lass banking to Mass banking.

This in turn resulted in a significant growth in

the geographical coverage of banks. Every bank had to earmark a minimum
percentage of their loan portfolio to sectors identified as priority sectors. The
manufacturing sector also grew during the 1970s in protected environs and the
banking sector was a critical source. The next wave of reforms saw the
nationalization of 6 more commercial banks in 1980. Since then the number of
scheduled commercial banks increased four-fold and the number of bank branches
increased eight-fold
After the second phase of financial sector reforms and liberalization of the
sector in the early nineties, the Public Sector Banks (PSB) s found it extremely
difficult to compete with the new private sector banks and the foreign banks. The
new private sector banks first made their appearance after the guidelines permitting
them were issued in January 1993. Eight new private sector banks are presently in
operation. These banks due to their late start have access to state-of-the-art
technology, which in turn helps them to save on manpower costs and provide better
services.
Classification of Banks
The Indian banking industry, which is governed by the Banking Regulation
Act of India1949 can be broadly classified into two major categories, nonscheduled banks and scheduled banks. Scheduled banks comprise commercial
banks and the co-operative banks. In Terms of ownership, commercial banks can be
further grouped into nationalized banks, the State Bank of India and its group banks,
regional rural banks and private sector banks (the old / new domestic and
foreign). These banks have over 67,000 branches spread across the country. The
Indian banking industry is a mix of the public sector, private sector and foreign
banks. The private sector banks are again spilt into old banks and new banks.
The banking system in India is significantly different from that of other Asian
nations because of the countrys unique geographic, social, and economic
characteristics. India has a large population and land size, a diverse culture, and
extreme disparities in income, which are marked among its regions. There are high
1

levels of illiteracy among a large percentage of its population but, at the same time,
the country has a large reservoir of managerial and technologically advanced talents.
Between about 30 and 35 percent of the population resides in metro and urban cities
and the rest is spread in several semi-urban and rural centres The countrys economic
policy framework combines socialistic and capitalistic features with a heavy bias
towards public sector investment. India has followed the path of growth-led exports
rather than the exported growth of other Asian economies, with emphasis on selfreliance through import substitution. These features are reflected in the structure,
size, and diversity of the countrys banking and financial sector. The banking system
has had to serve the goals of economic policies enunciated in successive five-year
development plans, particularly concerning equitable income distribution, balanced
regional economic growth, and the reduction and elimination of private sector
monopolies in trade and industry. In order for the banking industry to serve as an
instrument of state policy, it was subjected to various nationalization schemes in
different phases (1955, 1969, and 1980). As a result, banking remained
internationally isolated (few Indian banks had presence abroad in international
financial centers) because of preoccupations with domestic priorities, especially
massive branch expansion and attracting more people to the system.
These features have left the Indian banking sector with weaknesses and
strengths. A big challenge facing Indian banks is how, under the current ownership
structure,

to

attain

operational

efficiency

suitable

for

modern

financial

intermediation. On the other hand, it has been relatively easy for the public sector
banks to recapitalize, given the increase in nonperforming assets (NPAs), as their
Government dominated ownership structure has reduced the conflicts of interest that
private banks would face.

Current Scenario
The industry is currently in a transition phase. On the one hand, the PSBs, which are
the mainstay of the Indian Banking system, are in the process of shedding their flab
in terms of excessive manpower, excessive non Performing Assets (Npas) and
excessive governmental equity, while on the other hand the private sector banks are
consolidating themselves through M&A.
PSBs, which currently account for more than 78 percent of total banking industry
assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling
revenues from traditional sources, lack of modern technology and a massive
workforce while the new private sector banks are forging ahead and rewriting the
traditional banking business model by way of their sheer innovation and service. The

PSBs are of course currently working out challenging strategies even as 20 percent of
their massive employee strength has dwindled in the wake of the successful VRS
The private players however cannot match the PSBs great reach, great size and
access to low cost deposits. Therefore one of the means for them to combat the PSBs
has been through the merger and acquisition (M& A) route. Over the last two years,
the industry has witnessed several such instances. For instance, Hdfc Banks merger
with Times Bank Icici Banks acquisition of ITC Classic, Anagram Finance and
Bank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are
said to be on the lookout. The UTI bank- Global Trust Bank merger however opened
a pandoras box and brought about the realization that all was not well in the
functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking, anywhere
banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and
combined various other services and integrated them into the mainstream banking
arena, while the PSBs are still grappling with disgruntled employees in the aftermath
of successful VRS schemes. Also, following Indias commitment to the W To
agreement in respect of the services sector, foreign banks, including both new and
the existing ones, have been permitted to open up to 12 branches a year with effect
from 1998-99 as against the earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 percent to 33 percent in November
2000 have also opened up a new opportunity for the takeover of even the PSBs. The
FDI rules being more rationalized in Q1FY02 may also pave the way for foreign
banks

taking

the

M&A

route

to

acquire

willing

Indian

partners.

Meanwhile the economic and corporate sector slowdown has led to an increasing
number of banks focusing on the retail segment. Many of them are also entering the
new vistas of Insurance. Banks with their phenomenal reach and a regular interface
with the retail investor are the best placed to enter into the insurance sector. Banks in
India have been allowed to provide fee-based insurance services without risk
participation invest in an insurance company for providing infrastructure and

services support and set up of a separate joint-venture insurance company with risk
participation.
General Banking Scenario
The predicament of the banks in the developed countries owing to excessive
leverage and lax regulatory system has time and again been compared with
somewhat unscathed Indian Banking Sector. An attempt has been made to understand
the general sentiment with regards to the performance, the challenges and the
opportunities ahead for the Indian Banking Sector. A majority of the respondents,
almost 69% of them, felt that the Indian banking Industry was in a very good to
excellent shape, with a further 25% feeling it was in good shape and only 6% of the
respondents feeling that the performance of the industry was just average. In fact, an
overwhelming majority (93.33%) of the respondents felt that the banking industry
compared with the best of the sectors of the economy, including pharmaceuticals,
infrastructure, etc. Most of the respondents were positive with regard to the growth
rate attainable by the Indian banking industry for the year 2009-10 and 2014-15, with
53.33% of the view that growth would be between 15-20% for the year 2009-10 and
greater than 20% for 2014-15. On being asked what is the major strength of the
Indian banking industry, which makes it resilient in the current economic climate;
93.75% respondents feel the regulatory system to be the major strength, 75%
economic growth, 68.75% relative insulation from external market, 56.25% credit
quality, 25% technological advancement and 43.75% our risk assessment systems
Indias GDP has been growing at a rapid clip over the past decade and is set
to grow at even a faster pace in the coming decade. Financial services penetration of
the Indian economy is quite low compared to even other developing economies. With
majority of the Indian population mired in poverty, access to banks and financial
companies is quite hard as people lack knowledge and education. Indias banks have
grown at a rapid pace over the past 2 decades after the financial liberalization.
However this growth has still lacked in meeting the massive demand in the need of
financial intermediation. This has led to the growth on non-banking financing
companies (NBFCs) and microfinance companies. With the opening of the insurance

sector, financial companies in India are set to enter a new growth phase. Major Banks
in India is either state owned or previous government owned institutions which have
been fully privatized like ICICI and HDFC Bank. Both the state owned banks and the
private banks have managed to grow without throwing the whole system in a crisis
like what has happened in the recent past in Europe and USA and in China in the
1990s.Here is a list of the 10 Major Banks in India
1) State Bank of India (SBI) - SBI is Indias Largest Bank which is majority owned
by the Government. The Company has a number of Subsidiaries and has been a
market outperformer in recent times with Revenue of $22 Billion. The SBI has 7
subsidiaries of which 2 have been merged and 5 are remaining.

