions etc. After the fiscal year 2051-52 B.S. the bank has not increased its capital. Due to loss year after year its reserve fund is in a declining state and contains a very meagre sum. So, the increase in borrowings and the increase in deposits are the major sources of fund for the bank vide table–4. It is found that, on the average, 43% of the source of fund is contributed by borrowings during the study period. Deposits have contributed to, on the average, 20% of the source of fund by this period. The average contribution of other liabilities and provisions in this respect is 6% only. The fund of the bank has been mainly used in disbursement of loans. On the average 53% of its fund is used for this purpose. 19% of the fund, on the average, is used on investments during the study period. Increase in interest receivable has given rise to a use of 3% of the fund on the average. Fixed assets are the outcome of only 1% of the average fund of the bank. The striking matter is that, on the average, 13% of the uses of fundare meant for the loss suffered by it year after year. Ratio Analysis: The ratio analysis is done from different points of view: liquidity position, leverage position, efficiency position and profitability position (vide table–5).Liquidity Position: Theliquidity position of Purwanchal Grameen Bikash Bank Ltd. is checked by current ratio as well as working capital to current assets ratio. 2:1 is considered for current ratio as the standard value. For PGBBL this ratio is found to be greater than the said value up to the F.Y. 2052-53 B.S. But thereafter it went on decreasing and reached the minimum value i.e. 1.66:1 in the last year of the study period. The standard value of working capital to current assets ratio is 50%. Up to the F.Y. 2052-53 B.S. this ratio is found to be greater than the said value. But thereafter it continues to decrease. In the F.Y. 2054-55 B.S. though it increased to some extent but the value remained below 50%. In the final year of the study period the ratio attained the minimum value i.e. 40%. So, it can be concluded that the liquidity position of the bank is not at all good. Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 5 Table–4 Statement of Sources and Uses of Fund from F.Y. 2049-50 to 2056-57 B.S. Particulars B.S. 2049-50 2050- 051 2051- 052 2052- 053 2053- 054 2054- 055 2055-056 2056-057 Sources of Fund 1 Increase in capital 30.00 24.00 6.00 --- --- --- --- --- 2 Increase in reserves --- --- 0.58 0.20 --- --- --- --- 3 Operating income/profit 0.18 --- --- --- --- 2.26 --- --- 4 Increase in borrowings --- 10.00 26.11 49.41 58.59 20.92 34.23 --- 5 Increase in deposits --- 3.14 7.62 12.56 17.16 20.14 18.43 12.36 6 Increases in other liabilities and provisions 0.02 4.22 6.22 6.39 1.21 --- --- 7.89 7 Decrease in fixed assets --- --- --- --- --- --- 0.58 0.41 8 Decrease in investments --- --- 36.10 --- --- --- --- 28.00 9 Decrease in interest receivable --- --- --- --- --- 10.91 --- --- 10 Decrease in other assets --- --- --- --- 1.62 0.23 --- 0.07 11 Decrease in cash and bank balances --- 3.51 --- --- 0.53 2.20 0.92 --- Total Source 30.20 44.87 82.63 68.56 79.11 56.66 54.16 48.73 Uses of Fund 1 Increases in fixed assets 1.47 2.32 0.85 0.22 0.40 0.82 --- --- 2 Increases in investments 19.46 16.63 --- --- 20.00 18.00 15.80 --- 3 Increases in interest receivable 0.06 1.71 5.86 4.69 0.31 --- 0.91 1.94 4 Increases in accounts receivable 0.10 0.40 1.31 1.35 1.03 1.38 2.05 2.30 5 Increases in other assets 0.04 0.10 0.16 2.10 --- --- 0.04 --- 6 Increases in cash and bank balances 9.07 --- 8.86 1.52 --- --- --- 3.37 7 Increase in loans outstanding --- 18.85 52.61 47.72 47.65 31.24 23.44 24.83 8 Operating loss --- 4.86 12.98 