CHAIRMAN’S NOTE TO SHAREHOLDERS

I am glad to report to you the following important points: opportunities for upgrading of their skills – both through our "In-house" training programmes, but also 1. CONSISTENCY IN PERFORMANCE: sending our employees to courses conducted by the The Bank has been pursuing Policy of not only to Staff College of Punjab National Bank. increase in profit from year to year but consistency in 4. Outlook for the Current Financial Year (and the next its performance. The Bank has been able to reward its five years): shareholders from year to year, consistently and with high returns. Inspite of the severe recession in the largest economies of the world, the economy boom in China and India is Similarly, the payment of bonus to our loyal and continuing – albeit at slower rates. Since our economy hardworking employees have gone up from Rs.6.59 is closely linked with India, the world recession has not Crore to Rs.8.91 Crore. affected our economy directly. The income tax payment has gone up from Rs.21.69 However, there is apprehension that inward remittance crores to Rs.27.69 crores. may slow down as the employment opportunities 2. ANOMALY: where our immigrant workers are working are affected by the recession. Anomaly as well as distortion is taking place in the banking scenario in the country. On the one hand there The most important thing for the country is political is tendency of higher interest on deposits, because stability and the law and order situation. There has several new banks are trying to attract deposits by been hardly any investment in the industrial sector offering higher rates of interest. because of the prevailing law and order situation on the one hand and uncertainties connected with the political At the same time the three largest banks in the country, situation. God willing, if situation improve, there are who have no Capital Adequacy are offering loans vast possibilities of major economic gain such as below the market rates. through large hydro electric projects, as well as Your Bank has always taken a policy of giving loans to possibilities of investment in industries in Nepal parties with minimal or no risk. This has resulted, catering to not only to Nepalese market but also to the consistently our NPA being the lowest in the country. vast Indian market.

But with the aforesaid anomaly and distortion our 5. IN CONCLUSION: spread is under pressure and is narrowing. We have taken the policy decision inspite of the narrowing I would like to thank the Nepal Rastra Bank for spread, we shall endeavor to make this up by higher extending assistance and guidance from time to time. volumes of business on the one hand and continuing The contribution by our joint venture partner, PNB has to concentrate on quality lending. been equally helpful. My colleagues in the Board have also rendered advice 3. TRAINING: for better running of your Bank. I would also like to A bank’s wealth is not just the physical infrastructure thank our hardworking and sincere employees. of buildings, system and its clients. The most important is the quality of service rendered by its employees. It B. K. SHRESTHA has been the policy of your Bank to continuously CHAIRMAN upgrade the skills of our employees by providing

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BOARD OF DIRECTORS’ REPORT TO THE 15th ANNUAL GENERAL MEETING OF SHAREHOLDERS OF THE BANK

Ladies and Gentlemen: Rs. In crore It gives me great pleasure to welcome you to the 15th Annual Paid up Equity Capital (ordinary shares) 63.88 Proposed bonus share 19.16 General Meeting (AGM) of the Bank. I have the privilege of Share Premium 1.48 presenting the Balance Sheet as at 31st Ashadh 2066 (15th July, Capital Adjustment Reserve 28.41 2009), the Profit & Loss Account and Cash Flow Statement of Debenture Redemption Reserve* 12.00 the Bank for the year ending on that date and the Auditors’ Capital Redemption Reserve** 14.00 report made there on. Accumulated Profit 8.24 1. REVIEW OF THE OPERATING ACTIVITIES OF YOUR BANK Other Free Reserve 2.52 Total 149.69 & GENERAL ECONOMIC ENVIRONMENT OF THE COUNTRY (Please refer Annexure 1):- *This reserve is for redemption of 6% debenture of Rs. 30 crore on its’ due date. A. Review of the operating activities : **This reserve is against the redeemed 9% Preference I have pleasure to present the five years’ financial Share as per legal requirement. performance of your Bank. Other Major Performance: Total shareholders’ fund has gone up during the last a) Business : five years from Rs.99.79 crore to Rs. 262.00 crore Rs. In Crore consisting of the following: Particulars 2061/62 2065/66 (Rs. in Crore) (2004/05) (2008/09) 2061/62 2065/66 Total Deposit 10,09.76 33,32.29 Particulars (2004/05) (2008/09) Total Loans & Advances 7,90.00 2446.95 Paid Up Capital Ordinary Shares 31.50 63.88 Total Investment 2,12.89 5,94.84 Statutory General Reserve 12.61 45.08 Share Premium 0.64 1.48 b) Profitability : Capital Adjustment Reserve 9.45 28.41 Rs. In Crore Other Reserves 1.70 4.72 Particulars 2061/62 2065/66 Debenture Redemption Reserve - 12.00 (2004/05) (2008/09) Capital Redemption Reserve - 14.00 Total Income 85.89 2,56.53 Deferred Tax Reserve - 3.37 Operating Profit 37.52 1,07.35 Proposed Bonus Share 6.30 19.16 Profit before tax 25.27 89.13 Retained Profit 7.05 8.24 Net Profit after Tax 17.08 63.87 General Loan Loss & NBA Provision 30.54 61.66 Total Shareholders' Fund 99.79 262.00 The table shows consistent progress of the Bank over the Note : (1) Capital Adjustment Reserve, Debenture Redemption last five years. During the year being reported, your Bank Reserve and Capital Redemption Reserve are available has earned operating profit of Rs. 107.35 crore which is for distribution by way of Bonus shares to increase the 25.7% more than last year and has been able to post a capital. after tax net profit of Rs. 63.87 crore, which is 41.6 % higher than the last year. The total deposits have reached Out of the above shareholders funds the following Rs.3332 crore recording an annual growth of 39%. The Capital amounting to Rs. 149.69 crores including the loans and advances stood at Rs.2446 crore showing an Paid-Up Capital of Rs.63.88 crores can be used for annual growth of 39%. any purpose. The detail of Rs.149.69 crores is given Since we have still four years available for reaching the below: required figure of Rs. 200 crore, the Directors feel confident that even with the present trend of profit and available free reserves, the policy adopted by the Directors

 2 regarding Dividend/Bonus Shares, there will be no Firstly the three largest banks in the country has no difficulty in reaching the figure of Rs. 200 crore by Ashadh positive Capital Adequacy and has been competing in the 2070. market with commercial banks in offering loans at much lower rates of interest. All the respected shareholders are certainly aware of the present situation prevailing in the country. The level and Secondly, due to several new banks coming into the trend of performance of your Bank even in such difficult market, the interest rates on deposits had gone up. time which has a direct impact on your worth of Naturally, if a Bank wishes not to take unacceptable risk, investments seems to be commendable. the spread of such a bank goes down.

The key factor together with other management aspects, In the case of your Bank, the average spread has gone for this achievement, is the result of the continuing efforts down only marginally from 4.4% to 4.37%. The spread has made by the management for keeping the non-performing gone down in spite of the fact that the average yield on loans at lowest level. At this juncture, I would like to inform interest bearing assets improved from 7.22% to 7.89%. the respected shareholders that the level of non- Unfortunately, the cost of deposit has increased to 3.52% performing loans of your Bank is just 0.48% (previous year from 2.82%. 0.68%) of total gross loans and the net non performing The pressure on margins continues to increase. loan is minus 1.9%. Loan demand from private sector during the review period With increase in profit, the bonus provision at 10% , has slightly increased however, interest rates could not payable to the employees has also consistently gone up move upward. The Board is of the view that the banking to Rs. 891 lacs which was Rs. 659 lacs in the previous sector will be facing further severe challenges if the law year. and order situation is not improved, a firm view is not Likewise, the income tax payment also has gone up to Rs. taken by the concerned political parties regarding the role 27.69 crore for the year from Rs. 21.69 crore over the of private sector and the imbalance on development vis- previous year. a-vis revenue expenditure of the government continues in

I’m glad to inform the shareholders that the operating the country. profit of your Bank during the first quarter ending Ashwin Nepal has entered into the South Asia Free Trade Area of the current Financial Year has reached at Rs. 29.17 (SAFTA), and has also joined Economic Cooperation crore which is 24.17% higher than the previous years’ (BIMST-EC). Nepal has become a member of the World operating profit for the same period ( actual figure to be Trade Organization (WTO). We have to shape our plans provided at the AGM). The progress made as above may and strategies accordingly to meet the challenges which be considered as a good achievement of the Bank may be cropped up due to globalization. particularly keeping in view the present difficulties being 3. ACTIVITIES OF THE BANK AND FUTURE PLAN: faced by the economy. a. Operations: 2. EFFECTS ON THE BANK’S ACTIVITIES DUE TO THE The persistent difficulty faced by the nation and the INTERNAL & EXTERNAL FACTORS resultant slackness witnessed in the economy has The banking sector continue to be tough in this year too. forced the Bank to look for new business avenues The slow down in other related economic segments has a instead of concentrating only on the trading and definite impact on the banking sector. The compounding industrial activities. effect has resulted in a tough competition amongst the The Bank had opened its representative office in New banks. However, your Bank has developed and imple- Delhi, India with an aim to; mented various types of consumer loan to suit various i) facilitate the opening of account of Nepalese types of people with a view to augmenting the income residing and working in India and remitting their level of the Bank as well as to diversify the risk. funds to any EBL branch in Nepal, and ii) to liaise with and attract the business relating to The banking industry is facing not only anomaly of a trade finance emanating to and from India. serious nature but actual distortion. This has happened, among others, for two main reasons- Not to be left behind in technology advancement, a

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continuous review and upgrading of the technology is S. No. Name of the Bank Country undertaken for the convenience of the customers. In 1. Commerzbank AG, Germany this connection, Bank has procured world class 2. HDFC Bank Limited, India computer software ‘Finacle’ and all the information 3. Standard Chartered Bank Tokyo have been migrated in to it. All the branches of EBL 4. Standard Chartered Bank New York have been housed in centralized data base. 5. Standard Chartered Bank Frankfurt, With the changing technology, desire and requirement Germany of customers, our service delivery channels are also to 6. Standard Chartered Bank India be updated. In this endeavor, we are increasing our 7. Citi Bank London own ATMs and encouraging our customers for availing 8. JP Morgan Chase Bank Australia "EBL Debit Card". Till the review period 85,000 9. Bank of China China. depositors have availed the debit card. EBL Debit 10. ICBC China Card can be used in its’ 30 own ATMs at various Likewise, Agreements for instant money transfer have locations as well as 340 other ATMs tied up with been entered into with EZ Remit, Xpress Money Smart Choice Technology (SCT) within the country Transfer, Nepal Remit, Moneygram. These arrange- and more than 2,000 PNB ATMs in India. EBL Debit ments have facilitated the Bank for inward remittance Card can also be used at more than 1,000 Point of from different countries - UK, Malaysia, Singapore, Sales(PoS) terminals for purchase of merchandise. UAE, Kuwait, Baharain, Qatar and other locations. Further, it gives me a great pleasure to inform you that Similarly, instant remittance facility to and fro India has the ATM cardholders of your bank can withdraw been put in operation. It has facilitated the remitter to money from more than 2000 PNB ‘s ATMs in India and remit the money to any place in India and from there the Indian people visiting Nepal can have the same to Nepal without any hassles. Presently, it connects sort of facility here too. In addition to above, in an 4,000 PNB, Centralized Banking Solutions (CBS) endeavor to provide various range of services to the branches. customers, your Bank has introduced e-banking and SMS banking. Our customers can do banking In this year too, retail lending was given special focus. transactions such – viewing their account statement, EBL retail lending schemes have become very popular money transfers and recharge their mobile by sitting in the market. Schemes for Professionals, Home at home. Your Bank, in near future, will be providing Equity Loan, Flexi Loan and Advances against life e-ticketing facility for some selected airlines through insurance policies and against the shares of selected these technologies. listed companies have been introduced as part of management efforts to innovate new products and The Bank is striving to improve customer service services to cater to the needs of the customers. quality, fulfill their needs through extended services. Most of our important valley branches and Pokhara b. Branch expansion : branch are providing extended customer services The Bank has opened six more branches during the through evening counters. Our New Road branch year 2065/66- namely Beshisahar (Lamjung District), provides 365 days banking services including on Golfutar (Kathmandu District), Kirtipur (Kathmandu holidays. The Management is examining the desirability District), Kushma (Parbat District), Surkhet (Surkhet of 365 days banking also in other important branches. District), Lagankhel (Lalitpur District). Three more Further, your Bank has launched its’ own remittance branches were opened in Tulsipur (Dang District), package "Everest Remit". Presently, this remittance Maitidevi (Kathmandu District) & Thamel (Kathmandu facility is available to the Nepalese who are employed District) in this current financial year. As of now, the in UAE, Qatar, UK , Bahrain Malaysia and it is under total branch network of your Bank reached 35. way in Israel. This facility will be extended to other I am glad to inform the respected shareholders that places too in due course. In order to facilitate inward your Bank has started branchless banking. At the first remittance and foreign trade, we have tied up with phase we have started from three places of different various institutions, namely, geographic locations – one in Terai ( Nepalgunj), one

 4 in Nagarkot (Bhaktapur) and one in hilly region • Increase customer base by upgrading information (Baglung). After thorough analyses of cost/ benefits, technology initiatives to reduce transaction time we will extend this type of banking to other parts of and cost of transaction and providing alternative the country in future. service delivery channels. c. Human Resources Development & Per Employee • To increase average yield on advances by Business: aggressive marketing of retail lending schemes.

The staff strength of the Bank at the end of the • Recruit ideally suitable manpower and train them financial year 2064-65 (2007-08) was 449, which has for movement of fast track to man the position of now gone up to 531 (excluding three seconded responsibilities at branches and Head Office. officers from PNB). The per employee business as at • Improve internal control system and stabilize the end of the financial year is as under: sound systems and procedures. (Rs. in Lacs) 4. DIVIDEND: 2006/07 (2064/65) 2007/08 (2065/66) % Increase The Board in its’ meeting held on Per Per Description Total Total over last Employee Employee 9th September 2009 has decided Amount Amount year Amount Amount to recommend to the forthcoming Deposits and Loans & Advances 428127 953.5 576745 1086.1 13.9 Annual General Meeting to declare Operating Profit 8538 19.02 10735 20.67 8.7 bonus share @ 30% and cash Net Profit 4512 10.05 6387 12.03 19.7 dividend @ 30% to the share holders subject to approval of It is the considered view that the progress and Nepal Rastra Bank. The Board has appropriated a sum of success of any organization depends upon the Rs. 20,17,32,947 inclusive of tax on bonus share . knowledge, skills and motivational level of its The same is being placed before you for final approval. workforce. The Bank has been taking keen and special interest in the development of its human resources by 5. PROFIT & LOSS APPROPRIATION ACCOUNT: imparting its employees training in various aspects of Your Bank has earned a net profit of Rs. 63.87 Crore after banking and relevant subjects. Besides this, the Bank providing for the staff bonus of Rs . 8.91 Crore and Rs. has taken special care to keep the motivational level 25.26 Crore ( after adjustment of Rs. 2.43 Crore for of its employees high as also to instill a sense of Deferred Tax) for Income Tax. belongingness to the Bank. The income tax liability for the year increased by 27.6% In order to bring positive swing in the working attitude compared to the previous year and we have already paid of senior officers, the Bank has been conducting major portion as advance tax to the Government. special program on Management Development. In The remaining profit along with the balance of previous addition to this, during the review period various types year and amount transferred from Share Premium of in-house training/talk program were conducted, Account amounting to Rs. 19.16 Crore have been staff were deputed/sent for training in programs appropriated as under: organized by other institutions too. A) Towards Shareholders: d. Future Strategic Plan of the Bank: i. Bonus share@30% to ordinary shareholders: Your Bank has been growing on an average at 30% Rs. 19,16,46,300 ; per annum. ii. Cash dividend Rs. 20,17,32,947 (19,16,46,300 for For sustained growth in future, the focus will be in cash dividend and Rs. 1,00,86,648 for Tax on following areas : bonus share); • To increase customer base in low cost deposits iii. Dividend/Interest to Preference Shareholders: with a view to reduce average cost of deposits. Rs. 1,63,47,397 (Rs. 1,40,00,000 for 7% convertible

