A project on

Study of Consumer behavior towards Bank Loans.

By Nidhi Ashok Bangera

Masters in Management Studies

Section A

Roll No 04

Introduction:

What is banking?

Basic Definition: A system of trading money which: provides a safe place to save excess cash, known as deposits. supplies liquidity to the economy by loaning this money out to help businesses grow and to allow consumers to purchase consumer products, homes, cars etc.

Section 5 (b) of the Banking Regulation Act 1949 defines “Banking” as “Accepting for the purpose of lending and investment, deposits of money from the public repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise” No definition of banking can be comprehensive enough in the present context

What are banks?

Institutions which deals in money and credit. An intermediary, which handles other people’s money both for their advantage and to its own profits. A financial institution that links the flow of funds from savers to the users. Plays an important role in the economy of any country as they hold the saving of the public.

Loan

In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt provided by an entity (organization or individual) to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is

charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower.In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time.The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent.Acting as a provider of loans is one of the principal tasks for financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Bank loans on the basis of end use

Personal loan Home Loans Car Loans Education loan Business loan

Sector analysis of banking:

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-regulated. The financial and economic conditions in the country are far superior to any other country in the world. Credit, market and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.Indian banking industry has recently witnessed the roll out of innovative banking models like payments and small

finance banks. The central bank granted in-principle approval to 11 payments banks and 10 small finance banks in FY 2015-16. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry.

Market Size

The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. Public-sector banks control nearly 80 percent of the market, thereby leaving comparatively much smaller shares for its private peers. Banks are also encouraging their customers to manage their finances using mobile phones.Standard & Poor’s estimates that credit growth in India’s banking sector would improve to 11-13 per cent in FY17 from less than 10 per cent in the second half of CY14.Investments/developments

Key investments and developments in India’s banking industry include:

RBL Bank Limited, an Indian private sector bank, has raised Rs 330 crore (US$ 49.6 million) from a UK-based development finance institution CDC Group Plc, which will help RBL to strengthen the capital base to meet future requirements.

The State Bank of India (SBI) signed an agreement with The World Bank for a Rs 4,200 crore (US$ 625 million) credit facility, aimed at financing grid connected rooftop solar photovoltaic (GRPV) projects in India.

JP Morgan Chase, the largest bank in United States by assets, plans to expand its operations in India by opening three new branches in Delhi, Bangalore and Chennai in addition to its existing branch in Mumbai.

Canada Pension Plan Investment Board (CPPIB), an investment management company, has bought a large stake in Kotak Mahindra Bank Ltd from Japan-based Sumitomo Mitsui Banking Corporation.

India’s first small finance bank called the Capital Small Finance Bank has started its operations by launching 10 branch offices in Punjab, and aims to increase the number of branches to 29 in the current FY 2016-17.

FreeCharge, the wallet company owned by online retailer Snapdeal, has partnered with Yes Bank and

MasterCard to launch FreeCharge Go, a virtual card that allows users to pay for goods and services at online shops and offline retailers.

Exim Bank of India and the Government of Andhra Pradesh has signed a Memorandum of Understanding (MoU) to promote exports in the state.

Kotak Mahindra Bank Limited has bought 19.9 per cent stake in Airtel M Commerce Services Limited (AMSL) for Rs 98.38 crore (US$ 14.43 million) to set up a payments bank. AMSL provides semi-closed prepaid instrument and offers services under the ‘Airtel Money’ brand name.

Ujjivan Financial Services Ltd, a microfinance services company, has raised Rs 312.4 crore (US$ 45.84 million) in a private placement from 33 domestic investors including mutual funds, insurance firms, family offices and High Net Worth Individuals (HNIs)).

India's largest public sector bank, State Bank of India (SBI), has opened its first branch dedicated to serving start-up companies, in Bengaluru.

Global rating agency Moody's has upgraded its outlook for the Indian banking system to stable from negative based on its assessment of five drivers including improvement in operating environment and stable asset risk and capital scenario.

Lok Capital, a private equity investor backed by US-based non-profit organisation Rockefeller

Foundation, plans to invest up to US$ 15 million in two proposed small finance banks in India over the next one year.

The Reserve Bank of India (RBI) has granted in-principle licences to 10 applicants to open small finance banks, which will help expanding access to financial services in rural and semi-urban areas.

IDFC Bank has become the latest new bank to start operations with 23 branches, including 15 branches in rural areas of Madhya Pradesh.

The RBI has given in-principle approval to 11 applicants to establish payment banks. These banks can accept deposits and remittances, but are not allowed to extend any loans.

The Bank of Tokyo-Mitsubishi (BTMU), a Japanese financial services group, aims to double its branch count in India to 10 over the next three years and also target a 10 per cent credit growth during FY16.

The RBI has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and said white label ATMs can now tie up with any commercial bank for cash supply.

