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8/3/2019 India International Residency - Indian Banking Thesis
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Analysis of
Financial
Institutions
Non-Banking Financial
Institutions versus Banks inIndia:
Why Non-Banking Financial
Institutions are gaining more
business than Banks? A study
of New Delhi based Upper
and Middle Class Consumers.
Global Master of Business
Administration
George Washington University
MBA 240 - India International
Residency Indian BankingThesis - Ellentuck
Professor Jain
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ANAYLSIS OF FINANCIAL INSTITUTIONS Page 2
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TABLE OF CONTENTS
ABSTRACT........................................................................................................................................ 6
CHAPTER - 1 ................................ .................................................................................................... 6
A. INTRODUCTON.............. ................ ................... .................... ............... .................... ............... .......... 6
1.1 PREVIEW.............. ................ ................... .................... ............... .................... ............... ................ 6
1.2 BACKGROUND INFORMATION................ ............... .................... ................... ................ ............ 6
1.3 AIMS AND OBJECTIVES.............. ................ ................... ................... ................ ................... ........ 9
1.4 STRUCTURE OF DISSERTATION ................ ............... .................... ................... ................ ......... 9
1.5 SUMMARY............... ................ ................... .................... ............... .................... ............... ........... 10
CHAPTER - 2 ................................ ................................................................................................. 10
A. LITERATURE REVIEW............... ................ ................... ................... ................ ................... ............ 10
2.1 PREVIEW.............. ................ ................... .................... ............... .................... ............... .............. 11
2.2 FINANCIAL INSTITUTION REGULATIONS .............. ................ ................... .................... ........ 11
2.2.1 Financial Institution Regulations Globally.............. ................ ................... .................... .. 11
2.2.2 Financial Institution Regulations in India ............... ................ ................... .................... .. 12
2.3 CULTURE OF UPPER AND MIDDLE CLASS CONSUMERS.....................................................16
2.3.1 Culture of Consumers Globally .............. ................ ................... ................... ................ ....... 18
2.3.2 Culture of Consumers in India ............... ............... .................... ................... ................ ....... 19
2.4 CONSUMER BORROWING ............... ................ ................... ................... ................ ................... 21
2.5 STRATEGIES AND POLICIES OF FINANCIAL INSTITUTIONS REGARDING CREDIT ........25
2.6 SUMMARY............... ................ ................... .................... ............... .................... ............... ........... 27
CHAPTER 3................................ ................................................................................................. 27
A. METHODOLOGY............... ................ ................... ................... ................ ................... ................ ..... 27
3.1 PREVIEW.............. ................ ................... .................... ............... .................... ............... .............. 27
3.2 INTRODUCTION.............. ................ ................... .................... ............... .................... ............... ..27
3.3 RESEARCH DESIGN............... ................ ................... ................... ................ ................... ............ 27
3.4 QUANTITATIVE METHOD............... ................ ................... ................... ................ ................... 28
3.4.1 Questionnaire ................ ................... ................ ................... ................ ................... ............... 29
3.5 QUALITATIVE METHOD ............... ................ ................... ................... ................ ................... ... 30
3.5.1 Interviewing ................ ................... ................ ................... ................ ................... ................ ..32
3.5.2 Observation .............. ................ ................... .................... ............... .................... ............... ..... 32
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3.5.3 Advantages and Disadvantages of Secondary Data ........................................................32
3.6 SAMPLING............... ................ ................... .................... ............... .................... ............... ........... 33
3.7 TIME LIMIT................ ................... ................ ................... ................ ................... ................ ........ 34
3.8 LIMITATIONS ............... ................ ................... ................... ................ ................... ................ ..... 34
3.9 DATA ANALYSIS.............. ................ ................... .................... ............... .................... ............... ..34
3.10 VALIDITY AND RELIABILITY................ ............... .................... ................... ................ .......... 35
3.11 SUMMARY............... ................ ................... .................... ............... .................... ............... ........ 35
CHAPTER - 4 ................................ ................................................................................................. 35
A. FINDINGS, ANALYSIS AND DISCUSSIONS.............. ............... .................... ................... ................ .35
4.1 PREVIEW.............. ................ ................... .................... ............... .................... ............... .............. 35
4.2 FINDINGS, ANALYSIS AND DISCUSSIONS ............... ................ ................... .................... ........ 36
4.2.1 Demography of Respondent in Research ................ ................... ................ ................... ... 36
4.2.1.1 Gender .............. ................ ................... .................... ............... .................... ............... ........... 36
4.2.1.2 Income Group ................ ................... ................ ................... ................ ................... ............ 37
4.2.2 Responses from Questionnaire ................ ............... .................... ................... ................ .... 38
4.2.2.1 Cultural Characteristics of People Life .............. ................ ................... .................... ..... 38
4.2.2.2 Emerging Consumerism.............. ................ ................... ................... ................ ................ 40
4.2.2.3 Recent Household Borrowing................ ............... .................... ................... ................ .... 41
4.2.2.4 People Reliance on Credit................ ............... .................... ................... ................ .......... 43
4.2.2.5 The Case of Over-indebtedness of People ............... ................ ................... ................... 44
4.2.2.6 Borrowing Loans from Banks and NBFI ............... ................ ................... .................... .. 46
4.2.2.7 Peoples choice of Credit Sources............... ................ ................... .................... .............. 47
4.2.2.8 Loan from Banks and NBFI ............... ............... .................... ................... ................ .......... 48
4.2.2.9 Policy regarding offering loan ............... ............... .................... ................... ................ .... 50
4.2.2.10 Banks/NBFI loan and Consumer risk.............. ................ ................... .................... ..... 51
4.5 SUMMARY............... ................ ................... .................... ............... .................... ............... ........... 52
CHAPTER 5................................ ................................................................................................. 52
A. Conclusions and Recommendations.............. ................ ................... ................... ................ .......... 52
5.1 PREVIEW.............. ................ ................... .................... ............... .................... ............... .............. 52
5.2 CONCLUSION ................ ................... ................ ................... ................ ................... ................ ..... 52
5.3 LIMITATIONS ............... ................ ................... ................... ................ ................... ................ ..... 55
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5.4 AVENUES FOR FUTURE RESEARCH .............. ............... .................... ................... ................ .... 56
5.5 SUMMARY............... ................ ................... .................... ............... .................... ............... ........... 56
REFRENCES AND BIBLIOGRAPHY........................................................................................ 57
A. BOOKS.............. ............... .................... ................... ................ ................... ................ ................... ... 57
B. JOURNAL ARTICLES............... ................ ................... ................... ................ ................... ............... 59
C. WEBSITES.............. ............... .................... ................... ................ ................... ................ ................ 62
Appendix 1 QUESTIONNAIRE................................................................................................. 63
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ABSTRACT
In the era of globalization and liberalization the development of financial sector has
played an important role in the economy of India. With the services offered by banks
and non-banking financial institutions (NBFI) the life of consumer in India has
completely changed. Borrowing is one of the important aspects that have changed thewhole scenario of Indian society.
Change in the trend of culture of upper & middle class consumers, change in the
behavior of consumer regarding borrowing and change in the norms of banks and
NBFI regarding borrowing has made life of Indian consumer very comfortable.
This research shows how non-banking financial institutions are fulfilling the demand
of upper & middle class consumers and how they are doing more business than banks
and why consumers rely more on NBFI rather than banks in India.
This research uses questionnaires, interviews of consumers and direct sales agent of
NBFI to examine the consumer borrowing and role of financial institutions.