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preference share & Rs. 23,47,397 for 9% redeemed various formal trainings. In addition to this, staff are preference share for part period) deputed to PNB Training Colleges for specialized courses. Total: 40,97,26,645/- Due to ever increasing number of banks and financial institutions, the demand of trained manpower is also B) Towards Reserves and Retained Earnings: growing. i. Rs. 8,24,44,532 as accumulated transferred to Balance Sheet; The new Banks have been poaching on our trained ii. Rs. 6,40,00,000 for Capital Adjustment Reserve, manpower by offering alluring positions in these new iii. Rs. 12,77,47,000 for statutory reserves, being 20% banks. of the net profit for the year. The Board is pleased to report that during the year under iv. Rs. 60,00,000 for other free reserve ( an equal review the Management Employee relation has remained amount of last year) stable. In view of your Bank’s expansion, the recruiting of v. Rs. 16,66,300 for Exchange Equalization Reserve. new manpower as well as motivating our existing vi. Rs. 6,00,00,000 for Debenture Redemption Reserve employees is proceeding apace. vii.Rs. 14,00,00,000 for Capital Redemption Reserve 10. APPOINTMENT OF THE STATUTORY AUDITORS: viii. Rs. 2,42,78,347 for Deferred Tax Reserve The Shareholders are requested to appoint the Auditor Total: 50,61,36,179/- from the list of the auditors approved by Nepal Rastra 6. CAPITAL ADEQUACY: Bank for the financial year 2066-67 (2009-10) and also fix Basel – II framework has been implemented effective from his remuneration. The existing auditor Mr. N.L. Amatya the financial year being reported. As per the norms, (N. Amatya & Co., Chartered Accountants) is eligible for minimum bench mark of Capital Adequacy Ratio is 10%. re-appointment. The Audit Committee of the Bank has The Capital Adequacy Ratio of the Bank as at the year end recommended to appoint him as auditor of the Bank for 15th July 2009 stands at 10.55%. To maintain the capital the F.Y. 2009/10. Respected shareholders are requested adequacy ratio intact, proper capital back up is required. to approve the same and fix the remuneration. If the Bank fails to maintain the required capital adequacy ratio , further growth in bank’s business is adversely 11. ACKNOWLEDGEMENT: affected. Due to inclusion of some new parameters - On this occasion, on behalf of the Board of Directors and Operational Risk and Market Risk and changes made in on my own behalf, I would like to thank all the risk weight in some items of assets, our total risk exposure shareholders for their continuous support and guidance. I is going to be increased. also take this opportunity to extend grateful thanks to our 7. BOARD OF DIRECTORS: valued customers for their patronage. Further, we extend There was no change in the Board of Directors of the our sincere gratitude to the officials of concerned Bank during the financial year under review. However, Mr. Departments of Nepal Government , Nepal Rastra Bank, I.D. Singh, Chief General Manager of PNB, nominee our joint-venture partner, Punjab National Bank, other director from PNB has been replaced by Mr. Jagat Ram , concerned authorities and institutions for their patronage Generl Manager from 9th August 2009. and all the employees of the Bank for their hard work and I would like to welcome Mr. Jagat Ram and would like to dedication. Further we also express our sincere thanks to place on record of appreciation for the valuable members of the press and other well wishers of the Bank contributions made by Mr. I.D. Singh for the Bank’s for their valuable co-operation and support. development. Finally, I am sure that the Bank shall continue to get the 8. AMENDMENT IN MEMORANDUM AND ARTICLES OF same co-operation and support from all of you in the ASSOCIATION: future which will be a source of inspiration in our endeavor ( to be incorporated as per the changes if any) to take our Bank to new heights of success in the times In the Agenda for the Annual General Meeting a separate to come. Agenda is executed for amendment of Articles of Thank you. Association for reasons explained in the Agenda itself. On behalf of the Board of Directors, 9. EMPLOYEE RELATIONS: B. K. Shrestha, The Bank has its own staff training program and conducts Chairman

 6 Annexure – 1

General Economic Environment provided in the Economic Survey 2062/63 published by the Nepal Government for information of the shareholders. Before presenting further performance highlights of the Bank, it would be pertinent to have an overview on the general (Rs. in Million) economic and banking scenario of the country for the fiscal PARTICULARS F.Y.2064/65 Share F.Y.2065/66 Share Increase year 2065/66 (2008/2009). For this purpose we have extracted (2007/08) % ( 2008/09) % % here some relevant information from the Economic Survey for EXPORT the year 2065/66 (2008/09) published by Nepal Government. To India 25786.6 68.2 26720.1 60.3 3.6 The related data for the year as well as corresponding period To Other countries 12027.3 31.8 17575.5 39.7 46.1 of previous year ( first eight months) have been presented. TOTAL EXPORT 37813.9 44295.6 17.1 IMPORT i) Economic growth rate: From India 88466.0 63.4 100069.1 56.9 13.1 The law and order situation of the country showed a From Other countries 51093.3 36.6 75953.7 43.1 48.7 positive sign of improvement. As per the Economic Survey TOTAL IMPORT 139559.3 176022.8 26.1 2008/09, the total GDP (at producers’ price) is estimated Total Foreign Trade to be Rs. 586.23 billion showing a growth of 4.7% ( With India 114252.6 64.4 126789.2 57.5 11.0 previous year increased by 5.3%). The main reasons for With other countries 63120.6 35.6 93529.2 42.5 48.2 such slow down in the GDP growth are attributed to TOTAL FOREIGN TRADE 177373.2 220318.4 24.2 energy crisis, disturbance in industrial sector, decline in Source : Economic Survey 2063/64 capital expenditure & unfavorable climate. From the above, total volume of foreign trade has ii) Increase in per capita GDP : increased by Rs. 42945 million in the year under review showing a growth of 24.2 percent over the previous year. As per the Economic Survey, per capita GDP in producers The share of total foreign trade with India and other price has increased by 2.3% as against 3.4% in the countries stand at 57.5 percent and 42.5 percent previous year. respectively (previous year 64.4 percent and 35.6 iii) Macroeconomic Indicators: percent). Total export increased by 17.1 percent (export to India increased by 3.6% and to other countries Major macroeconomic indicators of the economy have increased by 46.1%) been re-produced below: Against the increase of 17.1% in total export, the import Macroeconomic Indicators Unit 2007/08 2008/09 increased by 26.1%. Import from India increased by Gross Consumption/GDP %age 88.8 92.0 57.5% and from other countries increased by 42.5%. Gross Domestic Savings (GDS)/GDP %age 11.2 8.0 v) Banking: Gross National Savings/GDP %age 31.3 32.3 Following information are reproduced for information of Gross Fixed Capital Investment/GDP %age 21.1 21.2 the respected shareholder- Gross Investment(GI)/GDP %age 32.8 29.7 Gap between GDS and GI/GDP %age -21.6 -21.7 Particulars Mid-July Mid-April 2008 2009 Net export of goods & services %age -20.6 -21.7 Commercial banks 25 25 Export-Import)/GDP Development banks 58 61 GDP(at producer’s current price) Billion 814.40 960.01 Finance companies 78 78 Rs. Microfinance institutions 12 13 NRB licensed co-operatives 16 16 Revenue/GDP %age 13.2 14.8 NRB licensed NGOs 46 45 Government Expenditure/GDP %age 19.7 22.2 Commercial bank branches (Mid-April) 591 617 Total population Million 27.0 27.6 Population per branch ( Mid-April) 44499 42832 Source : Economic Survey Fiscal Year 2008/09. Deposits –Mid-April ( Million Rs.) 375590 481440 Per capita deposit –Rs. 14282 18217 iv) Foreign Trade: Loan and advances –Mid-April (Million Rs.) 387050 471270 The following comparative table of foreign trade of the Per capita loan and advances Rs. 14717 17833 country is presented on the basis of the information Source : Economic Survey 2008/09

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Suite 615 Bluestar Complex Tripureswore, Kathmandu Nepal Tel + 977-1-4223778, 4225337 Fax + 977-1-4223846 Email: [email protected] Independent Auditor's Report to The Shareholders of Everest Bank Ltd.

We have audited the accompanying Balance Sheet of Everest 5. The capital fund and risk bearing fund of the bank are Bank Ltd. (hereinafter referred to as 'the Bank’) as at July 15, adequate considering the Directives issued by the Nepal 2009 Rastra Bank. (Ashadh 31, 2066) and the related Profit & Loss Account and 6. To the best of our information and according to the Cash Flow Statement for the year then ended. These financial explanations given to us and from our examination of the statements are the responsibility of the bank’s management. books of accounts of the Bank, we have not come across Our responsibility is to express an opinion on these financial any case where the Board of Directors or any employees statements based on our audit. of the Bank have acted contrary to the provisions of law, We conducted our audit in accordance with Nepal Standards or committed any misappropriation or caused any loss or of Auditing and relevant practices. Those standards and damage to the Bank and violated Directives issued by the practices require that we plan and perform the audit to obtain Nepal Rastra Bank or acted in a manner as would reasonable assurance about whether the financial statements jeopardize the interest and security of the Bank and its are free of material misstatement. An audit includes depositors. examination on a test basis, evidence supporting the amounts 7. The business of the Bank has been conducted and disclosures in the financial statements. An audit also satisfactorily and found within its authority. includes assessing the accounting principles used and 8. In our opinion and to the best of our information and significant estimates made by management, as well as according to the explanation given to us, the said evaluating the overall financial statement presentation. We accounts read together with the Principal Accounting believe that our audit provides a reasonable basis for our Policies (Schedule 4.35) & Notes thereon (Schedule 4.36), opinion. give a true and fair view - Based on our examination of the financial statements as ~ in the case of Balance Sheet, of the state of affairs of aforesaid, we report that: the Bank as at July 15, 2009 (Ashadh 31, 2066), 1. We have obtained all the information and explanations ~ in the case of Profit & Loss Account, of the profit of the required for the purpose of our audit. Bank for the year ended on that date, and 2. The Balance Sheet, Profit & Loss Account and Cash Flow ~ in the case of Cash Flow Statement, the cash flows of Statement thereto are presented in conformity with the the Bank for the year ended on that date. formats prescribed by Nepal Rastra Bank and are in agreement with the accounts maintained by the Bank. Date : Sept. 9, 2009 Kathmandu 3. The account and records of the Bank have been maintained as required by law and practice. 4. Returns received from the branch offices of the Bank are Nem Lal Amatya, F.C.A. adequate for the purpose of our audit. For N. Amatya & Co. Chartered Accountants

 8 Balance Sheet As on 31 Ashadh 2066 (15th July, 2009)

This Year Previous Year Capital and Liabilities Sche. Amount Rs. Amount Rs. 1. Share Capital 4.1 838,821,000 831,400,000 2. Reserve and Surplus 4.2 1,364,804,055 1,089,837,580 3. Debenture and Bonds 4.3 300,000,000 300,000,000 4. Loan and Borrowings 4.4 312,000,000 – 5. Deposit Liabilities 4.5 33,322,946,246 23,976,298,535 6. Bills Payable 4.6 148,655,592 49,429,700 7. Proposed and Unpaid Dividend 230,524,766 140,790,370 8. Income Tax Liabilities 20,522,280 41,143,107 9. Other Liabilities 4.7 378,574,715 720,443,592 Total Liabilites 36,916,848,654 27,149,342,884

This Year Previous Year Assets Sche. Amount Rs. Amount Rs. 1. Cash in hand 4.8 944,695,793 822,989,425 2. Balance with Nepal Rastra Bank 4.9 4,787,163,541 1,080,914,554 3. Balance with other Banks & Financial Institutions 4.10 432,511,829 764,067,851 4. Money at Call and Short Notice 4.11 – 346,000,000 5. Investments 4.12 5,948,480,273 5,059,557,544 6. Loan, Advances and Bills Purchased 4.13 23,884,673,616 18,339,085,562 7. Fixed Assets 4.14 427,157,451 360,512,480 8. Non-Banking Assets 4.15 – – 9. Other Assets 4.16 492,166,151 376,215,468 Total Assets 36,916,848,654 27,149,342,884

Contingent Liabilities 4.17 Directors’ Declaration 4.29 Table of Capital Adequacy Ratio 4.30(A1) Table of Risk Weighted Assets 4.30 (B, C, D, E) Main Indicators 4.31 Unaudited Financial Result 4.32 Comparison of Unaudited and Audited Financial Result 4.33 Details of Loans taken by Promoters against Promoter Share 4.34 Significant Accounting Policy 4.35 Notes to Accounts 4.36

(Schedules 4.1 to 4.17 & 4.35 & 4.36 are integral part of the Balance Sheet)

Hum Nath Gurung R.K. Ummat Directors Bishnu Krishna Shrestha Auditor Asst. General Manager C.E.O. Ved Krishna Shrestha Chairman Muskan Shrestha Shiva Sharan K.C. N.L. Amatya, F.C.A Arun Man Sherchan N. Amatya & Company Ratna Sansar Shrestha, F.C.A Chartered Accountants Dr. Bal Gopal Vaidya as per our report of even date Jagat Ram Date: Sep. 10, 2009

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Profit and Loss Account From 1st Shrawan 2065 to 31 Ashadh 2066 (16th July 2008 to 15th July 2009)

This Year Previous Year Particulars Sche. Amount Rs. Amount Rs. 1. Interest Income 4.18 2,186,814,992 1,548,657,132 2. Interest Expenses 4.19 1,012,874,353 632,609,264 Net Interest Income 1,173,940,639 916,047,868 3. Commission and Discount 4.20 202,094,446 150,264,074 4. Other Operating Income 4.21 106,403,694 79,133,767 5. Exchange Income 4.22 62,526,819 64,452,378 Total Operating Income 1,544,965,598 1,209,898,087 6. Staff Expenses 4.23 186,919,870 157,957,084 7. Other Operating Expenses 4.24 292,010,522 233,766,645 8. Exchange Loss 4.22 – – Operating Profit Before Provision for possible Loss 1,066,035,206 818,174,358 9. Provision for possible losses 4.25 (93,084,880) (99,340,505) Operating Profit 972,950,326 718,833,853 10. Non-operating Income/Loss 4.26 5,005,256 4,519,287 11. Write-back from Loan Loss Provision 4.27 8,044,170 20,201,067 Profit from regular activities 985,999,752 743,554,208 12. Profit/Loss from transaction of extraordinary nature 4.28 (5,549,170) (18,998,727) Profit after inclusion of all transaction 980,450,582 724,555,481 13. Provision for Staff Bonus 89,131,871 65,868,681 14. Provision for Income Tax • Current Tax for the year 276,864,301 216,913,302 Deferred Tax (24,278,347) (9,445,115) • For Previous Year – – Net Profit/Loss 638,732,757 451,218,613

(Schedules 4.18 to 4.28 & 4.35 & 4.36 are integral part of the Profit & Loss Account)

Hum Nath Gurung R.K. Ummat Directors Bishnu Krishna Shrestha Auditor Asst. General Manager C.E.O. Ved Krishna Shrestha Chairman Muskan Shrestha Shiva Sharan K.C. N.L. Amatya, F.C.A Arun Man Sherchan N. Amatya & Company Ratna Sansar Shrestha, F.C.A Chartered Accountants Dr. Bal Gopal Vaidya as per our report of even date Jagat Ram Date: Sep. 10, 2009

 10 Profit and Loss Appropriation Account From 1st Shrawan 2065 to 31 Ashadh 2066 (16th July 2008 to 15th July 2009)

This Year Previous Year Particulars Sche. Amount Rs. Amount Rs. INCOME 1. Retained Profit upto last year 83,749,704 130,546,505 2. Profit for the year 638,732,757 451,218,613 3. Transfer from Share Premium Account 191,646,300 – 4. Excess Provision of Tax on Bonus Share written back 1,734,063 – TOTAL 915,862,824 581,765,118 APPROPRIATION 1. Accumulated Loss upto last year – – 2. Loss for the year –– 3. General Reserve 127,747,000 90,244,000 4. Deferred Tax Reserve 24,278,347 9,445,115 5. Bank Development Fund – – 6. Dividend Equalization Fund – – 7. Staff related funds –– 8. Dividend on Preference Share 16,347,397 23,723,288 9. Proposed dividend on ordinary shares 201,732,948 107,773,011 10. Proposed Bonus Share 191,646,300 147,420,000 11. Capital Redemption Reserve 140,000,000 – 12. Exchange Equalization Fund 1,666,300 3,410,000 13. Debenture Redemption Fund 60,000,000 60,000,000 14. Capital Adjustment Reserve 64,000,000 50,000,000 15. Other Free Reserve 6,000,000 6,000,000 TOTAL 833,418,292 498,015,414 16. Retained Profit/(Loss) 82,444,532 83,749,704

Hum Nath Gurung R.K. Ummat Directors Bishnu Krishna Shrestha Auditor Asst. General Manager C.E.O. Ved Krishna Shrestha Chairman Muskan Shrestha Shiva Sharan K.C. N.L. Amatya, F.C.A Arun Man Sherchan N. Amatya & Company Ratna Sansar Shrestha, F.C.A Chartered Accountants Dr. Bal Gopal Vaidya as per our report of even date Jagat Ram Date: Sep. 10, 2009

11
-

1,000

(140,000,000)

ee Reserve"

- (147,420,000) -

1,734,063 1,734,063

(16,347,397) (16,347,397)