The RBI has allowed Indian alternative investment funds (AIFs), to invest abroad, in order to increase the investment opportunities for these funds.

Bandhan Financial Services raised Rs 1,600 crore (US$ 234.8 million) from two international

institutional investors to help convert its microfinance business into a full service bank. Bandhan, one of the two entities to get a banking licence along with IDFC, launched its banking operations in August 2015.

Government Initiatives

The government and the regulator have undertaken several measures to strengthen the Indian banking sector.

In July 2016, the government allocated Rs 22,915 crore (US$ 3.41 billion) as capital infusion in 13 public sector banks, which is expected to improve their liquidity and lending operations, and shore up economic growth in the country.

The Reserve Bank of India (RBI) has released the Vision 2018 document, aimed at encouraging greater use of electronic payments by all sections of society by bringing down paper-based transactions, increasing the usage of digital channels, and boosting the customer base for mobile banking.

The Reserve Bank of India (RBI) has issued guidelines for priority sector lending certificates (PSLCs), according to which banks can issue four different kinds of PSLCs—those for the shortfall in agriculture lending, lending to small and marginal

farmers, lending to micro enterprises and for overall lending targets – to meet their priority sector lending targets.

The Reserve Bank of India (RBI) has allowed additional reserves to be part of tier-1 or core capital of banks, such as revaluation reserves linked to property holdings, foreign currency translation reserves and deferred tax assets, which is expected to shore up the capital of state-run banks and privately owned banks by up to Rs 35,000 crore (US$ 5.14 billion) and Rs 5,000 crore (US$ 734 million) respectively.

Scheduled commercial banks can grant non-fund based facilities including partial credit enhancement (PEC), to those customers, who do not avail any fund based facility from any bank in India.

To reduce the burden of loan repayment on farmers, a provision of Rs 15,000 crore (US$ 2.2 billion) has been made in the Union Budget 2016-17 towards interest subvention.

Under Pradhan Mantri Jan Dhan Yojna (PMJDY), 250.5 million accounts! have been opened and 192.2 million RuPay debit cards have been issued as of October 12, 2016. These new accounts have mustered deposits worth almost Rs 44,480 crore (US$ 6.67 billion).

The Government of India is looking to set up a special fund, as a part of National Investment and

Infrastructure Fund (NIIF), to deal with stressed assets of banks. The special fund will potentially take over assets which are viable but don’t have additional fresh equity from promoters coming in to complete the project.

The Reserve Bank of India (RBI) plans to soon come out with guidelines, such as common risk-based know-your-customer (KYC) norms, to reinforce protection for consumers, especially since a large number of Indians have now been financially included post the government’s massive drive to open a bank account for each household.

To provide relief to the state electricity distribution companies, Government of India has proposed to their lenders that 75 per cent of their loans be converted to state government bonds in two phases by March 2017. This will help several banks, especially public sector banks, to offload credit to state electricity distribution companies from their loan book, thereby improving their asset quality.

Government of India aims to extend insurance, pension and credit facilities to those excluded from these benefits under the PradhanMantri Jan DhanYojana (PMJDY).

To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit facilities

extended to MSEs upto Rs 1 Crore (US$ 0.15 million). Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was also established to refinance all Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities engaged in manufacturing, trading and services activities up to Rs 10 lakh (US$ 0.015 million).

Road AheadThe Indian economy is on the brink of a major transformation, with several policy initiatives set to be implemented shortly. Positive business sentiments, improved consumer confidence and more controlled inflation are likely to prop-up the country’s the economic growth. Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth. All these factors suggest that India’s banking sector is also poised for robust growth as the rapidly growing business would turn to banks for their credit needs.Also, the advancements in technology have brought the mobile and internet banking services to the fore. The banking sector is laying greater emphasis on providing improved services to their clients and also upgrading their technology infrastructure, in order to enhance the customer’s overall experience as well as give banks a competitive edge.

Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and debit cards in the market shortly. The cards, which use near field communication (NFC) mechanism, will allow customers to transact without having to insert or swipe.

Major players in industry:-

• Public sector banks – SBI, PNB, Bank of Baroda, Bank of India etc.

• Private sector banks- HDFC, ICICI Bank, AXIS Bank, Yes Bank etc.

• Foreign Banks – Standard Chartered Bank, HSBC, City Bank etc.

• Regional Rural Banks – Andhra Pradesh gramin bank , Uttranchal Gramin Bank etc.

SWOT analysis of Banking industry

Strengths in the SWOT analysis of Banking

Banking is as old as Human race : Banking industry is the driving force to any nation. It helps in shaping the life of human race may be some time merely by Exchange (which was called barter system), or by transaction or by facilitating advances.

