Professional Documents
Culture Documents
levels of illiteracy among a large percentage of its population but, at the same time,
the country has a large reservoir of managerial and technologically advanced talents.
Between about 30 and 35 percent of the population resides in metro and urban cities
and the rest is spread in several semi-urban and rural centres The countrys economic
policy framework combines socialistic and capitalistic features with a heavy bias
towards public sector investment. India has followed the path of growth-led exports
rather than the exported growth of other Asian economies, with emphasis on selfreliance through import substitution. These features are reflected in the structure,
size, and diversity of the countrys banking and financial sector. The banking system
has had to serve the goals of economic policies enunciated in successive five-year
development plans, particularly concerning equitable income distribution, balanced
regional economic growth, and the reduction and elimination of private sector
monopolies in trade and industry. In order for the banking industry to serve as an
instrument of state policy, it was subjected to various nationalization schemes in
different phases (1955, 1969, and 1980). As a result, banking remained
internationally isolated (few Indian banks had presence abroad in international
financial centers) because of preoccupations with domestic priorities, especially
massive branch expansion and attracting more people to the system.
These features have left the Indian banking sector with weaknesses and
strengths. A big challenge facing Indian banks is how, under the current ownership
structure,
to
attain
operational
efficiency
suitable
for
modern
financial
intermediation. On the other hand, it has been relatively easy for the public sector
banks to recapitalize, given the increase in nonperforming assets (NPAs), as their
Government dominated ownership structure has reduced the conflicts of interest that
private banks would face.
Current Scenario
The industry is currently in a transition phase. On the one hand, the PSBs, which are
the mainstay of the Indian Banking system, are in the process of shedding their flab
in terms of excessive manpower, excessive non Performing Assets (Npas) and
excessive governmental equity, while on the other hand the private sector banks are
consolidating themselves through M&A.
PSBs, which currently account for more than 78 percent of total banking industry
assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling
revenues from traditional sources, lack of modern technology and a massive
workforce while the new private sector banks are forging ahead and rewriting the
traditional banking business model by way of their sheer innovation and service. The
PSBs are of course currently working out challenging strategies even as 20 percent of
their massive employee strength has dwindled in the wake of the successful VRS
The private players however cannot match the PSBs great reach, great size and
access to low cost deposits. Therefore one of the means for them to combat the PSBs
has been through the merger and acquisition (M& A) route. Over the last two years,
the industry has witnessed several such instances. For instance, Hdfc Banks merger
with Times Bank Icici Banks acquisition of ITC Classic, Anagram Finance and
Bank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are
said to be on the lookout. The UTI bank- Global Trust Bank merger however opened
a pandoras box and brought about the realization that all was not well in the
functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking, anywhere
banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and
combined various other services and integrated them into the mainstream banking
arena, while the PSBs are still grappling with disgruntled employees in the aftermath
of successful VRS schemes. Also, following Indias commitment to the W To
agreement in respect of the services sector, foreign banks, including both new and
the existing ones, have been permitted to open up to 12 branches a year with effect
from 1998-99 as against the earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 percent to 33 percent in November
2000 have also opened up a new opportunity for the takeover of even the PSBs. The
FDI rules being more rationalized in Q1FY02 may also pave the way for foreign
banks
taking
the
M&A
route
to
acquire
willing
Indian
partners.
Meanwhile the economic and corporate sector slowdown has led to an increasing
number of banks focusing on the retail segment. Many of them are also entering the
new vistas of Insurance. Banks with their phenomenal reach and a regular interface
with the retail investor are the best placed to enter into the insurance sector. Banks in
India have been allowed to provide fee-based insurance services without risk
participation invest in an insurance company for providing infrastructure and
services support and set up of a separate joint-venture insurance company with risk
participation.
General Banking Scenario
The predicament of the banks in the developed countries owing to excessive
leverage and lax regulatory system has time and again been compared with
somewhat unscathed Indian Banking Sector. An attempt has been made to understand
the general sentiment with regards to the performance, the challenges and the
opportunities ahead for the Indian Banking Sector. A majority of the respondents,
almost 69% of them, felt that the Indian banking Industry was in a very good to
excellent shape, with a further 25% feeling it was in good shape and only 6% of the
respondents feeling that the performance of the industry was just average. In fact, an
overwhelming majority (93.33%) of the respondents felt that the banking industry
compared with the best of the sectors of the economy, including pharmaceuticals,
infrastructure, etc. Most of the respondents were positive with regard to the growth
rate attainable by the Indian banking industry for the year 2009-10 and 2014-15, with
53.33% of the view that growth would be between 15-20% for the year 2009-10 and
greater than 20% for 2014-15. On being asked what is the major strength of the
Indian banking industry, which makes it resilient in the current economic climate;
93.75% respondents feel the regulatory system to be the major strength, 75%
economic growth, 68.75% relative insulation from external market, 56.25% credit
quality, 25% technological advancement and 43.75% our risk assessment systems
Indias GDP has been growing at a rapid clip over the past decade and is set
to grow at even a faster pace in the coming decade. Financial services penetration of
the Indian economy is quite low compared to even other developing economies. With
majority of the Indian population mired in poverty, access to banks and financial
companies is quite hard as people lack knowledge and education. Indias banks have
grown at a rapid pace over the past 2 decades after the financial liberalization.
However this growth has still lacked in meeting the massive demand in the need of
financial intermediation. This has led to the growth on non-banking financing
companies (NBFCs) and microfinance companies. With the opening of the insurance
sector, financial companies in India are set to enter a new growth phase. Major Banks
in India is either state owned or previous government owned institutions which have
been fully privatized like ICICI and HDFC Bank. Both the state owned banks and the
private banks have managed to grow without throwing the whole system in a crisis
like what has happened in the recent past in Europe and USA and in China in the
1990s.Here is a list of the 10 Major Banks in India
1) State Bank of India (SBI) - SBI is Indias Largest Bank which is majority owned
by the Government. The Company has a number of Subsidiaries and has been a
market outperformer in recent times with Revenue of $22 Billion. The SBI has 7
subsidiaries of which 2 have been merged and 5 are remaining.
2) ICICI Bank This is the largest Indian Private Bank with operations in all
Financial Services Sectors. The Company has faced a bad time during the Lehman
downturn but has recovered well. ICICI Bank is also strong in almost all sectors of
the financial industry and has one of the strongest management teams in the country.
Like HDFC Bank majority of the shareholding is held by foreign investors. The
company which overextended itself in the 2007-2008 boom has now reduced the size
of its risky segments and is again back on the growth trajectory.
3) HDFC Bank HDFC Bank like Axis Bank has shown remarkable growth in the
last few years. The Bank which was founded by Indias largest housing finance
company HDFC has assets of around $22 billion. It is the one of the best rated banks
in terms of service quality and growth.