The research concludes that consumers are relying much more on NBFI and it is not
risky & difficult to borrow loan because of policies & norms regarding loans and
availability of flexible financial options.
CHAPTER - 1
A. INTRODUCTON
1.1 PREVIEW
This chapter is introduction about the research topic. It highlights the aims and
objectives of the research. It also tells about the structure of the dissertation and the
summary of this chapter.
1.2 BACKGROUND INFORMATION
Each and every country has its own financial system. Financial system usually consists
of financial market, financial intermediaries and financial product or service. Finance
in simple words means money but finance is a source which provides funds to a
particular activity. A financial sector/system acts as an agent to make sure that funds
flow from the areas of surplus to the deficit area. A financial market is a place which
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creates financial assets and exchange of money for goods and services. Financial
market consists of foreign exchange market, capital market, credit market and money
market. (Web 8)
Money is a fascinating thing which attracts human to a great extent. Over thousands
of years the process of creating money and using money is making human enthusiastic.
Financial intermediaries play an important role in building economy of a country.
Financial Intermediaries includes banks, financial institutions, non-banking financial
institutions (NBFI), investment companies, pension and mutual funds. (Web 9)
Financial sector plays an important role in organizing and properly distributing &
sharing the savings. Financial sector act as a passage or tube which transfers the
financial resources from net savers to net borrowers .i.e. from the person who spend
less as compared to their earning to those who earn less and spend more than theirearning. (Web 10)
Indian financial system consists of huge network of banks and financial institutions
(including non-banking financial institutions) and range of financial instruments.
From the last two decades there have been great improvements in Indian Financial
system and there is a huge supply of banking and other financial facilities provided to
large population of India. (Web 10)
A safe and sound financial sector is required to maintain the growth of an economy.
With the help of globalization and change in technology the operating environment of
banks and other financial institutions has changed significantly. Due to competition
and change in customer demand there is increase in product innovation and change in
strategy of banks and financial institutions. In order to face the competition and meet
challenges Reserve Bank of India (RBI) has also changed its regulations and provided
a new framework. Reserve Bank of India (RBI) is trying to develop a strong,
competitive, stable and powerful banking system so that it can help in growth and
development of the economy. (Web 11)
According to Sarkar (n.d.) a strong, diverse, efficient and flexible financial system
plays an important role in the economy of a country. A developed financial system
maintains high level of investment and promotes growth in the economy. The
financial system in India consists of financial institutions, financial market, financial
instruments and services. Indian financial system is divided into two segments-
organized sector and traditional sector which is also called as informal credit market.
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In organized sector financial services are provided to the community by large number
of financial institutions which are mainly business organizations. And financial
institutions that are providing specialized or provide some extra services are called as
banking or non-banking units. Reserve Bank of India (RBI) is the apex institution and
regulates the credit. Financial institutions include public and private commercial banks,cooperative banks, development banks, regional rural banks. Whereas finance &
leasing companies, LIC (Life Insurance Corporation), GIC (General Insurance
Companies), provident funds, mutual funds, post office banks .etc. are non-banking
financial institutions in India. (Sarkar, n.d., pp. 1)
RBI is the central bank of India and was established in April, 1935. RBI acts as
Government banker, agent, and adviser and also acts as bankers bank. RBI is the
controller of the credit which means that RBI has power to change the volume of
credit created by banks. (Web 12)
The profitability of banking sector is improved because of reforms set by banking
system which results in high operating and net profit. With the entry of private banks
there is a huge competition for public sector banks for loaning of funds. With the
entry of non-banking financial institutions (NBFI) and Development financial
institutions (DFI) the competition in sourcing the funds is also increased. (Chanda,
2005, pp. 31)
NBFI act as an intermediary between lender and borrower and provide better,different services than normal banks. NBFI includes investment companies, finance
corporations, chit funds, hire-purchase finance companies, loan companies, leasing
companies, mutual benefit funds. All of these NBFI have the ability to provide large
amount of financial services to wide range of customers from small borrowers to
established companies. (Chanda, 2005, pp. 36)
Indian consumers are changing their habits at a fast rate and they are borrowing
money to buy the product they wanted. Because of easy financing options they dont
have to think if they can afford a product or not. Consumer finance is a win-winsituation for everyone and now they dont have to wait for years to save their money
and upgrade their living standards. (Agarwal and Mittal, 2004, pp. 6)
The Buy Now Pay Later culture is very much common in India currently. Consumers
are losing their fear of borrowing. Even if a consumer wants to buy a home, home
loan financing is easily available. Falling interest rates, increasing loan duration and
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reduced monthly installments are making all these things possible for consumers.
(Agarwal and Mittal, pp. 6-8)
The banking sector is one of the most important sectors in Indian financial sector.
Over 80 percent of funds which flow in the financial sector are because of banking
sector. (Sarkar, n.d., pp. 1). NBFI are entering in the financial sector because of
inflexibility of banks and their less competition amongst them. Kotak Mahindra, Citi
Financial, Ashok Leyland Finance, Sundaram Finance .etc. are the big players in this
field and are growing rapidly at faster rate and are taking good position in financial
sector. In respect to all these things, the purpose of this study is to find why these
institutions are doing better business than public and private banks in India.
1.3 AIMS AND OBJECTIVES
This research is planned to understand and examine the trend of upper class andmiddle class Indian consumers in taking loans and their reliance on banks and non-
banking financial institutions, particularly in todays competitive environment. This
research is done to achieve the following defined objectives:
To compare and contrast the role of banks and non-banking financial institutions
(NBFI) in India economy.
To evaluate the role of both banks and NBFI for borrowing in Indian developing
economy.
To understand and examine the banking and financial sector regulations in India in
post liberalization period.
To evaluate and analyze the emerging consumer culture in India.
To understand and examine the trend of upper and middle class Indian consumers in
taking loans.
To examine the policies of banks /non-banking financial institutions regarding
offering loans to consumers.
To identify how NBFI are fulfilling the aspirations of upper and middle class in India.
1.4 STRUCTURE OF DISSERTATION
There are 5 chapters in this dissertation.
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Chapter 1: Introduction
This chapter introduces the research topic. It outlines the aims and objectives of
dissertation, overview, and structure of dissertation and finally summary of the
chapter.
Chapter 2: Literature Review
This chapter talks about the literature review. Discussion of available literature related
to the topic is done. The aim of this chapter is brief about various concepts on which
this dissertation is based. The literature is available from various books, online journal
articles and websites.
Chapter 3: Research Methodology
This chapter discusses about various research methods and data collection methods.
It discuss about research design, quantitative research, qualitative research, advantages
& disadvantages of various methods, limitations, validity & reliability.
Chapter 4: Findings, Analysis and Discussions
This chapter analyses all the data collected using different data collection methods. All
the data is critically analyzed and discussions are made on the basis of literature which
is related to the objectives of research. Data presentation is done using various
methods like tables, graphs, charts and pie charts .etc.
Chapter 5: Conclusion and Recommendations
This chapter concludes the research by providing a conclusion on the basis of
findings, analysis and discussions. This chapter also discusses the limitations faced
during research and recommendations for future research.
1.5 SUMMARY
This chapter was an introductory chapter aimed to give reader a brief idea of what this
research is all about. It highlights introduction, aims, objectives and finally structure ofthe dissertation.