(24,278,347) 24,278,347 -

638,732,757 638,732,757

(393,379,248) 191,646,300 (201,732,948)

(140,000,000) 140,000,000 -

1,666,300 (1,666,300) -

Fund Fund

60,000,000 (60,000,000) -

64,000,000 (64,000,000) -

------

------

ve allocated from Profit & Loss Appropriation is stated under the column of " Other Fr ve allocated from Profit

Statement of Changes in Equity

premium reserve Adjustment Fluctuation Profit Reserves

------

------

From Shrawan 1, 2065 to Ashadh 31, 2066 (July 16, 2008 to July 15, 2009)

831,400,000 206,427,200 323,091,514 280,100,000 20,378,239 83,749,704 166,645,808 9,445,115 1,921,237,580

831,400,000 206,427,200 323,091,514 280,100,000 20,378,239 83,749,704 166,645,808 9,445,115 1,921,237,580

838,821,000 14,780,900 450,838,514 404,100,000 22,044,539 82,444,532 356,872,108 33,723,462 2,203,625,055

(140,000,000)

ve 127,747,000 (133,747,000) 6,000,000 -

e and Capital Redemption Reser

operties

operties

. A/c (191,646,300) 191,646,300 -

e 147,420,000

e

e

dinary Shares

evious year's

eference Share eference

Particulars Capital Share Share General Capital Exchange Accumulated Other Free Tax Deferred Total

Balance at Ashadh 31, 2065 * Proposed Bonus Shar Changes in Accounting Policy Restated Balance Surplus on Revaluation of Pr Deficit on Revaluation of Investments Currency Translation Differences Translation Currency Net Gains/Losses not Recognised in the Income statement Net Profit for the Year Net Profit Transfer to General Reser Transfer Declaration of Dividend on Or

Transfer from Share Premium Share from Transfer Account to P&L Appr Declaration of Dividend on Preference shares Preference Issue of Bonus Shar Deferred Tax Deferred Deficit on Revaluation of Pr Transfer to Debentur Transfer Redemption Reserve Transfer to Capital Transfer

Redemption Reserve Increase in Share Capital in Share Increase 1,000 Capital Adjustment Fund Redemption of Pr Adjustment of pr TDS on bonus shar Transfer to Exchange Equalization Fund Transfer Balance as on Ashadh 31, 2066

 12 Cash Flow Statement From 16th July 2008 to 15th July 2009

Previous Year Rs. Particulars Current Year Rs. A. Cash flow from Operating Activities 1,764,958,356 1. Cash Received 2,440,224,660 1,480,965,056 1.1 Interest Income 2,071,386,385 150,264,074 1.2 Commission & Discounts Income 202,094,446 50,815,249 1.3 Income from Foreign Exchange Transaction 55,861,850 – 1.4 Recovery of Loan written off – 82,913,977 1.5 Other Income 110,881,979 (1,154,930,217) 2. Cash Paid (1,744,322,546) (612,862,000) 2.1 Interest Expense (1,002,376,829) (127,972,593) 2.2 Staff Expense (163,027,617) (177,576,476) 2.3 Office Administration Expenses (215,578,404) (191,048,302) 2.4 Income Tax Paid (297,471,016) (45,470,846) 2.5 Other Expenses (65,868,680) 610,028,139 Cash Flow before Changes in Working Capital 695,902,114 (Increase)/Decrease in Current Assets (346,000,000) 1. (Increase)/Decrease in Money at Call & Short Notice 346,000,000 498,762,587 2. (Increase)/Decrease in Short-Term Investments (697,050,061) (4,772,744,402) 3. (Increase)/Decrease in Loan & Advances and BP (5,638,672,934) (134,857,710) 4. (Increase)/Decrease in Other Assets (67,616,369) Increase/(Decrease) in Current Assets 5,790,044,994 1. Increase/(Decrease) in Deposit 9,346,647,711 – 2. Increase/(Decrease) in Certificate of Deposit – – 3. Increase/(Decrease) in Short-Term Borrowing – (26,376,627) 4. Increase/(Decrease) in Other Liabilities (289,665,427) 1,618,856,981 Total Cash Flow from Operating Activities 3,695,545,034 B. Cash flow from Investing Activities (94,679,000) 1. Purchase of Shares & Debentures (882,500) 13,414,000 2. Proceeds from Sale of Shares & Debentures – (248,462,452) 3. Purchase of Fixed Assets (144,259,524) 1,845,299 4. Proceeds from Sale of Fixed Assets 2,016,538 (493,535,705) 5. (Increase)/Decrease in Government Securities (190,990,168) 397,500 6. Proceeds from Sale of Non-Banking Assets 2,025,555 58,439,435 7. Interest Income from Long-Term Investments 91,372,640 751,032 8. Dividend Received 148,200 – 9 Others – (761,829,891) Total Cash flow from Investing Activities (240,569,259) C. Cash flow from Financing Activities –1.Increase/(Decrease) in Long Term borrowings (Bond, Debentures, etc) 312,000,000 – 2. Increase/(Decrease) in Share Capital – – 3. Increase/(Decrease) in Share Premium (140,000,000) (511,512,000) 4. Share Application Money Received – (58,852,252) 5. Dividend Paid (126,611,886) (23,748,730) 6. Interest in Borrowing Paid (10,629,526) – 7. Increase/(Decrease) in Refinance / facilities received from NRB – (594,112,982) Total Cash flow from Financing Activities 34,758,588 13,637,129 D. Income / Loss from change in exchange rate in Cash and Bank Balance 6,664,969 276,551,237 E. Current Year's Cash Flow from all activities 3,496,399,332 2,391,420,594 F. Opening Balance of Cash & Bank Balances 2,667,971,831 2,667,971,831 G. Closing Balance of Cash & Bank Balances 6,164,371,163

13
Share Capital and Shareholding As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.1

Previous Year Rs. Particulars This Year Rs. 1. Share Capital 1,000,000,000 1.1 Authorised Capital 1,000,000,000 650,000,000 A) 8,000,000 nos. of Ordinary Shares of Rs. 100/- each 800,000,000 (Previous 6,500,000 nos. of Ordinary Shares of Rs. 100 each) 150,000,000 B) 1,500,000, nos. of 9% Cumulative Non-Redeemable – Preference Share of Rs. 100/– each 200,000,000 C) 2,000,000, nos. of 7% Cumulative Convetible Preference Share of Rs 100/- each 200,000,000 843,200,000 1.2 Issued Capital 840,620,000 493,200,000 A) 6,406,200 nos. of Ordinary Shares of Rs. 100/- each 640,620,000 (Previos 4,932,000 nos. of Ordinary Shares of Rs. 100 each) B) 1,500,000 nos. of 9% Cumulative Non-Redeemable 150,000,000 Preference Shares of Rs. 100/- each – 200,000,000 C) 2,000,000 nos. of 7% Cumulative Convetible Preference Share of Rs 100/- each 200,000,000 831,400,000 1.3 Paid Up Capital 838,821,000 A) 6,388,210 nos. of Ordinary Shares of Rs. 100/- each 491,400,000 (including 39,90,557 Bonus Shares fully paid) 638,821,000 (Previous 4,914,000 nos. of Ordinary Shares of Rs. 100 each) B) 14,00,000, 9% cumulative Non-Redeemable 140,000,000 Preference Shares of Rs. 100/- each – (During the current year, the above capital has been redeemed) 200,000,000 C) 20,00,000, 7% Cumulative Convetible Preference Share of Rs 100/- each 200,000,000 Share Ownership Particulars

Amount Rs. Percent Particulars Percent Amount Rs. 247,104,000 50 A. Promoters 50 321,235,140 1.1 Nepal Government 98,841,600 20 1.2 Foreign Institutions- PNB, India 20 128,494,080 – – 1.3 “A” Class Licensed Body Institutions – – – – 1.4 Other Licensed Institutions – – 45,920,160 9.34 1.5 Other Institutions 9.34 59,696,190 201,183,840 40.66 1.6 Individual 40.66 261,538,950 – – 1.7 Others – – 145,454,400 30 B. General Public* 30 189,091,780 491,400,000 100 TOTAL 100 638,821,000 Details of Shareholders holding more than 0.5% of the Share Capital is as under:

S.N. Name & Address % Amount Rs. S.N. Name & Address % Amount Rs. 1 Sh. B.K.Shrestha, 9.22 58,893,120 8 Sh. Kul Bir Singh Tuladhar, 1.01 6,424,680 Sanepa Lalitpur Tripureshwor , Kathmandu 2 M/s Snow Lion Hotel, 9.34 59,696,190 9 M/s Punjab National Bank, India 20 128,494,080 Bagbazar Kathmandu 10 Sh. Nirmal Pradhan, 1.00 6,386,500 3 Sh. Maitra Dev Pathak, 6.04 38,572,560 Gyaneshwor-33 , Kathmandu Kamalpokhari, Kathmandu 11 Ms. Roma Pradhan , 1.00 6,363,800 4 Sh. Radha Shrestha, 8.80 56,216,160 Gyaneshwor - 33 , Kathmandu Tapahiti Lalitpur 12 M/s Baba Palace (P) Ltd., 0.99 6,333,200 5 Sh. Nepal Krishna Shrestha, 9.22 58,893,120 Naxal -1 Kathmandu Tahachal, Kathmandu 13 Ms. Rukmani Pradhan, 0.86 5,490,200 6 Sh. Arun Man Sherchan, 3.90 24,895,710 Gyaneshwor, Kathmandu Himalayan Height , Lalitpur-Sanepa 14 M/s Baba Palace Stock 0.68 4,328,700 7 Sh. Shanta Dev Pathak, 2.76 17,643,600 Market Pvt. Ltd., Gyaneshwor- Kathmandu Kamalpokhari, Kathmandu 15 Rajdhani Investment Fund Ltd. 0.63 4,015,900 Baluwatar-4,  14 Reserve and Surplus As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.2

Previous Year Rs. Particulars This Year Rs. 323,091,514 1. General Reserve 450,838,514 147,420,000 2. Proposed Bonus Share 191,646,300 – 3. Capital Reserve – 206,427,200 3.1 Share Premium 14,780,900 – 4. Capital Redemption Reserve 140,000,000 220,100,000 5. Capital Adjustment Reserve 284,100,000 – 6. Other Reserve – – a. Reserve for contingencies – – b. Bank Development Fund – – c. Dividend Equalization Fund – 60,000,000 d. Debenture Redemption Reserve 120,000,000 – e. Assets Revaluation Reserve – 18,000,000 f. Other free Reserves 24,000,000 1,225,808 g. Other 1,225,808 83,749,704 7. Retained Profit 82,444,532 9,445,115 8. Deferred Tax Reserve 33,723,462 20,378,239 9. Exchange Equalization Fund 22,044,539 1,089,837,580 Total 1,364,804,055

Debenture and Bond

As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.3

Previous Year Rs. Particulars This Year Rs.

3,00,000 nos. of 6% Unsecured Debenture of Rs 1,000 each 300,000,000 (Issued on 16/07/2005 and maturing on 15/07/2012) 300,000,000 (Redemption Reserve till balance sheet date Rs. 120,000,00)

300,000,000 TOTAL 300,000,000

Loans and Borrowing As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.4

Previous Year Rs. Particulars This Year Rs. A. Local – 1. Nepal Government – – 2. Nepal Rastra Bank – – 3. Repo Obligation – – 4. Inter-bank & Financial Institutions 312,000,000 (Equivalent Rs. of US$ 4,000,000) – 5. Other Body Corporate – – 6. Others – TOTAL (A) 312,000,000 B. Foreign – 1. Banks – – 2. Others – TOTAL (B) – – TOTAL (A + B) 312,000,000

15
Deposit Liabilities As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.5

Previous Year Rs. Particulars This Year Rs.

1 Non-interest bearing deposits 2,492,346,111 A. Current Deposits 4,859,946,758 2,443,034,059 1. Local Currency 4,840,143,868 712,541,320 1.1 Nepal Government 1,914,193,528 6,698,673 1.2 'A' Class Licensed Institutions 14,130,649 156,611,510 1.3 Other Licensed Financial Institutions 84,839,330 1,418,719,296 1.4 Other Body Corporate 2,580,865,005 73,184,793 1.5 Individuals 103,397,031 75,278,467 1.6 Others 142,718,325 49,312,052 2. Foreign Currency 19,802,890 – 2.1 Nepal Government – – 2.2 'A' Class Licensed Institutions – – 2.3 Other Licensed Financial Institutions – 49,262,747 2.4 Other Body Corporate 19,365,600 49,305 2.5 Individuals 437,290 – 2.6 Others – 221,439,126 B. Margin 291,984,073 – 1. Staff earnest money – 99,729,462 2. Security margin 115,052,994 121,709,664 3. LC margin 176,931,079 151,827,057 C. Others 44,700,292 151,827,057 1. Local Currency 44,700,292 – 1.1 Financial Institutions – 113,162,705 1.2 Other Body Corporate 20,355,934 38,664,352 1.3 Individual 24,344,358 – 2. Foreign Currency – – 2.1 Financial Institutions – – 2.2 Other Body Corporate – – 2.3 Individual – 2,865,612,294 Total Non-interest Bearing Deposit (A) 5,196,631,123 2 Interest Bearing Deposits 11,883,857,171 A. Saving Deposit 14,782,330,769 11,724,184,150 1. Local Currency 14,623,832,398 376,380,611 1.1 Body Corporate 410,431,097 11,313,739,771 1.2 Individual 14,168,987,916 34,063,768 1.3 Others 44,413,385

 16 Deposit Liabilities As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.5 Cont………

Previous Year Rs. Particulars This Year Rs.

159,673,021 2. Foreign Currency 158,498,371 38,941,735 2.1 Body Corporate 28,056,456 120,584,562 2.2 Individual 130,441,915 146,724 2.3 Others – 6,446,181,289 B. Fixed Deposit 7,049,978,230 6,254,216,614 1. Local Currency 6,585,741,400 5,189,576,809 1.1 Body Corporate 5,486,055,626 981,271,800 1.2 Individual 1,040,242,216 83,368,005 1.3 Others 59,443,558 191,964,675 2. Foreign Currency 464,236,830 190,580,667 2.1 Body Corporate 461,077,830 1,384,008 2.2 Individual 3,159,000 – 2.3 Others – 2,780,647,781 C. Call Deposit 6,294,006,124 2,755,434,668 1. Local Currency 6,273,004,661 – 1.1 'A' Class Licensed Institution 592,769,516 607,739,890 1.2 Other Licensed Institutions 931,048,442 2,052,215,187 1.3 Other Body Corporate 4,552,308,062 94,746,491 1.4 Individual 188,985,296 733,100 1.5 Others 7,893,345 25,213,113 2. Foreign Currency 21,001,463 – 2.1 'A' Class Licensed Institution – – 2.2 Other Licensed Institutions – 25,213,113 2.3 Other Body Corporate 21,001,463 – 2.4 Individual – – 2.5 Others – – D. Certificate of Deposits – – 1. Body Corporate – – 2. Individual – – 3. Others – 21,110,686,241 Total Interest bearing deposits (B) 28,126,315,123 23,976,298,535 TOTAL DEPOSITS (A+B) 33,322,946,246

17
Bills Payable As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.6

Previous Year Rs. Particulars This Year Rs.

20,235,160 1. Local Currencies 46,851,989

29,194,540 2. Foreign Currencies 101,803,603

49,429,700 Total 148,655,592

Other Liabilities As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.7

Previous Year Rs. Particulars This Year Rs.

46,030,141 1. Pension/Gratuity Fund 69,922,394 – 2. Staff Provident Fund – – 3. Staff Welfare Fund – 65,868,680 4. Staff Bonus 89,131,871 29,558,761 5. Interest Payable on Deposits 15,803,463 – 6. Interest Payable on Borrowings 6,252,822 – 7. Unearned Discount/Commission – 94,887,863 8. Sundry Creditors 93,023,430 423,837,407 9. Branch Adjustment Account 12,624,459 – 10. Others – – a. Agency Account – 2,440,697 b. Interest on Debenture 9,811,171 57,670,043 c. Others 81,855,105 150,000 d. Audit fee 150,000

720,443,592 Total 378,574,715

Cash in Hand As on 31 Ashadh 2066 (15th July 2009)

Schedule - 4.8

Previous Year Rs. Particulars This Year Rs.

809,176,614 1. Local Currencies (Including Coins) 927,265,908

13,812,811 2. Foreign Currencies 17,429,885

822,989,425 Total 944,695,793

 18 Balance with Nepal Rastra Bank As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.9

As at Ashad 31, 2066 (July 15, 2009) Previous Year Foreign Currencies This Year Particulars Local Currency Rs. INRs. Convertible Total Rs.