4) Punjab National Bank Punjab National Bank (PNB , is the second largest PSU
bank with about 5000 branches across 764 cities. The Bank like BOB and SBI has
shown good growth while at the same time managed to control bad debt.
5) Axis Bank - Axis Bank has been the best performing private bank along with
HDFC Bank showing excellent growth in top line and bottom line. The Bank has
been expanding into insurance and investment banking (acquired Enam).Axis Bank
was formerly UTI Bank that begun operations in 1994.The Bank was promoted
jointly by UTI,LIC and other state owned general insurers. One of the best Indian
bank stock picks.
6) Bank of Baroda Bank of Baroda (BoB) is the third largest bank in India and is
government owned like SBI and PNB. BOB as it is popularly known has shown
excellent growth over the last few years and has managed to control its NonPerforming Asset (NPA).The Bank has good management and manages to earn nice
interest spreads.
7) Bank of India -Bank of India (BoI)is Indias 4th largest bank, with 3374
branches, including 27 branches outside India. It was the first bank in India promoted
by Indian interests to serve all the communities of India. The stock of the company
has not performed as well as it peers post the Lehman crisis. It has seen its market
cap decrease relative to its larger PSU Bank peers
8) IDBI Bank - Industrial Development Bank of India Limited (IDBI) is a leading
public sector banks. RBI categorised IDBI as an other public sector bank. The
commercial banking arm, IDBI BANK, was merged into IDBI. This PSU Bank has
supposed have great potential and could be the next ICICI in the making.
9) Kotak Mahindra Bank - This is the first NBFC to convert into a bank. The bank
has its origins as an investment bank and is still very strong in the capital markets.
The Bank and its sister concerns are present in most of the financial segments of the
market like Private Equity, Wealth Management, Broking, Investment Banking etc.
10) Yes Bank Yes Bank was founded by Ashok Kapur and Rana Kapoor. This
bank though still small compared to its larger peers, has come into the top 10 due to
7
its path breaking performance over the last few years in terms of growth. It has
managed to set new standards and has broken out from the league of smaller private
banks.
fact there was a surge of Banks in the state following the nationalisation of the banks
in1969.
The State Bank of India (S.B.I.), Canara Bank and Syndicate Bank are the
principal nationalized banks. The State Bank of India offers around 228 branches and
the Syndicate Bank has 115 branches in the fourteen districts of Kerala.
Apart from these commercial banks like Vijaya Bank, Dhanlakshmi Bank and
the Federal Bank also offer commendable finance and banking facilities.
Dhanalakshmi Bank offers 112 branches in the state. The Grameen Banks like
SMGB and NMGB provide loans at low interest rates, special, subsidized lands and
relief facilities to the local farmers and plays a great role in enhancing the agrarian
productivity of the state.
India, not just in the metros but in Tier II cities and rural India as well, we are
redefining the reach and power of banking.
Kotak Mahindra Bank Limited (the Bank) is a commercial bank. The Bank
operates in nine business segments: Treasury, Investments and Balance Sheet
Management Unit includes dealing in debt, forex market, investments and primary
dealership of government securities; Retail Banking includes lending, personal loans
and agriculture finance, branch banking, which includes retail borrowings covering
savings and branch banking network/services, including distribution of financial
products, and credit cards, which includes receivables relating to credit card
business; Corporate Banking includes wholesale borrowings and lendings; Vehicle
Financing include retail vehicle and wholesale trade finance; Other lending activities
include financing against securities and other loans; broking include brokerage
income; advisory and transactional services provides financial advisory and
transactional services; Asset Management include management of investments, and
Insurance, which include life insurance.
Our Story
Milestones that have shaped the Kotak Mahindra Group, since 1986
Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has
been a steady and confident journey leading to growth and success. The milestones
of the group growth story are listed below year wise
2010
2009
10
2008
2006
2005
o Kotak Group realigned joint venture in Ford Credit; their
stake in Kotak Mahindra Prime was bought out (formerly
known as Kotak Mahindra Primus Ltd) and Kotak groups
stake in Ford credit Kotak Mahindra was sold.
o Launched a real estate fund
2004
2003
2001
2000
Kotak Mahindra tied up with Old Mutual plc. for the Life
Insurance business.
11
1998
1996
1995
1992
1991
1990
12
1987
1986
Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank
offers personal finance solutions of every kind from savings accounts to credit cards,
distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers
transaction banking, operates lending verticals, manages IPOs and provides working
capital loans. Kotak has one of the largest and most respected Wealth Management
teams in India, providing the widest range of solutions to high net worth individuals,
entrepreneurs, business families and employed professionals
Senior Management
Core Kotak Mahindra Group team
Mr. Uday S. Kotak
Executive Vice Chairman and Managing Director
Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of
the Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of
Jamnalal Bajaj Institute of Management Studies.
In 1985, when he was still in his early twenties, Mr Kotak thought of setting
up a bank when private Indian banks were not even seen in the game. First Kotak
Capital Management Finance Ltd (which later became Kotak Mahindra Finance Ltd),
13
and then with Kotak Mahindra Finance Ltd, Kotak became the first non-banking
finance company in India's corporate history to be converted into a bank. Over the
years, Kotak Mahindra Group grew into several areas like stock broking and
investment banking to car finance, life insurance and mutual funds.
Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator
of the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in
2003. He was featured as one of the Global Leaders for Tomorrow at the World
Economic Forum's annual meet at Davos in 1996. He was also featured among the
Top Financial Leaders for the 21st Century by Euromoney magazine. He was named
as CNBC TV18 India Business Leader of the Year 2008 and as the most valued CEO
by businessworld in 2010.
Mr. C Jayaram
Joint Managing Director
Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in
charge of the Wealth Management Business of the Kotak Group. An alumnus of IIM
Kolkata, he has been with the Kotak Group since 1990 and member of the Kotak
board in October 1999. He also oversees the international subsidiaries and the
alternate asset management business of the group. He is the Director of the Financial
Planning Standards Board, India. He has varied experience of over 25 years in many
areas of finance and business, has built numerous businesses for the Group and was
CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a
keen interest in psychology
Mr. Dipak Gupta
Joint Managing Director
An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has
been with the Kotak Group since 1992 and joined the board in October 1999.
He heads commercial banking, retail asset businesses and looks after group
HR function. Early on, he headed the finance function and was instrumental in the
14
joint venture between Kotak Mahindra and Ford Credit International. He was the first
CEO of the resulting entity, Kotak Mahindra Primus Ltd.
Kotak Mahindra Bank has reported its results for the quarter ended Dec '11. Interest
earned for the quarter was Rs 1,640.98 crore and net profit was Rs 276.08 crore. For
the quarter ended Dec 2010 the interest earned was Rs 1135.40 crore and net profit
was Rs 187.87 crore
The bank offers complete financial solutions for infinite needs of all
individual and non-individual customers depending on the customer's need delivered through a state of the art technology platform. Investment products
like Mutual Funds, Life Insurance, retailing of gold coins and bars etc are
also offered. The bank follows a mix of both open and closed architecture for
distribution of the investment products. All this is backed by strong, in-house
research on Mutual Funds.
