Kathmandu University School of
Kathmandu College of Management
For the partial requirement for BBA Program Program Code: RIS 401
Himalayan Bank Ltd., Head OfficeThamel, Kathmandu
Nikhil Agrawal, Redg No: A005901-05 Rishabh Tibrewala, Redg No: A005980-05
I/we certify that I/we have read this document and, in my/our opinion, it is satisfactory in scope and quality as a project in partial fulfillment for the Undergraduate Course of ‘Internship’ held at the Kathmandu College of Management during the Fourth year Second semester, 2009.
Date: July 02, 2009
_______________________ Project Evaluator
All rights reserved.
No part of this report may be reproduced, stored or transmitted in any form, or by any means, without the prior permission of the authors. No patent liability is assumed with respect to the use of the information, contained herein. Although every precaution has been taken in the preparation of this report, the authors assume no responsibility for error or omission.
Date: July 02, 2009
The authors are confident that the results presented in this report will be taken as guidance for a more comprehensive study at the future date. The authors of the report are not responsible or liable legally or by any other means against the results of the report. Any consequent decision based on this report shall not make the authors responsible.
The views expressed in this report are as per the findings and research undertaken. These do not reflect the single rule of thumb nor are these endorsed by the College. The views expressed in this report are those of project coordinator only.
We, the undersigned declare that this project entitled is a result of our own study/ research carried out in the year 2009. It has not been previously submitted to any other University or any other examination(s).
_____________________ Nikhil Agrawal
Kathmandu College of Management Redg. no. A005901-05
_____________________ Rishabh Tibrewala BBA 2005-2009 Kathmandu College of Management Redg. no. A005980-05
Foremost, we would like to express our deep and sincere gratitude to Himalayan Bank Limited and the entire Himalayan Bank family for providing us the exciting opportunity to be one of them and giving us thorough guidance and opportunities to move ahead with our internship objectives.
We would like to extend our gratitude to Mr. Rabindra Pradhan, Branch Manager, Thamel branch and Mr. Vijay Nakarmi, Deputy Branch Manager, Thamel branch for trusting us and providing access to confidential documents when and where required in the scope of the project. Our indebt gratitude also goes to Mr. Pawan Agrawal of Credit Control Department and the entire Customer Relations Department of the bank for providing us guidance and motivation for the project and also by sharing their knowledge with us.
We would also like to thank Mr. Bishnu Raj Adhikari, Principal, KCM and Mr. Vinay Sharma, Director, KCM for guiding and helping us in each and every stage of the BBA course and the Internship Study. We are deeply indebted to KCM’s internship coordinator, Mr. Lhakpa Gelu Sherpa whose help, stimulating suggestions and encouragement helped us in writing of this internship report.
We would like to further thank KUSOM for providing students with such opportunity to experience the organization culture and experience and for their structuring of this course for the benefits of the students.
We are grateful to Mr. Sohan B. Khatri, Director, DCBL, Mr. Rajendra Bahadur Shrestha, Credit Department, DCBL and Mr. Amit Bajracharya, Relationship Manager, Prime Commercial Bank for all their help, support, interest and valuable hints for the preparation of this report.
Thank you all! Sincerely Nikhil Agrawal Rishabh Tibrewala
TABLE OF CONTENT Signature Page Copyright Disclaimer Declaration Acknowledgement
Letter from the organization
Letter of Recommendation from college Table of contents List of Figures List of Tables List of Acronyms Executive Summary
Section A Page No.
1. Background 3
2. Goals and Objectives of internship 4
3. Introduction of Himalayan Bank Limited 7
Section B 15
1. Tasks performed at HBL 15
2. Project work 16
Section C 21 1. Description and analysis of roles of fellow workers 21
2. Learnings from fellow workers 22
Section IV 25
1. Perceptions and expectations of Interns 25 2. Skills, ideas and knowledge learned 27 3. Influence on Academic Decisions and career choices 30
Section I 32
1. Brief background of the Study 32
2. Objectives of the assignment/project. 32
3. Problem Statement 34
4. Research Problem 34
5. Scope of the Study 35
6. Limitations of the Study 35
Section II – General Literature Review 37
1. SWOT Analysis 37
2. Five Pillars of Credit analysis used at Himalayan Bank Limited 38
3. Financial Ratio Analysis 44
Section III – Conceptual Framework 46
1. Conceptual framework 46
Section IV - Methodologies 49
1. The methodology and procedures of projects 49
Section V – Industry Analysis 53
1. Banking Sector as a whole 53
2. Commercial Banks 56
3. Hydropower Industry 57
1. Five Pillars of Credit Analysis 63
2. IEE and EIA 79
3. Detailed Feasibility Study 80
4. NEA and Power Purchase Agreement 80
5. Important Conditions in PPA for Projects up to 5 MW 81
6. Strategies made by the government 85
7. Policies 86
8. Provisions under Hydropower Development for Private sector 87
9. Other aspects to be considered 89
Sections VI – Findings from the Analysis 91
1. Critical Success Factors 91
2. Key Risk Areas 94
3. Normal Risk Sharing Arrangement 99
Section VII 101
1. Conclusions and Recommendations 101
LIST OF FIGURES
Figure 1: Executive Committee Members...2
Figure 2: Management of Himalayan Bank Limited...2
Figure 3: All Services of Himalayan Bank Limited...2
Figure 4: Deposit Products offered at Himalayan Bank Limited...2
Figure 5: Loan Products of HBL...2
Figure 6: SWOT Profile...2
Figure 7: Five Pillar Credit Risk Analysis...2
Figure 8: Industry Analysis...2
Figure 9: Porter Five Force Industry Analysis...2
Figure 10: Financial Risk Analysis...2
Figure 11: Conceptual Framework for the project...2
Figure 12: Phases of Research...2
Figure 13: Working of a Hydropower Plant...2
Figure 14: Shaft connecting Turbine and Generator...2
LIST OF TABLES
Table 1: Comparison of Important Balance Sheet Items...2
Table 2: Financial Institutions in Nepal...2
Table 3: Number of Consumers of Electricity in Nepal...2
Table 4: Hydropower Projects in Nepal...2
Table 5: Future load calculation...2
Table 6: PPA Concluded in the FY 2007/08...2
Table 7: Key Financial Indicators of NEA...2
Table 8: Environmental Requirement...2
Table 9: Unit rate of energy for different projects fixed between NEA and IPPs...2
Table 10: Royalty for Internal Consumption Project...2
LIST OF ACRONYMS
HBL Himalayan Bank Limited
CAP Credit Approval Package
NRB Nepal Rastra Bank
NIBL Nepal Investment Bank Limited
BAFIO Bank and Financial Institution Ordinance
HR Human Resource
FY Fiscal Year
Rs. Nepalese Rupees
i.e. That is
NPA Non Performing Assets
ATM Automatic Teller Machine
PEST Political-Legal, Economic, Socio-cultural, Technological
CEO Chief Executive Officer
GM General Manger