1. Nepal Rastra Bank

1,080,914,554 a. Current Account 4,752,741,812 – 34,421,729 34,421,729 4,787,163,541

– b. Others – – – – – 1,080,914,554 Total 4,752,741,812 – 34,421,729 34,421,729 4,787,163,541

Note: Balance as per Balance Certificates Rs. 4,690,095,163 and the difference amount is under process of reconciliation.

Balance with Other Bank & Financial Institutions As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.10

As at Ashad 31, 2066 (July 15, 2009)

Previous Year Foreign Currencies This Year Particulars Local Currency Rs. INRs. Convertible Total Rs. 47,826,684 1. Other Local Licensed Institution 24,017,054 – 2,001,683 2,001,683 26,018,737 47,826,684 a. Current Account 24,017,054 – 2,001,683 2,001,683 26,018,737 – b. Others – – – – – 716,241,167 2. Foreign Banks – 14,265,614 392,227,478 406,493,092 406,493,092 716,241,167 a. Current Account – 14,265,614 392,227,478 406,493,092 406,493,092 b. Others – – – – – 764,067,851 Total 24,017,054 14,265,614 392,227,478 406,493,092 432,511,829

Note: Balance as per Balance Certificates Rs. 1,100,801,768 and the difference amount is under process of reconciliation.

Money at Call and Short Notice As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.11

Previous Year Rs. Particulars This Year Rs.

– 1. Local Currencies –

346,000,000 2. Foreign Currencies –

346,000,000 Total –

19
Investments As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.12

Purpose Previous Year Rs. This Year Rs. Particulars Trading Others

3,237,977,740 1. Nepal Government Treasury Bills – 3,371,428,601 3,371,428,601 – 2. Nepal Government Saving Bonds – – – 1,583,627,004 3. Nepal Government Other Securities – 1,774,617,172 1,774,617,172 – 4. Nepal Rastra Bank Bonds – – – – 5. Foreign Securities – – – – 6. Local Licensed Institutions – – – 138,400,800 7. Foreign Banks – 702,000,000 702,000,000 16,225,000 8. Corporate Shares – 17,107,500 17,107,500 84,927,000 9. Corporate Bonds & Debentures – 84,927,000 84,927,000 – 10. Other Investments – – – 5,061,157,544 Total Investments – 5,950,080,273 5,950,080,273 (1,600,000) Provisions – – (1,600,000)

5,059,557,544 Net Investments – – 5,948,480,273

Investments in Shares, Debentures and Bonds As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.12 (Ka) As Per Previous Year Rs.Particulars At Cost Rs. This Year Rs. Market Price 1. Investments in Shares: 1.1 Rural Micro Finance Co. Ltd. 3,120,000 (31,200 shares of Rs. 100/- each) 3,120,000 NA – 1.2 Nirdhan Utthan Bank Ltd. 7,752,000 (95,832 Shares of Rs. 100 each) 7,752,000 NA – (Including 18,312 Bonus Shares) 1.3 Credit Information Center Ltd. 353,000 (12,355 Shares of Rs. 100 each) 1,235,500 NA – 1.4 Taragaon Regency Hotel 5,000,000 (50,000 Shares of Rs. 100) 5,000,000 3,900,000 1,600,000 – 2. Invenstments in Debenture – – – 84,927,000 2.1 NEA Bonds (84,927 units of Bond of Rs. 1,000 each) 84,927,000 – – 101,152,000 Total Investments 102,034,500 – – 3. Provisioning – 3.1 Up to last year (1,600,000) – – (1,600,000) 3.2 This year – – – (1,600,000) Total Provision (1,600,000) (1,600,000) 99,552,000 Net Investments 100,434,500

 20 Rs.

This Year

Grand Total

24,351,570,294

24,248,590,584

24,469,555,526

23,884,673,616

Schedule - 4.13

Total

Foreign

Others

Bills Purchased & Discounted

Local

Priority Sector

Insured Others

Total

24,145,230,799 99,906,472 3,453,314 103,359,786

24,366,195,740 99,906,472 3,453,314 103,359,786

23,782,347,428 98,907,408 3,418,780 102,326,188

24,248,210,508 99,906,472 3,453,314 103,359,786

Foreign

Loans

Others

19,231,540 - 19,231,540 - - - 19,231,540

23,531,440,927 -

23,428,461,217 -

23,649,290,636 -

23,072,745,542 -

Loans and Advances & Provision

As at 31 Ashadh 2066 (15th July 2009)

Local

7,303,218 576,545,094 - 583,848,312 999,065 34,533 1,033,598 584,881,910

5,254,318 491,870,488 - 497,124,805 163,020 58,374 221,394 497,346,200

- - 135,522 117,849,710 - 102,979,710 - - 117,985,232 102,979,710 - - - - - 117,985,232 - 102,979,710

- 7,167,696 234,284,612 - 241,452,308 999,065 34,533 1,033,598 242,485,906

Priority Sector

Insured Others

ovision -

Particulars

otal Loan Loss Pr

1.2 Restructure/Reschedule

Provisioning as on Ashad end 2065 Provisioning

(b) Restructure/Reschedule(b) - -

(write off from provision) from (write off

made in Ashad end 066

Total Provision up to Ashad end 2065 Provision Total

3. Loan loss Provision

4.

C.

745,926 2.2 Doubtful - - 28,514,320 - 28,514,320 - - - 28,514,320

372,963 3.3 Doubtful - - 14,257,160 - 14,257,160 - - - 14,257,160

6,306,745 2.1 Substandard - - 1,360,792 - 1,360,792 - - - 1,360,792

1,576,686 3.2 Substandard - - 340,198 - 340,198 - - - 340,198

1,054,621 4.2 Substandard - - 1,576,686 - 1,576,686 - - - 1,576,686 1,176,645 4.3 Doubtful - - 372,963 - 372,963 - - - 372,963

19,231,540Restructure/Reschedule (b) - - 12,872,464 - 12,872,464 - - - 12,872,464

27,360,517

97,740,503 E. Additional Provision - 2,054,050 90,218,627 - 92,272,677 836,044 (23,841) 812,204 93,084,880

153,852,318 127,310,368 2. Non-Performing Loan

120,257,697 2.3 Loss - 135,522 87,974,598 - 88,110,120 - - - 88,110,120

185,552,691 3.1 (a) Pass Loan

120,257,697 3.4 Loss - 135,522 87,974,598 - 88,110,120 - - - 88,110,120 170,354,623 kept 3.5 Extra Provision - - 226,816,062 - 226,816,062 - - - 226,816,062 497,346,200 B. T

137,506,230 4.1(a) Pass Loan - 5,060,912 180,270,384 - 185,331,297 163,020 58,374 221,394 185,552,691

106,607,165 4.4 Loss - 193,405 120,064,292 - 120,257,697 - - - 120,257,697 144,899,246 kept 4.5 Extra provision - - 170,354,623 - 170,354,623 - - - 170,354,623 418,604,423

(18,998,727) D. Loan write Back -(5,150) (5,544,020) - (5,549,170) - - - (5,549,170)

Year Rs.

Previous

18,709,121,394 1. Performing Loan - 716,769,582 18,555,269,076 1.1 Pass Loan - 716,769,582

18,836,431,762 Loan (1+2) A.Total - 716,905,104

18,339,085,562 NET LOAN (A-B) - 709,601,886

21
Security Wise Detail of Loans, Advances & Bills Purchases As on 31 Ashadh 2066 (15th July 2009)

Schedule - 4.13 (Ka)

Previous Year Rs. Particulars This Year Rs.

18,836,431,762 A. Secured 24,469,555,526 18,352,610,332 1. Against Fixed/Movable Properties 23,959,203,084 – 2. Loan Against Guarantee Local Licensed Institutions – – 3. Against Government Guarantee – – 4. Against International Rated Bank's Guarantee – – 5. Against Export Document – 399,678,814 6. Against Fixed Deposit Receipts 485,994,260 258,295,711 a. Own Fixed Deposit Receipts 474,569,000 141,383,103 b. Other Licensed Institutions’ Fixed Deposits 11,425,260 46,539,072 7. Against Government Securities 8,237,071 – 8. Against Counter Guarantee – 2,496,005 9. Against Personal Guarantee 2,499,783 35,107,539 10. Against Other Securities 13,621,328 – B. Unsecured – 18,836,431,762 Total 24,469,555,526

 22 –

Rs.

This Year

Schedule - 4.14

91,482,525 91,482,525

Others

45,649,712 45,649,712 40,560,000 40,560,000

Office

Equipment

– – – –

–

Fixed Assets

– – – – – –

– (2,455,961) (1,273,032) (2,009,438) – (5,738,431)

–

– – – – – –

– – – –

– – – – –

– – – – – – – –

– (2,156,326) 78,441,272 (97,800,033) (2,204,429) (23,719,516)

– (3,623,600) 19,867,051 (36,855,581) (2,325,082) (22,937,212)

5,149,219 7,678,295 9,344,304 56,905,718 2,073,587 81,151,123

7,076,216 29,058,554 6,503,050 126,875,070 9,831,195 179,344,085

1,338,077 16,605,413 10,515,806 24,517,508 1,874,040 54,850,843

8,414,293 42,040,367 36,885,907 114,536,997 9,380,153 211,257,716

Building Vehicles Machinery

30,439,010 105,859,130 18,571,038 241,447,857 12,712,720 409,029,754

27,173,937 66,884,770 68,197,675 84,007,107 3,201,725 249,465,214

27,173,937 66,884,770 68,197,675 84,007,107 180,893,963 427,157,452

2,666,667

4,756,079

44,894,118

As at 31 Ashadh 2066 (15th July 2009)

e - Finacle

Particular

write off/Inter head transfers

e) Write off/Inter Branch and Inter Head Transfers

c) Depreciation of Write back/Revaluation Assets

Up to Last year Addition this year

Up to Last Year 2,244,706 Addition this year

1. Cost

2. Depreciation

5. Capital WIP

Detail of Computer Softwar

Cost

Total Cost Total 47,560,785 Amortisation

Total AmortisationTotal 7,000,785 Net Book Value 40,560,000

– c) Revaluation during the year

–

–

Rs.

(2,439,453) d) Sold during the year (2,264,119)

(2,845,919) d) Depreciation of assets sold /

46,721,302 b) Addition this Year

55,441,525 4. Land

32,736,273 6. Leasehold Asset 42,649,412 7. Finacle Software

262,125,973 a) Up to Last Year 151,606,953 b) Addition this Year

409,029,354 Total Cost 35,588,229 108,925,137 105,083,582 198,544,104 12,581,878 460,722,931

135,468,702 a) Up to Last Year

179,344,085 Total Depreciation 229,685,270 3. Book Value ( 1 - 2 )

360,512,480 Total ( 3 + 4 + 5 + 6 + 7)

Previous Year

23
Non Banking Assets As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.15 Net Value of Previous Year Name & Address of NBA Booked Provisioning NBA Value NBA Rs. the Party/Borrower Date % Amount This Year Rs. 1. Pinkymala & Co. , Birgunj-13, Adarsh Nagar, City Office – Lel Tole, 17,704,739 Kathmandu 14.01.2006 17,704,739 100 17,704,739 –

2. Unnat Industries 3,000,000 Main Road, Biratnagar 08.04.2002 3,000,000 100 3,000,000 –

3. Deepak Food Traders Dhangadhi 1,820,000 Municipality-2, Kailali 22.02.2004 1,000,000 100 1,000,000 –

5. NB Garments Bathanah V.D.C.-6 9,979,067 Simara 04.06.2004 9,979,067 100 9,979,067 –

6. Siddheswori Ind. P. Ltd. Ratna Nagar-1, 1,675,000 Chitawan 06.12.2004 – 100 – – 34,178,806 TOTAL 31,683,806 31,683,806 –

(34,178,806) Provision upto Previous Year

– TOTAL 31,683,806 31,683,806 –

 24 Other Assets As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.16

Previous Year Rs. Particulars This Year Rs.

5,424,971 1. Stationeries Stock 9,519,909 35,324,866 2. Interest Receivable on Investments 59,380,833 – 3. Interest Receivable on Loans & Advances – 92,216,004 Gross Interest receivable on Loans & Advances 83,340,995 (92,216,004) Less: Interest Suspense (83,340,995) – 4. Commission Receivables – 141,418,583 5. Sundry Debtors 75,322,536 156,643,983 6. Staff Loans & Advances 305,982,733 2,672,422 7. Pre-paid Expenses 6,048,522 3,195 8. Cash in Transit – 24,153,377 9. Others in Transit (including cheques) – – 10. Draft Paid Without Advice – – 11. Expenses to be Written-off – – 12. Branch Account – 9,445,115 13. Deferred Tax Assets 33,723,462 – 14. Others – 1,128,956 – Security Deposit 2,188,156 – – Misc. – 376,215,468 Total 492,166,151

Other Assets (Additional Details) As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.16 (Ka)

This Year Previous Year More that 1 year More than This Year Particulars Upto one year Rs. & upto 3 year 3 year Rs.

92,216,004 1. Interest Receivables on Loan 24,015,083 3,441,595 55,884,317 83,340,995

– 2. Draft Paid without Schedule – – – –

– 3. Branch Account – – – –

92,216,004 Total 24,015,083 3,441,595 55,884,317 83,340,995

25
Contingent Liabilities As on 31 Ashadh 2066 (15th July 2009) Schedule - 4.17

Previous Year Rs. Particulars This Year Rs.

– 1. Claim Lodged but not accepted by the bank – 2,135,446,432 2. Letters of Credits 2,377,715,687 2,056,005,401 a. Maturity Value of less than six months 2,368,166,855 79,441,031 b. Maturity Value of more than six months 9,548,832 – 3. Re-discounted Bills – 944,976,177 4. Un-expired Guarantees 1,243,201,380 123,469,573 a. Bid Bond 160,823,002 821,506,604 b. Performance Bond 1,082,378,378 – 5. Share Money against Investments in Shares – 7,595,851 6. Forward Exchange Contracts 4,311,684 77,762,082 7. Bills on Collection 297,904,820 486,158,768 8. Acceptance and Endorsements 299,373,218 – 9. Underwriting Commitment – 2,207,644,000 10. Irrevocable Loan Commitment 2,671,072,312 16,581,961 11. Guarantee Against Counter Guarantee of International Rated Bank 46,914,918 62,850,687 12. Advance Payment Guarantee 194,199,092 77,784,538 13. Financial Guarantees 67,347,703 – 14. Contingent Liability against Income Tax – – 15. Others 1,600,000 6,016,800,495 Total 7,203,640,814

 26 Interest Income For the Financial Year 2065/66 (2008/09)

Schedule - 4.18

Previous Year Rs. Particulars This Year Rs.

1,329,694,619 A. Interest on Loans & advances 1,852,127,567 794,889,029 1. Loans & advances 1,019,080,822 534,805,590 2. Overdrafts 833,046,745 199,724,465 B. Interest on Investments 317,863,643 180,218,958 1. Government Securities 289,764,623 114,810,856 a. Treasury bills 205,441,518 65,408,102 b. Development Bonds 84,323,105 – c. National Saving Bonds – – 2. Foreign Securities – – 3. Nepal Rastra Bank Securities – 6,500,856 4. Debenture & Bond 6,572,826 13,004,651 5. Interest on Inter-bank lending 21,526,194 13,004,651 a. Bank/Financial Institutions 21,526,194 b. Other Institutions – 10,244,978 C. Agency Balance 12,858,866 – 1. Local Banks/Financial Institutions – 10,244,978 2. Foreign Banks 12,858,866 8,993,070 D. Money at Call & short notice 3,964,916 – 1. Local Banks/Financial Institutions – 8,993,070 2. Foreign Banks 3,964,916 – E. Others – – 1. Certificate of deposits – – 2. Inter Bank / Financial Institution Loan – – 3. Others – 1,548,657,132 TOTAL 2,186,814,992

27
Interest Expenses For the Financial Year 2065/66 (2008/09)

Schedule - 4.19

Previous Year Rs. Particulars This Year Rs.

608,975,166 A. Interest on Deposits 987,477,326 278,153,304 1. Fixed Deposits 424,625,579 267,883,560 1.1 Local Currency 417,372,755 10,269,744 1.2 Foreign Currency 7,252,824 262,156,217 2. Saving Deposits 332,143,437 258,338,456 2.1 Local Currency 327,155,118 3,817,761 2.2 Foreign Currency 4,988,319 68,665,645 3. Call Deposits 230,708,310 68,457,024 3.1 Local Currency 228,928,237 208,621 3.2 Foreign Currency 1,780,073 – 4. Certificate of Deposits – 23,634,098 B. Interest on Loans 25,397,027 – 1. Over Draft – 5,007,397 2. Loan from NRB 647,260 82,192 3. Inter-bank Loan 6,749,767 18,544,509 4. Other Loans & Refinance/Bond 18,000,000 – C. Others –

632,609,264 Total 1,012,874,353

 28 Commission and Discounts For the Financial Year 2065/66 (2008/09)

Schedule - 4.20

Previous Year Rs. Particulars This Year Rs.

