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

52 Pages Posted: 2 Apr 2019

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: March 29, 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.

JEL Classification: G21, O32, P5

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 29, 2019). 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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International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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