CHAPTER - 2
A. LITERATURE REVIEW
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2.1 PREVIEW
Aim of this chapter is to discuss the literature related to the research topic. This
chapter discusses about financial institutions regulations in India, culture of upper &
middle class consumers in India and worldwide, what makes consumer to borrow and
strategies & policies of financial institutions regarding credit.
2.2 FINANCIAL INSTITUTION REGULATIONS
2.2.1 FINANCIAL INSTITUTION REGULATIONS GLOBALLY
The Changing scenario of banking sector around the world, in the light of
globalization has significantly drawn the attention of researchers and practitioners.
They have raised important issues regarding corporate governance regulation and
banking institutions as corporate governance is related to banking regulations. In this
context the research of Alexander (2004) titled Corporate Governance and Banking
Regulations requires worth mentioning here.
The research of Alexander (2004) addresses the issues of corporate governance and
banking institutions. Alexander (2004) begins by analyzing the upcoming international
rule of bank corporate governance. Alexander (2004) provides a framework for how
bank supervisor and bank management should act together in relation to the
management of banking institutions and its impact on financial stability. Further,
Alexander (2004) has analyzed corporate governance and banking regulation in UK
and USA. Alexander (2004) concludes Financial Services and Market Act 2000 has
authorized FSA (Financial Services Authority) to fill in the gaps to enhance corporate
governance because traditionally UK corporate governance was not focused on
special role of banks and financial institutions. (Alexander, 2004, pp. 1-2)
In USA, the federal and state statute & regulations regulates the corporate governance
for banking institutions. In order to manage the responsibilities of senior management
and directors a framework is provided by federal regulation. There is governance
problem in banks and financial companies in US. In order to provide financial
stability institutions and banks, the bank regulator must establish governance standard
in regards to national banking law. (Alexander, 2004, pp. 1-2, 37)
In this era of globalization, banking and financial industry is greatly affected by major
changes and it results in increased competition, less profit margin, pressure to cut the
price, products having short life cycle. (Alexander, 2004, pp. 1-2, 37)
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However, when it comes to comparison of financial regulations in UK and USA, it is
revealed that regulation of financial system in UK is not exact as it is in USA.
Evidently in USA the Securities and Exchange Commission has wide ranging
regulations, and is stated as too much. Further, it is also stated that formal and strict
USA rules & procedures do not allow desired flexibility and pace. However,interestingly so far new system in UK provides settlement between the self-regulation
and statutory regulation to make sure that financial market works in proficient and
systematic way. (Web 1)
Apart from UK and USA, the regulations of financial market are changing constantly
all around the world. For example, in Europe the membership of EU changed the
main concerns of government while facing the problem of changing or executing the
regulation of financial system and it is revealed that issue was the assistance from the
jurisdiction. Quinn (1992) says that harmonization of banking rules in the EU, theco-ordination of countries own regulatory standards and centralization of an EU
integrated financial market are needed to enable swift reaction to any future market
failure. (Web 1)
2.2.2 FINANCIAL INSTITUTION REGULATIONS IN INDIA
Financial system in India consists of specialized and non-specialized financial
institutions which further involves organized and unorganized financial market and
deals in financial instruments & services and it helps in transferring funds. In finance
money is exchanged with a promise to pay back in future. Narayanan (2005) says thatin product market a buyer can easily find if a product purchased by him is defective
but it is difficult to find the defects when a loan is taken. (Narayanan, 2005, pp. 1-2)
If we compare Banks and Non-banking Financial Institutions (NBFI) with non-
financial industries, both banks and NBFI can change or remove the risk factor of
their assets more quickly than non-financial industries and also banks can easily give
loans to clients without taking into consideration the previous debt problems.
Financial market easily allocates the resources efficiently and effectively. The financial
market face the problem that it is controlled by others because some persons have
some information that other does not have. In order to solve this problem there is
requirement of corporate governance so that it can be assured that supplier of finance
get their return on investment. (Narayanan, 2005, pp. 1-2)
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India has a strong financial system. After India got freedom it inherited a diverse
setup in regards to institution and market. The purpose was to mobilize savings and
to increase investment rate. (RBI, 2003, pp. 3)
Financial reforms were introduced in 1991 because India faced the crisis of balance of
payment in 1991 so several reforms were introduced to come out of the crisis. India
faced this problem because it was heavily dependent on the public sector and
industrialization strategy and both of them were not able to deliver the growth in
competitive environment. Later in 1980s India tried to expand the role of
privatization and reduced the direct tax but it didnt helped. Later the reforms were
introduced in June 1991 to recover from the crisis of balance of payment. (RBI, 2003,
pp. 9)
After the end of crisis Indian banking system made a considerable progressfunctionally and geographically. New bank facilities were introduced and the pattern
of lending was changed. The feature of reform was gradualism because it enhanced
micro stability and the same time encouraged micro economic linkages. (RBI, 2003,
pp. 5-8)
Currently the institutional composition of financial system in India is illustrated as
three constituents: banks either domestic or foreign, owned by RBI, government or
private and regulated by RBI; Financial & refinancing institutions set up under a
separate law or under companies act and owned by RBI; Non-banking financialcompanies/institutions owned privately and regulated by RBI. (Reddy, 2002, pp. 4)
On the development of banking and financial sector reforms in India Reddy (2002)
comments that reforms have changed the form of organizations, ownership model,
domain of financial institution operations in terms of assets and liabilities. Less
availability of low cost fund has resulted in increasing competition for resources for
both banks and financial institutions and further with the entry of banks in field of
lending and financial institutions are making an attempt to pay out the short term
funds has resulted in increased competition. (Reddy, 2002, pp. 4-5)
Finally Reddy (2002) says that the aim of financial sector reforms in India to set
formal & semi-formal measures which aim to strength the banking system as well as
providing safety and reliability with the means of superior transparency, responsibility,
answerability and public trustworthiness. (Reddy, 2002, pp. 6-7)
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However on the other end Patel (2004) argues that in spite of the establishment of
market reforms in India since early nineties the government concerns in the financial
sector is not lessened in correspondence to its exit from other feature of economic
activity and therefore it is too large to justify the presence on the basis of involving
systematic risk. Patel (2004) further puts that during early years of Indiasdevelopment there might have been some good reasons for ownership of government
in intermediaries but now it is causing some damages. (Patel, 2004, pp. 5-6, 28-29)
Now India has proper intermediaries and very well commercially oriented. According
to Patel (2004) A combination of directing resources of intermediaries in fulfilling a
quasi-fiscal role for government, extra-commercial accountability structures and
regulatory forbearance (arising out of an implicit overarching guarantee umbrella) has
mitigated the essential corrective effect of market discipline in both lending and
deposit decisions. Coupled with persisting government involvement in intermediationand an implicit support scaffold, this has resulted in an aggravation of the problems of
moral hazard that is a normal feature of financial systems. (Patel, 2004, pp. 29)
Commenting on the government role in liberalized economy Echeverri-Gent (2001)
says that reducing state economic interference does not lessen the importance of state
in economic development. And in addition to its role of maintaining stability in
economy the state continue to play small but more important role to design and
modify the activities of economy by creating incentives. There are different ways that
are used by state in order to create the incentives; it involves authorization of propertyright, market microstructure which involves matching the investors demand with the
price and volume in effective and efficient manner. (Echeverri-Gent, 2001, pp.1)
(Giridhar, n.d., pp. 1-3)
Echeverri-Gent (2001) also states that incentives created and recreated by state using
political process are present in part of economic result. And politics explain efficiency
and fair behavior in market are promoted by which state institution. (Echeverri-Gent,
2001, pp. 1)
In relation to the above fact Ramesha (2003) finds that currently in India there is a
dual control for credit cooperative and banks. The state government looks after and
regulated all the issue related to administration whereas Central Bank of India (CBI)
supervises and regulates the banking operations. As a result there is some conflict in
taking legal decisions between state government and central banks of India. Ramesha
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(2003) argues that it is not possible to separate the financial & administrative areas for
regulations and even if it is possible it acts as an obstacle in the effective supervision
and control. (Ramesha, 2003, pp. 10-11)
Further according to Ramesha (2003) central bank has power under Banking
Regulation Act to keep money for specific purpose and to handle vital aspects related
to the performance of commercial banks. There is need of Registrar of Cooperative
Societies to get involved in the function and difficulties of cooperative banks. The
central bank is not in a position to supervise credit cooperatives and banks. Therefore
dual control affects the function of urban cooperative banking sector, supervision &
regulation quality. Therefore Ramesha (2003) finds that beneath this rule of duality of
control the urban cooperative banks might result in neither cooperative nor
commercial bank. (Ramesha, 2003, pp. 10-11)
According to Chakrabarti (2006) the fundamental role of legal reforms in maintaining
the growth of economy and financial progress is strongly voted and accepted in India.