1,224,616 A. Bills Purchased & Discounted 1,629,246 974,993 1. Local 1,532,967 249,623 2. Foreign 96,279 115,054,890 B. Commission 167,794,762 18,702,715 1. Letter of Credits 24,721,501 19,262,414 2. Letter of Guarantees 25,527,313 1,437,533 3. Collection Fees 1,657,577 43,914,171 4. Remittance Fees 77,170,161 – 5. Credit Card – – 6. Share Underwriting/issue com. – 3,763,429 7. Government Transaction 4,932,666 – 8. Exchange Commission – 27,974,628 9. Batta 33,785,544 33,984,568 C. Others 32,670,438 150,264,074 Total 202,094,446

Other Operating Income For the Financial Year 2065/66 (2008/09)

Schedule - 4.21

Previous Year Rs. Particulars This Year Rs.

2,028,447 1. Safe Deposit Vault Rental Income 2,725,147

– 2. Credit Cards Issue and Renewals –

2,321,338 3. ATM Cards 6,337,775 4,595,907 4. Telex /T.T. 4,371,386

43,188,747 5. Service Charges 54,735,783

5,339,585 6. Renewal Charges 6,784,488 – 7. Write back from Loan Loss Provision –

21,659,743 8. Others 31,449,115 79,133,767 Total 106,403,694

29
Exchange Fluctuation Gain/Loss For the Financial Year 2065/66 (2008/09)

Schedule - 4.22

Previous Year Rs. Particulars This Year Rs.

13,637,129 A. Revaluation Gain/(Loss) 6,664,969

50,815,249 B. Trading Gain/(Loss) (Except Batta) 55,861,850 64,452,378 Total 62,526,819

Staff Expenses For the Financial Year 2065/66 (2008/09) Schedule - 4.23

Previous Year Rs. Particulars This Year Rs.

86,042,328 1. Salary 122,371,949 11,205,698 2. Allowances 12,115,746 7,477,514 3. PF Contributions 11,014,873 2,495,154 4. Training 2,280,943 4,393,132 5. Uniform 225,418 383,400 6. Medical 439,722 853,301 7. Insurance 966,426 33,587,124 8. Provision for Gratuity/Pension 24,361,103 9. Others 13,143,690 7,325,489 a) Dashain Expenses 8,305,886 4,193,945 b) Leave Encashment 4,837,804 157,957,084 Total 186,919,870

 30 Other Operating Expenses For the Financial Year 2065/66 (2008/09)

Schedule - 4.24

Previous Year Rs. Particulars This Year Rs. 32,343,834 1. House Rent 33,267,482 8,879,524 2. Electricity & Water Charges 9,198,047 – 3. Repair & Maintenance – 117,355 a. Building 986,762 2,153,592 b. Vehicles 1,777,278 – c. Others – 4,650,549 4. Insurance Premium 6,372,665 20,860,109 5. Postage, Telex, Telephone, Fax 23,319,325 5,706,015 6. Office Equipment/Furniture & Maintenance 7,412,933 8,956,534 7. Traveling Expenses 11,663,296 9,294,750 8. Printing & Stationeries 9,986,054 481,996 9. Newspaper & Magazine 537,700 8,359,645 10. Advertisement 14,342,012 696,755 11. Legal Expenses 864,276 222,556 12. Donation 366,263 – 13. Board Expenses 2,416,265 342,800 a. Meeting Fee 688,730 1,027,958 b. Other Expenses 1,727,535 1,193,377 14. Annual General Meeting Expenses 1,528,897 – 15. Audit Expenses 420,186 150,000 a. Audit Fee 150,000 206,890 b. Other Expenses 270,186 9,804,650 16. Remittance Expenses 13,205,618 46,721,302 17. Depreciation 59,606,922 – 18. Pre-operating Expenses Write off – 1,653,795 19. Debenture / Share Issue Expenses 188,371 11,610,162 20. TSA Fee and Expenses Reimbursement 11,322,828 4,216,792 21. Entertainment 5,419,406 9,468,867 22. Amortization 16,064,004 10,086,255 23. Security Expenses 12,872,300 – 24. Loan Insurance Premium – – 25. Commission & Discounts – – 26. Others 48,871,632 8,321,542 a) Business Promotion 9,359,872 – b) NRB Penal Interest – 891,434 c) Consultancy Charges 2,211,537 300,000 d) Honorarium Paid to Director – 2,712,619 e) Registration/Renewals 2,865,950 4,276,346 f) Misc. 4,498,617 7,597,499 g) Fuel & Lubricant 12,688,755 – h) Assets Written Off 291,747 2,199,580 I) A.T.M. Related Expenses 4,334,457 5,217,851 j) Temporary Staff Wages 4,362,055 1,975,602 k) Software Contract Expenses 5,760,158 994,929 l) Expenses for Advisor to the Board 271,839 73,181 m) Loss on Sale of Non Banking Assets 469,445 – n) Branch Less Banking 1,757,200 233,766,645 TOTAL 292,010,522

31
Provision for Possible Losses For the Financial Year 2065/66 (2008/09) Schedule - 4.25

Previous Year Rs. Particulars This Year Rs.

97,740,505 1. Increase in Loan Loss Provision 93,084,880

1,600,000 2. Increase in Provision for Investment –

– 3. Increase in NBA Provision – – 4. Provision for Other Assets –

99,340,505 Total 93,084,880

Gain/(Loss) from Non-Operating Activities For the Financial Year 2065/66 (2008/09) Schedule - 4.26

Previous Year Rs. Particulars This Year Rs.

– 1. Gain/Loss on Sale of Investment – (11,954) 2. Gain/Loss on sale of Assets/NBA 378,771 – 3. Dividend – – a. Commercial Banks – 751,032 b. Rural Development Banks 148,200 – c. Finance Institutions – – d. Body Corporate – – i) Subsidiary Companies – – ii) Others – – 4. Subsidy Received from NRB – – a. Compensation of Branch Loss – – b. Interest Compensation – – c. Exchange Counters – 3,780,209 5. Others 4,478,285 4,519,287 Total Gain/(Loss) 5,005,256

Write-Back from Provision for Possible Losses For the Financial Year 2065/66 (2008/09) Schedule - 4.27

Previous Year Rs. Particulars This Year Rs.

18,998,727 1. Write back from Loan Loss Provision 5,549,170

397,500 2. Write back from Provision for NBA 2,495,000

804,840 3. Write back from Provision for Investment – – 4. Write back from Other Provision –

20,201,067 Total 8,044,170

 32 Schedule - 4.28

Previous Year Rs. Particulars This Year Rs.

– 1. Recover from Loss Loan – – 2. Expenses for Retirement Package – 18,998,727 3. Write off of Bad Loans (4.28 A) 5,549,170 – 4. Other Income/Expenses –

18,998,727 Total 5,549,170

Details of Loan Written Off For the Financial Year 2065/66 (2008/09) Schedule - 4.28 (Ka)

Nature of Basis of Action taken Amount Sanctioning S.No Type of Loans Security & Valuation of to Recover Remarks Written Off Amount Security Authority/Level the Loan 1. Working Capital 5,544,020 2. Project Financing – 3. Fixed Term Loan – 4. Personal Loan – 5. Others 5,150 Total 5,549,170

Note : The above Loans have been written off as per the NRB Directives as full provision were made for these loans for more than five years.

Loans to Directors, CEO, Promoters, Employees and Shareholders holding more than 1% share (As on 15th July 2009)

Details of Loans & Advances including Bills Purchased and discounted provided to Directors, CEO, Promoters, Employee and Shareholders holding more than 1% shares (included in total loans & advances) and their undivided family members or Company in which such family members are the Managing Agent or Guarantor of such company is as under: Schedule - 4.29

Upto previous year This Year Recovery Addition this Outstanding Name of the borrower year Principal Interest Principal Interest Principal Interest A) Directors – – – – – – – B) Chief Executive – – – – – – – C) Promoters – – – – – – – D) Employees – – – – – – – E) Shareholders – – – – – – – F) Holding more than 1% share 9,554,060 – 9,554,060 – – – – Total 9,554,060 – 9,554,060 –– ––

No loans have been provided to any of the above mentioned group except the staff loans to employees under the staff loan schemes.

33
Capital Adequacy Table As on 31 Ashadh 2066 (15th July, 2009)

Schedule 4.30 (A1) (Rs. in Thousand)

Particulars Previous Year This Year

1.1 RISK WEIGHTED EXPOSURES a. Risk Weighted Exposure for Credit Risk - Form No. 2 19,509,798 24,131,922 b. Risk Weighted Exposure for Operational Risk -Form No.5 1,372,994 1,372,994 c. Risk Weighted Exposure for Market Risk 92,070 114,837 Total Risk Weighted Exposures (a+b+c) 20,974,862 25,619,753 1.2 CAPITAL Core Capital (Tier 1) 1,560,859 1,981,579 a Paid up Equity Share Capital 491,400 638,821 b Proposed Bonus Equity Shares 147,420 191,646 c Share Premium 206,427 14,780 d Irredeemable Non- cumulative preference shares - - e Statutory General Reserves 323,091 450,839 f Retained Earnings 83,750 82,444 g Reserve for Deferred Tax 9,445 33,723 h Un-audited current year cumulative profit - - i Debenture Redemption Reserve 60,000 120,000 j Capital Adjustment Reserve 220,100 284,100 k Capital Redemption Reserve - 140,000 l Other Free Reserve 19,226 25,226 m Less: Goodwill - - n Less: Miscellaneous Expenditure not written off - - o Less: Investment in Equity in licensed Financial Institutions - - p Less: Investment in Equity of Institutions with vested interests - - q Less: Investment in Equity of institutions with excess of limits - - r Less: Investments arising out of underwriting commitments - - s Less: Reciprocal crossholdings - - t Less: Other Deductions - - Supplementary Capital (Tier 2) 787,531 722,291 a Cumulative and/or Redeemable Preference Share 340,000 200,000 b Subordinated Term Debt 240,000 180,000 c Hybrid Capital Instruments - - d General Loan Loss provision 185,553 242,486 e Investment Adjustment Reserve 1,600 - f Assets Revaluation Reserve - - g Exchange Equalization Reserve 20,378 22,044 h Additional Loan Loss Provision - 77,761 i Other Reserves - - Total Capital Fund (Tier I and II) 2,348,390 2,703,870 1.3 CAPITAL ADEQUACY RATIOS Total Capital to Risk Weighted Exposures 11.20 10.55 Tier 2 Capital to Total Risk Weighted Exposures 3.75 2.82

 34 Table of Risk Weighted Exposure for Credit Risk As on 31 Ashadh 2066 (15th July, 2009) Schedule 4.30 (B) (Rs. in Thousands) Specific Risk Risk Weighted Book Value Eligible CRM Net Value BALANCE SHEET EXPOSURES (A) Provision Weight Exposures (a) (b) (c) d = a-b-c (%) (e) Cash Balance 944,696 - - 944,696 0% - Balance With Nepal Rastra Bank 4,787,164 - - 4,787,164 0% - Gold - - - - 0% - Investment in Nepalese Government Securities 5,146,046 - - 5,146,046 0% - All other Claims on Government of Nepal 99,368 - - 99,368 0% - Investment in Nepal Rastra Bank securites - - - - 0% - All other Claims on Nepal Rastra Bank - - - - 0% - Claims on Foreign Government Securities (ECA Rating 0-1) - - - - 0% - Claims on Foreign Government Securities (ECA- 2) - - - - 20% - Claims on Foreign Government Securities (ECA-3) - - - - 50% - Claims on Foreign Government Securities (ECA-4-6) - - - - 100% - Claims on Foreign Government Securities (ECA-7) - - - - 150% - Claims On BIS MIFECBEC and on Multilateral Development Banks (MDB's) recognized by the framework - - - - 0% - Claims on Other Multilateral Development Banks - - - - 100% - Claims on Public Sector Entity (ECA 0-1) - - - - 20% - Claims on Public Sector Entity (ECA 2) - - - - 50% - Claims on Public Sector Entity (ECA 3-6) - - - - 100% - Claims on Public Sector Entity (ECA 7) - - - - 150% - Claims on domestic banks that meet capital adequacy requirements 19,420 - - 19,420 20% 3,884 Claims on domestic banks that do not meet capital adequacy requirements 18,318 - - 18,318 100% 18,318 Claims on Foreign Bank (ECA Rating 0-1) - Agency balance+placement 1,094,227 - - 1,094,227 20% 218,845 Claims on Foreign Bank (ECA Rating 2) - FC Placement - - - - 50% - Claims on Foreign Bank (ECA Rating 3-6) -Agency balance - - - - 100% - Claims on Foreign Bank (ECA Rating 7) - - - - 150% - Claims on foreign bank incorporated in SAARC region operating with a buffer of 1% above their respective regulatory capital requirement 14,266 - - 14,266 20% 2,853 Claims on Domestic Corporates 9,484,042 - - 9,484,042 100% 9,484,042 Claims on Foreigns Corporates (ECA 0-1) - - - - 20% - Claims on Foreigns Corporates (ECA 2) - - - - 50% - Claims on Foreigns Corporates (ECA 3-6) - - - - 100% - Claims on Foreigns Corporates (ECA 7) - - - - 150% - Regulatory Retail Portfolio (Not Overdue) 9,346,602 - 482806 8,863,796 75% 6,647,847 Claims fulfilling all criterion of regulatory retail except granularity - - - 100% - Claims secured by residental properties 3,709,797 - - 3,709,797 60% 2,225,878 Claims not fully secured by residental properties - - - - 150% - Claims secured by residental properties (overdue) 21,992 - - 21,992 100% 21,992 Claims secured by Commercial real estate 559,355 - - 559,355 100% 559,355 Past due claims (except for claim secured by residential properties) 198,973 - - 198,973 150% 298,460 High Risk claims (Venture capital private equity investments personal loans and credit card receivables) 1,037,707 - - 1,037,707 150% 1,556,561 Investment in equity of institutions not listed in the stock exchange 4,356 - - 4,356 150% 6,534 Investment in equity of institutions listed in the stock exchange 97,679 1600 - 96,079 100% 96,079 Other Assets (as per attachment) 863,195 - - 863,195 100% 863,195 TOTAL (A) 37,447,203 1,600 482,806 36,962,797 22,003,843 Cont……… 35
Table of Risk Weighted Exposure for Credit Risk As on 31 Ashadh 2066 (15th July, 2009) Schedule 4.30 (B) (Rs. in Thousands) Specific Risk Weighted Book Value Eligible CRM Net Value OFF BALANCE SHEET EXPOSURES (B) Provision Exposures (a) (b) (c) d = a-b-c (e) Revocable Commitments - - - - 0% - Bills under Collection 297,905 - - 297,905 0% - Forward Exchange Contract Liabilities 4,312 - 4,312 10% 431 LC Commitments with Original Maturity Up to 6 months (domestic) 2,368,168 - 147,687 2,220,481 20% 444,096 ECA Rating 0-1 - - - - 20% - ECA Rating 2 - - - - 50% - ECA Rating 3-6 - - - - 100% - ECA Rating 7 - - - - 150% - LC Commitments with Original Maturity Over 6 months (domestic) 9,549 - 2,865 6,684 50% 3,342 ECA Rating 0-1 - - - - 20% - ECA Rating 2 - - - - 50% - ECA Rating 3-6 - - - - 100% - ECA Rating 7 - - - - 150% - Bid Bond Performance Bond and Counter guarantee (domestic) 1,243,211 - 88,216 1,154,995 50% 577,498 ECA Rating 0-1 - - - - 20% - ECA Rating 2 - - - - 50% - ECA Rating 3-6 - - - - 100% - ECA Rating 7 - - - - 150% - Underwriting commitments - - - - 50% - Leading of Bank's Securities or Posting of Securities as collateral - - - - 100% - Repurchase Agreements Assets sale with recourse (including repo/reverse repo) - - - - 100% - Advance Payment Guarantee 194,199 - 14,458 179,741 100% 179,741 Financial Guarantee 67,348 - 1,938 65,410 100% 65,410 Acceptances and Endorsements 299,372 - 23,287 276,085 100% 276,085 Unpaid portion of Partly paid shares and Securities - - - - 100% - Irrevocable Credit commitments (Short Term) 2,671,073 - - 2,671,073 20% 534,215 Irrevocable Credit commitments (Long Term) - - - - 50% - Other Contingent Liabilities 48,515 - 1,253 47,262 100% 47,262 TOTAL (B) 7,203,652 - 279,704 6,923,948 2,128,080 Total RWE for Credit Risk (A + B) 44,650,855 1,600 762,510 43,886,745 24,131,922

 36 Risk Weighted Exposure for Market Risk As on 31 Ashadh 2066 (15th July, 2009) Schedule 4.30 (C) (Rs. in Thousands)

As at Ashad 31, 2066 (July 15, 2009) Particulars Open Position Open Position Relevant Open (FCY) (NPR) Position 1 U.S. Dollor 1,310 102,201 102,201 2 Euro 221 24,064 24,064 3 Pound Sterling 428 54,463 54,463 4 Swish Frank 3 215 215 5 Australian Dollor 0.06 40 40 6 Canadian Dollor 0.04 31 31 7 Singapore Dollor 2.30 125 125 8 Japanese Yen 3,976 3,310 3,310 9 Hongkong Dollor 0.25 20 20 10 Chinese Yuan 5.60 64 64 11 Indian Rupees 28,212 45,140 45,140 Total Open Position (a) 229,673 229,673 Fixed % (b) 5% Capital Charge for Market Risk c= a x b 11,484 Risk Weight (Reciprocal of Capital Requirement of 10%) in times (d) 10 Equivalent Risk Weight Exposure (c x d) = (e) 114,837

Risk Weighted Exposure for Operational Risk As on 31 Ashadh 2066 (15th July, 2009) Schedule 4.30 (D) (Rs. in Thousands)

As at Ashad 31, 2066 (July 15, 2009) Year 1 Year 2 Year 3 Particulars (2062/063) (2063/064) (2064/065)

Net Interest Income 502,014 627,242 916,048 Commission and Discount Income 88,163 117,718 150,264 Other Operating Income 48,902 67,967 79,134 Exchange Fluctuation Income 23,074 28,404 64,452 Additional Interest Suspense during the period 20,315 3,449 8,842 Gross income (a) 682,468 844,780 1,218,740 Alfa (b) 15% 15% 15% Fixed percentage of Gross Income [c = (a x b)] 102,370 126,717 182,811 Capital Requirement for operational risk (d) (average of c) 137,299 Risk Weight (Reciprocal of Capital Requirement of 10%) in times (e) 10.0 Equivalent Risk Weight Exposure [f = (d x e)] 1,372,994

37
contd..