State Bank Bikaner Jaipur

State Bank of Hyderabad

State Bank of Mysore

State Bank of Patiala

State Bank of Travancore

2) ICICI Bank This is the largest Indian Private Bank with operations in all
Financial Services Sectors. The Company has faced a bad time during the Lehman
downturn but has recovered well. ICICI Bank is also strong in almost all sectors of
the financial industry and has one of the strongest management teams in the country.
Like HDFC Bank majority of the shareholding is held by foreign investors. The
company which overextended itself in the 2007-2008 boom has now reduced the size
of its risky segments and is again back on the growth trajectory.
3) HDFC Bank HDFC Bank like Axis Bank has shown remarkable growth in the
last few years. The Bank which was founded by Indias largest housing finance
company HDFC has assets of around $22 billion. It is the one of the best rated banks
in terms of service quality and growth.

4) Punjab National Bank Punjab National Bank (PNB , is the second largest PSU
bank with about 5000 branches across 764 cities. The Bank like BOB and SBI has
shown good growth while at the same time managed to control bad debt.
5) Axis Bank - Axis Bank has been the best performing private bank along with
HDFC Bank showing excellent growth in top line and bottom line. The Bank has
been expanding into insurance and investment banking (acquired Enam).Axis Bank
was formerly UTI Bank that begun operations in 1994.The Bank was promoted
jointly by UTI,LIC and other state owned general insurers. One of the best Indian
bank stock picks.
6) Bank of Baroda Bank of Baroda (BoB) is the third largest bank in India and is
government owned like SBI and PNB. BOB as it is popularly known has shown
excellent growth over the last few years and has managed to control its NonPerforming Asset (NPA).The Bank has good management and manages to earn nice
interest spreads.
7) Bank of India -Bank of India (BoI)is Indias 4th largest bank, with 3374
branches, including 27 branches outside India. It was the first bank in India promoted
by Indian interests to serve all the communities of India. The stock of the company
has not performed as well as it peers post the Lehman crisis. It has seen its market
cap decrease relative to its larger PSU Bank peers
8) IDBI Bank - Industrial Development Bank of India Limited (IDBI) is a leading
public sector banks. RBI categorised IDBI as an other public sector bank. The
commercial banking arm, IDBI BANK, was merged into IDBI. This PSU Bank has
supposed have great potential and could be the next ICICI in the making.
9) Kotak Mahindra Bank - This is the first NBFC to convert into a bank. The bank
has its origins as an investment bank and is still very strong in the capital markets.
The Bank and its sister concerns are present in most of the financial segments of the
market like Private Equity, Wealth Management, Broking, Investment Banking etc.
10) Yes Bank Yes Bank was founded by Ashok Kapur and Rana Kapoor. This
bank though still small compared to its larger peers, has come into the top 10 due to
7

its path breaking performance over the last few years in terms of growth. It has
managed to set new standards and has broken out from the league of smaller private
banks.

Kerala Banking Industry

The most essential element in the process of development and growth of the
country is finance. The economy of a country becomes crippled without the flow of
finance and the economic growth is stunted. Monitory resources can be channelized
only with the help of a proper financial infrastructure. An effective financial system
in the form of banks and financial institutions offer economical lending and
borrowing.
Kerala boasts of a well-developed banking infrastructure. With progressing
time Kerala banking system has attained a high benchmark. Commercial,
Nationalized a large number of Grameen banks have sprung up within the state. In
8

fact there was a surge of Banks in the state following the nationalisation of the banks
in1969.
The State Bank of India (S.B.I.), Canara Bank and Syndicate Bank are the
principal nationalized banks. The State Bank of India offers around 228 branches and
the Syndicate Bank has 115 branches in the fourteen districts of Kerala.
Apart from these commercial banks like Vijaya Bank, Dhanlakshmi Bank and
the Federal Bank also offer commendable finance and banking facilities.
Dhanalakshmi Bank offers 112 branches in the state. The Grameen Banks like
SMGB and NMGB provide loans at low interest rates, special, subsidized lands and
relief facilities to the local farmers and plays a great role in enhancing the agrarian
productivity of the state.

2.2 COMPANY PROFILE

Established in 1985, the Kotak Mahindra group has been one of India's most
reputed financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the
group's flagship company was given the license to carry on banking business by the
Reserve Bank of India (RBI). This approval created banking history since Kotak
Mahindra Finance Ltd. is the first non-banking finance company in India to convert
itself in to a bank as Kotak Mahindra Bank Ltd. Today, we are one of the fastest
growing bank and among the most admired financial institutions in India Kotak
Mahindra Bank has over 335 branches and 803 ATMs, which are spread all over

India, not just in the metros but in Tier II cities and rural India as well, we are
redefining the reach and power of banking.
Kotak Mahindra Bank Limited (the Bank) is a commercial bank. The Bank
operates in nine business segments: Treasury, Investments and Balance Sheet
Management Unit includes dealing in debt, forex market, investments and primary
dealership of government securities; Retail Banking includes lending, personal loans
and agriculture finance, branch banking, which includes retail borrowings covering
savings and branch banking network/services, including distribution of financial
products, and credit cards, which includes receivables relating to credit card
business; Corporate Banking includes wholesale borrowings and lendings; Vehicle
Financing include retail vehicle and wholesale trade finance; Other lending activities
include financing against securities and other loans; broking include brokerage
income; advisory and transactional services provides financial advisory and
transactional services; Asset Management include management of investments, and
Insurance, which include life insurance.

Our Story
Milestones that have shaped the Kotak Mahindra Group, since 1986
Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has
been a steady and confident journey leading to growth and success. The milestones
of the group growth story are listed below year wise
2010

Ahmedabad Derivatives and Commodities Exchange, a Kotak

anchored enterprise, became operational as a national
commodity exchange.

2009

Kotak Mahindra Bank Ltd. opened a representative office in

Dubai

Entered Ahmedabad Commodity Exchange as anchor investor.

10

2008

Launched a Pension Fund under the New Pension System.