The banks savings account goes beyond the traditional role of savings, and
allows us to put aside a lot more than just money. The worry-free feature of
Savings Account provides a range of services from funds transfer, bill
payments, 2-way sweep through our Active Money feature and much more.
We can place standing instructions for investment options that can be booked
through Internet or through Phone banking services. The Savings Account
thus provides for attractive returns earned through a comprehensive suite
products and services that offer investment options, all delivered seamlessly
to the customer by well integrated technology platforms.
Apart from Phone banking and Internet banking, the Bank offers convenient
banking facility through Mobile banking, SMS services, Netc@rd, Home
banking and Bill Pay facility among others.
15
The Depository services offered by the Bank allows the customers to hold
equity shares, government securities, bonds and other securities in electronic
or Demat forms.
For the business community, the bank offer comprehensive business solutions
that include the Current Account, Trade Services, Cash Management Service
and Credit Facilities. The banks wholesale banking products offer business
banking solutions for long-term investments and working capital needs,
advice on mergers and acquisitions and equipment financing. To meet special
needs of the rural market, the bank has dedicated business offerings for
agricultural financing and infrastructure. Its Agriculture Finance division
delivers customised products for capital financing and equipment financing
needs of our rural customers.
For financial liquidity the bank offers loans that meet personal requirements
with quick approval and flexible payment options. To complete the personal
financial offerings space, the bank now offers Kotak Credit Card which is a
hassle-free, transparent product that also happens to be the first vertical credit
card in the industry.
get in touch at the comfort of homes and at the convenience. These offerings
are specifically designed to suit the overseas Indian's personal financial needs
and give the global Indians a near to home feel.
Business loans
Products
Term loans
Net Margin
PL PTR
3 to 9
17
TERM LOAN
1. Normal SENP& SEP
2. Net Margin
3. 3 to 9
4. PSL / Non PSL
5. PL PTR
1. NORMAL SENP
Terms & Condition
18
2. NET MARGIN
Business
Net margin
Turnover
Petrol Pump
Gas agency
Pharma
FMCG& Mbl
Restaurant
Caters
Printers
Medical store / General store
1%
2%
4%
1%
10%
10%
4%
10%
5 cr
2 cr
1 cr
1cr
30 cr
40 cr
1 cr
60 cr
Department store
10%
50 cr
Last 11 month
1 bounce
12 to 17 month
2 bounce
Above 17 month
3 bounce
3. 3 TO 9
19
Conditions
1. Minimum Business income 1.5 Lacs
2. Minimum turnover manufacture 50 Lacs
Other business normal turnover
3. Business continuity
EMI 5000
-
Within 12 month
13 to 23 month
2 bounce
Above 24 months
3 bounce
6 month
1 bounce
5 PL allowed
-
3 PL allowed
8.
4. PL PTR Scheme
20
Approved Financiers
1. ICICI
2. HDFC
3. Citi Bank (not citi finance)
4. ABN
5. SCB
6. Reliance
7. HSBC
8. Barclays
9. Religare
10. Bajaj
1 fresh loan in last 6mts is allowed and customer shouldnt have taken any PL
in last 3mts.
21
If the loan is topped up and combined seasoning is considered, then the lower
EMI to be considered for eligibility.
Maximum tenor should not exceed tenor of loan considered for eligibility
Key Features
22
Collateral free
Quick disbursement
23
CHAPTER 3
REVIEW OF LITERATURE
24
(such as KMV and Moodys Risk Calc), and reduced-form models (such as Credit
Risk Plus). These models allow lenders and regulators to develop techniques that rely
on portfolio aggregation to measure retail credit risk exposure.
David Blanch flow (1993) et.al investigated data from the 1993 National
Survey of Small Business Finances to determine the extent to which minority-owned
small businesses face constraints in the credit market beyond those faced by whiteowned small businesses2. First, we present qualitative evidence indicating that blackand white-owned firms report similar concerns about the factors that may affect their
businesses except that blacks are far more likely to report problems with credit
availability. Second, we conduct an econometric analysis of loan denial probabilities
by race and find that black-owned small businesses are almost three times more
likely to have a loan application denied. Even after controlling for the differences in
credit-worthiness and other factors that exist between black- and white-owned firms,
blacks are still about twice as likely to be denied credit. A series of specification
checks indicates that this gap is unlikely to be largely attributed to omit variable bias.
Third, we conduct a similar analysis regarding interest rates charged to approved
loans and find black-owned firms pay higher interest rates as well. Finally, even
these results are likely to understate differences in credit access because many
potential black-owned firms are not in operation due to the lack of credit and those in
business may be too afraid to apply. These results indicate that the racial disparity in
credit
availability
is
likely
caused
by
discrimination.
Marc (2010) et.al explains a unique dataset comprised of small firms facing a
very real, and binding, credit constraint, to question whether a corrective scheme
such as the SFLGS has, in practice, alleviated such constraints by promoting access
to debt finance for small credit constrained firms 3. The results broadly support the
view that the SFLGS has fulfilled its primary objective. It is a widely
held perception, although empirically contentious, that credit rationing is an
important phenomenon in the UK small business
Jimn & Sau(2004) analyses the determinants of the probability of default
(PD) of bank loans4. We focus the discussion on the role of a limited set of variables
(collateral, type of lender and bankborrower relationship) while controlling for the
25
other explanatory variables. The study uses information on the more than three
million loans entered
into
by
Spanish
credit
institutions
over
26
Jeremy Berk (2004) et.al investigates how personal bankruptcy law affects
small firms' access to credit8. When a firm is unincorporated, its debts are personal
liabilities of the firm's owner, so that lending to the firm is legally equivalent to
lending to its owner. If the firm fails, the owner has an incentive to file for personal
bankruptcy, since the firm's debts will be discharged and the owner is only obliged to
use assets above an exemption level to repay creditors. The higher the exemption
level, the greater is the incentive to file for bankruptcy. We show that supply of credit
falls and demand for credit rises when non-corporate firms are located in states with
higher bankruptcy exemptions. We test the model and find that, if small firms are
located in states with unlimited rather than low homestead exemptions, they are more
likely to be denied credit, they receive smaller loans and interest rates are higher.
Results for non-corporate versus corporate firms suggest that lenders often disregard
small firms' organizational status in making loan decisions.