Source of employment & GDP growth   : There is a consensus among economists that development of the financial system contributes to economic growth. Financial development creates enabling conditions for growth through either a supply-leading (financial development spurs growth) or a demand-following. It is this industry which continuously works to secure financial stability, facilitate international trade, promote employment, & reduce poverty around the world.

Hedge from risk   : Whether it is natural calamity or man-made calamity banks mitigate the after effect of the destruction by providing financial support to the victims to stand –up & lead a peaceful life again.

Diversified services:  Banking industry offer services from CASA to insurance, to loan, to investment.

Connecting People:  With the advent of new age technological advancement Banks have made the life of the common man easier. People can transact on real time basis inmany places.

Changing from mere savings & loan facilitator role: Top priorities of banks now days include regulatory compliance, improving asset quality, enhancing customer centricity, focusing on digital convergence, and tackling competition from non-banks. Banks are therefore making business and technology investments to change their business models.

Weaknesses   in the SWOT analysis of Banking

1.Lack Of coordination:  The global banking industry faces short-term uncertainty due to the debt crises that challenge several major economies. Industry assets stand at $143 trillion (2013)&the EU is the largest regional market, with over 57% of the global market. Volatility in different market/Currencies has created problems for the banks in order to work properly across the borders.

2.Vulnerable to risk:  Since this sector deals with finances, it is the most risky sector which can change the fate of any business/Industry.

3.High NPA’s : Rise in Retail & corporate NPA’s (Non-performing assets) is the single major issue this sector is going through worldwide.

4.Can’t reach to Under-penetrated market:  Due to several conflicting objectives of government& banks which goes hand in hand, rural areas of developing nations are still not in the shadow of banks. Although PMJDY (PradhanMantri Jan DhanYojna)

implemented by the Indian banks got acknowledged by World Bank for financial inclusion but the Idea is not fully capitalized even in the home country.

5.Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labor laws, weak corporate governance, Political pressure and ineffective regulations.

Opportunities   in the SWOT analysis of Banking

a)Expansion:  Penetrating to the rural markets & bringing the rural masses under the purview of organized banking will be the objective of the Banks in decades to come.

b) Changing Socio-cultural & demographic factors: Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks.

c)Rise in private sector banking:  Banking Industry across the world is highly regulated &lead by PSU’s with their respective central banks. With the advent of private sector banks this sector is going through structural & functional changes mainly due to the adaptation of the advanced technologies & increased competition thereby benefiting to the end customers.

Threats in the SWOT analysis of Banking

1.Recession:  It is one of the major threats to the financial system of the nation. Traumatic shock of Economic crises & collapse of the several businesses can affect the banks and vice-versa.

2.Stability of the system : Failure of some weak banks has often threatened the stability of the system.

3.Competition : Competition from NBFC’s (Non-banking financial companies) like insurance companies & mutual fund companies can affect the business of Banks.

Research Methodology:

Type of research: Primary and secondary

Primary:- Questionnare method

Secondary- Internet (references are given)

Sample Size: 50

Research design: Conclusive and Quantitative method

Objective :

To study consumer behaviour about loans from Bank

Nature and Scope of study :

The study was done students at large and very few working population.

There can be errors in the response. Due to time constraints the sample size is restricted to

50. Due to some barriers the population could not be

extended to working people.Data Analysis And Interpretation:

Q1. Gender

55%

46%

Male Female

The respondents were 46% Females and 54% Males.

Q2. Age

9%

86%

2% 2%

16-2021-2526-3031-35Above 35

87% of the respondents belong to the age group of 21-25. 9% of them belong to 16-20 and 2% each to 31-35 and Above 35.

Q3. Qualification

7%

70%

22%

1%

Under graduate GraduatePost Graduate Other

70% of the respondents are graduates, 22% are post graduates, 7% are undergraduates and 1% are others.

Q4. Occupation

7%9%

84%

Self Employed Partner EmployeeRetired Student Others

84% of the respondents are students, 9% are Employees and 7% are self employed.

Q5. Income level

56%

15%

15%

15%

Below 5000 5000-1000010000-20000 Over 20000

56% of respondents belong to income level of below 5000, 15% belong to 10000-20000, 15% belong to over 20000 and 14% belong to 5000-10000 of income level.

Q6. Do you own a bank account

96%

5%

Yes No

95% of the respondents own a bank account and 5% do not own bank account.

Q7. What kind of account do you maintain in the bank

2%

98%

CurrentSavingsLoan A/cDemat

98% of respondents maintain savings accunt in the bank and 2% own current account.

Q8. Which of the following facilities is more important to you

12%

87%

1%O/D facility Loan Facility ATM facility Other

87% respondents say that ATM facility is more important for them, 12% say that loan facility is important and 1% say other facility.

Q9. Do you think that your bank caters all your banking needs

98%

2%

Yes No Maybe

98% respondents think that their bank cateres all their banking needs and 2% think maybe.