SGM Senior General Manager
BOD Board of Directors
SWOT Strength, Weakness, Opportunity, Threat
R&D Research and Development
IT Information Technology
NEA Nepal Electricity Authority
GWh Gigawatt Hour
IMF International Monetary Fund
GTZ German Technical Cooperation
DDA Department of Drug Administration
FNCCI Federation of Nepalese Chamber of Commerce and Industry
CRD Customer Relationship Department
CCD Credit Control Department
GJ Giga Joule
IEE Initial Environmental Examination
DoED Department of Electricity Development
SCBL Standard Chartered Bank Limited
EBL Everest Bank Limited
NPV Net Present Value
IRR Internal Rate of Return
SME’s Small and medium Enterprises
GDP Gross Domestic Product
Himalayan Bank Limited is one of the pioneer private banks of the Nepalese banking industry being established in 1993 AD as a joint venture with Habib Bank Limited, Pakistan. It holds a vision of becoming a leading bank of the country and providing the customers with premium services to give substantial return to its stakeholders. HBL has a huge base of customer base and especially “A” rated clients which are there due to HBL’s long history of customer satisfaction and innovation in services.
The internship period was spent in three phases, first working in the Customer Service Department for two weeks to know the zest of what kind of customers and clients the bank has, second in the Customer Relations Department to know about how a credit appraisal is done and to learn the other aspects of the department like financial analysis, loan extension etc. and third in the Credit Control Department to learn how a loan application is critically examined to pass the loan and also to learn about the special aspects of project financing. The major function of CRD is to interact with the loan applicant/client and discuss the need of the credit facility and other various factors related to it as well as understand that there is inherent credit risk in any business proposal in the banking sector. The main function of CCD is to make thorough and critical analysis of the credit approval packages forwarded by the CRD of the various branches all over the country.
During the internship, substantial work was done in the various departments which included making of Credit Approval Packages, making site visits, preparing financial statements and analyzing them, preparing group exposures, making overdraft statements etc for which the bank showed utmost trust and confidence to give access to confidential information within the scope and vicinity of the project. An industry analysis of pharmaceutical company was also done to help the bank with their credit appraisal process to extend loan to pharmaceutical companies.
The major portion of the internship was also dedicated for making the credit appraisal of the hydropower industry which includes one of the major exposures of the bank as it is one of the major interests of the country today. Hydropower industry has great potentials in the country as the gap between the demand and the supply is huge creating a great scope for the hydropower projects to come in. Though this industry seems lucrative for the banks to finance, thorough considerations should be given to the various details of the hydropower projects for the investment to be assured of without any risks. Since this sector is a capital intensive sector, a small error or problem creates huge complications in costs which should be properly analyzed by the bank for acting on the best interests of its stakeholders. These various details have been explained in the report in detail.
On the basis of the research conducted and analysis of the industry on the basis of various theories and concepts, it was found that the hydropower project if successful gives the bank an IRR of almost 15% which for the size of the projects is quite substantial. Further, we have formulated few guidelines as recommendations for the bank to maintain as necessary to ensure that the project being financed is profitable.
From this study, we gained a better understanding of what project financing is and how this is applied in the Nepalese Commercial Banks. Furthermore, we could identify what are the opportunities and threats for commercial banks to finance projects especially the hydropower projects. All these and other works done in the internship period enabled us to incorporate our theoretical knowledge into real working situations which has increased our level of knowledge and understanding.
PART I: Operational Duty
The internship was carried out for the partial fulfillment of the BBA program conducted by the Kathmandu University School of Management (KUSOM). The primary objective of the internship program is to enable the students to transform the academic knowledge learnt through the years into the practical real world environment where the organizations are facing tough competition with the effect of globalization. The practical approach of internship enables the students to learn what the organizations face in terms of employee diversity, the pressures that every organization face, the regulatory environments they have to work in and other variables that are prominent in the real working environment. The two interns had the main objective of working in the banking industry and hence internship experience proved to be a nice platform for them to realize what the needs and the requirements for the job are.
HBL is one of the pioneer commercial banks in the Nepalese banking industry with it being one of the initial private commercial banks in Nepal. HBL is known for its expertise in project financing and having a reputed and “A” rated clientele. Especially with its BOD containing reputed business houses like the Khetan Group, this bank has a good business in hand. HBL is well known for its friendly work culture with educated and professional employees motivated to work for long working hours. Hence, HBL was chosen so as to experience the professional working culture and acquire the best possible knowledge of HBL’s expertise i.e. project financing and other credit related functions and products.
HBL was established in the year 1993 as a joint venture with Habib Bank Limited, Pakistan and soon became a pioneer in the banking industry attracting huge numbers of customers both for deposits and for lending. HBL has also been known for its
innovative products like Personal Savings Account, Millionaire deposit scheme, HimalRemit etc.
2. Goals and Objectives of the Internship program
The primary goal of the internship program for the interns was to experience the banking industry of Nepal and to experience how much has this industry evolved from the traditional banking practices of loans and deposits. Furthermore, transforming the academic bookish knowledge into practical knowledge and to understand how the concepts and theories are applied in the real working environment. Furthermore, working in the banking industry also enables the interns to know what are the recent business changes taking place in the economy and what further opportunities are present in the business market.