William and Nelson (1998) find that the use of risk rating systems is quite
widespread, but that smaller banks generally have less detailed systems than do
larger banks9. In addition, the new survey data allow us to assess the relationships
between loan risk ratings and loan terms. Not surprisingly, riskier loans generally
carry higher interest rates, even after taking account of other loan terms. There are
more complex relationships between loan risk and other loan terms. Regression
results indicate that banks of all sizes price for risk. We do not find a relationship
between reported loan risk and delinquency and charge-off rates. However, this may
reflect how recently the risk rating data have become available. In recent years many
banks have attempted to improve the measurement and management of credit risk by
assigning risk ratings to business loans. Virtually all large banks now assign such
ratings. However, until recently there has been little information on the use of risk
ratings by smaller banks. Recent revisions to the Federal Reserve's Survey of Terms
of Business Lending and telephone consultations with more than 100 banks on the
survey panel provide data on the prevalence and precision of risk rating systems at
banks of all sizes.
Frame (2004) et.al estimates that credit scoring is associated with about a
$3,900 increase in small business lending per sample banking organization, per low27
and moderate-income (LMI) area served, and this effect is roughly equivalent to that
estimated for higher-income areas10. For our sample, this corresponds to a $536
million increase in small business credit in LMI areas in 1997 than otherwise would
have been the case. This effect appears to be driven by increased out-of-market
lending by banking organizations, as in-market lending generally declines. Overall, it
does not appear that credit scoring has a disparate impact on LMI areas.
Shelagh (2006) points out an econometric model to examine the pricing
behaviour of British financial institutions with respect to key bank products/services
offered to small and medium sized enterprises (SMEs) including current accounts,
investment accounts, business loans, and mortgages11. A mean group approach is
used on a panel of monthly data to gauge individual banks reactions to identify
factors influencing the setting of deposit and loan rates, and to assess the competitive
structure that best describes the UKs SME banking market. Though the results
should be interpreted with caution, the empirical evidence is suggestive of a complex
oligopoly. Policies directed at improving information and making it easier for
small businesses to change banks/accounts would reduce inertia and improve
competition among financial institutions.
Jalal (2001) et.al investigates a significant contribution to the financial
innovation literature by examining the diffusion of a recent important innovation of
the 1990s: banks' use of credit scoring for small business lending12. We examine the
responses of 95 large banking organizations to a survey that asked whether they had
adopted credit scoring for small business lending as of June 1997 (56 had done so)
and, if they had adopted it, when they had done so. We estimate hazard and tobit
models to explain the diffusion pattern of small business credit scoring models.
Explanatory variables include several market, firm, and managerial factors of the
banking organizations' under study. The hazard model indicates that larger banking
organizations innovated earlier, asdid those located in the New York Federal Reserve
district; both results are consistent with our expectations. The tobit model confirms
these results and also finds that organizations with fewer separately chartered banks
but more branches innovated earlier, which is consistent with theories stressing the
28
29
banks have suffered severe criticism for their alleged failure to support industrial
activity, to provide industrial finance. They are said to compare unfavourably with
their European counterparts.
Jays et.al describes that the unsecured enterprise loans can be procured
quickly with speedy help16. So, funding company no more stays a problem. Also, you
do not have to go by means of the unpleasant & time sucking process of finding
to banking institutions, heading by way of endless identity or safety verifications. If
your goal is company growth, renovation or up gradation then, you know you might
be secure and well furnished for, with the alternative of unsecured business loans.
The most fascinating bit is that you dont have to complacent financially to procure
these loans.
Andrew Baker explains about Businesspersons, who have undergone bad credit
history, also make use of this category of loans 17. Such businesspersons and
enterprises are known as problem cases. Failure to pay certain debts in the past leads
to county court judgements, and bankruptcy, which in turn leads to bad credit history.
Such businesspersons are disadvantaged in secured loan deals. Unsecured business
loans however, present immense financial opportunities before borrowers;
particularly where the loan amount desired is small. The amount received through
unsecured business loans will be used for business commencement or expansion
purposes, assets and equipment purchase and refinance, and to restructure finances.
Some businesses use the loan proceeds as a working capital. Still others would use
the unsecured business loan to finance a particular consignment. The repayment of
this type of loan will be due immediately after the entrepreneur gets payment from
the consignee, or any date decided.
Todd Kalb describes about small businesses and entrepreneurs facing a perpetual
lack of funds for taking their business to the next level, small business unsecured
loans are the solution18. With the easy availability of unsecured loans most small
businesses prefer going in for small business unsecured loans. Sometimes business
owners are put off by what they perceive as slightly higher rates of interest for small
business unsecured loans. Since the loan is unsecured it is natural to think that
30
lenders use the higher rates to offset the risk involved. However in reality, these types
of unsecured business loans may have lower interest rates than other types of
collateralized loans, such as factoring. To put it all together you get capital without
any stakes and a lot of ease. Also, you can use it in any way that you want. Now
suppose you took the loan to buy some office equipment, but decided to go in for that
sales program instead. The small business unsecured loan lender couldn't care less.
You can spend it in any way that you want. Small business unsecured loans are
similar to other loans in most other aspects, with unsecured loans not requiring
collateral and with good credit you can apply now with no documented income. The
loan application process is initiated by the borrower filling in the unsecured loan
application, which can be done online via desktop conferencing technology. Once the
application is received the lender starts to work to find more about the borrower in
regards to his credit history and their financial details also decides on what they can
offer to the borrower. If the borrower's requirements and the lenders offerings are inline with each other, the deal works out and even if they are not, oftentimes the
lender may make a counter offer to the borrower until they do come to equilibrium
and they fall into line with each other and the loan gets approved and funded.
Generally for small business, unsecured loans are approved faster compared to
secured loans and this is one of the key factors that a borrower would consider when
having multiple lenders offering them various types of loans. Borrowers like to have
their unsecured loans available promptly. Unsecured small business loans are now in
the mainstream and are considered as a regular source of acquiring finance.
Unsecured loans are offered with absolutely no strings attached and the borrower is
free to spend it any way they find suitable. This makes it a more lucrative proposition
for the borrowers and they are increasingly using unsecured small business loans for
business start up, debt settlement, purchase of assets, business expansion and even
working capital.
Venditto (2007) et.al discusses the Official Committee of Unsecured Creditors in the
U.S19. The committee is aimed at representation and protection of the interests of
unsecured creditors during the reorganization proceedings. The committee has
several responsibilities including consulting with the debtor in possession about the
31
administration of the case and investigating the debtors business finances and the
desirability of continued operation.
