Year

2009

Degree Name

Doctor of Philosophy

Department

School of Accounting & Finance - Faculty of Commerce

Abstract

Banks in India operate in a very different lending environment as compared to western banks because there is considerable state intervention in bank lending in India. Conventional instruments based methods of risk evaluation have limited use for banks in India because many additional variables required cannot be quantified easily for Indian banks. This thesis uses a social risk evaluation process based on Ferrary’s (2003) notion of social capital and model of trust developed by Mayer et. al (1995). A framework of trust between branch manager and loan officer of bank branches in India is developed and empirically studied in this thesis. The purpose is to observe the role of trust in the relationship between branch managers and loan officers. Three research issues are studied in this thesis. The first issue is to identify the significant factors of trustworthiness that operate between branch managers and loan officers. The second issue is to identify the stage of trust development between branch managers and loan officers. The third issue is to observe the effect that trust between branch manager and loan officer might have on the lending performance of bank branches in India. A framework of trust between branch managers and loan officers is developed. According to this framework, a branch manager and loan officer develop a trusting relationship because of the risk they face in lending business. Both branch manager and loan officer have incentive to trust each other due to risk in lending. Trust between branch managers and loan officers is based on key factors of trustworthiness. These are: similarity, knowledge, benevolence, behavioural integrity, behavioural consistency, communication and culture. Culture as a factor of trust is considered for the first time in this thesis in the context of Indian banking. Trust between branch managers and loan officers develop in stages as suggested by Lewicki and Bunker (1996). A case study method is used to collect and analyse data. Eight cases comprising of eight bank branches in India are studied in the present research. A Pattern Matching procedure developed by Troachim (1989) is used to match the theoretical construct with the observed data. The software NVivo was used to analyse collected data through interviews in eight cases. Each case was first analysed separately and then a cross case analysis was done through variable oriented analysis. It is concluded in this thesis that trust between branch manager and loan officer of bank branches depends on characteristics of trust identified in the theoretical framework. Each of the trust factors namely similarity, knowledge, benevolence, behavioural integrity, behavioural consistency, communication and culture contributes to trust between branch managers and loan officers of bank branches in India. Also, the trust between branch managers and loan officers develop in three stages of trust: calculus based trust, knowledge based trust and identification based trust. Trust between branch managers and loan officers, contributes significantly to the improvement in lending performance of bank branches in India. In addition to significant contribution made through the research questions, this thesis also contributes to the literature by examining critically the problems associated with the banking system of India. This thesis examines in detail the structure and working of bank branches in India. This thesis also explores the role that organisation rules and structure of banks have on the relationship between branch managers and loan officers of Indian bank branches. This thesis is limited by the fact that only eight bank branches are studied, which is not a very large sample of Indian banking industry. The data and conclusions are based on perception of branch managers and loan officers, which can be subjective. These perceptions may have limitations in generalisations. However no generalisation is attempted here. The purpose of this thesis is to study in-depth the relationship between branch managers and loan officers of Indian banking systems. These limitations however do not reduce the significance of conclusions reached here as these conclusions can be extended to other banking systems and replicated in different banking environments. Conclusions reached in this thesis have implications for decision making at the bank branch level and for higher management supervising bank branches in India and in other countries.

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