Learning a professional attitude and learning the value of time was also one of the major goals of the internship program. These aspects can only be learned through practical orientation as they are learnt only when it is adapted in the behavior of the individuals. The goals and objectives set at the beginning of the internship period of each intern (i.e. assignment 1) has been included in the appendix.
The personal goals and objectives of each intern are given below:
Internship program is a medium to provide students with real time working experience so that they acquire knowledge in a practically oriented manner. This knowledge is different from the textbook knowledge because the theories in textbooks are based on many assumptions which are not levied in the practical environment.
I joined Himalayan Bank for my internship due to these various reasons:
To know about the various processes and working environment of a commercial bank: A bank is an important part of any country’s economy as it plays direct and
indirect roles in the various parts of the economy. So to know about what are the various processes in a bank as this work is a matter of great interest and importance, the best way to know about these things was to attain practical knowledge from the internship program.
To access a career option in this sector: Banking is a considered as a high stature job with its glamorous outlook with its good pay and stability. I aspire to get into the banking industry and hence to know whether this job was really meant for me or not, internship program was the best possible way to know about it.
To assess the various processes banks go through to overcome the risks associated with loans: The credit appraisal process during giving out a loan is very important part of the banking sector. Correct processes and steps help to differentiate between an ordinary bank and an outstanding one.
To experience the professionalism in work culture and to learn for future prospects: Professionalism in today’s working culture is evident and to learn this attitude is very important to be successful in today’s competitive environment. Since this cannot be learnt from textbook knowledge and requires real working experience, internship would be a big platform for this aspect as well.
To learn practically the knowledge learnt from academic courses: A practical orientation for every student of what he learns is very important. Hence the internship program would be useful for putting the academic knowledge learnt in the past years into practical reality.
An internship program exposes us to all aspects of the chosen industry while giving an exclusive look into a career in the same field. Internship program at HBL was joined to have an extraordinary opportunity to explore the Private Bank and gain insight into its strategy, products and business groups. This experience will help me choose a career path that is interesting, challenging and has a good payoff.
My Goals for the internship are summarized as follows:
Get acquainted with real working conditions: Academically I understand how a bank works. I also have good knowledge on how various activities are carried out in a bank and various management theories are used but this internship program will help me relate my academic knowledge to the real working environment of Nepalese banks.
Get a hands on experience of commercial bank: An organization to an external customer is different from that to its internal employees and by taking hands on experience on all departments of the organization, a better understanding of the financial sector can be gained. I will also gain a better understanding of how much is actually practiced and what is more theoretical. With this internship program I intend to understand the Nepalese banking sector.
Understand the Nepalese Economy: Since all the other sectors are integrated with this sector of the economy I will also get an exposure to various other sectors. It is said that a banker is a master of his trade and jacks of all other trades. Hence the exposure that I will get from this internship program will not only be limited to banking only.
Develop Personal Relation Skills: This program shall also help me understand how the most important resource that is the human resource is managed by professional organizations. It will help me develop better Personal Relation Skills and Communication skills. It will help me make
contact with people of the business world which will come into use in the later part of my career.
Bring Professionalism in work style: This internship will develop professionalism and commitment within me. Professionalism in terms of how to work in the office and commitment in terms of giving the best I can towards work. This will also increase skills such as communication, teamwork, interpersonal along with motivation, honesty and a strong work ethics. An internship experience will allow me to develop proficiency in these areas, as well as content skills including administrative, analytical, coaching, management and research.
3. Himalayan Bank Limited
During the last two and half decades the Nepalese financial system has grown significantly. At the beginning of 1980s there were only two commercial bank and two development banks. After the adoption of economic liberalization policy, particularly the financial sector liberalization that paved the way for establishment of new banks and non-bank financial institutions into the country. Consequently, by the end of mid July 2008, altogether 235 banks and non-bank financial institutions licensed by NRB are in operation. Out of them, 25 are "A" class commercial banks, 58 "B" class development banks, 78 "C" class finance companies, 12 "D" class micro-credit development banks, 16 saving and micro-credit co-operatives, and 46 are NGO. List of Commercial Banks in Nepal has been provided in the appendix for reference.
Table 1: Comparison of Important Balance Sheet Items
Amount in Millions
Particulars SCBL HBL NIBL NABIL EBL
Borrowings 0.0 870.0 1050.0 1600.0 300.0
Cash Balance 414.9 278.2 1464.5 511.4 823.0
Investments 8146.1 7471.7 3155.0 4889.6 4906.5
Share and other
investments 5756.7 5280.3 3724.4 5077.0 154.6
Loans and advances 13355.
0 19985. 2 27145. 5 21514. 6 18814. 3 Fixed Assets 440.5 705.2 970.1 511.6 314.9 Other Assets 1755.9 1191.8 1063.0 1607.1 1155.0
Himalayan Bank Limited ranks among the top commercial banks of the country but it also faces tough competition from other established banks like Standard Chartered Bank, Nepal Investment Bank, Nabil Bank etc.
Himalayan Bank, established in 1993 in joint venture with Habib Bank Limited of Pakistan, has been able to maintain a lead in the primary banking activities- Loans and Deposits despite the cut-throat competition in the Nepalese Banking sector.
Himalayan Bank’s Vision
Himalayan Bank Limited holds of a vision to become a Leading Bank of the country by providing premium products and services to the customers, thus ensuring attractive and substantial returns to the stakeholders of the Bank.
Himalayan Bank’s Mission
The Bank’s mission is to become preferred provider of quality financial services in the country. There are two components in the mission of the Bank; Preferred Provider and Quality Financial Services; therefore we at HBL believe that the mission will be accomplished only by satisfying these two important components with the Customer at focus. The Bank always strives positioning itself in the hearts and minds of the customers.
Himalayan Bank’s Objective
Himalayan bank has set is objectives as “To become the Bank of first choice”.