Total

Amount in '000

Schedule - 4.30(E)

Banks

Sec/G’tee

of Foreign

MDBs

G’tee of G’tee

Banks

G’tee of G’tee

Domestic

of Other

Sec/G’tee

Sovereigns

Nepal

G’tee of G’tee Govt. of

NRB

Govt. &

Securities

Gold

bank

Deposits

with other

As at Ashad 31, 2066 (July 15, 2009)

––––––––––

–––––––––– ––––––––––

––––––––––

–––––––––– ––––––––––

––––––––––

–––––––––– ––––––––––

––––––––––

––––––––––

–––––––––– ––––––––––

–––––––––– ––––––––––

––––––––––

––––––––––

–––––––––– ––––––––––

–––––––––– ––––––––––

Eligible Credit Risk Mitigants Eligible Credit

Deposits

with Bank

es (A)

equirements

eign Government Securities (ECA-2)

eign Government Securities (ECA-7)

eign Government Securities (ECA-3)

eign Government Securities (ECA 0-1)

eign Government Securities (ECA-4-6)

Balance Sheet Exposur

Investment in For Investment in For investment in For

Investment in For Investment in For Claims on Other Multilateral Development Banks Claims on Public Sector Entity (ECA 0-1)

Claims on Public Sector Entity (ECA 2) Claims on Public Sector Entity (ECA 3-6) Claims on Public Sector Entity (ECA 7) Claims on domestic banks that meet capital

adequacy requirements Claims on domestic banks that do not meet

capital adequacy r Claims on foreign bank (ECA Rating 0-1) Claims on foreign

Claims on foreign bank (ECA Rating 2) Claims on foreign Claims on foreign bank (ECA Rating 3-6) Claims on foreign Claims on foreign bank (ECA Rating 7) Claims on foreign Claims on Domestic Corporates

Claims on Foreign Corporates (ECA 0-1) Claims on Foreign Claims on Foreign Corporates (ECA 2) Claims on Foreign Claims on Foreign Corporates (ECA 3-6) Claims on Foreign Claims on Foreign Corporates (ECA 7) Claims on Foreign

 38 contd..

Total

482,806

482,806

Amount in '000

Schedule - 4.30(E)

Banks

Sec/G’tee

of Foreign

MDBs

G’tee of G’tee

Banks

G’tee of G’tee

Domestic

of Other

Sec/G’tee

Sovereigns

Nepal

G’tee of G’tee Govt. of

NRB

Govt. &

Securities

Gold

––––––––

––––––––

bank

Deposits

with other

As at Ashad 31, 2066 (July 15, 2009)

––––––––––

––––––––––

––––––––––

–––––––––– ––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

–––––––––– ––––––––––

––––––––––

Eligible Credit Risk Mitigants Eligible Credit

Deposits

with Bank

ed by

es (A)

ed by

edit card receivables) edit card

enture capital, private equity enture

Balance Sheet Exposur

Regulatory Retail Portfolio (Not Overdue)Regulatory 482,806 Regulatory Retail Portfolio (Overdue) Regulatory Claims secured by residental properties by residental Claims secured

(with condition) Claims secured by residental properties by residental Claims secured

(without condition) Unsecured portion of claims secur Unsecured

residential properties residential Claims secured by residential properties (Overdue) properties by residential Claims secured Claims secured by Commercial real estate real by Commercial Claims secured Past due claims (except for claim secur

residential properties) residential High Risk claims (V

investments,personal loans and cr Investments in equity of institutions not listed in

the stock exchange Investments in equity of institutions listed in the

stock exchange Other loans and Advances

Cash and cash items in transit Fictitious Assets Other Assets (as per attachment) Total (A)Total 482,806

39
2,865

1,938

1,253

Total

88,216

14,458

23,287

147,687

279,704

Amount in '000

Schedule - 4.30(E)

Banks

Sec/G’tee

of Foreign

MDBs

G’tee of G’tee

Banks

G’tee of G’tee

Domestic

of Other

Sec/G’tee

Sovereigns

Nepal

G’tee of G’tee Govt. of

NRB

Govt. &

Securities

Gold

––––––––

––––––––

––––––––

––––––––

–––––––– ––––––––

–––––––– ––––––––

bank

Deposits

with other

As at Ashad 31, 2066 (July 15, 2009)

––––––––––

––––––––––

–––––––––– –––––––––– ––––––––––

–––––––––– ––––––––––

––––––––––

––––––––––

–––––––––– –––––––––– ––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

––––––––––

Eligible Credit Risk Mitigants Eligible Credit

2,865

1,938

1,253

88,216

14,458

23,287

147,687

Deposits

with Bank

ecourse

es (B)

Off Balance Sheet Exposur Off

Bid Bond, Performance Bond Counter guarantee (domestic)

Forward Exchange Contract Liabilities Forward LC Commitments With Original Maturity Up to

6 months (domestic) ECA Rating 0-1 ECA Rating 2 ECA Rating 3-6 ECA Rating 7 LC Commitments With Original Maturity

Over 6 months (domestic) ECA Rating 0-1 ECA Rating 2 ECA Rating 3-6 ECA Rating 7

ECA Rating 0-1 ECA Rating 2 ECA Rating 3-6 ECA Rating 7 Underwriting commitments Lending of Bank's Securities or Posting of

Securities as collateral Repurchase Agreements, Assets sale with r Agreements, Repurchase (including repo/reverse repo) (including repo/reverse Advance Payment Guarantee Financial Guarantee Acceptances and Endorsements Unpaid portion of Partly paid shares and Securities of Partly paid shares Unpaid portion Irrevocable Credit commitments Credit Irrevocable Other Contingent Liabilities Total (B)Total 279,704

 40 Main Indicators

Schedule- 4.31

FY 2003/04 FY 2004/05 FY 2005/06 FY 2006/07 FY 2006/07 FY 2008/09 Particulars Indicators (FY 060/61) (FY 061/62) (FY 062/63) (FY 063/64) (FY 063/64) (FY 063/64) 1 Net Profit/Total Income % 18.3 19.9 22.2 21.6 24.2 24.92 2 Per share Earning ( after tax income) Rs. 45.58 54.22 62.78 78.42 91.82 99.99 3 Market price per share Rs. 680 870 1379 2430 3132 2455 4 Price/Earning Ratio Ratio 14.93 16.04 21.97 30.99 34.11 24.55 5 Dividend on share- Bonus Share % 20 – 30 30 30 6 Cash Dividend % 20 – 25 10 20 30 7 Interest Income/Loans & advances % 9.2 8.0 7.6 6.9 7.1 7.57 8 Employee expenses/Total operating expenses % 10.3 12.4 11.5 11.0 15.4 12.53 9 Interest expenses/Total deposits & borrowing % 3.9 2.9 2.8 2.7 2.6 2.98 10 Exchange Income/Total Income % 3.5 3.2 2.2 2.1 3.5 2.44 11 Staff bonus/total employee expenses % 48.2 46.3 48.7 52.8 41.7 47.68 12 Net Profit/Loans & advances % 2.4 2.2 2.3 2.1 2.4 2.61 13 Net Profit/Total Assets % 1.5 1.4 1.5 1.4 1.7 1.73 14 Total Loans &advances/Total Deposits % 75.6 78.2 73.4 77.4 78.6 73.43 15 Total operating expenses/Total Assets % 6 4.1 3.9 3.6 3.7 4.04 16 Capital Adequacy Ratio: a) Core Capital % 9.58 8.88 8.21 7.82 9.04 7.73 b) Supplementary Capital % 1.49 4.69 4.11 3.38 2.40 2.82 c) Total Capital Funds % 11.07 13.57 12.32 11.20 11.44 10.55 17 Cash Reserve Ratio (CRR) % 1.6 1.9 1.9 2.9 3.4 2.83 18 NPAs/Total Loans & advances % 1.7 1.63 1.27 0.80 0.68 0.48 19 Weighted Average Interest Rate Spread % 3.98 4.06 3.99 3.91 4.34 4.40 20 Book Net worth (Rs. in Lacs) Rs. 5403 6926 8228 10615 15812 20036 21 Total Shares Number 3150000 3150000 3780000 3780000 4914000 6388210 22 Total Employee Number 250 257 306 393 449 521 23 Others- - Per employee Business (Rs. in Lakh) Rs. 566.6 700.3 782.3 821.1 954 1082 - Employee expenses/Total Income % 6.2 7.1 6.7 6.3 8.5 7.29

Note : CRR have been calculated on the basis of year end figures.

41
Unauditef Financial Results (Provisional) As at 4th Quarter 31/03/2066 (15/07/2009) of the Fiscal Year 2065/066 Schedule 4.32 (Rs. in Thousands)

This Quarter Previous Quarter Corresponding Particulars Previous Year 15.07.2009 13.04.2009 (Audited) 1 Total Capital and Liabilities (1.1 to 1.7) 37,488,196 33,698,788 27,646,689 1.1 Paid Up Capital * 838,821 838,821 831,400 1.2 Reserve and Surplus 1,551,872 1,393,849 1,089,838 1.3 Debenture and Bond 300,000 300,000 300,000 1.4 Borrowings 312,000 318,800 - 1.5 Deposits (a+b) 33,322,946 29,659,503 23,976,299 a. Domestic Currency 32,659,406 29,172,232 23,550,136 b. Foreign Currency 663,540 487,271 426,163 1.6 Income Tax Liability 21,653 12,461 41,143 1.7 Other Liabilities 1,140,904 1,175,354 1,408,009 2 Total Assets (2.1 to 2.7) 37,488,196 33,698,788 27,646,689 2.1 Cash & Bank Balance 6,164,371 3,160,992 2,667,972 2.2 Money at Call & Short Notice - 980,000 346,000 2.3 Investments 5,948,480 6,127,629 5,059,558 2.4 Loans and Advances (Gross) 24,469,556 22,332,411 18,836,432 2.5 Fixed Assets 427,157 473,631 360,512 2.6 Non Banking Assets (Net of provision) - - - 2.7 Other Assets 478,632 624,125 376,215 3 Profit and Loss Account 3.1 Interest Income 2,186,815 1,525,330 1,548,657 3.2 Interest Expense 1,012,874 720,073 632,609 A. Net Interest Income (3.1-3.2) 1,173,941 805,257 916,048 3.3 Fees, Commission and Discounts 202,094 133,124 150,264 3.4 Other Operating Income 106,404 79,076 79,134 3.5 Foreign Exchange Gain/Loss ( Net) 62,527 50,281 64,452 B. Total Operating Income (A+3.3+3.4+3.5) 1,544,966 1,067,738 1,209,898 3.6 Staff Expenses 186,920 112,446 157,957 3.7 Other Operating Expenses 292,011 178,594 233,767 C. Operating Profit before provision( B-3.6-3.7) 1,066,035 776,698 818,174 3.8 Provision for possible losses 93,085 72,841 99,340 D. Operating Profit ( C-3.8) 972,950 703,857 718,834 3.9 Non Operating Income/Expenses (Net) 5,005 - 4,519 3.10 Write back of provision for possible loss 8,044 4,878 20,201 E. Profit from Regular Activities (D+3.9+3.10) 986,000 708,735 743,554 3.11 Extra Ordinary Income/Expenses (Net) (5,549) (4,878) (18,999) F. Profit before Bonus and Taxes (E+3.11) 980,451 703,857 724,555 3.12 Provision for Staff Bonus 89,132 63,987 65,869 3.13 Provision for Income Tax 267,251 191,961 207,468 G. Net Profit/Loss (F-3.12-3.13) 624,068 447,909 451,218 4 Ratios 4.1 Capital Fund to RWA ** 11.12% 10.74% 11.44% 4.2 Non performing Loan (NPL) to Total Loan 0.48% 0.48% 0.68% 4.3 Total Loan Loss Provision to NPL 100% 100% 100% Major Indicators 1 Earning Per Share 97.69 70.11 91.82 2 Market Value Per Share 2455 2230 3132 3 Price Earning Ratio 25.13 31.81 34.11 4 Liquidity (CRR) 14.26 10.83 4.56 5 Return on Total Net Assets 1.69 1.33 1.65 6 Net Worth Per share 342.93 318.19 321.77 * Paid Up Capital includes Convertible Preference Shares of Rs. 20 crore. ** Capital Fund to RWA has been calculated as per (BASEL II) for this quarter and previous quarter. Any change to be made at the instance of the Statutory Auditors & Supervising Authority may change the final figures.

 42 Comparison of Unaudited and Audited Financial Statement Fiscal Year 2065/2066 Schedule 4.33 (Rs. in Thousands)

As per Unudited As per Audited Variance S.No Particulars Financial Financial Reasons for Variance Statement Statement Amount % 1 Total Capital and Liabilities (1.1 to 1.7) 37,488,196 37,501,731 13,535 0.04 1.1 Paid Up Capital * 838,821 838,821 - - 1.2 Reserve and Surplus 1,551,872 1,364,804 (187,068) (12.05) Due to Proposed Cash Dividend & Deferred Tax 1.3 Debenture and Bond 300,000 300,000 - - 1.4 Borrowings 312,000 312,000 - - 1.5 Deposits (a+b) 33,322,946 33,322,946 - - a. Domestic Currency 32,659,406 32,659,406 - - b. Foreign Currency 663,540 663,540 - - 1.6 Income Tax Liability 21,653 20,522 (1,131) (5.22) Due to Tax Provision 1.7 Other Liabilities 1,140,904 1,342,637 201,733 17.68 Due to Proposed Cash Dividend 2 Total Assets (2.1 to 2.7) 37,488,196 37,501,731 13,535 0.04 2.1 Cash & Bank Balance 6,164,371 6,164,371 - - 2.2 Money at Call & Short Notice - - - - 2.3 Investments 5,948,480 5,948,480 - - 2.4 Loans and Advances (Gross) 24,469,556 24,469,556 - - 2.5 Fixed Assets 427,157 427,157 - - 2.6 Non Banking Assets (Net of provision) - - - - 2.7 Other Assets 478,632 492,166 13,534 2.83 Due to Deferred Tax 3 Profit and Loss Account - 3.1 Interest Income 2,186,815 2,186,815 - - 3.2 Interest Expense 1,012,874 1,012,874 - - A. Net Interest Income (3.1-3.2) 1,173,941 1,173,941 - - 3.3 Fees, Commission and Discounts 202,094 202,094 - - 3.4 Other Operating Income 106,404 106,404 - - 3.5 Foreign Exchange Gain/Loss (Net) 62,527 62,527 - - B. Total Operating Income (A+3.3+3.4+3.5) 1,544,966 1,544,966 - - 3.6 Staff Expenses 186,920 186,920 - - 3.7 Other Operating Expenses 292,011 292,011 - - C. Operating Profit before provision (B-3.6-3.7) 1,066,035 1,066,035 - - 3.8 Provision for possible losses 93,085 93,085 - - D. Operating Profit (C-3.8) 972,950 972,950 - - 3.9 Non Operating Income/Expenses (Net) 5,005 5,005 - - 3.10 Write back of provision for possible loss 8,044 8,044 - - E. Profit from Regular Activities (D+3.9+3.10) 986,000 986,000 - - 3.11 Extra Ordinary Income/Expenses (Net) (5,549) (5,549) - - F. Profit before Bonus and Taxes (E+3.11) 980,451 980,451 - - 3.12 Provision for Staff Bonus 89,132 89,132 - - 3.13 Provision for Income Tax 267,251 252,586 (14,665) -5.49 Due to Deferred Tax G. Net Profit/Loss (F-3.12-3.13) 624,068 638,733 14,665 2.35 Due to Deferred Tax

43
Details of Loan & Advances taken by Promoter/Group of Promoter from Other Financial Institutions against Promoter Share As at 4th Ashadh 31, (15 July 2009) Schedule 4.34

Share owned by Promoters Details of Loan and Advances Name of Promoter/ S.No. Total % over paid up Name of Financial No. of Shares Remarks Group of Promoter Amount Shares Capital Institution as Collateral

1.

