The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?

95 Pages Posted: 2 Apr 2019 Last revised: 11 Aug 2021

See all articles by Prachi Mishra

Prachi Mishra

Goldman Sachs

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: August 11, 2021

Abstract

India introduced credit scoring technology in 2007. We study its adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.

JEL Classification: G21, O32, P5

Suggested Citation

Mishra, Prachi and Prabhala, Nagpurnanand and Rajan, Raghuram G., The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology? (August 11, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-54 , Available at SSRN: https://ssrn.com/abstract=3363890 or http://dx.doi.org/10.2139/ssrn.3363890

Prachi Mishra

Goldman Sachs

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School ( email )

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Raghuram G. Rajan (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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