Himalayan Bank is known throughout Nepal for its innovative approaches to merchandising and customer service. Products such as Premium Savings Account, HBL Proprietary Card and Millionaire Deposit Scheme besides services such as ATMs and Tele-banking were first introduced by HBL. Other financial institutions in the country have been following their lead by introducing similar products and services. With the highest deposit base and
loan portfolio amongst private sector banks and extending guarantees to correspondent banks covering exposure of other local banks under their credit standing with foreign correspondent banks, HBL believes that they lead the banking sector of Nepal.
All Branches of HBL are integrated into Globus (developed by Temenos), the single Banking software where the Bank has made substantial investments. This has helped the Bank provide services like ‘Any Branch Banking Facility’, Internet Banking and SMS Banking. Living up to the expectations and aspirations of the Customers and other stakeholders of being innovative, HBL very recently introduced several new products and services. Millionaire Deposit Scheme, Small Business Enterprises Loan, Pre-paid Visa Card, International Travel Quota Credit Card, Consumer Finance through Credit Card and online TOEFL, SAT, IELTS, etc. fee payment facility are some of the products and services. HBL also has a dedicated offsite ‘Disaster Recovery Management System’. Looking at the number of Nepalese workers abroad and their need for formal money transfer channel; HBL has developed exclusive and proprietary online money transfer software- Himal Remit.
Himalayan Bank Limited holds of a vision to become a Leading Bank of the country by providing premium products and services to the customers, thus ensuring attractive and substantial returns to the stakeholders of the Bank.
Himalayan Bank Limited has a very typical organizational structure where the top level management includes the Chief Executive Officer, the Senior General Manager and the General Manager. Under them are the various departments of the bank with one person heading each department. These departments also have been further departmentalized based on need. The major decisions of the bank are taken by the Executive Committee which includes the following:
Figure 1: Executive Committee Members
Figure 2: Management of Himalayan Bank Limited
Products/Services offered by Himalayan Bank Limited
The services offered by HBL are summarized as follows.
Figure 3: All Services of Himalayan Bank Limited
Since the major products are the deposit and the loans. They have various assortments of products offered to the public in the deposit market are summarized in the figure below.
Figure 4: Deposit Products offered at Himalayan Bank Limited
The major products offered in the loan market are as follows:
Fierce competition has erupted in Nepal’s banking sector. At a time when the market pie has not increased and over four dozen industries are lying closed across the country, the rise in number of financial institutions is leading to cut-throat competition in the domestic banking sector. Apart from over a half dozen financial institutions, including B-class development banks and C-class finance companies, the entry of two ‘big’ A-class commercial banks will not only swell the number to 27 but also force them to look for new investment avenues.
The proposed Peoples’ Bank Nepal Ltd, the 26th commercial bank, got the green signal on September 25. Mero Bank Ltd, the 27th commercial bank, also recently got permission from Nepal Rastra bank to operate after it deposited five per cent of its paid up capital with the central bank. With this Himalayan Bank’s competition is increasing as the new banks come up with cheaper and attractive products.
Even after so much of competition, HBL is one of the most sought banks. Its loan portfolio shows that 7% of the total loan market is captured by HBL as per the NRB report. HBL has 12% coverage on the manufacturing sector in terms of amount.
HBL has been providing competitive products at competitive prices. HBL is not one of the players who fight solely on price. It has a brand name and customers consider HBL to be trustworthy and they bank on HBL because of this itself.
Some of the new products brought in by competitors are:
1. Low Balance Accounts: Banks have come up with deposit schemes where the customer can open accounts with a minimum balance of Rs. 1,000, or even Rs. 1 and Rs. 0.
2. Internet Banking: With the change in technology, Banks, more than ever, felt the need for banking convenience for their clients. Now customers can access and have full control over their accounts 24 hours 7 days a week over the internet.
3. Mobile Banking: Today, one has the convenience of operating their accounts through their mobile which removes boundaries such as availability of branch or internet.
4. Any Branch Banking: All the branches are inter-connected with V-Sat and are capable of providing online, real-time transactions to its customers. Customers can enjoy ABBS facility in almost all the commercial banks.
5. Utility Payment Services: With the advancement in technology and increasing competitiveness in the market, banks have started providing services of utility bills payments such as telephone, schools etc through counters and internet.
6. Visa Credit and Debit Cards: With Nepalese people becoming aware of product such as credit/debit card, banks in Nepal have introduced them here as well. With this customers have to convenience of not carrying too much cash. Some of the competitive products that HBL came up to fight with the new banks are:
1. Small and Medium Enterprise Loans: to help establishment, growth and expansion of small and medium sized enterprises, Himalayan Bank has developed a special loan package meant just to suit small and medium sized enterprises.
2. Bishesh Savings Account: 'Bishesh Savings Account' is a deposit product targeted to special section of society which includes minors, senior citizens completing the age of 50 years, physically challenged and illiterate individuals.
3. Zero balance account: Customers can open an account for a minimum balance of zero. HBL came up with this product to counter other low balance accounts of banks.
4. Card Services: In order to keep its customers satisfied, HBL provides VISA Debit and VISA Credit cards to its customers at competitive prices.
5. Internet Banking: Internet banking helpsdoing many banking transactions using the Internet. It's easy, convenient, and best of all, it's available anytime. 6. Mobile Banking: Himalayan Bank also provides SMS Banking. Now
customers can take care of banking needs without ever having to wait in queues. Customers can check their balance, status of cheque, last three transactions and the Bank’s foreign exchange rate, all from their cell phones.
1. Tasks Performed at HBL
While working at the bank, one of the major tasks given to us was to find information about various sectors of the economy which they se to understand the industry potential while appraising a project. Information on various sectors was collected visiting various websites and institutions regulating the sector.
Firstly, we collected information about hydropower industry visiting websites and offices of Nepal Electricity Authority, Department of Electricity Development (DoED), Independent Power Producers Association of Nepal (IPPAN) etc.
We did a research about pharmaceutical industry in Nepal. Our main task was to gather information and compile them for the bank so that credit appraisal can be done. Sources of information were old cases at the bank, institutions such as Department of Drug Administration (DDA), Federation of Nepalese Chamber of Commerce and Industry (FNCCI) etc, and the internet.