Whereas it is difficult to find what basics of legal system have an effect on financial
system and how. Reviewing the literature on law & finance and evaluating the Indias
legal & judicial system it seems that excellent protection is provided to the investors
right. (Chakrabarti, 2006, pp. 12, 15-20)
According to Porta et al there is best protection provided to the creditor in India by
Indian legal system in contrast to creditor rights. (1998 in Chakrabarti, 2006, pp. 13)
But execution of these laws is below to the satisfactory level. Further it is found that
law which deals with public enforcement of securities is weak and courts in India are
very slow and has loads of ongoing cases. India is still fighting with the problem of
red-tapism and bureaucracy which are obstacles for business and foreign investment
in India. Chakrabarti (2006) says that Indian small & medium sector rely on informal
network and institution on the basis of trust and reputation for financing rather than
counting on legal system to issue contracts and settle disputes. (Chakrabarti, 2006, pp.
23)
Finally, Rajan and Shah (2003) says that there is problem in the regulations of banks,
insurance companies and non-financial institutions. There are a lot of problems
related to the government guarantees, public sector ownership, processing of
information & risk taking. Therefore according to Rajan and Shah (2003) there is
requirement to solve all these problems by obtaining good regulatory system, and
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obtaining world class regulations. Thus Rajan and Shah (2003) suggests that dealing
with these problems will provide information processing system, reducing the fiscal
problem, increasing the flow of risk capital in the system. (Rajan and Shah, 2005, pp.
46)
2.3 CULTURE OF UPPER AND MIDDLE CLASS CONSUMERS
The word culture has several meanings, in Latin it means tilling of the soil whereas
in most western language culture means civilization or refinement of mind. In
simple words culture means way of life, art, behavior and beliefs. (Hofstede and
Hofstede, 2005, pp. 2-4).
According to Mooij (2004) culture is glue which joins groups together, without culture
design it will be difficult for people to live together. Its only the culture which defines
a human community, its individuals and social organizations. (Mooij, 2004, pp. 26) Whereas according to Kluckhhohn Culture consist in patterned way of thinking,
feeling and reacting, acquired and transmitted mainly by symbols, constituting the
distinctive achievement of human groups, including their embodiments in artifacts;
the essential core of culture consists of traditional ideas and especially their attached
values (1951, pg. 86 in Hofstede, 2001, pp. 9)
Each and every individual is a product of its culture and its social group therefore they
have to act in certain manner to live in their social cultural environment. Culture
cannot be separated from an individual neither culture can be separated from
historical events/situations. (Mooij, 2004, pp. 26)
Culture is found in your local street, in your city, state, and country. Small children,
youngsters, adults, older people have their own culture and most of the times share
the culture as well. According to Williams culture is a way of life, people, group or
humanity. Culture is not something we absorb- it is something that is learned.
(1983b:90 in Baldwin et al, 1999, pp. 4-7)
Culture includes shared beliefs, attitudes, norms, roles and values. These elements arebasically transferred from generation to generation. Culture includes values, rituals,
heroes, symbols. Values are basically feeling of a person having plus and minus side. It
deals with evil v/s good, dirty v/s clean, ugly v/s beautiful .etc. values are acquired by
a person at very early age in their lives. Values are visible until they become evident in
behavior. In contrast to values, rituals are related to social acts, ceremony or
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something related to religion. Rituals are carried out by an individual for their own
sake and usually involve paying respect to other & ways of greetings. Heroes are
persons alive or dead, real or imaginary whose characteristics are highly appreciated in
culture and most of the times serves as a model for behaviors. For example Mahatma
Gandhi in India or Bill Gates in USA. Symbols are words, gestures, pictures or objectsthat carry a particular meaning and are recognized by only those people who share a
particular culture. It involves national flag or any particular dress or hair style .etc.
(Hofstede and Hofstede, 2005, pp. 6-8) (Hofstede, 2001, pp. 9-11)
The culture of people around the world is demonstrated in wealth & celebrity and this
is particularly true about people in western countries. According to Schor (1998)
Instead of emulating folks with a similar income, people are taking their
consumption cues from television characters, relatives, friends and co-workers whose
income often far exceeds their own. Commenting on this trend Schor (1998) statesthat this can get expensive because it seems that their culture worship wealth and
celebrity. (Web 14)
There are 3 layers of culture. The outer layer consists of explicit culture and it involves
language, food, houses, monuments, market, fashion and art. These are the symbol of
deeper level of culture. Middle layer consists of norms and values. Norms is basically
sense of what is right and what is wrong. Norms can be written laws or social control
whereas values determine what is good and what is bad. Values help in making choice
from existing alternatives. And the third core layer is assumptions about existence which is related to the ways that deal with the environment with the available
resources. (Trompenaars and Hampden-Turner, 2005, pp. 20-24)
Hofstede and Hofstede (2005) has divided cultural layer as national level, gender level,
generation level, social class level and regional/ethical level. National level is related to
ones country or the country where a person belongs and with nation they have their
culture, community. Gender difference is basically based on gender .i.e. male or
female. In some societies the culture of male is different from female. For example
Women are not suitable for some particular jobs which are meant for men only.
Generation level is separating grandparents, parents and children. For example
Younger generation has no respect for the values of elders. Social class level is
associated with individuals profession and education because education and
profession are the powerful sources of cultural learning. Regional level is based on
persons region and religion. (Hofstede and Hofstede, 2005, pp. 11-12)
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the culture. Some people buy food from small shops whereas some buys from
expensive supermarket. Product usage and ownership also determines cultural values.
