Bhati, S., A Model of trust between Branch Managers and Loan Officers of Indian Banks, School of Accounting & Finance, University of Wollongong, Working Paper 21, 2006.
The lending climate for banks in India is very different from those in western countries. Banks in India undertake many additional risks when they lend to customers . Also, there are a number of impediments for banks in India for recovering their loans. Some of these impediments have been put in place due to the government policies. Others have been created due to lack of proper legal protection to banks. The instrument based quantitative methods have limitations in evaluating the lending risk for banks in India because instrument based methods use variables which cannot be accurately described and measured by banks. A social risk evaluation is therefore more appropriate for risk evaluation and reduction by banks in India. This study focuses on one specific aspect of lending relationship - the relationship between branch manager and loan officer of bank branches in India. A social risk evaluation approach is used to describe this relationship. A model based on trust theory is developed which help in understanding and reducing the lending risk by Indian banks. Trust factors that help in determining this relationship are identified and the suitability of each factor is discussed.