We were posted to the customer service department where we understood the various deposit products of the bank and the working at the front level which helped us understand how banks perform at a basic level.
We spent most of the time at the credit department where we first understood the working of this department. We gained knowledge of how a bank initiates credit process and how approval is done. This was supported by various activities at the bank such as
The basic assortment of products that a client is entitled to is designed and a credit approval package document is made which contains all the related information about the client. This is used as a document sent to the above level for approval and also is maintained for future reference.
Site Visit Reports:
Site visits are done to understand the business of the client and to check the status of the assets kept lien with the bank. This helps us get a better understanding of the client and the security aspects of credit.
Financial Statement Analysis
We prepared the financial statements of the bank based on the bank’s format for the clients and assessed them with various financial ratios. This was mainly very interesting as it required critical assessment based on the industry in which the client was operating and we could show our academic talents in doing so.
Valuation Report and company turnover
Based on the report of the valuator, we had to make the valuation report of the client’s business and collateral. We also calculated the account turnover of each client and the group in which it belonged to create a report of business given by the client to the bank. This was done by extracting data from the IT system Globus and putting it into excel.
The credit department earlier had 16 Relationship managers working to serve the clients’ request but now due to increasing branches of the bank, there were only 6 Relationship managers working. The work pressure was high and therefore we were given their part of the duty. This helped us learn enormously and also helped them finish up their work and meet deadlines. Benefits that we got from working in the bank were the knowledge about real work and hands on experience on what should be done when. Benefits that the bank got may be termed as a supporting hand in completing the work and intellectual inputs at various stages.
During the course of the internship, we were given a project work to an industry analysis of the hydropower sector. The major time and involvement in the internship period was dedicated towards this project. This project was given as the bank had a few hydropower projects coming up for loans and they wanted better information and analysis of such as it includes huge commitments of funds.
For the purpose of carrying out this project, banking sector was comprehended, credit appraisal at HBL was understood, and information was collected from various sources such as NEA, DoED, IPPAN etc. Then the hydropower industry was analyzed including the technical and management aspects, other areas of concern were identified, and key risk areas and key success factors were assessed.
Based on this, a conclusion and recommendation was provided to the bank so that credit managers at the bank have more information and a pre-specified format for appraisal of credit of a particular hydropower project before extending any loan.
3. Strengths and Weaknesses
While working at the bank, we had certain strengths that helped us carry the assigned tasks very efficiently. Along with strengths, we also faced certain weaknesses that acted as barriers to quality work. The individual strengths and weaknesses have been given below.
While working in Himalayan Bank, I indentified some of my strengths that were very helpful during the tenure in the bank.
In the day to day activities of the bank, regular conversation with customers and colleagues is evident. My good communication skills were pretty helpful for the tasks
assigned to me. Good communication skills were important not only in the customer service department but also in credit department where communication skills was important to build a good rapport with the customer as well as make an effective credit approval package.
Another major strength was the financial analytical skills. I was good at the financial analysis of balance sheets and the cash flows when I was told to analyze the balance sheets which were presented for the approval of loans by clients. This skill of mine helped to perform well in the credit department and remove the workload of the department colleagues as this took the major chunk of their working time.
Another major strength was my attitude towards professionalism and co-operation. Coming from a well reputed management college in the country helped me to encapsulate professionalism in my behavior. Working environment today requires working in teams for which the behavior of co-operation is of utmost importance. The ability to work with almost everyone with utmost team spirit was commended by the colleagues of the bank.
Working with computers appeared as a major strength as I was very comfortable and affluent with the various applications used in the bank and also the system software of the bank i.e. Globus. This skill enabled me to complete the assigned task quickly and precisely.
While working in the bank, I faced many shortcomings. The major weakness that I encountered was the patience to work for long hours. Since this was the first time for me working in the office environment, I found it very difficult to maintain my patience and concentration to work for long office hours. This possessed the biggest challenge to me while working in the bank.
The lack of exposure to real time working conditions was another challenge that I faced as I found it difficult to put the theoretical knowledge into practical reality. This possessed many situations where I found it difficult to move ahead with many problems and situations, which was disappointing and embarrassing to me in many situations.
Another weakness that I encountered was the ignorance of the new regulations and rules in the Nepalese financial system. Though I had studied this subject earlier but the lack of update of this knowledge possessed a great challenge to me while working in the bank.
Working at HBL as an intern gave me a lot of theoretical and practical knowledge. The biggest thing that I learned from this 10 weeks program was the understanding of my individual strengths. I realized that I have a knack for numbers and have a good understanding of the financial statements. I could easily make the basic balance sheet, income statements and cash flows. Also, analysis of financial statements based on ratio analysis and the analysis of cash flow came easily to me. This to my advantage helped me in impressing the relationship managers under whom I was working. They showed more confidence in me and gave me more challenging tasks to perform.
My regular visits to the bank and a basic knowledge on the working of the front end managers/tellers was also advantageous. This gave my supervisors more confidence in me in the initial stage itself. I also had good knowledge about businesses of different fields such as retail, information technology, manufacturing of carpet and pashmina, etc which helped me in interacting with the clients and gain better insight into their businesses.
My skills of basic computing are good and this helped me in doing the regular work. I could easily work on MS word where the CAP was made and MS Excel where
financials were made. I soon got accustomed to the software used by bank i.e. Globus and could check the credit line and the outstanding of the customers. My supervisors were very happy by the dedication with which I worked. I wanted to gain maximum knowledge that I possibly could in this short span of 10 weeks. My motivation to work and learn encouraged my supervisors to guide me well and I was able to learn more than required. My communication skills are also good and this helped me in interacting with the clients better. I was assigned certain clients and had to communicate to them about the processing of their credit case. I could easily maintain a good relation with the clients and they were generally happy with the relationship.
I also realized that my suggestions were mostly appreciated and at times implemented by my supervisors. They were quite impressed by my analytical skills, I was able to understand various project and perform analysis of their credit appraisal.