Many people prefer to apply for unsecured loans or loans without collateral, thinking
that it involves much less risk and responsibility 20. While it is true that unsecured
loans do not require the submission of collateral or the borrowers home property, a
borrower must still take his/her repayment obligations seriously. Today, lets discuss
some of the basic things about unsecured loans along with some tips on how you can
a better loan deal. Compared to secured loans, loans without collateral are expected
to have higher interest rates. It is very important to make sure that the rate of your
unsecured loan is based on a fixed-rate system, not a variable one. A fixed-rate loan
will ensure that your monthly interest will never change until your loan has been
completely paid off. Lenders who extend unsecured loans offer limited loan amounts
or loan value to ensure that the borrower will be capable of repayment. It is still
worth the try to request your lending company for a lower interest rate especially if
your credit history does show that you are credit worthy. Even if your lending
company may refuse to lower your rate, you will never know until you try to
negotiate. Again, make sure that the interest rate will be fixed and that there will be
no hidden charges or extra fees that are not in your contract. Youll want to inquire
about the different payment methods that the lender offers so you can submit your
payments at your convenience. Also, a shorter repayment period may come with a
slightly higher rate but in the end, your total costs will be much lower than a loan
with a longer repayment period. Last but not least, see to it that you have a realistic
plan in paying off your unsecured loan to avoid expensive late charges or an
increased rate of interest. Borrow only the amount of money you need so that
repayment will not be such a burden later on.
variations in three or four observed variables mainly reflect the variations in fewer
such unobserved variables. Factor analysis searches for such joint variations in
response to unobserved latent variables. The observed variables are modeled as linear
combinations of the potential factors, plus "error" terms. The information gained
about the interdependencies between observed variables can be used later to reduce
the set of variables in a dataset. Computationally this technique is equivalent to low
rank approximation of the matrix of observed variables. Factor analysis originated in
psychometrics, and is used in behavioral sciences, social sciences, marketing,
product management, operations research, and other applied sciences that deal with
large quantities of [data.]
Factor analysis is related to principal component analysis (PCA), but the two are not
identical. Latent variable models, including factor analysis, use regression modelling
techniques to test hypotheses producing error terms, while PCA is a descriptive
statistical technique21.
3.2 (B) Type of factor analysis
Exploratory factor analysis (EFA) is used to uncover the underlying structure of a
relatively large set of variables. The researcher's a priori assumption is that any
indicator may be associated with any factor. This is the most common form of factor
analysis. There is no prior theory and one uses factor loadings to intuit the factor
structure of the data.
Confirmatory factor analysis (CFA) seeks to determine if the number of factors and
the loadings of measured (indicator) variables on them conform to what is expected
on the basis of pre-established theory. Indicator variables are selected on the basis of
prior theory and factor analysis is used to see if they load as predicted on the
expected number of factors. The researcher's a priori assumption is that each factor
(the number and labels of which may be specified a priori) is associated with a
specified subset of indicator variables. A minimum requirement of confirmatory
factor analysis is that one hypothesizes beforehand the number of factors in the
model, but usually also the researcher will posit expectations about which variables
33
will load on which factors. The researcher seeks to determine, for instance, if
measures created to represent a latent variable really belong together.
3.2 (C) Types of factoring
The most common form of factor analysis, PCA seeks a linear combination of
variables such that the maximum variance is extracted from the variables. It then
removes this variance and seeks a second linear combination which explains the
maximum proportion of the remaining variance, and so on. This is called the
principal axis method and results inorthogonal (uncorrelated) factors.
seeks the least number of factors which can account for the common variance
(correlation) of a set of variables.
Image factoring
Based on the correlation matrix of predicted variables rather than actual
variables, where each variable is predicted from the others using multiple
regressions.
Alpha factoring
Based on maximizing the reliability of factors, assuming variables are
randomly sampled from a universe of variables. All other methods assume cases to
be sampled and variables fixed.
34
alternatively, it can be viewed as the hybrid factor model, whose factors are partially
known22.
3.2 (D) Terminology
a) Factor loadings
The factor loadings, also called component loadings in PCA, are the correlation
coefficients between the variables (rows) and factors (columns). Analogous
to Pearson's r, the squared factor loading is the percent of variance in that indicator
variable explained by the factor. To get the percent of variance in all the variables
accounted for by each factor, add the sum of the squared factor loadings for that
factor (column) and divide by the number of variables. (Note the number of variables
equals the sum of their variances as the variance of a standardized variable is 1.) This
is the same as dividing the factor's eigenvalue by the number of variables.
b) Interpreting factor loadings
By one rule of thumb in confirmatory factor analysis, loadings should be .7 or
higher to confirm that independent variables identified a priori are represented by a
particular factor, on the rationale that the .7 level corresponds to about half of the
variance in the indicator being explained by the factor. However, the .7 standard is a
high one and real-life data may well not meet this criterion, which is why some
researchers, particularly for exploratory purposes, will use a lower level such as .4
for the central factor and .25 for other factors call loadings above .6 "high" and those
below .4 "low". In any event, factor loadings must be interpreted in the light of
theory, not by arbitrary cutoff levels.
In oblique rotation, one gets both a pattern matrix and a structure matrix. The
structure matrix is simply the factor loading matrix as in orthogonal rotation,
representing the variance in a measured variable explained by a factor on both a
unique and common contributions basis. The pattern matrix, in contrast,
contains coefficients which just represent unique contributions. The more factors, the
35
lower the pattern coefficients as a rule since there will be more common
contributions to variance explained. For oblique rotation, the researcher looks at both
the structure and pattern coefficients when attributing a label to a factor.
c) Communality
The sum of the squared factor loadings for all factors for a given variable
(row) is the variance in that variable accounted for by all the factors, and this is
called the communality. The communality measures the percent of variance in a
given variable explained by all the factors jointly and may be interpreted as the
reliability of the indicator.
d) Spurious solutions
If the communality exceeds 1.0, there is a spurious solution, which may
reflect too small a sample or the researcher has too many or too few factors.
e) Uniqueness of a variable
That is, uniqueness is the variability of a variable minus its communality.
f) Eigenvalues:/Characteristic roots
The eigenvalue for a given factor measures the variance in all the variables
which is accounted for by that factor. The ratio of eigenvalues is the ratio of
explanatory importance of the factors with respect to the variables. If a factor has a
low eigenvalue, then it is contributing little to the explanation of variances in the
variables and may be ignored as redundant with more important factors. Eigenvalues
measure the amount of variation in the total sample accounted for by each factor.
g) Extraction sums of squared loadings
Initial eigenvalues and eigenvalues after extraction (listed by SPSS as
"Extraction Sums of Squared Loadings") are the same for PCA extraction, but for
other extraction methods, eigenvalues after extraction will be lower than their initial
counterparts. SPSS also prints "Rotation Sums of Squared Loadings" and even for
PCA, these eigenvalues will differ from initial and extraction eigenvalues, though
their total will be the same.
36
h) Factor scores
It also called component scores in PCA. These are the scores of each case
(row) on each factor (column). To compute the factor score for a given case for a
given factor, one takes the case's standardized score on each variable, multiplies by
the corresponding factor loading of the variable for the given factor, and sums these
products. Computing factor scores allows one to look for factor outliers. Also, factor
scores may be used as variables in subsequent modelling.