Q10. How convinient are you with your banking

27%

39%

32%

2%

Very Convinient Convinient NeutralSomewhat inconvinient very inconvinient

39% respondents their banking is convenient, 32% find it neutral, 27% find it very convenient and 2% find it somewhat inconvenient.

Q11. Did you use the online banking service provided by bank

96%

4%

Yes No

96% respondents have used the online banking service provided by their banks and 4% did not.

Q12. How do you deal with your financial problem

14% 2%

37%12%

35%

Borrow money from relatives Borrow from financial companyApply loan from bank Credit card overdraftOthers

37% of respondents apply for bank loan, 35% opt for others, 14% borrow from relatives, 12% use credit card overdraft and 2% borrow from financial company.

Q13. Have you taken any loan from bank

27%

70%

2%

Yes No Maybe

71% of respondents have not taken any loan, 2% say maybe and 27% have taken loan from the bank.

Q14. Where do you have taken loan from

Axis Bank Bank of Baroda

CSB Education loan

Not Taken any loan

Indian overseas

bank

SBI Saraswat Bank

Bank of India

0

1

2

3

4

5

6

7

8

9

The above chart gives details of the respondents taking loan from their respective banks.

Q15. Reason for choosing Your own Bank

5%

20%

15%

7%17%

22%

15%

Low interest rate Quick approvalGreater Flexibility Brand nameEasy to apply Customer of the bankOthers

22% of respondents choose their banks because of the customers of the bank, 19% choose for the quick approval, 17% choose for easy application, 15% for greater flexibility, 15% for others and 7% for brand name.

Q16. Which loan service do you look for

26%

11%

34%

5%

24%

Personal Loan Housing loan Education loanBusiness loan Others

34% of the respondents have taken Education loan, 26% have taken personal loan, 24% have taken Others, 11% have taken housing loan and 5% have taken business loan.

Q17. While taking home loan, which things attract you the most

71%

3%

9%

17%

Inetrest rate Service ProvidedPay back period Scheme

71% of respondents are attracted by Interest rates, 17% by schemes, 9% by pay back period and 3% by service provided by the bank.

Q18. What kind of installment services do you prefer

21%

14%64%

Repaid in a series payments Payment period form 6 months to 6 yearsRepaid in a lump sum Set on monthly basis

64% prefer installment set on monthly basis, 22% prefer to repay in a series of payment and 14% prefer payment period from 6 months to 6 years.

Q19. What expectations do you have from banks for providing loans

45%

13%

29%

13%

Easy payment of EMI Less document verificationLower interest rates Others

45% of respondents have expectations for easy payment of EMI, 29% for lower interest rate, 13% for less document verification and 13% for others.

Findings:

The respondents were 46% Females and 54% Males. 87% of the respondents belong to the age group of

21-25, 9% of them belong to 16-20 and 2% each to 31-35 and Above 35.

70% of the respondents are graduates, 22% are post graduates, 7% are undergraduates and 1% are others.

84% of the respondents are students, 9% are Employees and 7% are self employed.

56% of respondents belong to income level of below 5000, 15% belong to 10000-20000, 15% belong to over 20000 and 14% belong to 5000-10000 of income level.

95% of the respondents own a bank account and 5% do not own bank account.

98% of respondents maintain savings accunt in the bank and 2% own current account.

98% respondents think that their bank cateres all their banking needs and 2% think maybe.

39% respondents their banking is convenient, 32% find it neutral, 27% find it very convenient and 2% find it somewhat inconvenient.

96% respondents have used the online banking service provided by their banks and 4% did not.

37% of respondents apply for bank loan, 35% opt for others, 14% borrow from relatives, 12% use credit card overdraft and 2% borrow from financial company.

71% of respondents have not taken any loan, 2% say maybe and 27% have taken loan from the bank.

22% of respondents choose their banks because of the customers of the bank, 19% choose for the quick approval, 17% choose for easy application, 15% for

greater flexibility, 15% for others and 7% for brand name.

34% of the respondents have taken Education loan, 26% have taken personal loan, 24% have taken Others, 11% have taken housing loan and 5% have taken business loan.

71% of respondents are attracted by Interest rates, 17% by schemes, 9% by pay back period and 3% by service provided by the bank.

64% prefer installment set on monthly basis, 22% prefer to repay in a series of payment and 14% prefer payment period from 6 months to 6 years.

45% of respondents have expectations for easy payment of EMI, 29% for lower interest rate, 13% for less document verification and 13% for others.

Conclusion:

The Consumer behavior towards bank loans seems to be positive. It is also one of the most used facility of the banks.

References:

https://en.wikipedia.org/wiki/Loan https://www.slideshare.net/AnilTinku/fundamential-

technical-analysis-of-banking-sector-ppt-42093449 http://www.marketing91.com/swot-analysis-of-

banking-industry/ http://www.ibef.org/industry/banking-india.aspx