Along with these strengths, I encountered certain weaknesses that acted as a barrier while working at HBL. The most important barrier or weakness that I faced was that I lacked knowledge of the real world. The book teaches us a lot of theories and practices but it is not always the same in the actual working scenario. We often have to mould these theories into possible solutions so that they are more appropriate in the real world. And for me this was difficult as my understanding of the real working scenario was less and implementing the theories turned out to be a challenge.
I did not know how credit appraisal is done at banks as I had never taken a course on that. I felt constrained as I could do nothing initially when I was given the first case. I was taught credit appraisal and its procedures at the bank itself and this took up a lot of time which I could have spent doing something more productive.
Also my spokenNepali is not good and my knowledge of technical Nepali terms is lame, I had difficulty while expressing myself in Nepali. I also felt constrained
because often balance sheets and financial statements were presented in Nepali which was difficult to understand.
Finally I feel that lack of patience was one thing which I should try to overcome. I often got restless as things didn’t move the way it should. Often work got delayed because of some silly reason and that was irritating. Also sometimes, clients behaved in an unexpected manner and patience was the most important thing that I needed at that time.
1. Description and analysis of roles of fellow workers
Customer Relation Department (CRD):
The major function of managers in CRD is to interact with the loan applicant/client and discuss the need of the credit facility and other various factors related to it as well as understand that there is inherent credit risk in any business proposal in the banking sector. So the RMs in CRD has the ability or develops the ability to identify these risks and develop ways to mitigate these risks with the capability to properly monitor insurable inflow of predetermined returns. They work according to the HBL’s Credit Policy Guidelines which has set the parameters of credit operation.
This department comes under the direct supervision of the branch managers and the CAPs prepared have to be forwarded to the CCD after the approval of the BM. Managers in this department basically focuses upon serving clients with loan processing and managing their loan tenure especially loans for business applications and enterprises. The various products or services this department provides to its customers are Subhida Loan (Revolving and Non Revolving), personal loan in the form of overdraft, loan processing for assessing of credit limits for Letter of Credit, Overdraft loans, EMI based loans for property purchase, Working Capital Financing, loans against financial instruments like shares, fixed deposit etc.
Credit Control Department (CCD):
The CCD comes under the head office and managers in CCD are directly supervised by the General Manager- Marketing and Credit.
The main function of managers in CCD is to make thorough and critical analysis of the credit approval packages forwarded by the CRD of the various branches all over the country. The credit policy envisions delegation of authority to branch level, such that credit operations can function smoothly. However, all the credit decisions cannot be finally made at the branch level. Same credit proposals need to be decided at the
corporate level, even though they originate from branches. In order to streamline the flow of such credit proposals, which are to be finally disposed off at corporate level, a team of managers dedicated to do this has been created which is the Credit Control Department. All the proposals related to credit functions are routed through them whenever such proposals are to be submitted at the corporate level. Other proposals coming from A category branches are directly routed to the CCD.
2. Learnings from fellow Workers
The major thing that I learned from the fellow workers in the various departments is that the core component of working in any organization is professionalism, commitment and dedication. Without these factors, no employee can succeed in an organization and also do justice to the organization as well. The perception that the banking job is glamorized and an easy 10 to 5 pm job proved to be wrong as professional bankers may have to work day in and out to conduct their assigned duties properly and significantly. Previously, the concept of ratio analysis, credit appraisal, financial statements were only theoretical but I learnt how to imply this knowledge into the daily working procedures from my fellow members.
The dedicated employees of the bank always had pressure of working under tight schedules and small completion times. This helped me understand the value of working with pressure and the value of respecting time. Banking profession is not only about being sound in the daily commercial banking activities and concepts, but one another major aspect that people often miss out is the communication skills as it is required in every aspect of banking. Thus I learnt good communication skills from these fellow workers as well.
In every step of the professional career, the dilemma of meeting the organization targets as well as maintaining the ethical standards comes in. This is a very difficult step for any professionalism and this skill is to be encapsulated for the success of any professional.
Further, for any professional balancing out with between the professional career and the personal life is also of the utmost importance. This is a very important issue for any working person. Proper balancing between the two makes the person happier and more satisfied with life and career.
In this profession, people often find the job monotonous and often get de-motivated to work further. To get over this monotony, every professional should be passionate in whatever he is working with.
The first and the most important thing that I got to learn from my fellow workers in the bank is Dedication. Any work can only be accomplished when done with loads of dedication and effort. I saw that the people who are dedicated to their work are progressing very fast in the bank and the people with a laid-back approach are still lacking behind.
The book teaches us to work with numbers. It teaches us how to take out the ratios with a set of figures given but when it comes to analyzing the ratios it cannot very well be learned by the book. While working at HBL I learnt how to do the financial ratio analysis and it can be implemented in the real world scenario. We also got to learn how credit appraisal should be done. My supervisors at the bank taught us how it should be done and we learned that the appraisals are done on 5 pillar bases which are Industry, Technical, Financials, Management and Security.
Another very important thing that I got to learn was working under pressure. There were times when our supervisor gave us deadlines and we had to accomplish within that time frame which was at times very taxing. And once you feel you have achieved your target, the feeling that you would get when your supervisor would say the job is not done well. This experience of 10 weeks did teach us to face criticism and also gave us an understanding that most of the times criticism makes you a better person and improves the quality of your work.
While working in the credit department of a bank the staff has to be able to keep a balance between the legal requirements and the customer requirements. While processing a loan for a client the legal requirements are enormous which is quite annoying to the clients and it becomes a big responsibility of the relationship manager to maintain a balance between both and help the client to get his loan processed. Also while carrying out your work one has to be very ethical. In order to maintain such a balance and to keep your clients happy requires good inter-personal and communication skills. And this was something that I really got to learn from my supervisors and co-workers in the bank. Another skill that I got to learn at the bank was how bankers have to be good with the negotiation skills.
It is believed that the banking world is a very “Glamorized” world but with my discussions with the co-workers I realized that it is not so interesting. After a point of time this job gets monotonous and people start losing interest in their jobs. They suggested me that if I have the financial backing and support then I must not think of getting into this kind of a service but rather set up my own business. The risks involved in a business are certainly high but with higher returns and a better living standard.