(Mooij, 2004, pp. 233-236)
In India the position of consumer in society is defined by the clothes they wear, the
shoes, the accessories .etc. and all these things determines the class and power of a
particular person. People do not wear in public what they wear in private, but in USA
even President goes for jogging in shorts and baseball caps. All this is because of
cultural difference. (Mooij, 2004, pp. 170)
Consumer attitude towards Financial Services has changed and this is because of
change in Life Style. Demand of own home, TV, washing machine, air conditioner,
car, holiday abroad in UK/US/Europe is increasing. Because of inflation consumers
are borrow and buy now rather than save to buy things later. Expectations ofconsumers have increased. Better living standard, improved life style, better quality
life, rising income all these have had an effect on the services provided by financial
institutions. (Crosbie, 1990, pp. 4-6)
2.3.2 CULTURE OF CONSUMERS IN INDIA
The changing socio-economic structure of India in the light of globalization and
liberalization is highlighted by Breyer (1998). According to Breyer (1998) earlier most
of the banks, airlines, utilities, TV & radio channels were owned by government. And
more importantly high tariffs, rupee inconvertibility, corruption, high taxes whichkept multinationals & foreign investors away from India. But now the whole scenario
is been changed, there are privately owned airlines, phone companies, private TV &
radio channels, multinational companies are coming to India & investing their money
in India. Today, there are more choices, more jobs, more facilities, and more money
flowing into the country & into the pockets of skilled and educated upper & middle
class consumers. And such people are identified as Engineers, S/W Developers,
Chartered Accountants, Airline Cabin crew, and Stockbrokers .etc. (Web 15)
Commenting on the changing culture of Indian upper and middle class Breyer (1998)says that earlier it was difficult to find Nike, Armani, Calvin Klein, McDonalds, iPod,
PlayStation but today all these big brands are having their outlet in major cities of
India. Upper and middle class can shop at malls, supermarket, watch cable TV and
even children play with imported toys, computer and video games. Finally Breyer
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(1998) concludes that India appears to be becoming more western so far as upper and
middle class people in country are concerned. (Web 15)
Fernandes (2000) says that whatever is the fundamental social structure of the country
but the fact cannot be denied that in post globalization and liberalization period
Indian social and economic structure has experienced and extremely important change.
As in words of Fernandes (2000) The policies of economic liberalization, started in
the 1990s and have been accompanied by a set of public discourses that have
increasingly begun to debate the character of the Indian middle class. However the
supporters of economic liberalization represent the middle class as a market which
should attract multinational companies. More importantly the perfect image of urban
middle class in media is of rich and wealthy people, who have achieved the ability to
determine the choice through consumption. Finally it comes out the contrasting views
and on other hand sometimes the critics of liberalization point out the effect ofconsumerism and punish the middle class and criticizes the excess of consumerism.
Finally, it comes out that both the views are opposite to each other and public writing
in India produces the image of urban middle class as beneficiary of economic reform.
(Web 16)
According to Vajpeyi (2001) Indian has taken long steps in development of economy.
Middle class of India is known to be the largest market in the world and with the
entry of global players into the consumer market has completely changed the whole
scenario of Indian consumers. With the increasing disposable income, overconsumption and lack of respect for environment has affected the society. Middle
class consumers have become gadget savvy, car sales are very much high. Attitude of
consumers towards consumption and spending has changed. (Vajpeyi, 2001, pp. 8, 9)
Deshpande (2005) states that in India the social status always had a strong component.
A persons absolute position counts little, and it is only the social distance that
separates people from others. Deshpande (2005) concludes that all these issues are
occurring in a fundamentally changed social, economic and political situation. The
theory or principles which served to reduce the nationalism, development or socialism
conflict are not proficient to execute their soothing and peaceful role. However at the
same time Deshpande (2005) also finds that the opponents themselves are new
groups which are produced by unknown globalized procedures. (Deshpande, 2005, pp.
1-2)
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As lower middle class is concerned the view of world & experience of low middle
class at one instance they dislike globalization & liberalization and at other instance
they want India to move forward and compete in a globalized world. Sridharan has
written The post-1991 liberalization, however, has been sustained, even if the pace of
change has been slower than many advocates of reform might have liked. Indeed,unlike many other countries that have undertaken programs of economic
liberalization, India has introduced reform very. This has had the contradictory effect
of leading to a support base for liberalization while at the same the sheer weight of
public employees and publicly subsidized agriculturists in this economic category have
served to constrain the progress of certain types of economic reforms (2004, pp.
424-5 in Scrase, 2006, pp. 15-16)
Finally, Scrase (2006) concludes that the tendency to participate in the global
development, the upper and middle class people in India are enthusiasticallysupporting globalization and liberalization initiatives taken by the government. As a
result, like other part of the world, the culture of consumerism is also establishing its
feet in India and the rich/wealthy people in the country (upper and middle class) are
taking the shelter of borrowing in order to feed their increasing hunger of
consumerism. (Scrase, 2006, pp. 16)
2.4 CONSUMER BORROWING
In the previous section, it can easily be understood that a new kind of culture has
developed all around the world (including India) in the light of globalization andliberalization. This culture can be called as culture of consumerism, where people in
center are upper and middle class who believe in wealth creation and celebration. This
culture of consumerism has forced people to rely on credit which results in various
issues of concern. As based on observation and study Holt and Rupcic (2005) argues
that now a days consumers are very much dependent on credit and most of
consumers misunderstand various terms like zero interest loan, interest only credit
product, flexible financing options which results in mismanaging their finance. (Holt
and Rupcic, 2005, pp. 1, 5)
Previously there were a lot of problems associated with financing options but with the
development of reforms more innovative options are available. Because of these
developments household also are expecting the same flexible options which was
previously available to corporate and government. Such development are identified by
Holt and Rupcic (2005) as an overall decline in inflation expectations that changes
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how people borrow by extending their planning horizons; increased financial
innovation by the financial sector leading to a host of new products for increasingly
sophisticated consumers; and fundamental changes in the nature of the workforce
that require more payments flexibility. (Holt and Rupcic, 2005, pp. 1, 5)
While studying consumer behavior regarding credit Malbon (1999) finds that the
behavior of majority of consumer when making decision about purchasing on credit is
same, taking into consideration their income, gender or the area/city they live in.
However, Malbon (1999) finds that there are some differences in the behavior of
consumers with different income groups. Sometime low income consumers take what
is been offered to them without any question because they believe that they will not
be getting any other offer. Finally, Malbon (1999) finds that low income consumers
are mainly concerned with the interest rates whereas middle or high income are
concerned with ease or difficulties in getting loan. (Malbon, 1999, pp. 10-11)
In the above context Park and Rodrigues (2000) uses the US data from 1959-1994 and
examined the compatibility of Permanent Income/Life cycle hypothesis (PI/LCH)
and future power of consumer borrowing. The PI/LCH implies that consumer
borrowing should be an increasing function of the gap between permanent and
current income. In addition, if consumers accurately estimate permanent income,
large borrowing should be associated with rapid income growth in the future. Our
empirical results support the PI/LCH; consumer borrowing increases with the
estimate of permanent income and decreases with current income. Apart from thisPark and Rodrigues (2000) finds that consumer borrowing has marginal predictive
power. (Web 3)
In a more significant research Martins and Villanueva (2006) studied the impact of
reform on consumer borrowing. The main parameter which determines household
borrowing is interest rate and it also helps in promoting savings. It determines if a low
or middle income consumer is provided subsidized rate on mortgage the how it will
affect the household borrowing. There assumptions were based on financing a house
with the program. Firstly they determined the borrowing behavior of high class
consumer should be affected by reform and estimate the elasticity of probability of
getting the loan at that rate lie between -2.8 and -1.3. Secondly, they document that
after the reform, the distribution of loan sizes became more concentrated at the
discontinuity point of the budget constraint of eligible individuals. As a result both
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of their findings agree that increase interest rate results in negative response with
respect to household borrowing. (Web 4)
Dutta and Magableh (2004) examine the socio-economic factors that influence the
behavior of borrowers and lenders. They determined the four stages of borrowing
process. The people in first stage apply for very small loan from microfinance
provider and this includes people who are single owner of small business, head of
family, who knows large number of micro finance providers, those in age group 18-24
or 35-44. People who less likely apply to micro credit includes male owner of small
business, person doing full time job, who is having large savings, those who dont
want to pay high application cost, having strong religious belief, who are in age group
45-54. Person having large amount of assets, who already have big amount of loan,
who operates in agriculture sector, higher formal educated person, head of family are
those who take large amount of micro credit. And those who have their own place ofresidence will demand small micro credit. Person likely to apply for micro credit and
demand large loan involves single applicants, head of family, having more collateral,
who have social responsibilities. (Dutta and Magableh, 2004, pp. 9, 12)
Noticeably, the result of research of Dutta and Magableh (2004) says that non-
economic factors like religious beliefs, social events and social responsibilities plays an
important role in borrowing especially from the demand side. (Dutta and Magableh,
2004, pp. 2)
Further Doms et al (2007) says that there is very little access of credit to the poor. The
reason behind this is the banks are not sure which borrower can pay the credit back.