2006

Bought the 25% stake held by Goldman Sachs in Kotak

Mahindra Capital Company and Kotak Securities.

2005
o Kotak Group realigned joint venture in Ford Credit; their
stake in Kotak Mahindra Prime was bought out (formerly
known as Kotak Mahindra Primus Ltd) and Kotak groups
stake in Ford credit Kotak Mahindra was sold.
o Launched a real estate fund

2004

2003

Launched India Growth Fund, a private equity fund.

Kotak Mahindra Finance Ltd. converted into a commercial bank

- the first Indian company to do so.

2001

2000

Matrix sold to Friday Corporation.

Launched Insurance Services.

Kotak Securities Ltd. was incorporated

Kotak Mahindra tied up with Old Mutual plc. for the Life
Insurance business.

Kotak Securities launched its on-line broking site.

Commencement of private equity activity through setting up of

11

Kotak Mahindra Venture Capital Fund

1998

Entered the mutual fund market with the launch of Kotak

Mahindra Asset Management Company.

1996

The Auto Finance Business is hived off into a separate company

- Kotak Mahindra Prime Limited (formerly known as Kotak
Mahindra Primus Limited). Kotak Mahindra takes a significant
stake in Ford Credit Kotak

Mahindra Limited, for financing Ford vehicles. The launch of

Matrix Information Services Limited marks the Group's entry
into information distribution.

1995

Brokerage and Distribution businesses incorporated into a

separate company - Securities. Investment banking division
incorporated into a separate company - Kotak Mahindra Capital
Company

1992

1991

o Entered the Funds Syndication sector

The Investment Banking Division was started. Took over

FICOM, one of India's largest financial retail marketing
networks

1990

o The Auto Finance division was started

12

1987

Kotak Mahindra Finance Ltd entered the Lease and Hire

Purchase market

1986

Kotak Mahindra Finance Ltd started the activity of Bill

Discounting

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank
offers personal finance solutions of every kind from savings accounts to credit cards,
distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers
transaction banking, operates lending verticals, manages IPOs and provides working
capital loans. Kotak has one of the largest and most respected Wealth Management
teams in India, providing the widest range of solutions to high net worth individuals,
entrepreneurs, business families and employed professionals

Senior Management
Core Kotak Mahindra Group team
Mr. Uday S. Kotak
Executive Vice Chairman and Managing Director
Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of
the Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of
Jamnalal Bajaj Institute of Management Studies.
In 1985, when he was still in his early twenties, Mr Kotak thought of setting
up a bank when private Indian banks were not even seen in the game. First Kotak
Capital Management Finance Ltd (which later became Kotak Mahindra Finance Ltd),
13

and then with Kotak Mahindra Finance Ltd, Kotak became the first non-banking
finance company in India's corporate history to be converted into a bank. Over the
years, Kotak Mahindra Group grew into several areas like stock broking and
investment banking to car finance, life insurance and mutual funds.
Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator
of the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in
2003. He was featured as one of the Global Leaders for Tomorrow at the World
Economic Forum's annual meet at Davos in 1996. He was also featured among the
Top Financial Leaders for the 21st Century by Euromoney magazine. He was named
as CNBC TV18 India Business Leader of the Year 2008 and as the most valued CEO
by businessworld in 2010.
Mr. C Jayaram
Joint Managing Director
Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in
charge of the Wealth Management Business of the Kotak Group. An alumnus of IIM
Kolkata, he has been with the Kotak Group since 1990 and member of the Kotak
board in October 1999. He also oversees the international subsidiaries and the
alternate asset management business of the group. He is the Director of the Financial
Planning Standards Board, India. He has varied experience of over 25 years in many
areas of finance and business, has built numerous businesses for the Group and was
CEO of Kotak Securities Ltd. An avid player and follower of tennis, he also has a
keen interest in psychology
Mr. Dipak Gupta
Joint Managing Director
An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has
been with the Kotak Group since 1992 and joined the board in October 1999.
He heads commercial banking, retail asset businesses and looks after group
HR function. Early on, he headed the finance function and was instrumental in the
14

joint venture between Kotak Mahindra and Ford Credit International. He was the first
CEO of the resulting entity, Kotak Mahindra Primus Ltd.
Kotak Mahindra Bank has reported its results for the quarter ended Dec '11. Interest
earned for the quarter was Rs 1,640.98 crore and net profit was Rs 276.08 crore. For
the quarter ended Dec 2010 the interest earned was Rs 1135.40 crore and net profit
was Rs 187.87 crore

Products and Services

The bank offers complete financial solutions for infinite needs of all
individual and non-individual customers depending on the customer's need delivered through a state of the art technology platform. Investment products
like Mutual Funds, Life Insurance, retailing of gold coins and bars etc are
also offered. The bank follows a mix of both open and closed architecture for
distribution of the investment products. All this is backed by strong, in-house
research on Mutual Funds.

The banks savings account goes beyond the traditional role of savings, and
allows us to put aside a lot more than just money. The worry-free feature of
Savings Account provides a range of services from funds transfer, bill
payments, 2-way sweep through our Active Money feature and much more.
We can place standing instructions for investment options that can be booked
through Internet or through Phone banking services. The Savings Account
thus provides for attractive returns earned through a comprehensive suite
products and services that offer investment options, all delivered seamlessly
to the customer by well integrated technology platforms.

Apart from Phone banking and Internet banking, the Bank offers convenient
banking facility through Mobile banking, SMS services, Netc@rd, Home
banking and Bill Pay facility among others.

15

The Depository services offered by the Bank allows the customers to hold
equity shares, government securities, bonds and other securities in electronic
or Demat forms.

The Salary 2 Wealth offering provides comprehensive administrative

solutions for Corporates with features such as easy and automated web based
salary upload process thereby eliminating the paper work involved in the
process, a dedicated relationship manager to service the corporate account,
customized promotions and tie - ups and many such unique features. The
whole gamut of investment products and investment advisory services is
available to the salary account holders as well.

For the business community, the bank offer comprehensive business solutions
that include the Current Account, Trade Services, Cash Management Service
and Credit Facilities. The banks wholesale banking products offer business
banking solutions for long-term investments and working capital needs,
advice on mergers and acquisitions and equipment financing. To meet special
needs of the rural market, the bank has dedicated business offerings for
agricultural financing and infrastructure. Its Agriculture Finance division
delivers customised products for capital financing and equipment financing
needs of our rural customers.

For financial liquidity the bank offers loans that meet personal requirements
with quick approval and flexible payment options. To complete the personal
financial offerings space, the bank now offers Kotak Credit Card which is a
hassle-free, transparent product that also happens to be the first vertical credit
card in the industry.