10.96 9.69 --- 7.84 13.14 9 Decrease in reserves --- --- --- --- 0.03 0.03 0.02 0.02 10 Decrease in borrowings --- --- --- --- --- --- --- 3.13 11 Decrease in other liabilities and provisions --- --- --- --- --- 5.19 4.06 --- Total Use 30.20 44.87 82.63 68.56 79.11 56.66 54.16 48.73 Source: Annual Reports of PGBBL. (in million NRs.) Leverage Position: The leverage position of the Purwanchal Grameen Bikash Bank Ltd. is tested by debt-equity ratio, debt-assets ratio, fixed assets to equity ratio and current assets to equity ratio. A debt-equity ratio up to 2:1 is considered as safe for a company. After the F.Y. 2052-53 B.S. this ratio for the bank is found to exceed the said value. In the final year of the study period it attained the highest value i.e. 5:1. The debt-assets ratio for the bank is found to increase continuously from the very beginning. In the last year of the study period the value became as high as 99%. That means, 99% of the assets of the bank are financed by its debt. The fixed assets to equity ratio is found to be very poor for the bank. 60% to 75% is treated as the normal value of this ratio. But throughout the study period the highest value of it is 10% only. The current assets to equity ratio for PGBBL has got, since beginning, an upward tendency. In the final year of the study period the ratio attained the value of almost 5:1. The incremental sum of current assets, over the shareholders’ equity, is contributed by the debt of the bank as revealed from the above-mentioned debt-equity and debt-assets ratios. Such over-burden of debt is causing loss of the bank year after year. So, the leverage of borrowings for the function of PGBBL has already reached an alarming position. Efficiency Position: The efficiency position of Purwanchal Grameen Bikash Bank Ltd. is analysed by loans outstanding to equity ratio, administrative expenses to loans outstanding ratio, elements of loan per staff member, loans outstanding to collection ratio, overdue loans ratio, loans collection-disbursement ratio and loan collection rate. The loans outstanding to equity ratio shows that the activity of the bank is steadily increasing year by year. The administrative expenses to loans outstanding ratio is found to remain unaltered (around 14%) for the last few years. Looking into the loss suffered by the bank year after year it must try to reduce the ratio to 10%. The elements of loan per staff member of the bank reveal that the efficiency of its staff in the disbursement and collection of Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 6 loans has increased over the years. But when the time factor comes in question, it is found that they are gradually lagging behind in collection of loans timely. Loans outstanding to collection ratio, when analysed, shows the efficiency in collection of loans to be maximum in the F.Y. 2054-55 B.S. Actually it is the very year in which the bank earned profit after its commencement of usual business. The overdue loans ratio is found to be zero up to the F.Y. 2052-53 B.S. Thereafter it continuously increased and reached the highest value (11.2%) in the last year of the study period. For a losing concern like PGBBL the loans collection-disbursement ratio must be maintained above 90%. The bank became able to reach this level from the F.Y. 2054-55 B.S. only. For a financial institution the loan collection rate must be above 70%. For PGBBL this is always found to be 90% or above. So, the efficiency position of the staff members and the bank as a whole is not found bad. But looking into the loss year after year, it should try for further betterment of its activities.Table–5 Financial Ratios (NRs. in '000) S. N. Particulars B.S. 2049- 