Also nobody knows about credit bureaus and if consumers know what is credit
bureau then most likely they dont want their report to be affected otherwise there will
be problem in future borrowing. They also find that the borrowers who are educated
and know about credit bureaus are most likely to pay their loan back as compared to
less educated borrower. (Web 5)
Worthington (2006) determines what contributes to the financial stress in Australia. In Australian household demographic, socio-economic and debt portfolio contributes
financial stress. Financial stress here is related to financial reasons where consumer is
not able to have a holiday, not able to involve in leisure activities or not able to have
dinner out with friends and relatives. Worthington (2006) examined various
characteristics like age, gender, household income, debt repayment, marital status,
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ethnic background and Worthington (2006) has used Binary logic model to determine
the factors which are associated with financial stress. Worthington (2006) concludes
that families with more children, from ethnic background and who rely on
government benefits have high financial stress whereas families having high
disposable income and high housing value have less financial stress. (Web 6)
In another important research Atieno (2001) finds that if a consumer is having higher
wealth it does not means that they dont need credit, there might be reason that the
type of loan they require does not exist. It might be because the credit gap which is
there is too big for informal market and not served by formal market. There is limited
allocation of loan in informal market whereas in formal market there is huge
availability, but it depends on terms and conditions provided. Informal credit sources
are easily accessible for small borrowers and the main reason behind this is lending
terms and conditions. However, different borrowers have different needs and it alsodepends on the availability of credit. (Atieno, 2001, pp. 37-38)
Choudhury (2005) says that the financial maturity and confidence of Indian consumer
is increasing. According to RBI, in 2002 consumer borrowing in India was 2 percent
of their total household income. Whereas in Singapore it was 176 percent of
household wealth, 75 percent in Malaysia and 39 percent in Thailand. (Choudhury,
2005, pp. 18)
Commenting on the recent development in India, Jairaj (n.d.) says that in last 10-15years the consumer credit in India has reached new heights and structure is changed
completely. He also adds From a demand-oriented and taboo-ridden sector to a large
supply-driven corporate set up, there has been a paradigm shift in this sector, rooted
largely in the new economic policy of liberalization, globalization and privatization
adopted by India in the early 1990s. And with the entry of new players the whole
industry has been changed in regards to consumer protection and regulatory norms.
(Jairaj, n.d., pp. 1)
So far as consumer borrowing trend is concerned, Indians tend to buy two or fourwheelers, mobile phones and consumer durables with confidence and style. With the
rise in consumerism, attractive marketing by banks, increasing acceptance and use of
plastic money has changed the whole scenario. Buying goods by borrowing is
common now days. The credit card movement is year 2006 increased from 16 million
to 20 million. (Web 7)
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Nayak (2005) says that people in rural India are borrowing faster than their savings
and according to the latest figures loans given by the banks in rural India are
exceeding the amount of deposits in those areas. Percentage of home loan and
personal loan is increasing whereas agri-loan is declining. (Web 13)
According to Nayak (2005) bankers believe that most of the loans are taken to meet
expenses like wedding in family, education loan, purchase of asset or to pay off earlier
loan taken from local money lenders. In rural areas most of the times it is difficult for
the banks to determine whether to issue loans or not because earning of rural
borrowers is dependent on agriculture & other dependent activities whereas in case of
urban area borrowers, it is basically dependent on income of salaried people or
businessman. (Web 13)
2.5 STRATEGIES AND POLICIES OF FINANCIAL INSTITUTIONSREGARDING CREDIT
The continuing transformation in the banking industry has fetched a new notice in
regards to the role that bank plays in the monetary transmission process. To a degree
borrower rely on bank credit and bank lending is bounded by monetary policy and
few limitation might affect the economy with the help of a bank credit channel. In the
environment of restrictive monetary policy banks managed to issue liabilities and
maintain their business of lending. (Morris and Sellon, 1995, pp. 59-61)
Since a direct bank channel does not emerge to be a part of monetary transmissionprocess so the changes in the banking system may affect the transmission process.
Furthermore because of changes in bank lending the economy of country may get
effected and could force borrowers to change their spending decisions. (Morris and
Sellon, pp. 63, 71-73)
Today, to weigh up the loan application banks are making more and more use of
credit scoring models. The purpose of credit scoring models is to reduce the default
rate and to minimize the wrongly organized loan and to minimize the number of loans
that are classified as defaulted or not defaulted. Thus they fall short to take intoaccount that loans are contract for a specific period for which it is vital for banks to
know if but also when a loan will failure to pay. (Roszbach, 2003, pp. 1, 5, 22)
In order to evaluate the return on a loan, a Tobit model is used. This model predicts
the expected survival time on a loan to any kind of applicant. It estimates the decision
to provide a loan or not and also determines survival time on a loan to any capable
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applicant. The purpose of this model is to separate short survival time applicants and
long survival time applicants. The bank loan providing procedure is revealed to be
incompetent because the loans they are getting conflicts with the risk minimization
and survival time maximization. So, there is no compromise between high default risk
and high return in lending policy. (Roszbach, 2003, pp. 1, 5, 22)
Banks are not allowed to fix the terms of loan offered but it is believed that banks tie
their credit terms to use underwriting services. In order to gain market share in
underwriting debt, the banks are offering some concession and discounted rates to
their customers. Banks provide credit service to a business, with the term that
business will use banks underwriting and if customer fails to provide sufficient
investment then the banks may not renew credit or change the terms. But there is no
evidence that the loan terms are better for borrower who have used it or who will be
using it in future. (Fraser et al, 2003 pp. 1-3, 19)
Whereas Miriam et al (2006) states that in order to make decision for current credit
policy the bank uses their past experience and backward looking technique to
determine the effect of financial fragility in the period that were headed by the boom
in the economy. Further they put that backward looking process can bring a bias into
the credit policy of banks. As a result during the period of economic growth banks
promote over investment issue, easy terms to extend credit. And when the economy is
down banks lend money only to high quality borrowers as it is difficult for the
entrepreneurs to obtain credit. Therefore This pro-cyclical credit-policy thereforeserves as another sub-channel of the credit-channel in accentuating business cycles
fluctuations. (Miriam, 2006, et al pp. 1-2, 14, 23)
Bernanke (2007) states that Banks are playing vital role in providing credit to the
consumer and business with in comparison with other financial players. Bernanke
(2007) says Banks do continue to play a central role in credit markets; in particular,
because of the burgeoning market for loan sales, banks originate considerably more
loans than they keep on their books. He further adds that Nevertheless, non-bank
lenders have become increasingly important in many credit markets, and relatively few
borrowers are restricted to banks as sources of credit Bernanke (2007) concludes that
increasing number of credit providers and their impact on monetary policy requires
further research because the increase of non-banks lenders are effecting the strategy
of banks. (Web 2)
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2.6 SUMMARY
This chapter dealt with the important literature which is required for this research. It
talked about regulations of financial institutions in India, how culture affects society,
why consumer borrow & what makes them borrow and lastly it discusses the policies
& strategies adapted by banks and non-banking financial institutions in regards toissuing loans and providing finance to the consumers.