Kotak Mahindra Bank addresses the entire spectrum of financial needs of

Non-Resident Indians. The bank has tie-up with the Overseas Indian
Facilitation Centre (OIFC) as a strategic partner, which gives them a platform
to share their comprehensive range of banking and investment products and
services for Non Resident Indians (NRIs) and Persons of Indian Origin
(PIOs). Their Online Account Opening facility and Live Chat service helps to
16

get in touch at the comfort of homes and at the convenience. These offerings
are specifically designed to suit the overseas Indian's personal financial needs
and give the global Indians a near to home feel.

Business loans

Products

Term loans

Facility on Credit Card Receivables

(FCCR)

Normal SENP& SEP

Net Margin

PSL / Non PSL

PL PTR

3 to 9

17

TERM LOAN
1. Normal SENP& SEP
2. Net Margin
3. 3 to 9
4. PSL / Non PSL
5. PL PTR

1. NORMAL SENP
Terms & Condition

Max 5 inward cheque return allowed ( 6 month bank statement)

DSCR Debt service coverage ratio- minimum 1

Business continuity 5 year

Minimum loan amount 3 lakh maximum 1 crore

18

Tenor minimum 12 month maximum 36 month

SEP maximum 60 month

Maximum age limit 60 years

Case update 1 month from the last approval

After 1 month update docs & CIBIL

2. NET MARGIN
Business

Net margin

Turnover

Petrol Pump
Gas agency
Pharma
FMCG& Mbl
Restaurant
Caters
Printers
Medical store / General store

1%
2%
4%
1%
10%
10%
4%
10%

5 cr
2 cr
1 cr
1cr
30 cr
40 cr
1 cr
60 cr

Department store

10%

50 cr

Maximum Loan amount 10 lacs

Last 11 month

1 bounce

12 to 17 month

2 bounce

Above 17 month

3 bounce

Maximum age limit-65 years

Maximum 6 inward cheque return allowed ( Last 6 month bank

statement)

3. 3 TO 9

19

Conditions
1. Minimum Business income 1.5 Lacs
2. Minimum turnover manufacture 50 Lacs
Other business normal turnover
3. Business continuity

Manufactures 4 year, other 5 year

4. Past track record

12 month existing track minimum

EMI 5000
-

Last 6 month closed track accepted

Within 12 month

13 to 23 month

2 bounce

Above 24 months

3 bounce

Last 6 month not any bounce allowed

5. Any loan last 6 month

1 loan last

6 month

1 bounce

5 PL allowed
-

3 PL allowed

6. statement bounce last 6 month - 6 bounce

7.

Not more than 2 PL enquiry in last one month

8.

within 6 month closed track is not obligation

4. PL PTR Scheme

Age Norms Min 25 Max 65

Only SENP Cases

20

Own Property compulsory

Minimum 3yrs BCP

6 non EMI cheque bounce is allowed in the Bank Statement.

CIBIL score should be >= 725

Max PL customer can have is 4

Approved Financiers
1. ICICI
2. HDFC
3. Citi Bank (not citi finance)
4. ABN
5. SCB
6. Reliance
7. HSBC
8. Barclays
9. Religare
10. Bajaj

1 fresh loan in last 6mts is allowed and customer shouldnt have taken any PL
in last 3mts.

Minimum Original loan amount should be 5L

Minimum seasoning is 18mts and also loans matured in 3mts can be

considered.

21

If the loan is topped up and combined seasoning is considered, then the lower
EMI to be considered for eligibility.

Minimum loan amount is Rs 2.50 Lac/24M and Max is Rs 12.50 Lac/36M.

The loan amount cannot exceed the original loan amount based on which the
eligibility being calculated.

Maximum tenor should not exceed tenor of loan considered for eligibility

Facility against Credit Card Receivables

Avail upto Rs. 3 crores as a Business Loan
Kotak Mahindra Bank introduces a unique new product, Facility against Credit Card
Receivables where under you can avail upto Rs. 3 crores as a Business Loan or have
the flexibility to have some portion of the facility as an Overdraft.
It is a finance option for merchant establishments that use credit card Point of Sales
(POS) machines for their daily business transactions. With this product, a merchant
with a POS machine can avail of either a Business Loan or an Overdraft Facility on
the basis of the yearly sales that takes place on his credit card POS machine.
1. 12 month audited credit-card sales statement
2. Basic financial documentation

Key Features

Higher eligibility for Self Employed

Loan amounts up to Rs. 3 crores

Flexibility of combining Loan and Overdraft

Lower Processing Fees

Easy repayment option

22

Collateral free

Features & Benefits

Loan amounts up to Rs. 3 crores

Flexibility of combining Loan and Overdraft

Easy repayment option

Competitive interest rates

Quick disbursement

23

CHAPTER 3
REVIEW OF LITERATURE

3.1 Review of Literature

Allen and Gayle (2003) describe the most recent BIS proposals for the credit
risk measurement of retail credits in capital regulations 1. We also describe the recent
trend away from relationship lending toward transactional lending in the small
business loan arena. These trends create the opportunity to adopt more analytical,
data-based approaches to credit risk measurement. We survey proprietary credit
scoring models (such as Fair Isaac), as well as options-theoretic structural models

24

(such as KMV and Moodys Risk Calc), and reduced-form models (such as Credit
Risk Plus). These models allow lenders and regulators to develop techniques that rely
on portfolio aggregation to measure retail credit risk exposure.
David Blanch flow (1993) et.al investigated data from the 1993 National
Survey of Small Business Finances to determine the extent to which minority-owned
small businesses face constraints in the credit market beyond those faced by whiteowned small businesses2. First, we present qualitative evidence indicating that blackand white-owned firms report similar concerns about the factors that may affect their
businesses except that blacks are far more likely to report problems with credit
availability. Second, we conduct an econometric analysis of loan denial probabilities
by race and find that black-owned small businesses are almost three times more
likely to have a loan application denied. Even after controlling for the differences in
credit-worthiness and other factors that exist between black- and white-owned firms,
blacks are still about twice as likely to be denied credit. A series of specification
checks indicates that this gap is unlikely to be largely attributed to omit variable bias.
Third, we conduct a similar analysis regarding interest rates charged to approved
loans and find black-owned firms pay higher interest rates as well. Finally, even
these results are likely to understate differences in credit access because many
potential black-owned firms are not in operation due to the lack of credit and those in
business may be too afraid to apply. These results indicate that the racial disparity in
credit

availability

is

likely

caused

by

discrimination.