1. Our perceptions and expectations
The banking profession, often glamorized, I thought it to be a well paying and relatively laid back profession where the working hours is not that extensive. But I found that working hours extends to even late in the nights so as to be more efficient than other competitor banks in the industry. My aim of being a professional banker has moved a step forward with my decision of pursuing my internship in a commercial bank. In this way, I will be able to know what actually the benefits are and also about the limitations of working in a bank and henceforth assure my target to work under this goal of mine to become a banker. Often it is thought that Nepalese service industry lacks professionalism and the sincerity towards one’s knowledge and expertise; but seeing the working culture in HBL, I can state that the service industry has indeed developed and has become more professional and is competitive to any international standards.
The Nepalese banking industry was thought to be growing only in numbers but I experienced that this industry is coming up with newer products and innovative ones. HBL’s millionaire deposit scheme, other banks’ rupee one account, Grihini Bachat Khata to name a few have brought in new revolutions in the banking industry. But still large horizons are left for the banking industry to conquer as large deposit bases of the rural areas have not been able to be capitalized upon. This experience also made me aware that HBL as an employer is one of the most paying institution and also one of the best working places to be working in. The culture at HBL was one of the liveliest and friendliest environments I have experienced. HBL has its expertise and focuses to gain a competitive edge from the expertise such as remittance, project financing, international banking etc.
First and foremost, when I joined the internship program I believed that I had a lot of knowledge about the working of the bank. But when I actually started working in the bank I realized that the real practice is very different from the academic learning. What is learned in books and what is practiced are two different things.
I got to learn about HBL, its product details, the strategy with which the bank works and the various business sectors the bank has made investments in. I also got to learn about the various departments in the bank and how they functioned. I was completely ignorant about all this and in this short span of time I got to know a lot about the bank.
Looking at the reputation of the bank I was very excited about joining the internship program. But as the time of starting the job came closer, my excitement shifted to nervousness considering the grandeur of the bank and the thought as to how my supervisors would be. But after my first day at work all my nervousness disappeared as the people at the bank were very friendly and helpful. The working environment at the bank is very healthy.
I always believed that banks in Nepal are very professional. But after spending few weeks in the bank I realized that it is not as professional as it looks from outside. It is more a casual environment to work in.
I also thought that my HR/PR skills are very good and there is nothing more to be learned in that aspect but within a few days of working in the bank I realize that I am not perfect. The way the top level management of the bank would communicate was a big surprise and I am certainly very impressed. I got to learn a lot from them though. I actually realized that there are lots to learn in this regards and I am just a beginner. Other things that I learned from my supervisors were communication and interpersonal skills again of what I was quite proud of. I realized that communicating in general day to day life or in college is very different that communication at work. One has to really think before we speak. Words have to be manipulated so that a negative impact is not laid down.
I used to always think that one has to do his own work while performing a job but here in HBL I got to realize the importance of teamwork. Everyone at work is generally so helpful and any task can be accomplished with teamwork. One should always be ready to help and others will surely come forward to help you with your work. I also learned that in a banking scenario every department is assigned their own tasks but everything works in co-ordination. As soon as one department does not know what the other is doing there would be complete chaos and the goals would get hampered.
Initially when I joined my internship program I was very excited with the fact that this would open my doors to banking as a career and the reputed Himalayan Bank would be a great option. But after my internship program I realized that the job at the bank is very monotonous and not as glamorous as it appeared to me. My perception regarding banking as a career has changed and I am now revaluating my interest in banking as a career. My supervisors also suggested me that if I have the financial banking and support from the family I should get into my own business rather than opt as banking as a career.
2. Skills, ideas, and knowledge learned
The skills, ideas and knowledge that I learned from the experience in HBL are:
• Prepare financial statements and analyze the financial indicators:
In the due course of the internship, preparation of the financial statements and the analysis of these statements was a major part. This helps the bank in the appraisal process as it tells how strong a borrower is to repay back the debts and whether the financials presented are inflated or not.
Preparation of the CAP is one of the major tasks of any credit officer as it tells what the borrower wants the loan for, who he is, what are the core competencies of the borrower, why a loan should be granted or rejected to a client.
• Development of analytical skills:
Good analytical skills are very important in the credit departments of the bank as analyzing a loan or a project and analyzing a project’s viability is very important. Though experience is very important to build this, good general knowledge and familiarity to the business world holds as a major advantage.
• Good communication skills:
For the banking job, a good communication skill is a major skill that should be present in any banker. Being a good speaker is not only important but also the ability to listen to others and understand their views and perception is very important.
• Ability to work in teams:
The ability to work in teams is often a major challenge to any banker and often the difference between a successful and an unsuccessful employee. A person who is able to work in teams, co-ordinate and rise as an influential leader, is often successful in his career.
I learned to prepared the financial statements of the bank based on the bank’s own format for the clients and assessed them with various financial ratios. In our academic course also we had prepared financial statements but here it was mainly very interesting as it required critical assessment based on the industry in which the client was operating.
I also learned how credit appraisal was done in banks. I gained knowledge of how a bank initiates credit process, how the assessment is done and how approval is done. I was able to enhance our analytical and negotiation skills. Whenever it comes to dealing with clients a banker has to be very negotiative and know exactly what he wants from the clients. In our day to day life we do not perform like that. I got to learn some negotiation techniques from my supervisors when I saw them deal with clients. I
also got to practice and enhance my interpersonal skills when dealing with clients and my co-workers.
The most important thing that I got to learn from this internship program is that I gained some experience of working in a real world scenario. After gaining academic knowledge and classroom experience for so many years this was the first time that we got to work in the real world. This work experience though of a short span has thought us so many things like dedication, commitment, interpersonal and communication skills etc which will certainly help us in any future endeavors we take. Whatever I have learned at this first hand first time experience is going to stay with me for a lifetime.
3. Influence on academic decisions and career choices
• The skills learned in the internship program will be very useful for me both in my academics and my career ahead. Initially I was thinking that I would go for my masters directly but now I have understood that working in real organizations will give me experience that will help me in my academics later.