50 2050- 51 2051-52 2052-53 2053- 54 2054- 55 2055- 56 2056-57 1. Current ratio 1915.6:1 4.11:1 3.01:1 2.44:1 1.73:1 1.94:1 1.76:1 1.66:1 (a) Current assets (in NRs.) 28,734 62,918 94,468 151,217 217,142 253,636 294,481 298,698 (b) Current liabilities (in NRs.) 15 15,295 31,336 61,989 125,436 130,636 167,378 180,095 2. Working capital to current assets ratio (in %) 100 76 67 59 42 48 43 40 (a) Working capital (in NRs.) 28,719 47,623 63,132 89,228 91,706 123,000 127,103 118,603 3. Debt-equity ratio 0.0005:1 0.32:1 0.95:1 2.07:1 3.34:1 3.93:1 4.73:1 5.01:1 (a) Total debt (in NRs.) 15 17,185 57,276 125,662 202,633 238,504 287,112 304,228 (b) Shareholders’ equity (in NRs.) 30,000 54,000 60,580 60,783 60,749 60,716 60,696 60,679 4. Debt-assets ratio (in %) 0.05 26 57 80 90 91 94 99 (a) Total asset (in NRs.) 30,201 66,703 100,263 157,863 225,105 263,194 303,942 30,7905 5. Fixed assets to equity ratio (in %) 5 7 8 8 9 10 9 8 (a) Fixed assets (in NRs.) 1,467 3,785 4,632 4,858 5,261 6,080 5,500 5,094 6. Current assets to equity ratio 0.96:1 1.17:1 1.56:1 2.49:1 3.57:1 4.18:1 4.85:1 4.92:1 7. Loans outstanding to equity ratio --- 0.35:1 1.18:1 1.96:1 2.75:1 3.26:1 3.65:1 4.06:1 8. Administrative exp. to loans outstanding ratio (in %) --- 32 21 16 14 14 14 15 (a) Administrative expenses (in NRs.) 690 6,077 14,930 19,353 23,782 27,911 30,283 36,579 (b) Loans outstanding (in NRs.) --- 18,846 71,459 119,181 166,831 198,071 221,507 246,339 9. Per capita disbursement of loan (in NRs.) --- 157 504 811 1,030 1,304 1,106 1,243 (a) Loans disbursed (in NRs.) --- 34,977 116,369 199,486 290,518 367,852 387,134 440,030 (b) Total member of staff 65 223 231 246 282 282 350 354 10. Per capita collection of loan (in NRs.) --- 72 276 617 861 1,194 1,039 1,173 (a) Loans collected (in NRs.) --- 16,131 63,756 151,764 242,868 336,612 363,698 415,198 11. Per capita loans outstanding (in NRs.) --- 85 309 484 591 702 633 696 12. Per capita interest receivable (in NRs.) --- 8 33 50 44 3 5 13 (a) Interest receivable on loans (in NRs.) --- 1,767 7,629 12,321 12,448 760 1,912 4,574 13. Loans outstanding to collection ratio (in %) --- 117 112 79 69 59 61 59 14. Overdue loans ratio (in %) --- 0 0 0 0.1 5.1 9.5 11.2 (a) Overdue loans (in NRs.) --- 0 0 0 98 10,092 20,945 27,545 15. Loans collection - disbursement ratio (in %) --- 46 55 76 84 92 94 94 16. Loan collection rate (in %) --- 90 90 93 95 97 95 93 (a) Interest received on loans (in NRs.) --- 2 2,999 11,339 23,144 41,017 34,436 39,152 17. Net profit to total asset ratio (in %) 0.6 (7.3) (12.9) (6.9) (4.3) 0.9 (2.6) (4.3) (a) Net profit (in NRs.) 178 (4,861) (12,976) (10,963) (9,691) 2,257 (7,842) (13,141) 18. Operating ratio (in %) 80 457 463 184 139 95 120 130 (a) Operating expenses (in NRs.) 693 6,224 16,551 24,022 34,816 40,828 46,525 56,339 (b) Operating revenue (in NRs.) 871 1,363 3,575 13,060 25,125 43,085 38,683 43,198 Source: Annual Reports of PGBBL Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 7 Profitability Position: The profitability position of Purwanchal Grameen Bikash Bank Ltd. is viewed by net profit to total asset ratio and operating ratio. The net profit to total asset ratio is found to be negative except the F.Y. 2049-50 and 2054-55 B.S. That means, the bank has been suffering loss all along except the year of foundation (when it did not start its business) and 2054-55 B.S. In case of profit this ratio is below 1% whereas in case of loss the same is always greater than 2.5% and even as large as 12.9%. An operating ratio of 80% to 90% is considered as normal. But for the bank it is usually greater than 100% during the study period except the F.Y. 2049-50 and 2054-55 B.S. After commencement of normal function from