The Relationship Dilemma: Organizational Culture and the Adoption of Credit Scoring Technology in Indian Banking

52 Pages Posted: 28 Mar 2019 Last revised: 10 May 2019

See all articles by Prachi Mishra

Prachi Mishra

Goldman Sachs Group, Inc.

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Date Written: March 5, 2019

Abstract

Credit scoring was introduced in India in 2007. We study the pace of its adoption by new private banks (NPBs) and state-owned or public sector banks (PSBs). NPBs adopt scoring quickly for all borrowers. PSBs adopt scoring quickly for new borrowers but not for existing borrowers. Instrumental Variable (IV) estimates and counterfactuals using scores available to but not used by PSBs indicate that universal adoption would reduce loan delinquencies significantly. Evidence from old private banks suggests that neither bank size nor government ownership fully explains adoption patterns. Organizational culture, possibly from formative experiences in sheltered markets, explains the patterns of technology adoption.

Keywords: credit bureaus, credit scoring, banking, bank relationships, state-owned banks, adoption of new management practices, technology adoption, organizational culture

JEL Classification: G21, L3, O3

Suggested Citation

Mishra, Prachi and Prabhala, Nagpurnanand and Rajan, Raghuram G., The Relationship Dilemma: Organizational Culture and the Adoption of Credit Scoring Technology in Indian Banking (March 5, 2019). Johns Hopkins Carey Business School Research Paper No. 19-03. Available at SSRN: https://ssrn.com/abstract=3347299 or http://dx.doi.org/10.2139/ssrn.3347299

Prachi Mishra

Goldman Sachs Group, Inc. ( email )

85 Broad Street
New York, NY 10004
United States

Nagpurnanand Prabhala (Contact Author)

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)

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