Marc (2010) et.al explains a unique dataset comprised of small firms facing a
very real, and binding, credit constraint, to question whether a corrective scheme
such as the SFLGS has, in practice, alleviated such constraints by promoting access
to debt finance for small credit constrained firms 3. The results broadly support the
view that the SFLGS has fulfilled its primary objective. It is a widely
held perception, although empirically contentious, that credit rationing is an
important phenomenon in the UK small business
Jimn & Sau(2004) analyses the determinants of the probability of default
(PD) of bank loans4. We focus the discussion on the role of a limited set of variables
(collateral, type of lender and bankborrower relationship) while controlling for the
25

other explanatory variables. The study uses information on the more than three
million loans entered

into

by

Spanish

credit

institutions

over

complete business cycle (19882000) collected by the Bank of Spain's Credit

Register (Central de Informacin de Riesgos). We find that collateralised loans have
a higher PD, loans granted by savings banks are riskier and, finally, that a close
bankborrower relationship increases the willingness to take more risk.
Scott & Aruna (2001) examines the effect of credit scoring on small-business
lending for a sample of large U.S. banking organizations 5. We find that credit scoring
is associated with an 8.4 percent increase in the portfolio share of small-business
loans, or $4 billion per institution. However, we fail to uncover any specific
attributes of bank small-business credit-scoring programs that lead to this increased
lending. Overall, we conclude that credit scoring lowers information costs between
borrowers and lenders, thereby reducing the value of traditional, local bank lending
relationships.
John and Jonathan (1989) examine the first rigorous statistical test of the
transaction cost models of secured debt6. Data from two samples of over 1,000 small
business loans generally support the common set of predictions of these theories. The
incidence of secured debt is positively related to probability of default, loan size,
loan maturity, and marketability of assets. Changes in the legal and economic
environment also alter firms' decisions regarding the pledging of collateral. Critics
claim that theories of secured debt fail to explain the widespread use of collateral
because they incorrectly predict when a loan will be secured
Jonathan (1986) investigate The Bankruptcy Reform Act of 1978 contains
several provisions that can affect the cost of producing loans for financial
intermediaries7. In a competitive lending market the additional monitoring and
expected foreclosure costs imposed by the change in the bankruptcy law should be
passed on to the borrower. Using survey data from a sample of small business
loans from commercial banks, evidence is presented that the enactment of the new
law resulted in higher contract rates of interest.

26

Jeremy Berk (2004) et.al investigates how personal bankruptcy law affects
small firms' access to credit8. When a firm is unincorporated, its debts are personal
liabilities of the firm's owner, so that lending to the firm is legally equivalent to
lending to its owner. If the firm fails, the owner has an incentive to file for personal
bankruptcy, since the firm's debts will be discharged and the owner is only obliged to
use assets above an exemption level to repay creditors. The higher the exemption
level, the greater is the incentive to file for bankruptcy. We show that supply of credit
falls and demand for credit rises when non-corporate firms are located in states with
higher bankruptcy exemptions. We test the model and find that, if small firms are
located in states with unlimited rather than low homestead exemptions, they are more
likely to be denied credit, they receive smaller loans and interest rates are higher.
Results for non-corporate versus corporate firms suggest that lenders often disregard
small firms' organizational status in making loan decisions.
William and Nelson (1998) find that the use of risk rating systems is quite
widespread, but that smaller banks generally have less detailed systems than do
larger banks9. In addition, the new survey data allow us to assess the relationships
between loan risk ratings and loan terms. Not surprisingly, riskier loans generally
carry higher interest rates, even after taking account of other loan terms. There are
more complex relationships between loan risk and other loan terms. Regression
results indicate that banks of all sizes price for risk. We do not find a relationship
between reported loan risk and delinquency and charge-off rates. However, this may
reflect how recently the risk rating data have become available. In recent years many
banks have attempted to improve the measurement and management of credit risk by
assigning risk ratings to business loans. Virtually all large banks now assign such
ratings. However, until recently there has been little information on the use of risk
ratings by smaller banks. Recent revisions to the Federal Reserve's Survey of Terms
of Business Lending and telephone consultations with more than 100 banks on the
survey panel provide data on the prevalence and precision of risk rating systems at
banks of all sizes.
Frame (2004) et.al estimates that credit scoring is associated with about a
$3,900 increase in small business lending per sample banking organization, per low27

and moderate-income (LMI) area served, and this effect is roughly equivalent to that
estimated for higher-income areas10. For our sample, this corresponds to a $536
million increase in small business credit in LMI areas in 1997 than otherwise would
have been the case. This effect appears to be driven by increased out-of-market
lending by banking organizations, as in-market lending generally declines. Overall, it
does not appear that credit scoring has a disparate impact on LMI areas.
Shelagh (2006) points out an econometric model to examine the pricing
behaviour of British financial institutions with respect to key bank products/services
offered to small and medium sized enterprises (SMEs) including current accounts,
investment accounts, business loans, and mortgages11. A mean group approach is
used on a panel of monthly data to gauge individual banks reactions to identify
factors influencing the setting of deposit and loan rates, and to assess the competitive
structure that best describes the UKs SME banking market. Though the results
should be interpreted with caution, the empirical evidence is suggestive of a complex
oligopoly. Policies directed at improving information and making it easier for
small businesses to change banks/accounts would reduce inertia and improve
competition among financial institutions.
Jalal (2001) et.al investigates a significant contribution to the financial
innovation literature by examining the diffusion of a recent important innovation of
the 1990s: banks' use of credit scoring for small business lending12. We examine the
responses of 95 large banking organizations to a survey that asked whether they had
adopted credit scoring for small business lending as of June 1997 (56 had done so)
and, if they had adopted it, when they had done so. We estimate hazard and tobit
models to explain the diffusion pattern of small business credit scoring models.
Explanatory variables include several market, firm, and managerial factors of the
banking organizations' under study. The hazard model indicates that larger banking
organizations innovated earlier, asdid those located in the New York Federal Reserve
district; both results are consistent with our expectations. The tobit model confirms
these results and also finds that organizations with fewer separately chartered banks
but more branches innovated earlier, which is consistent with theories stressing the

28

importance of bank organizational form on lending style. Though the managerial

variables' signs are consistent with our expectations, none yields significant results.
Frame (2001) et.al empirically examines the effect of the use of credit scoring
by large banking organizations on small business lending in low- and moderateincome (LMI) areas13. Using census tract level data for the south-eastern United
States, the authors estimate that credit scoring increases small business lending by
$16.4 million per LMI area served. Furthermore, this effect is almost 2.5 times larger
than that estimated for higher income census tracts ($6.8 million). The authors also
find that credit scoring increases the probability that a large banking organization
will make small business loans in a given census tract. The change in this probability
is 3.8 percent for LMI areas and 1.7 percent for higher income areas. These findings
suggest that credit scoring reduces asymmetric information problems for borrowers
and lenders and that this is particularly important for LMI areas, which lenders may
have historically bypassed because of their questionable economic health.
Gregory (1990) describes that most commercial loans are made on a secured
basis, yet little is known about the relationship between collateral and credit risk 14.
Several theoretical studies find that when borrowers have private information about
risk, the lowest-risk borrowers tend to pledge collateral. In contrast, conventional
wisdom holds that when risk is observable, the highest-risk borrowers tend to pledge
collateral. An additional issue is whether secured loans (as opposed to secured
borrowers) tend to be safer or riskier than unsecured loans. Empirical evidence
presented here strongly suggests that collateral is most often associated with riskier
borrowers, riskier loans and riskier banks.
Forrest (1996) et.al explore this issue by examining how in the years before
1914 these banks treated loan applications from industrialists, specifically analysing
the extent of refusals and the reasons given for refusals15. The results confirm that the
banks operated their lending business within general constraints imposed by the
principles of prudent banking. However, it is also clear that the banks gave very
careful consideration to all applicants, applied a set of reasonable criteria, and
approved the great bulk of all applications for industrial lending. English commercial