• Further, my aim of becoming a successful banker has been motivated as I found the banking industry challenging and interesting. This industry is very interactive, creative and a good platform to use the knowledge learned throughout the years.
• For my academics, I could identify which courses would be useful for me to go through to gain a competitive advantage in the industry. Also the skills of analyzing balance sheets, analyzing business proposals and project financing proposals will be a major boost for me in the academic courses I pursue further.
• One other major skill I learnt from the experience is the importance of building personal relation skills and also the importance of maintaining it. PR relations are one of the major components of a successful person as it helps in all major steps of the professional career.
• Another major skill I learnt from the banking experience is the importance of understanding the basics of the career one is pursuing. The more a person is acquainted to the basics that his job acquires, the more are the chances that he would succeed in the career.
• Patience and time management skill is also one of the major skills I learnt in the internship. Having patience during the pressure of work and also when working with non- cooperative clients is a major skill every professional should have. Time
management in also a major component of any management personnel as without the proper management of time which is a major resource, success and efficiency is hard to achieve which shows the lack of competency in a person.
This internship program was mainly like short real time training for me. I learned how there is a big difference in classroom learning and the real time working. I got firsthand experience in working in a bank and this has changed my perception towards working at a bank. Initially I was considering banking as a career but after my 10 weeks experience at the bank I realized the job to be very monotonous and not so challenging as I thought before. The so called glamorous world is not so glamorous enough. I also realized that if one has a financial setup then getting into your own business is a much better option than getting into to service sector. It really takes a long time, especially in Nepal to establish a lifestyle of your kind here, which can be achieved earlier in business.
But this was certainly an experience of a lifetime. I got an opportunity to use our academic learning in practice and also learned how I should implement this into real life experiences. The dedication and commitment level with which the people at the bank work was quite impressive and something to really learn about. These two things are very important in progressing in life. My interpersonal and communication skills were also enhanced which would certainly stay with me for a lifetime and help me in every walk of life.
PART II: Credit Appraisal of Hydropower ProjectsSECTION I: Introduction
1. Brief background of the Study
Water resources are important natural resources for the economic development of Nepal. Availability of abundant water resources and geo-physical features provide ample opportunities for hydropower production in Nepal. Out of the total hydropower generation capacity of about 83,000 megawatt (MW) in the country, about 42,000 MW of power generation appears feasible to date from financial–technical perspective. In view of the internal consumption and export possibility of hydropower in the context of the overall development of the country, an investment friendly, clear, simple and transparent policy is necessary to enhance the development process of hydropower. An open and liberal policy pursued in the hydropower sector after restoration of democracy has started yielding positive indications in the field of hydropower development. It is also observed that the need to overcome the shortcomings and weaknesses that have emerged in the course of involvement and participation of the private sector in the water resource sector.
In view of the contribution that hydropower development in Nepal could make in the speedy development of not only the national economy but also the regional economy; it is expedient to put forward efforts on integrated water resources development based on bilateral and regional cooperation with prime considerations to the national interests of Nepal. Such efforts shall result in the economic development, industrialization, flood control, environment protection, creation of employment opportunities in the country in addition to benefits from allocation of benefits substantially resulting to the lower riparian country from large storage projects built in Nepal.
The prime objective of the undertaken project is
• To fulfill a course requirement of the BBA program at Kathmandu College of Management.
• To gain practical knowledge of the banking activities and the laws governing the banking industry.
• To analyze the practical implication of the theoretical aspects learnt during the BBA program.
• To gain a professional experience as an employee in a leading commercial bank of Nepal.
However, the major objective behind the carrying out the study can be summarized as follows
The most risky of all business loans are project loans which are credit to finance the construction of fixed assets designed to generate a flow of revenue in future periods. Prominent examples include oil refineries, pipelines, mines, power plants, etc. the risks surrounding such projects are large and numerous.
1. Large amounts of funds, often several billion rupees.
2. Risk of project funded being delayed by whether or shortage of building materials.
3. Laws and Regulations in the region or country where the project is being constructed affecting adversely the completion time or the cost of the project. 4. Changes in interest rates may affect the lender’s return on loan under fixed
interest rate, etc.
Hence this study is done concentrating on the current situation of the Hydropower energy market. The study aims at understanding the demand and the supply of hydropower industry and analyzing the possibilities of Banks financing new
upcoming projects. The specific objective of this study is to gather information regarding the existing projects and the upcoming ones and assess the risk.
To achieve the foresaid objective, the following subsidiary objectives have been formulated:
• To get the overview of credit.
• To examine the current position of HBL’s credit business in reference to services offered.
• To analyze the competition
• To understand hydropower credit appraisal at banks
• To understand what are the extra things being done by competing banks
• To seek opportunities those are useful for HBL in hydropower appraisal.
• To critically assess hydropower projects in terms of various pillars.
• To examine the critical risks factors in hydropower appraisal
• To examine the success factors.
• To state other aspects that banks should consider during providing hydropower credit.
• To Recommend and suggest regarding the above after analysis of information gathered from various sources.
3. Problem Statement
“What are the major factors both internal and external that has to be analyzed and enhanced in order to provide Hydropower sector with credit by the related bank?”
4. Research Problem
The decision problem can be sub categorized into following Research Problems
• What are the environmental issues and risks that must be addressed?
• What are the strategic financial issues that must be addressed?
• What are the strategic market (existing and potential) issues that must be addressed?
• What are the risks associated with the 5 pillars of credit analysis for a hydropower project?
5. Scope of the Study
The study as explained in the objectives section is carried out with the purpose of understanding the scenario of project financing in the context of Nepal. Since, the attention of Nepal and all Nepalese is today focused in the hydropower sector the purpose is tilted to the hydropower sector so that all the practicalities of the sector and its financing can be explored in greater detail.
In this study, the basics of credit appraisal are understood. It explains how banks assess a business and the risks related to it before providing it with credit. It also explains procedures related to credit function of a bank.
Then this study emphasized on hydropower projects. It explains why hydropower is necessary for a country like Nepal. An industry analysis of hydropower sector of Nepal is done and its strengths and weaknesses are assessed. The possible areas of