CHAPTER 3
A. METHODOLOGY
3.1 PREVIEW
This chapter describes the methodologies involved in research project. It tells about
research design and data collection methods including quantitative method &
qualitative method, advantages & disadvantages of research methods, validity &
reliability of research methods.
3.2 INTRODUCTION
Methodology is a combination of various tools and techniques which are used in the
research. These tools and techniques involve research method, data collection method
and data analysis. There are a lot of research methods provided by different
researchers, but in this research the researcher has used data collection and data
analysis methods to collect and analyze the data. There are two types of research
methods: - Quantitative method and Qualitative method. This chapter tells about how
these methods are used, importance of each method, Research Design, Research
Method, Reliability & Validity and Limitations.
3.3 RESEARCH DESIGN
A Research design is a logical plan for getting from here to there, where here may be
defined as the initial set of questions to be answered and there is some set of
conclusions or answers about these questions (Yin, 2003, pp. 21). Research design is
a frame work or master plan that helps in determining the methods and proceduresfor collecting and analyzing the information. The purpose of research design is to
determine the information collected is appropriate for solving the problem and study
is done according to the procedures. It links the data to be collected and conclusions
to be drawn. (Zikmund, 2000, pp. 65). According to Philliber, Schwab and Samsloss a
good research involves what is the question that needs to be studied, which data is
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useful and how to analyze the data and find results. (1980 in Yin, 2003, pp. 21).
Basically research design is a plan or strategy which helps in determining what to do,
how to do and when to do. The purpose of this research is to understand and
examining the trend of upper and middle class Indian consumers regarding taking
loans and their reliance on banks and non-banking financial institutions.
3.4 QUANTITATIVE METHOD
Quantitative method provides useful data that can be analyzed and interpreted to aid a
decision making process, to reach measured conclusions and predict future outcomes.
(Saunders et al, 2003, pp. 327). Quantitative method is used when we need some
figures to strengthen our arguments made of qualitative grounds. (Morris, 2003). As
all research involves some type of numerical data that can be used to answer the
research question & meet the objectives and that data is called qualitative data.
Qualitative data is used to analyze & interpret the things which are in numbers(Saunders et al, 2003, pp. 327). Quantitative method usually involves statistical analysis
and it is based on numerical evidence to find conclusion or to test hypotheses. If we
want to be sure about the reliability of the results, then it is always necessary to study a
large number of people in that research area and the data can be derived from
questionnaire survey, observations or from secondary sources (Ticehurst and Veal,
2000, pp. 20).
Yin explains numerical data provides quantitative information, while non-numerical
data furnishes information that is clearly of qualitative nature (1989:88 in Thietart et
al, 2001, pp. 78)
Quantitative research not only involves questionnaire, survey, results of questionnaire
but if it is a company it can also involves annual financial returns or absenteeism rate
that can be used in collaboration with survey data. It always involves numerical
analysis of data and this can be as simple as producing histograms. Quantitative,
descriptive & comparative and prescriptive are three main type of Quantitative
research. In descriptive research there is no comparison between groups as it is a
simple description of some phenomena facilitated by using numbers. Descriptive
research can be as simple and straight as histograms, pie charts, bar graphs or reports.
Whereas comparative research involves the comparison of data between two or more
groups statistically. There is an independent variable - that we compare and
independent variable what is measured. And similarly prescriptive research is related
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to some predictions like what are causes & what will be the effect. Prescriptive
research can be simple or complex. (Partington, 2002, pp. 101).
This research is basically based on Quantitative analysis because the main focus group
is customers and to find about their behavior regarding borrowing, why they borrow,
what makes them borrow and why they rely much on Non-banking Financial
Institutions rather than Banks.
3.4.1 QUESTIONNAIRE
The purpose of questionnaire method is to find the variable & range of possible
answers, where every question or part of that question represents a variable. (Clark et
al, 1998, pp. 98). Questionnaire method is usually used to collect primary data. The
data which is collected by a person who will use it or he/she is responsible for
supervising and organizing the collection is called as Primary data. Primary data iscollected only for the purpose for which it is to be used. (Wisniewski and Stead, 1996,
pp. 7). Primary data is collected and used specifically for the project in hand. The
method used is survey that is defines as the technique where the researcher collects
data from a sample of individuals using a questionnaire method and important feature
is that each respondent answers the same set of questions prepared in advance.
(Saunders et al, 2003, pp. 280-283). There are basically two types of questions. One is
open ended & other is close ended. Close ended questions always restricts the answers
to a small set of response and the questionnaire designer must have a good knowledge
of the options available in that particular subject area and however generates exactanswers. Whereas open ended questions does not impose any restrictions but it is
hard to aggregate the final outcome. It has the advantage of offering wide and rich
responses. (Clark et al, 1998, pp. 94)
In open ended question there is no limit of an answer to either yes or no, or to a
specific range of options. The advantage of open ended is it does not threaten to bias
the findings by imposing a frame of reference, effectively limiting the way the
participant may answer. And disadvantage is that it will be difficult for researcher to
analyze the details in end. Whereas close ended questions impose the answer to a
respondent & forces to choose from the alternatives given. And it can be of multiple
choices. (Marshall, 1997, pp. 39)
As this research required straight forward information therefore the questionnaire
designed was structured with multiple options and close ended questions. Close ended
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questions are easy to respond and analyze as well. Questionnaire contained 12
questions which were totally based on the theme of this research.
According to Partington (2002) quantitative research gives the answer to the questions
that are asked and if any important question is omitted from the survey then it is
difficult to know effects it would have had. It requires that researcher asks the right
questions and must know what the right questions are. (Partington, 2002, pp. 102).
Quantitative data can be divided into two different groups: categorical and
quantifiable. When the values of data cannot be measured numerically but can be
classified into categories or placed in rank order is called categorical whereas if the
values are measured numerically as quantities then it is called as quantifiable data.
(Saunders et al, 2003, pp. 329)
According to Dey (1993) and Healey & Rawlinson (1994) Quantitative data is basedon meanings derived from numbers, it results in numerical and standardized data &
helps in doing analysis with the help of diagrams, charts, graphs & statistics. (Saunders
et al, 2003, pp. 378).
Primary data for this research was basically collected by distribution of questionnaires
to the customers visiting the bank (Punjab National Bank, UCO bank) and non-
banking financial institutions (Citi Financial, Tata Finance).