2.

3.

4.

Total

No loans have been taken by Promoter/Grop of Prmoter from other Financial Institutions against Everest Bank’s Promoter Share

 44 Schedule - 4.35 SIGNIFICANT ACCOUNTING POLICIES

1. General Information virtual/reasonable certainty that there will be sufficient Everest Bank Limited (Bank) is a limited liability company future taxable income available to realize such assets. domiciled in Nepal. Its registered office is at Lazimpat, 5. Investments Kathmandu, Nepal. The Bank is listed with Nepal Stock Investments made in shares of listed companies are Exchange Ltd. and provides full commercial banking stated at cost or market price whichever is less. services as licensed by Nepal Rastra Bank (NRB) (Central Bank). In case of some investment in share of listed company, which was valued at market price in the previous year, has 2. Basis of Preparation not been adjusted for the increase in the market value as The financial statements of the Bank have been prepared on balance sheet date as the same is immaterial. on historical cost convention basis in conformity with Shares which are not listed in the Stock Exchange are generally accepted accounting principles, well accepted stated at cost. banking norms/practices, applicable Nepal Accounting Standards issued by Institute of Chartered Accountants of Investment made in Government Treasury Bills/Bonds is Nepal, provisions of Banks and Financial Institutions Act valued at cost. The excess of the cost over face value of and directives issued by the NRB. long term government bond is proportionately spread over the maturity period of the bond by adjusting it to the 3. Fixed Assets, Depreciation and Amortization interest earned from such bonds. a) Fixed assets are valued at cost of purchase/ 6. Foreign Exchange Transactions construction plus expenses incurred which are incidental to such purchase/construction. Purchase of Assets and liabilities denominated in foreign currencies items of durable (capital) nature costing Rs. 5,000 or are revalued at the mid-rate on daily basis. less has been charged to Profit and Loss Account. Gain or loss realized on the foreign exchange transactions is recognized on the date of transaction and included b) Depreciation on fixed assets (except for leasehold under Exchange Gain/(Loss) as the case may be under development and computer software) are charged to Trading Gain/(Loss). Profit & Loss Account on reducing balance method, computed by applying the rates and method as Gains/losses arising due to fluctuation in exchange rates prescribed by Schedule 2 of the Income Tax Act 2058. of different foreign currencies is accounted for and shown as Revaluation Gain/(Loss). 25% of such revaluation gain c) Leasehold development expenses have been is transferred to Exchange Fluctuation Reserve through amortized in equal installment over the period of lease Profit and Loss Appropriation Account as per the or 5 years whichever is longer. directives issued by Nepal Rastra Bank. d) Cost incurred for acquiring computer software 7. Non-Banking Assets "Finacle" has been amortized in ten equal yearly Collateral securities taken over by the Bank during the installments and other software are amortized in five process of recovery of loans are transferred to Non- equal yearly installments. Banking Assets. Non Banking Assets are valued at lower 4. Income Tax of the principal outstanding or market value of the assets Income tax is provided on the basis of the taxable income acquired and is stated at net of provision made for such for the year computed in accordance with the provision of assets as per the directive issued by NRB. The surplus or Income Tax Act, 2058. deficit arising on sale of such asset is charged to Profit & Deferred tax is recognized and provided for on timing Loss Account in the year of sale. differences between taxable income and accounting 8. Recognition of Income income subject to consideration of prudence. a) Interest Income Deferred tax assets are not recognized unless there is Interest on loans and advances are accounted on

45
accrual basis by credit to interest suspense account. c) Provident Fund As per the directive issued by NRB, interest on loans Contributions to the employees’ provident fund are and advances are recognized as revenue on cash made regularly on monthly basis which are charged to realization. revenue. The above together with the employees’ Interest income on investment made on government contribution are deposited in a separate individual securities, bonds and foreign placement are interest bearing account. recognized on accrual basis. 11. Bonus b) Commissions received on account of LCs, Guarantees Staff bonus is provided at 10% of net profit before tax etc. are recognized on cash basis. (after charging the bonus) as per Bonus Act, 2030.

c) Dividend on investment is recognized on cash basis at 12. Contingent Liabilities net of withholding tax. All letter of credit, bank guarantee and forward exchange 9. Loan Loss Provision and Loan Write off contract liabilities have been shown in full amount as Loan Loss Provision is made on the basis of classification contingent liabilities in accordance with the directive of loans & advances in accordance with the directives issued by Nepal Rastra Bank. issued by the NRB. Letter of Credits (LCs) denominated in foreign currencies, The Bank has a policy to write off unrecoverable loan after are stated at the equivalent Rupees calculated at the appraisal and due approval of the Board of Directors on current exchange rate. case to case basis. The amount of loans written off is Besides above, all known liabilities wherever material, are charged to Profit & Loss Account and the corresponding provided for and liabilities, which are material and whose amount of loan loss provision made on such loan account future outcome cannot be ascertained with reasonable is written back. certainty, are treated as contingent and disclosed under contingent liabilities. 10. Employees Retirement Benefit a) Gratuity 13. Dividend and Proposed Bonus Shares Gratuity payable to eligible employees on retirement/ Dividend and proposed bonus shares are provided as termination is determined on accrual basis, in proposed by the Board of Directors pending approval by accordance with the Bank’s rule and is provided for. NRB and Annual General Meeting. Gratuity liability is not funded.

b) Leave Encasement Leave encashment payable to the employees are charged to revenue on cash basis.

 46 Schedule - 4.36 NOTES TO ACCOUNT

1. Dividend and Proposed Bonus Shares 3. Increase/decrease in Loans & Advances The following depicts the movement of the balances of The Board of Directors has proposed cash dividend of Loans & Advances during the year: Rs. 30/- per share, bonus share of Rs. 30/- per share and Rs. 7/- on convertible preference shares. (Rs. In Lacs) Particulars Current Year Previous Year Proposed cash dividend also includes Rs. 10,086,648/- on Balance as on account of dividend tax on proposed bonus share. Ashad 31, 2066 2. Reconciliation Position (July 15, 2008) 188,364 140,827 a) Branch Reconciliation Loans Disbursed during Inter-branch transactions have been reconciled and the year 1,199,665 923,975 are up to date. The summary of age-wise amount of Recovered during the year (1,143,333) (876,438) the pending reconciliation items are as under: Balance as on Ashad 31, 2066 (Rs. In Lacs) (July 15, 2009) 244,696 188,364 Particulars Debit Pending Credit Pending Less than 3 months - 0.46 Write off during the year: 3 to 6 months - - Principal 55.49 189.99 More than 6 months 22.17 147.96 Interest 38.95 138.57 b) Reconciliation of Agency Banks The loan amounting to Rs. 5,549,170 (Previous year Rs. Agency bank accounts have been reconciled and are 18,998,727), which are overdue for more than 5 years and up to date. The summary of the age-wise amount of fully provided, has been written off during the year as per the reconciliation pending amount are as under: the directives issued by NRB. Rs. in ‘000 4. Change in Deposit Liabilities Ledger Pending Statement Pending The following depicts the percentage change in deposit Currency Debit (Rs.) Credit (Rs.) Debit (Rs.) Credit (Rs.) between the balances as at Ashad 31, 2065 and Ashad Sterling Pound 31, 2066. Upto 1 year – – 5.00 94.21 (Rs. in lacs) More than 1 - 3 yrs – 7.48 – 4.90 More than 3 years – 2.61 – – Types of Ashad 31 Ashad 31 Change US Dollar deposit 2066 2065 % Upto 1 year 154.14 2.169.38 4,859.00 304.33 Current 48,599 24,923 95.00 More than 1- 3 yrs – 15.65 – 21.44 More than 3 years – 4.05 – 5.91 Margin 2,920 2,214 31.89 EURO Saving 147,823 118,839 24.39 Upto 1 year – 11.85 0.02 260.07 Fixed 70,500 64,462 9.37 More than 1- 3 yrs – 7.24 – 8.08 More than 3 years – – – – Call 62,940 27,807 126.37 Japanese Yen Others 447 1,518 (70.55) Upto 1 year – – – – Total 333,229 239,763 38.98 More than 1- 3 yrs – – – – More than 3 years – – – – 5. Average Interest Spread Rate Australian Dollar Upto 1 year – – 6.00 2.24 During the year, the average yield rate on interest bearing More than 1- 3 yrs – – – 0.63 assets is 7.89% (Previous year 7.22%). The average cost More than 3 years – – – – of deposit for the year is 3.52% (Previous Year 2.82%). Indian Rupee Upto 1 year 1,787.07 85,658.10 126,054.64 53,356.96 Accordingly, the average spread for the financial year More than 1- 3 yrs 3,463.03 27,653.70 18,834.09 11,109.69 stands at 4.37% (Previous Year 4.40%). More than 3 years 80.75 6,097.74 47.00 383.92

47
6. Leasehold Improvements and Computer Software Particulars Current Year Previous Year The expenses incurred in the renovation and modification (Rs.) (Rs.) of the leased properties and the cost of software Opening Balance (at Cost) 34,178,806 34,576,306 purchased are capitalized in the Leasehold assets and Addition during the year 2,750,000 - Software respectively. The above assets are amortized as Disposed off during the Year (5,245,000) (397,500) per the policies stated in the significant accounting Closing Balance (at Cost) 31,683,806 34,178,806 policies. The balances in above account pending Total Provision (31,683,806) (34,178,806) amortization are as under: Balance (Net of provision) Nil Nil a) Leasehold Assets 9. Debenture Redemption Reserve Particulars Current Year Previous Year Rs. 6 crores (Previous year Rs. 6 crores) has been (Rs.) (Rs.) appropriated through Profit & Loss Account to Debenture Opening Balance 32,736,274 17,674,052 Redemption Reserve. The balance of the reserve as on Addition made during this year 28,977,443 22,286,382 Ashad 31, 2066 (July 15, 2009) is Rs. 12 crores (Previous Total 61,713,717 39,960,434 year Rs. 6 crores). Amortized during the year 16,064,004 7,224,161 Closing Balance 45,649,713 32,736,274 10. General Reserve As required by the Bank and Financial Institution Act, b) Software (Finacle) 2063, 20% of the current year's net profit of Rs. Particulars Current Year Previous Year 127,747,000 (Previous year Rs. 90,244,000) has been (Rs.) (Rs.) transferred to General Reserve through Profit and Loss Opening Balance 42,649,412 - Appropriation Account. Add. made during this year 2,666,667 44,894,118 11. Staff Housing Fund Total 45,316,079 44,894,118 Since the Bank has been extending housing loan to the Amortized during the year 4,756,079 2,244,706 employees, provision for staff housing as required by the Balance at the end of the year 40,560,000 42,649,412 Labor Act, 2048 has not been made.

c) Other Software 12. Exchange Fluctuation Reserve

Particulars Current Year Previous Year As required by NRB directive, 25% of Revaluation Gain of (Rs.) (Rs.) Rs. 1,666,300 (Previous year Rs. 3,410,000) has been Opening Balance 2,881,525 5,149,796 transferred to Exchange Fluctuation Reserve through Add. made during this year 2,194,240 678,000 Profit and Loss Appropriation Account. Total 5,075,765 4,471,796 13. Liquidity Risk Amortized during the year 1,874,040 1,590,271 Balance at the end of the year 3,201,725 2,881,525 The liquidity risk as on Ashad 31, 2066 (July15, 2009) is set out in the Table of Liquidity Statement (Format No.5.1) 7. There is no over concentration of Assets and Liabilities of as prescribed by the Directives of Nepal Rastra Bank is the Bank to an individual, a firm, a company or in a given as under: particular sector as specified by NRB. The highest concentration of loan in a single sector of economy is 27.67% of total loan (Previous year 31.13%) and concentration of deposit to a single institution is 5.86% of total deposit (Previous year 9.89%).

8. Non-Banking Assets (NBA)

The position of the Non-banking Assets of the Bank is as under:

 48 (Rs in Lacs)

Maturity Bucket 0-90 91-180 181-270 271-365 Above 1 Total Days Days Days Days Year Assets: Cash Balance 9,447 - - - - 9,447 Balance with Banks 52,197 - - - - 52,197 Investment in Foreign Banks - 3,120 1,950 1,950 - 7,020 HMG Securities - 9,898 3,693 20,124 - 33,714 Nepal Rastra Bank Bonds/Other Bond - - - - 18,595 18,595 Inter-Bank Lending ------Loans and Advances 127,214 13,058 35,740 45,864 22,819 244,696 Total Assets 188,858 26,076 41,383 67,938 41,415 365,669 Liabilities: Borrowings - 3,120 - - - 3,120 Current Deposit 97,290 - - - 17,169 114,459 Saving Deposits 14,782 - - - 133,041 147,823 Fixed Deposits/Call Deposit 14,782 11,153 18,479 13,273 13,260 70,947 Debentures - - - - 3,000 3,000 Total Liabilities 126,854 14,273 18,479 13,273 166,470 339,349 Net Financial Assets 62,003 11,803 22,904 54,665 (125,055) 26,320 Cumulative Net Financial Assets 62,003 73,806 96,710 151,375 26,320

14. Deferred Tax Explanation of the relationship between tax expenses and accounting profit The component of deferred tax assets as on Ashad 31, 2066 (July 15, 2009) is as follows: Current Year (Rs.) Accounting Profit 891,318,711 Particulars Ashad 31, 2066 Ashad 31, 2065 Income tax at the applicable tax (Rs.) (Rs.) rate of 30% 267,395,613 Deferred Tax Asset Tax effect of expenses/income that On Employees’ Gratuity 20,976,718 9,445,115 are not deductible/included in On Provision for Investment 480,000 - determining taxable profit On Provision for Donation 109,879 Non Banking Assets 9,505,142 - Prior Period 101,648 On Fixed Assets 2,761,602 - Dividend Income 44,460 Total 33,723,462 9,445,115 255,987 In accordance with Nepal Accounting Standard (NAS) – 09 Tax effect on deferred tax asset due Income Taxes, Rs. 24,278,347 (Previous year Rs. to reduction in rate of income tax 449,767 9,445,115) has been credited to profit & account of Adjustment for change in other deferred tax. As per the circular issued NRB, the amount timing difference (15,515,413) credited to profit & loss account of Rs. 24,278,347 Total Tax Expenses (Previous year Rs. 9,445,115) has been transferred to (including deferred tax) 252,585,954 Deferred Tax Reserve and the balance in this reserve as 15. Related Party Disclosure on Ashad 31, 2066 (July 15, 2009) is Rs. 33,723,462 (Previous year Rs. 9,445,115). This reserve is not a free Following are the related party as defined in Nepal reserve and is not available for distribution as dividend or Accounting Standard (NAS 16) bonus shares.