3.2 (E) Criteria for determining the number of factors
Using one or more of the methods below, the researcher determines an appropriate
range of solutions to investigate. Methods may not agree. For instance, the Kaiser
criterion may suggest five factors and the scree test may suggest two, so the
researcher may request 3-, 4-, and 5-factor solutions discuss each in terms of their
relation to external data and theory.
i.
Comprehensibility
Kaiser criterion
The Kaiser rule is to drop all components with eigenvalues under 1.0 this being the
eigenvalue equal to the information accounted for by an average single item. The
Kaiser criterion is the default in SPSS and most statistical software but is not
recommended when used as the sole cut-off criterion for estimating the number of
factors as it tends to overextract factors23.
iii.
for 90% (sometimes 80%) of the variation. Where the researcher's goal emphasizes
37
parsimony (explaining variance with as few factors as possible), the criterion could
be as low as 50%
iv.
Scree plot
The Cattell scree test plots the components as the X axis and the
corresponding eigenvalues as the Y-axis. As one moves to the right, toward later
components, the eigenvalues drop. When the drop ceases and the curve makes an
elbow toward less steep decline, Cattell's scree test says to drop all further
components after the one starting the elbow. This rule is sometimes criticised for
being amenable to researcher-controlled "fudging". That is, as picking the "elbow"
can be subjective because the curve has multiple elbows or is a smooth curve, the
researcher may be tempted to set the cut-off at the number of factors desired by his or
her research agenda.
3.2 (F) Horn's Parallel Analysis (PA):
A Monte-Carlo based simulation method that compares the observed eigenvalues
with those obtained from uncorrelated normal variables. A factor or component is
retained if the associated eigenvalue is bigger than the 95th of the distribution of
eigenvalues derived from the random data. PA is one of the most recommendable
rules for determining the number of components to retain, but only few programs
include this option24.
Before dropping a factor below one's cut-off, however, the researcher should check
its correlation with the dependent variable. A very small factor can have a large
correlation with the dependent variable, in which case it should not be dropped.
3.2 (G) Rotation methods
The unrotated output maximises the variance accounted for by the first and
subsequent factors, and forcing the factors to be orthogonal. This data-compression
comes at the cost of having most items load on the early factors, and usually, of
having many items load substantially on more than one factor. Rotation serves to
make the output more understandable, by seeking so-called "Simple Structure": A
pattern of loadings where items load most strongly on one factor, and much more
38
weakly on the other factors. Rotations can be orthogonal or oblique (allowing the
factors to correlate).
i.
Varimax rotation
It is an orthogonal rotation of the factor axes to maximize the variance of the squared
loadings of a factor (column) on all the variables (rows) in a factor matrix, which has
the effect of differentiating the original variables by extracted factor. Each factor will
tend to have either large or small loadings of any particular variable. A varimax
solution yields results which make it as easy as possible to identify each variable
with a single factor. This is the most common rotation option.
ii.
Quartimax rotation
Equimax rotation
It is the standard method when one wishes a non-orthogonal (oblique) solution that
is, one in which the factors are allowed to be correlated. This will result in higher
eigenvalues but diminished interpretability of the factors.
v.
Promax rotation
REFERENCE
1. Linda Allen and Gayle DeLong, Issues in the credit risk modeling of retail
markets, Zicklin School of Business, Baruch College, One Bernard Baruch
Way, Box B 10-225, New York, NY 10010, USA, Available online 27
November 2003
2.
9. William B. and Nelson, William R., Bank Risk Rating of Business Loan
(December 7, 1998). Board of Governors of the Federal Reserve System
FEDS Paper No. 98-51.
40
10. W. Scott Frame & Lynn Woosley, Credit Scoring and the Availability of
Small Business Credit in Low- and Moderate-Income Areas, Financial
Review Volume 39, Issue 1, pages 3554, February 2004
11. Shelagh Heffernan, UK bank services for small business, Finance, Volume
30, Issue 11, November 2006, Pages 3087-3110
12. Akhavein, Jalal D., Frame, W. Scott and White, Lawrence J., The Diffusion
of
Financial
Innovations:
An
Examination
of
the
Adoption
of
41
21. Bartholomew, D. J., Steele, F., Galbraith, J., & Moustaki, I. (2008). Analysis
of Multivariate Social Science Data (2 ed.). New York: Chapman & Hall/Crc.
22. Meng, J. (2011). "Uncover cooperative gene regulations by microRNAs and
transcription factors in glioblastoma using a nonnegative hybrid factor
model". International Conference on Acoustics, Speech and Signal
Processing.
23. Bandalos, D.L.
misconceptions
&
in
Boehm-Kaufman,
exploratory
factor
M.R.
(2009).
analysis
In
Four
common
Statistical
and
methodological myths and urban legends: Doctrine, verity and fable in the
organizational and social sciences. Lance, Charles E. (Ed.); Vandenberg,
Robert J. (Ed.). New York: Routledge. pp. 6187.
24. Ledesma, R.D. and Valero-Mora, P. (2007). "Determining the Number of
Factors to Retain in EFA: An easy-to-use computer program for carrying out
Parallel Analysis". Practical Assessment Research & Evaluation, 12(2), 1-11
42
CHAPTER 4
RESEARCH METHODOLOGY
Descriptive research design was used for carrying out this study. This study is
focused to analyse Unsecured Business Loans requirements.
4.1 Data Source
Primary and secondary data was explored for the requirements of the study. The
preliminary study and extensive literature review was carried out. The primary data
is directly collected from the respondents using a questionnaire. The scope of
Internet for collecting secondary data was also exploited.
43
44
CHAPTER-5
DATA ANALYSIS
This study was executed in all registered SME in Ernakulum District. Sample size
was estimated from the list of registered SME in The Confederation of Indian
Industry at Ernakulum District. Finally the sampling procedure was selected by using
simple random lottery method, from the list of SME registered in The Confederation
of Indian Industry at Ernakulum District.
45
Percent
Valid Percent
Cumulative Percent
Yes
68
68.0
68.0
68.0
No
32
32.0
32.0
100.0
Total
100
100.0
100.0
From the table it can be concluded that, 68% of the people who are doing Business in
SME opted for Business loans and 32% of the people did not opt for Business loans.
Figure 5.1
46
Percent
Valid Percent
Cumulative Percent
Secured
80
80.0
80.0
80.0
Unsecured
20
20.0
20.0
100.0
Total
100
100.0
100.0
From the table it can be seen that, 80% of the people preferred Secured loans over
unsecured loans. This can be because the term for secured loan is longer than that of
unsecured loan and the interest rate is lower for secured loan.