the F.Y. 2050-51 B.S. the bank is found to earn a marginal profit (as revealed from the operating ratio of 95%) in the F.Y. 2054-55 B.S. only. On the other hand, in the years of loss this ratio is even as high as 457% or 463% (vide F.Y. 2050-51 and 2051-52 B.S. respectively). So, obviously, the profitability position of PGBBL has become a matter of anxiety. Trend Percentage Analysis: The trend percentage analysis is done by looking into the balance sheet, income statement (i.e. P/L. A/c.) and activities of the bank. The trend percentage analysis of balance sheet reveals that the capital and reserves of PGBBL remain, more or less, unaltered for the last six years of the study period (vide table–6). Its fixed assets are quite small. It is not able to increase the investments. Considerable increase has taken place in disbursement of loans. That means, it is attracting more and more villagers to avail them of its service. Due to increase in its field of operation the accounts receivable figure is also steeply increasing. In order to meet the growing demand of fund it is continuously borrowing from different banks and international organisations. There happens a considerable increase in deposits also. The trend percentage analysis of income statement shows that the major income of the bank is the interest earning from the loans disbursed (vide table–7). Though the interest income goes on increasing, side by side the interest on borrowings also increases every year. Interest expenses on account of deposits too increase each and every year. When the total interest expenses are clubbed with the total administrative expenses, the overall expenditure supersedes the total income of the bank. As a result it has been suffering from loss year after year. The trend percentage analysis of activities highlights its performance in loaning (vide table–8). The disbursement of loan has been continuously increasing. Side by side the collection of loan is also increasing every year. The loans outstanding figure too increases each and every year. Naturally, the interest received on loans goes on increasing continuously. Such increase in the volume of loaning activity has also given rise to increase in interest receivable on loans. Up to F.Y. 2052-53 B.S. there was no overdue loan. But thereafter it is also continuously increasing. The bank is found to manage a drastic curtailment in its interest receivable figure in the F.Y. 2054-55 B.S. And only in that very year the Purwanchal Grameen Bikash Bank Ltd. could earn profit. Table–6 Trend Percentage of Balance Sheet (Base Year 2050-51 B.S.) Liabilities and Capital Particulars B.S. 2049-50 2050-51 2051-52 2052-53 2053-54 2054-55 2055-56 2056-57 Capital and reserves Borrowings Deposits Other liabilities and provisions 56 --- --- 1 100 100 100 100 112 361 343 246 113 855 743 397 112 1,441 1,290 425 112 1,650 1,932 303 112 1,993 2,519 208 112 1,961 2,912 393 Total 42 100 165 261 369 419 487 511 Assets and PropertiesFixed assets Investments Interest receivable Inventories Accounts receivable Cash and bank balances Loans outstanding Cumulative loss 39 54 3 31 20 163 --- (4) 100 100 100 100 100 100 100 100 122 --- 432 211 361 260 379 377 128 --- 697 1,650 629 287 632 611 139 55 715 534 835 277 885 818 161 105 97 377 1,108 238 1,051 770 145 149 149 406 1,516 221 1,175 937 135 71 259 356 1,974 282 1,307 1,218 Total 42 100 165 261 369 419 487 511 Source: Annual Reports of PGBBL. (in %) Research Journal of Management Sciences _________________________________________________________ISSN 2319–1171Vol. 3(3), 1-9, March (2014) Res. J. Management Sci.International Science Congress Association 8 Table–7 Trend Percentage of Income Statement (Base