Unit – 3

Sources of Fund
 Sources of Funds
 Deposit:
Fixed and Revolving
Interest bearing and Non-interest bearing
 Capital or Equity
 Reserve and Surplus
 Borrowing: Short-term vs. Long term
 Sources of Funds
 Due to Bank and Financial Institutions
 Due to NRB
 Derivative Financial Instruments
 Deposits from Customers
 Borrowing
 Current Tax Liabilities
 Provisions
 Deferred Tax Liabilities
 Other Liabilities
 Debt Securities Issued
 Subordinated Liabilities
 Share Capital
 Share Premium
 Retained Earnings
 Concept of Deposit
 The act of placing money with a bank is known as bank deposit.
 Therefore, a deposit account is a bank account that pays interest but that
imposes the requirement of notice (or a penalty in terms of interest) before
withdrawal can be affected; a deposit receipt is an acknowledgement by the
bank that sums have been deposited and are being held for the account of
the depositor; a certificate of deposit is a financial instrument providing a
similar acknowledgement but where the claim of the depositor is
transferable.
 A deposit account is a savings account, current account or any other type of
bank account that allows money to be deposited and withdrawn by the
account holder.
 Some banks may charge a fee for this service, while others may pay the
customer interest on the funds deposited.
 In banking, the verbs "deposit" and "withdrawal" mean a customer paying
money into, and taking money out of, an account. Subject to restrictions
imposed by the terms and conditions of the account, the account holder
(customer) retains the right to have the deposited money repaid on demand.
 The terms and conditions may specify the methods by which a customer may
move money into or out of the account, e.g., by cheque, internet banking,
 EVEREST BANK LIMITED
 EBL FLEXI RECURRING DEPOSIT
 This scheme is targeted at those individuals who want to have small saving but at regular intervals. It
also caters to the need of persons with fluctuating income e.g. self-employed, professionals or person
engaged in seasonal occupation especially in rural and semi-urban areas. Persons having fixed income
but variable surplus can also take advantage of it.
 Minimum Balance:
- Rs 100/- per month Base Amount or above in its multiples (no maximum limit)
 Period: 12 months to 120 months in the multiples of 3 months
 Interest Rate:
- As per Normal FD Rate
 Facilities:
 To cater to people who have the habit to save in regular basis and avail the bulk sum at the end with the
high yielding interest rate.
 The Depositors have the flexibility to deposit in multiple of base deposit at his/her desired time intervals
up to 10 times in a month.
 Premature withdrawal allowed.
 Loan available up to 90% of the deposited amount at 3% higher rate than the published interest rate.
 If the installment (i.e. base amount) isn’t deposited every month, the depositor will receive interest as
 SADICHHA RECURRING DEPOSIT
 The new scheme has been launched with an objective to mobilize small deposits from
youngsters in the form of regular savings for their future investments. This scheme is most
suitable for accumulating regular small savings into the handsome amount and one can plan
for a large investment in future. Even parents can open the account in the name of their
children to accumulate fund to finance higher studies of the children.
 Target Customer: children age between 1days to 16 years
 Minimum Balance:
Rs 1000/- per month to the Max Rs 10,000/-(In the multiple of Rs 1000/-)
 Period: 1 Year to 10 Years (In the multiple of 1 Years)
 Interest Rate:
As per Normal FD Rate
 Facilities:
 Maturity date and the amount will be fixed at the time of opening account.
 Premature withdrawal allowed.
 Loan available up to 90% of the deposited amount at 3% higher rate than the published
interest rate.
 Under CSR initiative the bank will provide Rs 5/- for every account to raise fund for helpless and
needy people. Every year on annual day function, the fund will be donated to Orphan
 CAPITAL OR EQUITY
 Share capital:
 The most important source of funds for a limited company. It is often
considered as permanent capital as it is not repaid by the business, but
the shareholder can have a share in the profit, called dividend.
Three types of shares are:
 Ordinary shares: The most common types of shares, and the most
riskiest shares since no guaranteed dividend. Dividend depends on how
much profit is made by the firm. But all ordinary shareholders have
voting rights.
 Preference shares: The share owners receive a fixed rate of return.
They carry less risk because shareholders are entitled to the dividend
before the ordinary shares. But they are not strictly owners of the
company.
 Preference Stock
 Preferred stocks, also known as preferred shares, are equity securities that get preferential
treatment over common shares. These shares can be considered hybrid securities because they
also show characteristics similar to bonds.
 Cumulative Stocks :This type of preferred stock comes with a provision stipulating that if
dividends have been skipped or omitted in the past, the holder will receive accumulated
dividends in arrears.
 Non-Cumulative Stocks: All preferred shares that are not cumulative are called non-
cumulative, or straight. In essence, holders of straight preferred stocks cannot expect to receive
any payout for missed or omitted dividends.
 Callable or Redeemable: this kind of preferred stock comes with a provision that gives the
issuing company the right to call or redeem the share at a certain price, which will usually be
higher than market value. Callable preferred stocks are not very popular with investors because
of the risks that they carry. If prevailing interest rates are significantly lower due to financial
conditions, calling such shares can lead to a lot of savings for the issuer, but huge losses for the
investors.
 Convertible Preferred Shares: This type of preferred stock can be exchanged or converted to
a predetermined number of the issuer's common shares after a specified date or period.
 Borrowings : Short term Vs. Long
 term
Short - term Borrowing
 Federal funds
 Repurchase agreement
 Loans from central bank
 Long – term Borrowing
 Long term debt
 Borrowing from institutions
TRUE FALSE QUESTIONS
1. The interest rate on saving deposit is higher than fixed deposit.
2. There is no interest rate for call deposit.
3. Call deposit have fixed maturity period.
4. Long term fixed deposit carries high interest rate than short term
fixed deposit issued by same bank.
5. Demand deposits represent the largest deposit source of funds for
commercial banks.
6. A certificate of deposit is usually considered to be very liquid.
7. The more frequent the compounding, the less a person will earn on
saving account.
8. A Rs 200 savings account that earns Rs 13 interest in a year has a
yield of 6.5 percent.
9. Short term borrowing consists of interbank loan only.
10. Equity consists of common stock only.