Figure -5.2
Cross Tabulation for Availed loans for Business Purpose and first
Preference for Business Loans
47
5.2.1 Availed loans for Business Purpose * First Preference for Business Loans Cross
tabulation
First Preference for
Business Loans
Secured
Unsecured Total
Availed loans for
Yes
Count
50
18
68
Business Purpose
Expected Count
54.4
13.6
68.0
% within Availed
73.5%
26.5%
100.0%
loans for Business
Purpose
% within First
62.5%
90.0%
68.0%
Preference for
Business Loans
No
Count
30
2
32
Expected Count
25.6
6.4
32.0
% within Availed
93.8%
6.3%
100.0%
loans for Business
Purpose
% within First
37.5%
10.0%
32.0%
Preference for
Business Loans
Total
Count
80
20
100
Expected Count
80.0
20.0
100.0
% within Availed
80.0%
20.0%
100.0%
loans for Business
Purpose
% within First
100.0%
100.0% 100.0%
Preference for
Business Loans
Source: Survey Data
It was observe that out of 68 who took business loan, 73.5% took secured loan and
26.5% took unsecured loans and out of 32 people, who took loan for other than
business purpose, 93.7% took secured loans and only 6.3% took unsecured loan
Hypothesis
H0: There is no relationship between availed business loan and type of loan taken
48
H1: There is relationship between availed business loans and type of loan taken
Value
df
Asymp. Sig.
(2-sided)
Pearson Chi-Square
5.561a
.018
Continuity Correction
4.369
.037
Likelihood Ratio
6.520
.011
.018
Linear-by-Linear
Association
5.505
N of Valid Cases
100
.014
.019
From table 5.2.2 we can interpret that Chi-square test was found to be significant
with is 5.561, df=1, P<0.05.
Hence we reject the Hypothesis and can conclude that there is relation between the
availed business loans and type of business loan taken
Hence we conclude that the people who have taken business loan prefer to take
secured loan.
49
Frequency
Interest Rate
89
Loan Ceiling
26
Loan Tenure
42
85
21
Tax Benefits
33
From the table we can observe that the three main factors influencing in the selection
of Unsecured Business Loans are interest rate, time duration for loan processing and
loan tenure.
Figure 5.3
50
Percent
Valid Percent
Cumulative Percent
HDFC Bank
28
28.0
28.0
28.0
17
17.0
17.0
45.0
Dhanalakshmi Bank
5.0
5.0
50.0
Tata Finance
1.0
1.0
51.0
Bajaj Finance
3.0
3.0
54.0
Others
46
46.0
46.0
100.0
Total
100
100.0
100.0
From the table we can observe that 46% of the respondents chose other institutions
like SBI, ICICI, Canara Bank etc whereas 28% of the respondents chose HDFC Bank
and 17% of the respondents chose Kotak Mahindra Bank Ltd.
Figure 5.4
Score
Overdraft
28
22
Gold Loans
21
Agri Loans
7.4
Asset Finance
0.6
15
51
From the table we can observe that respondents prefer Overdraft as a business loan.
This may be due to easy and quick disbursement of loan amount and also the
customer has to pay interest only on the amount overdrawn. As a second option
respondents prefer secured term loans. This may be due to long tenure and low rate
of interest. As a third preference respondents would rather go for Gold loan, as even
if they have a bad credit history and low income level they can avail it.
Figure 5.5
Looking for Unsecured Business Loan
3.0
3.0
3.0
No
88
88.0
88.0
91.0
May be after 3
months
9.0
9.0
100.0
Total
100
100.0
100.0
52
From the table it can be observed that, 88% of respondents are not interested in
taking Unsecured Business Loans. This may be due to higher interest rate and long
tenure
Figure 5.6
53
Table-5.7 Communalities
Unsecured Business Loans do not require collateral to
assure the Business Credit Loan
Good credit rating is needed on the part of Borrower
while preferring Unsecured Business Loans
Unsecured Business Loans maintains easy and rapid way
to get cash for your business needs
Unsecured Business Loans are turning out to be a key
viable alternative for small business
Unsecured Business Loans can be acquirable within 10
days
Unsecured Business Loans provides flexibility to
borrowers
Interest Rate for Unsecured loans is high
Risk involved on part of borrower is very high
The paper work involved during the processing of
Unsecured business loans is less
Many lenders will approve or deny Unsecured Loans in a
matter of a week or less
Unsecured Business Loans are taken for comparatively
smaller Period
Unsecured Business loans are best suited for companies
that have been operational for long period of time and
have built good reputation for themselves
The Maximum amount of loan that can be borrowed
depends on the credit score of the applicant
The more you owe on the Unsecured Business
Loan(including interest)the more will be the money
which you have to repay
If there is delay in repayment, late fee is charged
Initial
1.000
Extraction
.496
1.000
.609
1.000
.654
1.000
.695
1.000
.712
1.000
.459
1.000
1.000
1.000
.501
.711
.645
1.000
.763
1.000
.668
1.000
.633
1.000
.646
1.000
.564
1.000
.673
15 Likert scales statements were considered for executing the Factor analysis. The
extraction method used was Principle Component Analysis. From table 5.7 it was
found that the extraction values for all the Likert statements were having adequate
loadings.
54
It is observed that the communalities show sufficiently large values suggesting that
the statements are equally important for the contemplated problem. The factors
extracted and the related results are given below
Table 5.8 explains about the total variance reported. It can be found out that the five
components extracted from principle component analysis is capable of explaining
62.8% of the variations and the first component alone could explain about 16.3% of
the variations. The variations explained by the five variations are quite large.
55
1
.177
Component
2
3
4
.277
.012
.119
5
.611
.684
.106
.035
.332
.137
.042
.210
.091
.593
.498
.231
.082
-.023
.780
-.160
.093
.800
-.018
-.089
.235
.031
.103
.132
-.165
.634
.548
.042
-.135
-.079
.417
.395
-.252
.571
-.363
.183
.444
.587
-.037
.267
.175
.095
.800
.256
.203
.086
.055
-.076
.613
.241
.475
.563
-.056
.288
.480
.014
.756
.194
.153
.110
.019
.569
.220
.436
-.042
-.003
56
The first factor was identified and named to be Eligibility because the extracted
statements says about credit score and credit rating of the Borrower
Sl. No
The second factor was identified and named to be Time Duration because the
extracted statements says about time duration for processing of Unsecured Business
Loans
Sl. No
The third factor was identified and named to be Risk because the extracted
statements says about risk for repaying the Loan
Sl. No
1
57
small business
2
Unsecured Business Loans maintains easy and rapid way to get cash for
your business needs
The fourth factor was identified and named to be Need because the extracted
statements says about Key viable alternative and rapid way to get cash for business
Needs.
Sl. No
The fifth factor was identified and named to be Flexibility because the extracted
statement says about Flexibility to Borrowers.