Year 2050-51 B.S.) Expenses Particulars B.S. 2049-50 2050-51 2051-52 2052-53 2053-54 2054-55 2055-56 2056-57 Total interest expenses Borrowings Deposits Staff expenses Salary and allowances Provident fund Others Overhead expenses --- --- --- 11 4 3 78 12 100 100 100 100 100 100 100 100 976 2,972 360 263 260 364 258 228 3,067 9,965 936 374 347 585 544 243 7,354 25,589 1,721 467 440 578 665 289 8,710 27,821 2,805 589 550 803 861 273 10,702 32,176 4,068 642 605 909 881 307 13,211 39,500 5,090 785 722 1,231 1,191 345 Grand Total 11 100 266 386 559 656 748 905 IncomeTotal interest income Loans Investments Total other income Loss 72 --- 72 28 (4) 100 100 100 100 100 314 184,928 48 17 267 1,060 699,195 54 471 226 2,219 1,427,140 165 54 199 3,743 2,529,299 103 385 (46) 3,372 2,123,474 316 294 161 3,748 2,414,277 274 409 270 Grand Total 11 100 266 386 559 656 748 905 Source: Annual Reports of PGBBL. (in %) Table–8 Trend Percentage Statement of Activities (Base Year 2050-51 B.S.) Sl. No. Particulars B.S. 2049-50 2050-51 2051-52 2052-53 2053-54 2054-55 2055-56 2056-57 1 Loans disbursed --- 100 333 570 831 1,052 1,107 1,258 2 Loans collected --- 100 395 941 1,506 2,087 2,255 2,574 3 Loans outstanding --- 100 379 632 885 1,051 1,175 1,307 4 Loans overdue --- --- --- --- 100 10,298 21,372 28,107 5 Interest received on loans --- 100 184,928 699,195 1,427,140 2,529,299 2,123,474 2,414,277 6 Interest receivable on loans --- 100 432 697 704 43 108 259 Source: Annual Reports of PGBBL, N.B. For loans overdue 2053-54 B.S. is considered as the base year. (in %) Conclusion Rural development banks (RDBs) in Nepal were established looking into their counterparts in Bangladesh. The theory of Md. Yunus there has been followed in Nepal so far as practicable. The success of such banks in Bangladesh has brought Nobel Prize to him. But what is the position of RDBs in Nepal? Purwanchal Grameen Bikash Bank Ltd.‚ which is the third largest bank in the world of its kind, is still surviving as if due to oxygen supplied by the government of Nepal because no other organisation (vide table–1) is interested to invest in such a losing concern. On principle RDBs in Nepal run on the concept of co-operation. But such co-operative attitude among the loanees cannot be developed overnight. In Nepal the people has least sense of co-operation, as a result of which even partnership firms also cannot flourish. Further, since loans are distributed by RDBs without any security, the customers try to take undue advantage of it. However, poverty diminishes morality, no doubt. But Bangladesh is also a poor country. It has become a theoretical concept only in Nepal what the loanees show in practice in Bangladesh. Undoubtedly, morality cannot also be developed overnight10. Unlike natural science social science is not based on firm and universally true norms. As for example, from thirty’s decade to fifty’s one so many research projects were initiated in U.S.A. to determine some universal traits for leadership. But such thirty years’ endeavour went in vain as not a single trait was found to be common in all the countries. Likewise, rural development banks have come as a boon for Bangladeshi people, who mostly live in rural areas. But in Nepal the system has totally become a flop. 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Management Sci.International Science Congress Association 9 7.Sinha G., Management accountancy, Vidyoday Library, Kolkata, India (1984)8.Dangol R.M., Financial management, Taleju Prakashan, Kathmandu, Nepal (1993)9.Paul S.K., Financial management, Central Educational Enterprises, Kolkata, India (1993)10.De Sarkar P.K., Higher English Composition, P. Ghosh and Co., Kolkata, India (1966)