3.5 QUALITATIVE METHODAccording to Dey (1993) and Rawlinson (1994) Qualitative data is based on meanings
which are expressed through words and it results in collection of non-standardized
data which requires classifications and the analysis is conducted by using the
conceptualization. (Saunders et al, 2003, pp. 378)
According to Miles and Huberman qualitative data corresponds to words rather than
figures (1984b in Thietart et al, 2001, pp. 78)
The research that provides findings which are not arrived by any statistical procedure
or by any other means of quantification. This research refers to a persons life,
experiences behavior, emotions, and feelings and also tells about structure & function
of an organization, social and cultural movements & interactions. (Strauss and Corbin,
1998, pp. 11)
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According to Stern (1980) Quantitative methods are used to find important and real
facts about which very little is known or about which more facts is required to gain
more understanding. (Strauss and Corbin, 1998, pp. 11)
Qualitative research involves all the processes & meanings which are not measured or
examined in terms of quantity, numbers & volume. It stresses on reality, tells about
relationship between researcher & what is studied, situational restrictions and
limitations. (Denzin and Lincoln, 1998, pp. 8)
According to Robson qualitative data is associated with concepts and characteristics
which are based on a persons own goal have to search a subject in a real manner.
There is no standardized way to collect data in qualitative research. The data collected
is classified into categories and then it can be analyzed in a meaningful manner. (2002
in Saunders et al, 2003, pp. 378)Data, procedures and written & oral reports are 3 main components of qualitative
research. Data comes from interviews, observations, documents. Whereas procedures
includes organizing & explaining the data, and written & oral includes articles in
journals/books & talks in conferences. (Strauss and Corbin, 1998, pp. 12)
Saunders (2003) says that qualitative analysis involves the following activities:-
Categorization
Utilizing Data
Recognizing relationships & developing the categories you are using to facilitate this
Developing & testing hypotheses to reach conclusions. (Saunders, 2003, pp. 380-381)
According to Nelson et al Qualitative research use semiotics, narrative, content,
discourse, archival and phenomenology, hermeneutics, feminism, rhizomatica,
deconstructionism, ethnographies, interviews, psychoanalysis, cultural studies, survey
research, & participant observations and these research practices can provideimportant insights & knowledge. (1992, pp. 2 in Denzin and Lincoln, 1998, pp. 5)
Qualitative research involves the usage of secondary data. Secondary data is that
which has been collected, arranged and studied by others and it involves articles in
journals, literature, formal/informal documents, letters .etc. (Clark, 2003, pp. 109).
Secondary data include both raw data and published summaries. Most organizations
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collect and store a large number of data like Balance sheet, profit & loss summary,
sale & purchase summary, minutes of meetings which is a part of secondary data.
Secondary data is primarily used in Literature review and is easily available from books,
journal articles, published reports .etc. (Saunders et al, 2003, pp. 188-195)
3.5.1 INTERVIEWING
Qualitative research involves an important process which is called as Interviewing.
Interviewing is a technique used to collect data which is analyzed later, helps in
proceeding to a conclusion & tells views of individual interviewees. Researcher can
either conduct structured & systematic, semi structured, unstructured interviews. In
structured & systematic interview there is a standardized set of questions in which the
researcher asks the questions & respondent gives answer to that particular question.
Whereas in semi structured interview the researcher has a list of questions but may
omit some questions in particular interview & order of questions also variesdepending on the conversation. Unstructured interviews are informal and it involves
in-depth discussion about the topic & interviewee has the opportunity to talk freely
about events, behavior & beliefs. (Thietart et al, 2001, pp. 180) (Saunders et al, 2003,
pp. 246).
This research involved 5 semi structured telephonic interviews which were basic talks
and discussion about the research topic.
3.5.2 OBSERVATIONObservation is also an important method of collection data in qualitative research
where researcher directly observes processes or behavior in an organization over a
specific period of time. It helps the researcher in analyzing the facts. (Thietart et al,
2001, pp. 183).
But in this research it is not possible for the researcher to use the observation method
because of the time constraint and distance barrier the researcher is not able to go
personally to Banks and Non-banking Financial institutions in India to the
observations in real environment.
3.5.3 ADVANTAGES AND DISADVANTAGES OF SECONDARYDATA
There are few advantages and disadvantages of Secondary data. It is less expensive to
use secondary data rather than collecting yourself. Higher quality data can be obtained
and sometimes quickly. It helps in making comparison and also helps in discovering
something new. It provides data that is permanent & can be checked easily by others.
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Secondary data has some disadvantages as well. Data available or collected may vary
from the research and may not be quite so suitable for the research. Access may be
difficult or costly if data is vital. Sometimes it is difficult for the researcher to present
data according to the requirements. (Saunders et al, 2003, pp. 200-202)
Qualitative method is also used in this research. Secondary data for this research was
collected through Books, Journal Articles, Various Banks websites, and Internet
sources. Good literature review was obtained from the Universitys Library in Cardiff.
This research involves 5 semi structured interviews of customers and employees of
non-banking financial institutions. Interviews done were telephonic because of
distance constraint and it was basically general talk to discuss about the research topic.
General instructions were given to the interviewees on the type of information
required and questions asked were related to the topic and it covered all the questions
included in the questionnaire. Both customer and employees were given maximumfreedom to respond within the boundary of the topic. The guidelines were given to
the interviewee and additional comments given by the interviewee were noted.
3.6 SAMPLING
Sampling is concerned with identifying the research population so that information
necessary for research or answers required can be easily obtained from them. Properly
taken samples help in getting accurate results and also avoid cost of surveying
everyone. (Gill and Johnson, 2002, pp. 101). Whenever a research is done it requires a
group of people to answer the questions related to the research. If data is collectedand analyzed from each possible group it is called as census. But due to time, money,
distance constraint it is not possible to collect or analyze all the data. There is no use
to survey the entire population and results can be obtained quickly. So with the help
of Sampling, data can be collected from a particular group rather than all the possible
cases. (Saunders et al, 2003, pp. 150-151). Data in sampling should be complete and it
should cover all the areas of the population to be examined. If the data does not cover
all the areas of the population to be examined then the sample will be biased.
(Fletcher and Coakes, 1993, pp. 26)
In this research Probability sampling is used because sample selected is the
representative of the population and each case selected was known and usually
supposed to be equal for all. The respondents were customers visiting banks (Punjab
National Bank, UCO Bank) and non-banking financial institutions (Citi Financial,
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Tata Finance). The total number of respondents was 100 and all were based in New
Delhi.
3.7 TIME LIMIT
The time needed for the completion of a research is very important. It is not possible
for a researcher to get accurate result if the research is done quickly and in a fast
manner. The researcher took three months to complete this research. The schedule
was very tight and busy because the researcher was supposed to finish several tasks in
very short span of time.
3.8 LIMITATIONS
The main problem faced by the researcher is to collect the secondary data and to write
literature review. Because of least availability of books related to research topic
(Financial and Non-Financial Institutions in India, culture of people in India andbehavior of consumers in India) in Universitys library. So in order to obtain this
entire information researcher was partially dependent on his brother in India to send
the articles from his Universitys Library. Researcher also relied on Internet sources,
online journal articles. But the books related to general Banking, Consumer behavior,
Cross cultural environment were easily in researchers Universitys library. Also,
because of time constraint, distance barrier and financial/money constraint it is not
possible for the researcher to go to India do research there and do personal face to
face interview and to do the observation in banks and non-banking financial
institutions. In New Delhi each and every person is very busy and tight schedule and
dont have time to fill in the questionnaires, so it was very difficult for the researchers
brother to get the questionnaire filled up from the customers. It was little difficult for
researcher as well to find the right person who agrees to give interview and make
some discussions related to the topic on the phone.
3.9 DATA ANALYSIS
Data Analysis involves wide variety of activities & process and helps to summarize the
large quantity of raw data so that results can be found. (Zikmund, 2000, pp. 580). This
research involves both Qu