Table 5.10
58
Correlations
Eligibility
Time
Eligibility Duration Risk
1
.300** .269**
Need
.371**
Pearson
Correlation
Sig. (2-tailed)
.002
.007
.000
N
100
100
100
100
**
**
Time Duration
Pearson
.300
1
.288
.316**
Correlation
Sig. (2-tailed)
.002
.004
.001
N
100
100
100
100
**
**
Risk
Pearson
.269
.288
1
.264**
Correlation
Sig. (2-tailed)
.007
.004
.008
N
100
100
100
100
**
**
**
Need
Pearson
.371
.316
.264
1
Correlation
Sig. (2-tailed)
.000
.001
.008
N
100
100
100
100
**
**
**
Flexibility to
Pearson
.260
.314
.275
.226*
Borrowers
Correlation
Sig. (2-tailed)
.009
.001
.006
.024
N
100
100
100
100
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Flexibility
to
Borrowers
.260**
.009
100
.314**
.001
100
.275**
.006
100
.226*
.024
100
1
100
From the table 5.10 it can be observed that, all the extracted components are
positively correlated.
59
CHAPTER- 6
SUMMARY
&
CONCLUSIONS
6.1 FINDINGS
60
6.1.1 Introduction
This study was executed in all registered SMEs in Ernakulum District. The
objective of the study was to have a basic understanding about Unsecured Business
loan requirements. An attempt was made by the researcher to find out the preference
level of respondents in going for Unsecured Business Loans and to study about the
factors influencing respondents while choosing Unsecured Business Loans.
Sample size was estimated from the list of registered SME in The
Confederation of Indian Industry at Ernakulum District. Questionnaires were
circulated and data was collected and analysed by using by appropriate statistical
tools and the findings are furnished under.
6.1.2 Availed Loans for Business Purpose
It was found out that, 68% of the people who are doing Business in SME
opted for Business loans and 32% of the people did not opt for Business loans.
6.1.3 First Preference for Business Loan
It was found that 80% of the people preferred Secured loans over unsecured
loans. This could be because the term for secured loan is longer than that of
unsecured loan and the interest rate is lower for secured loan.
6.1.4 Main factors influenced in selecting Unsecured Business Loans
It was found that the three main factors influencing in the selection of
Unsecured Business Loans are interest rate, time duration for loan processing and
loan tenure.
6.1.5 Institutions which provide maximum amount of Unsecured Loans
It was found that 46% of the respondents chose other institutions like SBI,
ICICI, Canara Bank etc whereas 28% of the respondents chose HDFC Bank and 17%
of the respondents chose Kotak Mahindra Bank.
6.1.6 The Preference of kind of Loan availed for Business
61
It was found that respondents mostly prefer the business loan in the form of
Overdraft. This may be due to easy and quick disbursement of loan amount and also
the customer has to pay interest only on the amount overdrawn. As a second option,
respondents prefer secured term loans. This may be due to long tenure and low rate
of interest. As a third preference, respondents would rather go for Gold loan, as even
if they have a bad credit history and low income level they can avail it.
6.1.7 Looking for Unsecured Business Loan
It was found that 88% of respondents are not interested in taking Unsecured
Business Loans. This may be due to higher interest rate and long tenure.
6.1.8 Factor Analysis: Perception of Unsecured Business Loans among Small
Medium Enterprises
15 Likert scale statements were considered for executing the factor analysis.
The extraction method was used and it was found that the extraction values for all the
Likert statements were having adequate loadings (above.5). Thus it was found that
that the five components extracted from principle component analysis is capable of
explaining 62.8% of the variations and the first component alone could explain about
16.3% of the variations. The variations explained by the five variations are quite
large. Statements are identified based on the statements which are having high
loadings. Thus the findings are;
The Maximum amount of loan that can be borrowed depends on the credit
score of the applicant
Unsecured Business Loans can be acquired within 10 days
If there is delay in repayment, late fee is charged
Unsecured Business Loans are turning out to be a key viable alternative for
small business
Unsecured Business Loans provides flexibility to borrowers
Thus the new identified factors are named as Eligibility, Time Duration, Risk,
Need and Flexibility to Borrowers. In order to find out the interrelationship between
satisfaction score and other variables, a correlation analysis was attempted. It was
found that all the extracted components are positively correlated.
62
6.2 SUGGESTION
The respondents are not aware about those institutions which provides maximum
amount of Unsecured Business Loans. For this purpose, banks have to increase the
awareness level among SMEs about the different scheme offered to them.
6.3 CONCLUSION
63
BIBLIOGRAPHY
64
Books
1. Kothari, C.R.,2004, Research Methodology- Methods and Techniques,
(Second Revised Edition) New Age International Publisher, New
Delhi.
2. James C. Vanhorne, 2007, Financial Management Policy (12thEdition)
Hall of India Private Limited, New Delhi
Journals
1. Gabriel Jimnez, Jess Saurina, Collateral, type of lender and
relationship banking as determinants of credit risk, Journal of Banking
& Finance, Volume 28, Issue 9, September 2004, Pages 2191-2212
2. John D. Leeth and Jonathan A. Scott, The Incidence of Secured Debt:
Evidence from the Small Business Community, Journal of Financial
and Quantitative Analysis (1989), 24 : pp 379-394
3. Gregory F. Udell, Collateral, loan quality and bank risk, Journal of
Monetary Economics Volume 25, Issue 1, January 1990, Pages 2142
Websites
1. www.kotak.com
2. www.prlog.org
3. www.zimbio.com
4. www.kazor.com
APPENDIX
This questionnaire is intended to find out the preference level of respondents in going
for Unsecured Business Loans and to study about respondents Perceptions and
variations while choosing Unsecured Business Loans. Kindly cooperate by filling
this questionnaire and your responses will be used only for academic purposes.
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Nature of Business
1.
2.
No
What will be your first preference, when you think of Business Loan?
Secured
Unsecured
Factors
Rank
Interest Rate
Loan Ceiling
Loan Tenure
Time duration for loan Processing
Processing and Documentation charges
Tax Benefits
Liberal Loan amount Sanctioning Process
Institutions
HDFC Bank
Kotak Mahindra Bank
Dhanalakshmi Bank
Tata Finance
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Bajaj Finance
Others
5. Mark the Preference of kind of loan availed for Business (Please rate 1 to 5
where 1 is significant increase and 5 is significant decrease.)
Preferences
Overdrafts
Unsecured Bank Loans
Secured Bank Loans
Gold Loans
Agri Loans
Asset Finance(Leasing and Hire Purchase)
Ranks
6. Are you looking for a Unsecured Business Loan for next 3 months
Yes
No
7. Please select your degree of agreement with the following statements. SA stands for
strongly agree, A for agree, NA/ND neither agree nor disagree, DA Disagree and
SDA strongly disagree
STATEMENT
1.
SA
NA/
ND
DA
SDA
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3.
68
THANK YOU
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