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• Joint Venture Partner – Punjab National Bank (PNB) Meeting fees for board meetings paid Rs. 688,730 (Previous year Rs. 342,800) and meeting fees for other Following depicts the transaction between the Bank committee meetings such as Management Committee, and PNB and the status of balances as on Ashad 31, Audit Committee etc. paid Rs 1,149,000 (previous Year 2066 (July 15, 2009): Rs. 333,500). (Rs. In Lacs) 16. Encumbrance of Bank Assets/Properties Nature of Transaction Current Year Previous Year (Rs.) (Rs.) No assets or properties of the Bank have either been pledged or encumbered for obtaining loans/borrowings. Technical Service Agreement fees Paid 40.00 40.00 17. Others Cash Dividend (including a) During the year, the Bank has provided Rs. 24,361,103 dividend tax on Bonus (Previous year Rs. 33,587,124) for gratuity as per the shares issued.) 213.29 101.38 Bank’s policy. The balance of provision for gratuity as Bonus Shares Issued 296.52 228.10 on Ahad 31, 2066 (July 15, 2009) is Rs. 69,922,394 Balance as on (Previous year Rs. 46,030,141). Rs. 468,851 (Previous Ashad 31, 2066 year Rs. 3,602,633) has been paid during the year to (July 15, 2009) Deposit retiring / outgoing staff. with PNB 7,996.66 21,851.94 b) Share premium of Rs. 206,427,200 represents the Payable 40.00 40.00 amount of premium received on issue of shares as follows: • Key Management Personnel Key Management Personnel of the Banks include Amount (Rs.) members of the Board of Directors of the Bank and Premium on Issue of Ordinary Shares Chief Executive Officer deputed by PNB under (on partial issue only) 6,427,200 Technical Service Agreement is as follows: Premium on Issue of 7% Cumulative Convertible a. Mr. Bishnu Krishna Shrestha Chairman. Preference Shares 200,000,000 b. Mr. Ved Krishna Shrestha Director Total 206,427,200 c. Mr. Arun Man Sherchan Director d. Dr. Bal Gopal Vidya Director c) Provision of income Tax e. Mr. Muskan Shrestha Director During the year, Rs. 276,864,301 (Previous year Rs. f. Mr. Shivasharan K.C. Director 216,913,302) has been provided in the accounts for g. Mr. Ratna Sansar Shrestha Director income tax, calculated on the basis of taxable profit h. Mr. Indra Dev Singh Director; determined in accordance with the provisions of representative of PNB Income Tax Act, 2058 and rules made there under. i. Mr. Nabin Bhakta Shrestha Director d) Redemption of Preference Share Capital (till 24-11-2008) The company has during the year, after the approval j. Mr. R. K Ummat Chief Executive of Nepal Rastra Bank, redeemed 9% cumulative non- Officer redeemable preference share of Rs. 140,000,000 and • Compensation to Key Management Personnel of the has also paid dividend of Rs. 2,347,397 calculated at Bank 9% for the period till the date of redemption (i.e. 68 Short term employee benefits paid to Chief Executive days). The payment of the above dividend is subject Officer amount to Rs. 2,384,727 (Previous year Rs. to approval after being placed in the ensuing Annual 2,329,784) General Meeting of the Bank. As per the provision of Company Act, 2063, the In addition to the above, other benefits and amenities amount of capital so redeemed of Rs. 140,000,000 such as residence facilities, vehicle facility etc. has has been appropriated to Capital Redemption been provided as per the terms of Technical Service Reserve. agreement with Punjab National Bank.

 50 e) Capital Adjustment Reserve Appropriation to Other Free Reserve. The balance of During the year, Rs. 64,000,000 (Previous year Rs. the reserve on this account as on Ashad 31, 2066 50,000,000) has been appropriated from Profit & Loss (July 15, 2009) is Rs. 24,000,000 (Previous year Rs. Appropriation to Capital Adjustment Reserve. This 18,000,000). amount has been appropriated exclusively for g) Previous year’s figure and rounding off enhancing the Bank’s capital as per the Directives of Figures of previous year have been regrouped/ Nepal Rastra Bank. The balance of the reserve on this rearranged wherever necessary, to make the same account as on Ashad 31, 2066 (July 15, 2009) is comparable with the current year’s figure. Rs. 284,100,000 (Previous year Rs. 220,100,000). Figures in the Financial Statements are rounded off to f) Other free Reserve the nearest rupee. During the year, Rs. 6,000,000 (Previous year Rs. 6,000,000) has been appropriated from Profit & Loss

51
Disclosure Relating to Base-II Framework

1. Capital Structure and Capital Adequacy • Summary of the bank’s internal approach to assess the • Tier 1 capital and a breakdown of its components: In Rs ‘000 adequacy of its capital to support current and future Core Capital (Tier 1) 1,981,579 activities, if applicable: a. Paid up Equity Share Capital 638,821 Bank assesses the adequacy of capital on a regular basis b. Proposed Bonus Equity Shares 191,646 taking into consideration of the present total risk exposure c. Irredeemable Non- cumulative preference shares and expected future increase in this respect. Bank is aiming d. Share Premium 14,780 to maintain a proper mix of different types of capital so that e. Statutory General Reserves 450,839 there would not be undue pressure on dividend policy as well as inadequacy of total capital funds against the risk f. Retained Earnings 82,444 exposure. In addition to annual capitalization of profit g. Reserve for Deferred Tax 33,723 through issue of bonus shares, bank is setting aside certain h. Un-audited current year cumulative profit - amount towards "Capital Adjustment Reserve" for I. Debenture Redemption Reserve 120,000 strengthening the total capital pool strong. In the past, bank j. Capital Adjustment Reserve 284,100 has issued convertible preference share of Rs. 20 crore at k. Dividend Equalization Reserves a premium of 100% convertible into ordinary share @ 20% l Capital Redemption Reserve 140,000 in each third year and 7 years debenture of Rs. 30 crore. m. Other Free Reserve 25,226 • Summary of the terms, conditions and main features of m. Less: Goodwill all capital instruments, especially in case of n. Less: Fictitious Assets subordinated term debts including hybrid capital o. Less: Shortfall in provisions instruments: p. Less: Loan to parties prohibited by Acts and directives As of 15th July 2009, Bank has the following capital q. Less: Investment in Equity in licensed Financial Institutions structure: r. Less: Investment in Equity of Institutions with vested interests Paid up ordinary capital Rs. 63.88 crore s. Less: Investment in Equity of institutions with excess of limits Convertible preference share Rs. 20.00 crore t Less: Investments arising out of underwriting commitments 7 Years EBL Debenture Rs. 30.00 crore u. Less: Reciprocal crossholdings The salient features of each instrument are as under: v Less: Other Deductions i) Convertible Preference Shares of Rs. 20 crore : • Tier 2 capital and a breakdown of its components: These share were issued at 100% premium with the Supplementary Capital (Tier 2) 722,291 terms and condition of 7% fixed dividend on the face a. Cumulative and/or Redeemable value on unconverted portion. These share are convert- Preference Share 200,000 ible into ordinary shares @ 20% on every third year. b. Subordinated Term Debt 180,000 ii) EBL Debenture Rs. 30 crore : These debentures were c. Hybrid Capital Instruments - issued for 7 years with a fixed interest of 6%. These are redeemable after expiry of its’ fixed period of seven d. General Loan Loss Provision 320,247 years.

e. Investment Adjustments Reserve - 2. Risk Exposures f. Assets Revaluation Reserve - • Risk weighted exposures for Credit Risk, Market Risk and g. Exchange Equalization Reserve 22,044 Operational Risk. h. Other Reserves The Risk Weighted exposure as of 15th July 2009 is given Total Capital Fund (Tier I and II) 2,703,870 below: • Detailed information about the Subordinated Term Debts with information on the outstanding amount, maturity, Particulars Amount (000) amount raised during the year and amount eligible to be 1. Credit Risk 24,131,922 reckoned as capital funds. 2. Market Risk 114,837 • Deductions from capital : Nil 3. Operational Risk 1,372,994 • Total qualifying capital : 2703870 thousand • Capital adequacy ratio : 10.55% TOTAL 25,619,753

 52 • Risk Weighted exposures under each of 11 categories of Name of Party Facility Out Interest w/o Type standing from suspense Credit Risk: Shiv Marketing Overdraft 670.84 165.10 Risk weighted exposures under each of 11 categories of Shalini Kumari Chaudhary Housing Loan - 129.86 Credit Risk as of 15th July 2009 is given as under: Shambhu Katta Pasal Overdraft - 18.90 Particulars Amount (000) Muktaj Miya Deprived Sector - 5.35 1. Claims on government & Central Bank Acharya Electric & Electronics Overdraft - 149.82 2. Claims on other official entities Mohini Khaddhaya Udhyog Overdraft - 819.93 3. Claims on banks 243,900 Mohini Brand Chau-Chau Udhyog Overdraft - 351.77 4. Claims on corporate & securities firms 9,484,042 Pratik Bibidh Kendra Force Loan - 382.71 Badri Stores Overdraft - 663.14 5. Claims on regulatory retail portfolio 6,647,847 Pratik Bibidh Kendra Overdraft - 321.21 6. Claims secured by residential properties 2,247,870 Jaya Nepal Khaddhya 7. Claims secured by commercial real state 559,355 Prasodhan Udhyog Overdraft - 271.64 8. Past due claims 298,460 Jaya Nepal Khaddhya 9. High risk claims 1,659,173 Prasodhan Udhyog Fixed Term Loan - 4.79 10.Other assets 863,195 Bhogendra Pathak Overdraft - 62.31 11.Off balance sheet items 2,128,080 Janakpur Enterprises Overdraft - 98.00 Total 5,549.17 3,895.03 • Total risk weighted exposure calculation table: Enclosed as an Annexure: • Movements in Loan Loss Provisions and Interest Suspense: • Amount of NPAs (both Gross and Net) Rs. in ‘000 Amount Rs. 000 Gross NPA : Rs. 117,985 Particulars Loan loss Interest Net NPA : Nil provision suspense ❖ Restructure/Reschedule Loan : 102,980 Opening balance 497,346 92,216 ❖ Substandard Loan : 1,361 Write back/off in the year (5,549) (3,895) ❖ Doubtful Loan : 28,514 Addition in the year 93,085 (4,980) ❖ Loss Loan : 88,110 Balance as at 15 July 2009 584,882 83,341 • NPA Ratios ❖ Gross NPA to gross advances : 0.48% • Details of additional Loan Loss Provisions ❖ Net NPA to net advances : >100% 3. Risk Management Function • Movement of Non Performing Assets: • For each separate risk area (Credit, Market and Operational Amount Rs. 000 risk), bank must describe their risk management objectives Particulars Amount Provision and policies, including: Opening balance 127,311 122,208 ❖ Strategies and processes Addition during the year 27,768 13,884 ❖ The structure and organization of the relevant risk Sold during the year (37,093) (33,384) management function; Balance as at 15 July 2009 117,986 102,708 ❖ The scope and nature of risk reporting and/or • Write off of Loans and Interest Suspense: measurement systems; and Following loans have been written off during the year 2008/09: ❖ Policies for hedging and/or mitigating risk and strategies, Amount Rs. 000 and processes for monitoring the continuing Name of Party Facility Out Interest w/o effectiveness of hedges/mitigants. Type standing from suspense Jesons Industries Overdraft 4,873.18 43.26 A. Credit Risk (Nepal) P. Ltd. Ashiyana Consultants Strategies and Process: & Construction P. Ltd. Overdraft - 23.00 Strategies : Main focus is given on medium sized entity. Narayan Hari Giri Deprived Sector 5.15 - Maximum percentage of sectorial exposure in terms of Mount Makalu Yatayat Hire Sewa P. Ltd. Purchase - 74.40 capital funds for a particular financial year is fixed at the Mount Makalu Yatayat beginning of a financial year and approved by the Board. Sewa P. Ltd. Overdraft - 37.61 Loaning power to concerned official at branch level has Auto Circle P. Ltd. Overdraft - 28.37 Arman Impex Overdraft - 243.85 been fixed comparatively at lower level with a view to have

53
strong appraisal system at corporate level. Manuals relating sophisticated software. All related data are processed to credit is in place. Every aspect relating to credit such as centrally. To safe guard the probable losses resulting procedure, documentation etc. are clearly defined. Credit from system failure or natural disaster, bank has taken Policy of the Bank has also been put in place. following policies to minimize the risk:

Process: i) Back up – Daily back up of all balances are taken at Pre sanction: Each credit limit is approved after due scrutiny the end of day. Auto back up while the system is by two layer of authority in branch level of their limit. Loans running are also taken at certain time interval to safe are approved after due scrutiny of background of the guard the normal system failure. promoter, nature of business , turnover in the account, cash ii) Disaster Recovery Site (DRS) – To safe guard the flows, debt/equity ratio, income or profit, value of primary natural disaster , DRS site is selected out of coun- and collateral security. Loans above branch power are try. recommended to Head Office for consideration on merit. Post sanction monitor/follow up: iii) Validation of entry & password control- Each entry Concerned branch obtains regular returns from the borrower in the system is revalidated by another staff having as stipulated in the sanctioned letter on regular interval. the power to do so before final posting. Level wise Drawing power in case of revolving type of loan is calculated access authority is given for data entry, update, to keep the exposure within its drawing power. Business modification and validation process. Password con- place of the borrower is visited, physical stock level is being trol is maintained at each level of operation very at regular interval checked on a time bound basis. In case strictly and confidentially. there is symptom of any slippage in a particular account, iv) Generation of exceptional Report : steps are taken for regularizing or repayment or exit. Loans Exceptional report at the end of day is generated more than Rs. 1 Lac which are either irregular or likely through system and examined. irregular are reported to Board on regular basis and v) Morning checking : Each and every vouchers are discussed about the course of action. Credit related returns physically verified with the ledger posted at the start such as Credit Officer’s Report, Review Sheet etc. are of next day. submitted to H.O. in a specified time interval on regular basis. 2. Risk arising from procedural lapses and Internal Control: Operating manual describing every procedure related B. Market Risk: to banking function is in place. In addition to this, internal a) Investments: circulars are issued as and when required. Regular Presently bank has made no investment for trading returns are submitted by every branch on regular interval purposes. All instruments either government securities to Head Office. Internal audit of each and every branch or bonds issued by semi government are intended to including Head Office is carried out every year. The hold up to maturity. Instruments issued by semi- internal audit department conducts off site as well as government body corporate have been purchased at on site inspection. Monthly manager’s certificate in face value with a fixed coupon rate. Premium paid on respect of compliance of set systems & procedures are purchase of government bonds are amortized out of obtained from each branch. profit on a prorata basis in each year. b) Foreign Exchange: 3. Corporate Good Governance: The Bank’s policy is to maintain the net open position Guidelines issued by the central bank, Nepal Rastra of convertible foreign currency where exchange rate risk Bank are observed and complied with. persist in matching position. 25% of total revaluation • Types of eligible credit risk mitigants used and the profit in a financial year are transferred to a separate benefits availed under CRM.- Margin money reserve for building a cushion. deposited with the bank against off balance sheet C. Operational Risk: exposures-Lc, Guarantee etc. have been claimed

1. Risk arising from break down of information & Operating as CRM. System:

All banking transaction are done through highly

 54 DEPARTMENT HEAD & BRANCH MANAGERS

DEPARTMENT HEAD

Keshab Raj Poudel Raghunath Pradhan Kumar Joshi Bijay K. Gautam Credit Audit and Inspection Human Resource IT Department

Raju Gauli Pramod Raj Sharma Dharma P. Gauli Shukra P. Gautam Account Company Secretary/ Legal Treasury Share

Kiran Raut Nil Hari Acharya Shirish Bohara Nabin Regmi General Administration Remittance HO Marketing Team

BRANCH MANAGERS

Ashutosh Upadhyay Santosh Bhattarai Pradeep Khanal Ashutosh Sharma Kalpana Pandey New Baneshwor New Road Teku Lazimpat Chabahil

Purna Bdr. Shrestha Ram Hari Acharya Satish Pratap Singh Prasana Khadka Ujjwal Pokhrel Naya Bazar Golfutar Maitidevi Thamel Satungal

Hima Shrestha Ranjan Khadka Anju Sharma Heera Shakya Madan R. Tamrakar Kirtipur Pulchowk Gwarko Lagankhel Bhaktapur

Gokul Prasad Adhikari Nar Bdr. Rawal Sumit Bhakta Joshi Biswojit Lal Maskey Ram Bharos Yadev Birtamod Biratnagar Duhabi Itahari Janakpur

Devi Data Gyawali Maniram Lammichhane Suman Sharma Harish Acharya Anil Kumar Karki Birgunj Simara ICD Narayangarh Pokhara

Surendra Nath Sharma Chandra Bdr. Gurung Arjun Sharma Poudel Budhi Prasad Tiwari Bishnu Gyawali Leknath Besi Sahar Kusma Baglung Butwal

Vijaya Kumar Singh Nishit Sharma Aghya Raj Upadhyay Ramesh Shakya Janak Chapagai Bhairawa Nepalgunj Surkhet Tulsipur Dhangadhi

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Legal form of the Company : Limited Company Domicile : Nepal Registered Office : Lazimpat, P.O.Box 13384, Kathmandu, Nepal Listing of Shares : Nepal Stock Exchange Limited, Nepal

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