WELCOME

EVOLUTION OF GROUNDED THEORY FOR CREDIT SCORING, INDIA

 BY

MUTHARASU A SELVARASU

  Professor, Department of Business Administration, Annamalai University

&

RAIS AHMAD ITOO

Doctoral Research Scholar, Department of Business Administration, Annamalai University

INTRODUCTION

•Lending and Borrowing•Credit Evaluation•Credit Decisions•Banking in service sector

REVIEW OF LITERATURE•Grounded Theory: Grounded theory, a research methodology primarily associated with qualitative research, was first proposed by Barney Glaser and Anselm Strauss in 1967. According to its founders, grounded theory constitutes an innovative methodology, facilitating ‘the discovery of theory from data’ (Glaser & Strauss, 1967).

•Credit Scoring And Credit Scoring Models: Credit scoring is a group of decision models and their under-lying techniques which give support to lenders when providing credit to customers (Heiat, 2012). In addition, credit scoring model is a decision support system that helps the managers in financial decision-making process.

RESEARCH METHODOLOGY•Research Problem•Research Objectives•Population Sampling and Data Collection•Pre-test•Methods of Data Collection•Validity and Reliability•Limitations of the Study

RESEARCH PROBLEM

In order to bring down the level of NPA, banks has adopted risk

assessment tools. As the time passes the behavior of people keep on

changing, this drift in population outdates the credit scoring. So there

is need to study the factors which has effect on credit risk assessment

techniques.

Credit or default risk occurs when the borrower fails to pay his/her

loans to bank. Loan products form a critical part in retail products and

services offered by commercial banks. Credit risk management is

important to financial institutions and banks.

RESEARCH OBJECTIVES

POPULATION, SAMPLING AND DATA COLLECTION

47 Public Banks 21,

Private Banks 18 and Foreign banks 8.

Theoretical sampling.

PRE-TESTInterviewing 6 Banking Officials 2 State Bank of India

1 City Union Bank1 HDFC 1 ICICI 1 Punjab National Bank

METHODS OF DATA COLLECTION

25 respondents from public sector banks,

17 respondents from private sector banks and

5 respondents from foreign banks

dealing with scoring of personal finance application and preparation of credit report.

Each interview last for 30-45 minutes. Before starting an interview, participants were asked to clarify doubts about study, if any. Secondary data sources used for this study are;

529 commercial bank customer responses from big data; 79 images related to credit scoring models and CIBIL; 65 CIBIL newspaper articles; 102 news articles (19 bank loan, 22 credit scores, 10 loans, 10 home loan, 16 RBI and loans, 25 loan defaulters) and 59 interview videos given by credit bureaus employees.

VALIDITY AND RELIABILITYTo ensure validity, following five interrelated procedures were followed (a) Respondent Validation, (b) Refutability, (c) Constant Comparison, (d) Comprehensive Data Treatment, and (e) Deviant Case Analysis.Proportional reduction in loss method was used to assess the reliability of coding scheme. The proportional reduction in loss for this study is 0.81, which is well above the 0.70 cut-off level recommended for exploratory research

USE OF NVIVO AS DATA ANALYSIS TOOL

DATA ANALYSIS AND CODINGOpen Coding(Free Nodes): Initially researcher found 238 free nodes from the data sources.Axial Coding (Tree Nodes): 22 categories Application-information, motivation for repayment, extra benefits, standard bank charge, Imposed bank charges, screening eligibility, clearing norms, loan processing, demographic details,

employment details, financial details, loan details, behavioural details, collateral details, disbursement, positive experience and negative experience, Credit agencies, credit scoring, credit scoring methods, credit reporting and credit report errors.

Evolved Theories

1. Loan Information Searching Theory2. Loan Repayment Theory

3. Theory of Loan Pricing

4. Theory of Selecting Loan Applicant

5. Loan Service Processing

Evolved Theories

1. Theory of Rating Credit Score2. Loan Lending Theory

3. Theory of Customer Loan Experience

4. Credit Agency Theory5. Generating Report and Reliability Theory

THEORY FOUNDATION-CASE1: PUBLIC SECTOR BANKS

PUBLIC SECTOR BANK BORROWER'S

EXPERIENCING PERSONAL FINANCE

Application-Information

Motivation for Repayment

Standard Bank Charges

Screening Eligibility

Clearing Norms

Loan Processing

Demographical Details

Employment Details

Financial Details

Loan Details

Behavioural Details

Collateral Details

Disbursement

Positive Experience

Negative Experience

THEORY FOUNDATION- CASE2: PRIVATE SECTOR BANKS

PRIVATE SECTOR BANK BORROWER'S

EXPERIENCING PERSONAL FINANCE

Application-Information Motivation for

Repayment

Extra Benefits

Standard Bank Charges

Imposed Bank Charges

Screening Eligibility

Clearing Norms

Loan Processing

Demographical Details

Employment Details

Financial Details

Loan Details

Behavioural Details

Collateral Details

Disbursement

Positive Experience

Negative Experience

THEORY FOUNDATION-CASE3: FOREIGN BANKS

FOREIGN BANK BORROWER'S

EXPERIENCING PERSONAL FINANCE

Application-Information

Motivation for Repayment

Standard Bank Charges

Screening Eligibility

Loan Processing

Demographical Details

Employment Details

Financial Details

Loan Details

Behavioural Details

Collateral Details

Disbursement

Positive Experience

Negative Experience

THEORY FOUNDATION- CASE4: CREDIT BUREAUS

CREDIT SCORING BY CREDIT BUREAU

Credit Rating Agencies

Credit Scoring

Credit Reporting

Credit Report Error

Credit Scoring Methods

SUGGESTIONS

Customers should be made aware about Third Part Agencies

Commercial Banks should take care about customer support services, hidden charges, transparent and hassle free process and detailed information to customers.

CONCLUSION

Internal credit scoring is either done using loan originating software or using rating sheets. External credit scores tell about the behaviour of the applicant, e.g. payment history, dues, current loans, loan amount etc. From CIBIL, Equifax, Experian and High Mark

Affect credit score; credit mix, defaults reported, utilization of credit, over dues, payment history, guarantor, late payment, loan behaviour, credit card repayment, credit limit etc.

Impact on customer satisfaction are; customer support, service, follow ups, response, processing, transparency, hassle free process, reliability, detailed information.

LIMITATIONS OF THE STUDY

Many of the bank employees couldn’t cooperate, because of their busy schedule and data confidentiality policies of the banks. In order to theorize similar results, also samples could have been taken from other metro cities.

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