29

banks have suffered severe criticism for their alleged failure to support industrial
activity, to provide industrial finance. They are said to compare unfavourably with
their European counterparts.
Jays et.al describes that the unsecured enterprise loans can be procured
quickly with speedy help16. So, funding company no more stays a problem. Also, you
do not have to go by means of the unpleasant &amp time sucking process of finding
to banking institutions, heading by way of endless identity or safety verifications. If
your goal is company growth, renovation or up gradation then, you know you might
be secure and well furnished for, with the alternative of unsecured business loans.
The most fascinating bit is that you dont have to complacent financially to procure
these loans.
Andrew Baker explains about Businesspersons, who have undergone bad credit
history, also make use of this category of loans 17. Such businesspersons and
enterprises are known as problem cases. Failure to pay certain debts in the past leads
to county court judgements, and bankruptcy, which in turn leads to bad credit history.
Such businesspersons are disadvantaged in secured loan deals. Unsecured business
loans however, present immense financial opportunities before borrowers;
particularly where the loan amount desired is small. The amount received through
unsecured business loans will be used for business commencement or expansion
purposes, assets and equipment purchase and refinance, and to restructure finances.
Some businesses use the loan proceeds as a working capital. Still others would use
the unsecured business loan to finance a particular consignment. The repayment of
this type of loan will be due immediately after the entrepreneur gets payment from
the consignee, or any date decided.
Todd Kalb describes about small businesses and entrepreneurs facing a perpetual
lack of funds for taking their business to the next level, small business unsecured
loans are the solution18. With the easy availability of unsecured loans most small
businesses prefer going in for small business unsecured loans. Sometimes business
owners are put off by what they perceive as slightly higher rates of interest for small
business unsecured loans. Since the loan is unsecured it is natural to think that

30

lenders use the higher rates to offset the risk involved. However in reality, these types
of unsecured business loans may have lower interest rates than other types of
collateralized loans, such as factoring. To put it all together you get capital without
any stakes and a lot of ease. Also, you can use it in any way that you want. Now
suppose you took the loan to buy some office equipment, but decided to go in for that
sales program instead. The small business unsecured loan lender couldn't care less.
You can spend it in any way that you want. Small business unsecured loans are
similar to other loans in most other aspects, with unsecured loans not requiring
collateral and with good credit you can apply now with no documented income. The
loan application process is initiated by the borrower filling in the unsecured loan
application, which can be done online via desktop conferencing technology. Once the
application is received the lender starts to work to find more about the borrower in
regards to his credit history and their financial details also decides on what they can
offer to the borrower. If the borrower's requirements and the lenders offerings are inline with each other, the deal works out and even if they are not, oftentimes the
lender may make a counter offer to the borrower until they do come to equilibrium
and they fall into line with each other and the loan gets approved and funded.
Generally for small business, unsecured loans are approved faster compared to
secured loans and this is one of the key factors that a borrower would consider when
having multiple lenders offering them various types of loans. Borrowers like to have
their unsecured loans available promptly. Unsecured small business loans are now in
the mainstream and are considered as a regular source of acquiring finance.
Unsecured loans are offered with absolutely no strings attached and the borrower is
free to spend it any way they find suitable. This makes it a more lucrative proposition
for the borrowers and they are increasingly using unsecured small business loans for
business start up, debt settlement, purchase of assets, business expansion and even
working capital.
Venditto (2007) et.al discusses the Official Committee of Unsecured Creditors in the
U.S19. The committee is aimed at representation and protection of the interests of
unsecured creditors during the reorganization proceedings. The committee has
several responsibilities including consulting with the debtor in possession about the
31

administration of the case and investigating the debtors business finances and the
desirability of continued operation.
Many people prefer to apply for unsecured loans or loans without collateral, thinking
that it involves much less risk and responsibility 20. While it is true that unsecured
loans do not require the submission of collateral or the borrowers home property, a
borrower must still take his/her repayment obligations seriously. Today, lets discuss
some of the basic things about unsecured loans along with some tips on how you can
a better loan deal. Compared to secured loans, loans without collateral are expected
to have higher interest rates. It is very important to make sure that the rate of your
unsecured loan is based on a fixed-rate system, not a variable one. A fixed-rate loan
will ensure that your monthly interest will never change until your loan has been
completely paid off. Lenders who extend unsecured loans offer limited loan amounts
or loan value to ensure that the borrower will be capable of repayment. It is still
worth the try to request your lending company for a lower interest rate especially if
your credit history does show that you are credit worthy. Even if your lending
company may refuse to lower your rate, you will never know until you try to
negotiate. Again, make sure that the interest rate will be fixed and that there will be
no hidden charges or extra fees that are not in your contract. Youll want to inquire
about the different payment methods that the lender offers so you can submit your
payments at your convenience. Also, a shorter repayment period may come with a
slightly higher rate but in the end, your total costs will be much lower than a loan
with a longer repayment period. Last but not least, see to it that you have a realistic
plan in paying off your unsecured loan to avoid expensive late charges or an
increased rate of interest. Borrow only the amount of money you need so that
repayment will not be such a burden later on.

3.2 Theoretical Review

3.2 (A) Factor Analysis
Factor analysis is a statistical method used to describe variability among observed,
correlated variables in terms of a potentially lower number of unobserved,
uncorrelated variables called factors. In other words, it is possible, for example, that
32

variations in three or four observed variables mainly reflect the variations in fewer
such unobserved variables. Factor analysis searches for such joint variations in
response to unobserved latent variables. The observed variables are modeled as linear
combinations of the potential factors, plus "error" terms. The information gained
about the interdependencies between observed variables can be used later to reduce
the set of variables in a dataset. Computationally this technique is equivalent to low
rank approximation of the matrix of observed variables. Factor analysis originated in
psychometrics, and is used in behavioral sciences, social sciences, marketing,
product management, operations research, and other applied sciences that deal with
large quantities of [data.]
Factor analysis is related to principal component analysis (PCA), but the two are not
identical. Latent variable models, including factor analysis, use regression modelling
techniques to test hypotheses producing error terms, while PCA is a descriptive
statistical technique21.
3.2 (B) Type of factor analysis
Exploratory factor analysis (EFA) is used to uncover the underlying structure of a
relatively large set of variables. The researcher's a priori assumption is that any
indicator may be associated with any factor. This is the most common form of factor
analysis. There is no prior theory and one uses factor loadings to intuit the factor
structure of the data.
Confirmatory factor analysis (CFA) seeks to determine if the number of factors and
the loadings of measured (indicator) variables on them conform to what is expected
on the basis of pre-established theory. Indicator variables are selected on the basis of
prior theory and factor analysis is used to see if they load as predicted on the
expected number of factors. The researcher's a priori assumption is that each factor
(the number and labels of which may be specified a priori) is associated with a
specified subset of indicator variables. A minimum requirement of confirmatory
factor analysis is that one hypothesizes beforehand the number of factors in the
model, but usually also the researcher will posit expectations about which variables

