India International Residency - Indian Banking Thesis

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

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