33

will load on which factors. The researcher seeks to determine, for instance, if
measures created to represent a latent variable really belong together.
3.2 (C) Types of factoring

Principal component analysis (PCA)

The most common form of factor analysis, PCA seeks a linear combination of
variables such that the maximum variance is extracted from the variables. It then
removes this variance and seeks a second linear combination which explains the
maximum proportion of the remaining variance, and so on. This is called the
principal axis method and results inorthogonal (uncorrelated) factors.

Canonical factor analysis

It is called Rao's canonical factoring, is a different method of computing the same

model as PCA, which uses the principal axis method. Canonical factor analysis seeks
factors which have the highest canonical correlation with the observed variables.
Canonical factor analysis is unaffected by arbitrary rescaling of the data.

Common factor analysis

It also called principal factor analysis (PFA) or principal axis factoring (PAF),

seeks the least number of factors which can account for the common variance
(correlation) of a set of variables.

Image factoring
Based on the correlation matrix of predicted variables rather than actual

variables, where each variable is predicted from the others using multiple
regressions.

Alpha factoring
Based on maximizing the reliability of factors, assuming variables are

randomly sampled from a universe of variables. All other methods assume cases to
be sampled and variables fixed.

34

Factor regression model

This is a combinatorial model of factor model and regression model; or

alternatively, it can be viewed as the hybrid factor model, whose factors are partially
known22.
3.2 (D) Terminology
a) Factor loadings
The factor loadings, also called component loadings in PCA, are the correlation
coefficients between the variables (rows) and factors (columns). Analogous
to Pearson's r, the squared factor loading is the percent of variance in that indicator
variable explained by the factor. To get the percent of variance in all the variables
accounted for by each factor, add the sum of the squared factor loadings for that
factor (column) and divide by the number of variables. (Note the number of variables
equals the sum of their variances as the variance of a standardized variable is 1.) This
is the same as dividing the factor's eigenvalue by the number of variables.
b) Interpreting factor loadings
By one rule of thumb in confirmatory factor analysis, loadings should be .7 or
higher to confirm that independent variables identified a priori are represented by a
particular factor, on the rationale that the .7 level corresponds to about half of the
variance in the indicator being explained by the factor. However, the .7 standard is a
high one and real-life data may well not meet this criterion, which is why some
researchers, particularly for exploratory purposes, will use a lower level such as .4
for the central factor and .25 for other factors call loadings above .6 "high" and those
below .4 "low". In any event, factor loadings must be interpreted in the light of
theory, not by arbitrary cutoff levels.
In oblique rotation, one gets both a pattern matrix and a structure matrix. The
structure matrix is simply the factor loading matrix as in orthogonal rotation,
representing the variance in a measured variable explained by a factor on both a
unique and common contributions basis. The pattern matrix, in contrast,
contains coefficients which just represent unique contributions. The more factors, the

35

lower the pattern coefficients as a rule since there will be more common
contributions to variance explained. For oblique rotation, the researcher looks at both
the structure and pattern coefficients when attributing a label to a factor.
c) Communality
The sum of the squared factor loadings for all factors for a given variable
(row) is the variance in that variable accounted for by all the factors, and this is
called the communality. The communality measures the percent of variance in a
given variable explained by all the factors jointly and may be interpreted as the
reliability of the indicator.
d) Spurious solutions
If the communality exceeds 1.0, there is a spurious solution, which may
reflect too small a sample or the researcher has too many or too few factors.
e) Uniqueness of a variable
That is, uniqueness is the variability of a variable minus its communality.
f) Eigenvalues:/Characteristic roots
The eigenvalue for a given factor measures the variance in all the variables
which is accounted for by that factor. The ratio of eigenvalues is the ratio of
explanatory importance of the factors with respect to the variables. If a factor has a
low eigenvalue, then it is contributing little to the explanation of variances in the
variables and may be ignored as redundant with more important factors. Eigenvalues
measure the amount of variation in the total sample accounted for by each factor.
g) Extraction sums of squared loadings
Initial eigenvalues and eigenvalues after extraction (listed by SPSS as
"Extraction Sums of Squared Loadings") are the same for PCA extraction, but for
other extraction methods, eigenvalues after extraction will be lower than their initial
counterparts. SPSS also prints "Rotation Sums of Squared Loadings" and even for
PCA, these eigenvalues will differ from initial and extraction eigenvalues, though
their total will be the same.

36

h) Factor scores
It also called component scores in PCA. These are the scores of each case
(row) on each factor (column). To compute the factor score for a given case for a
given factor, one takes the case's standardized score on each variable, multiplies by
the corresponding factor loading of the variable for the given factor, and sums these
products. Computing factor scores allows one to look for factor outliers. Also, factor
scores may be used as variables in subsequent modelling.
3.2 (E) Criteria for determining the number of factors
Using one or more of the methods below, the researcher determines an appropriate
range of solutions to investigate. Methods may not agree. For instance, the Kaiser
criterion may suggest five factors and the scree test may suggest two, so the
researcher may request 3-, 4-, and 5-factor solutions discuss each in terms of their
relation to external data and theory.
i.

Comprehensibility

A purely subjective criterion would be to retain those factors whose meaning is

comprehensible to the researcher. This is not recommended.
ii.

Kaiser criterion

The Kaiser rule is to drop all components with eigenvalues under 1.0 this being the
eigenvalue equal to the information accounted for by an average single item. The
Kaiser criterion is the default in SPSS and most statistical software but is not
recommended when used as the sole cut-off criterion for estimating the number of
factors as it tends to overextract factors23.

iii.

Variance explained criteria

Some researchers simply use the rule of keeping enough factors to account

for 90% (sometimes 80%) of the variation. Where the researcher's goal emphasizes

37

parsimony (explaining variance with as few factors as possible), the criterion could
be as low as 50%
iv.

Scree plot

The Cattell scree test plots the components as the X axis and the
corresponding eigenvalues as the Y-axis. As one moves to the right, toward later
components, the eigenvalues drop. When the drop ceases and the curve makes an
elbow toward less steep decline, Cattell's scree test says to drop all further
components after the one starting the elbow. This rule is sometimes criticised for
being amenable to researcher-controlled "fudging". That is, as picking the "elbow"
can be subjective because the curve has multiple elbows or is a smooth curve, the
researcher may be tempted to set the cut-off at the number of factors desired by his or
her research agenda.
3.2 (F) Horn's Parallel Analysis (PA):
A Monte-Carlo based simulation method that compares the observed eigenvalues
with those obtained from uncorrelated normal variables. A factor or component is
retained if the associated eigenvalue is bigger than the 95th of the distribution of
eigenvalues derived from the random data. PA is one of the most recommendable
rules for determining the number of components to retain, but only few programs
include this option24.
Before dropping a factor below one's cut-off, however, the researcher should check
its correlation with the dependent variable. A very small factor can have a large
correlation with the dependent variable, in which case it should not be dropped.
3.2 (G) Rotation methods
The unrotated output maximises the variance accounted for by the first and
subsequent factors, and forcing the factors to be orthogonal. This data-compression
comes at the cost of having most items load on the early factors, and usually, of
having many items load substantially on more than one factor. Rotation serves to
make the output more understandable, by seeking so-called "Simple Structure": A
pattern of loadings where items load most strongly on one factor, and much more
38

weakly on the other factors. Rotations can be orthogonal or oblique (allowing the
factors to correlate).
i.

Varimax rotation

It is an orthogonal rotation of the factor axes to maximize the variance of the squared
loadings of a factor (column) on all the variables (rows) in a factor matrix, which has
the effect of differentiating the original variables by extracted factor. Each factor will
tend to have either large or small loadings of any particular variable. A varimax
solution yields results which make it as easy as possible to identify each variable
with a single factor. This is the most common rotation option.
ii.

Quartimax rotation

It is an orthogonal alternative which minimizes the number of factors needed to

explain each variable. This type of rotation often generates a general factor on which
most variables are loaded to a high or medium degree. Such a factor structure is
usually not helpful to the research purpose.
iii.

Equimax rotation

It is a compromise between Varimax and Quartimax criteria.

iv.

Direct oblimin rotation

It is the standard method when one wishes a non-orthogonal (oblique) solution that
is, one in which the factors are allowed to be correlated. This will result in higher
eigenvalues but diminished interpretability of the factors.

v.

Promax rotation

It is an alternative non-orthogonal (oblique) rotation method which is

computationally faster than the direct oblimin method and therefore is sometimes
used for very large datasets
39

REFERENCE
1. Linda Allen and Gayle DeLong, Issues in the credit risk modeling of retail
markets, Zicklin School of Business, Baruch College, One Bernard Baruch
Way, Box B 10-225, New York, NY 10010, USA, Available online 27
November 2003
2.

David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 2003.

"Discrimination in the Small-Business Credit Market," The Review of
Economics and Statistics, MIT Press, vol. 85(4), pages 930-943, 09.

3. Marc Cowling, The role of loan guarantee schemes in alleviating credit

rationing in the UK, Financial Stability, Volume 6, Issue 1, April 2010, Pages
36-44
4. Gabriel Jimnez, Jess Saurina, Collateral, type of lender and relationship
banking as determinants of credit risk, Journal of Banking & Finance,
Volume 28, Issue 9, September 2004, Pages 2191-2212
5. W. Scott Frame, Aruna Srinivasan and Lynn Woosley, Journal of Money,
Credit and Banking, Vol. 33, No. 3 (Aug., 2001), pp. 813-825
6. John D. Leeth and Jonathan A. Scott, The Incidence of Secured Debt:
Evidence from the Small Business Community, Journal of Financial and
Quantitative Analysis (1989), 24 : pp 379-394
7. Jonathan A. Scott, The effect of the Bankruptcy Reform Act of 1978 on small
business loan pricing, Journal of Financial Economics, Volume 16, Issue 1,
May 1986, Pages 119140
8.

Berkowitz, Jeremy and Michelle J. White. "Bankruptcy and Small Firms'

Access to Credit." RAND Journal of Economics 35, 1 (Spring 2004): 69-84

9. William B. and Nelson, William R., Bank Risk Rating of Business Loan
(December 7, 1998). Board of Governors of the Federal Reserve System
FEDS Paper No. 98-51.

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10. W. Scott Frame & Lynn Woosley, Credit Scoring and the Availability of
Small Business Credit in Low- and Moderate-Income Areas, Financial
Review Volume 39, Issue 1, pages 3554, February 2004
11. Shelagh Heffernan, UK bank services for small business, Finance, Volume
30, Issue 11, November 2006, Pages 3087-3110
12. Akhavein, Jalal D., Frame, W. Scott and White, Lawrence J., The Diffusion
of

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2001)
13. Frame, W. Scott, Padhi, Michael and Woosley, Lynn W., The Effect of Credit
Scoring on Small Business Lending in Low- and Moderate-Income Areas
(April 2001). FRB Atlanta Working Paper No. 2001-6.
14. Gregory F. Udell, Collateral, loan quality and bank risk, Journal of Monetary
Economics Volume 25, Issue 1, January 1990, Pages 2142
15. Forrest Capiea & Michael Collins, Industrial Lending by English Commercial
Banks, 1860s1914: Why Did Banks Refuse Loans?, Business History,
Volume 38, Issue 1, 1996
16. Jay,s, Unsecured business loans Effortless finance for tiny enterprise
operations, Finance For A Small Business category
17. Andrew Baker, Benefits of Unsecured Business Loans, EzineArticles.com
Expert Author
18. Todd Kalb, Small Business Unsecured Loans, Articlesnatch.com
19. Venditto, Michael, Business Credit; May2007, Vol. 109 Issue 5, p6-8, 3p
20. Getting to Know Unsecured Type Loans, All Topics -Personal FinanceFinancial Planning

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21. Bartholomew, D. J., Steele, F., Galbraith, J., & Moustaki, I. (2008). Analysis
of Multivariate Social Science Data (2 ed.). New York: Chapman & Hall/Crc.
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transcription factors in glioblastoma using a nonnegative hybrid factor
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organizational and social sciences. Lance, Charles E. (Ed.); Vandenberg,
Robert J. (Ed.). New York: Routledge. pp. 6187.
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Factors to Retain in EFA: An easy-to-use computer program for carrying out
Parallel Analysis". Practical Assessment Research & Evaluation, 12(2), 1-11

42

CHAPTER 4
RESEARCH METHODOLOGY

Descriptive research design was used for carrying out this study. This study is
focused to analyse Unsecured Business Loans requirements.
4.1 Data Source
Primary and secondary data was explored for the requirements of the study. The
preliminary study and extensive literature review was carried out. The primary data
is directly collected from the respondents using a questionnaire. The scope of
Internet for collecting secondary data was also exploited.

43

4.2 Research Approach

Survey using a questionnaire was adopted in this study. Personal interactive method
was followed with respondents to find out their requirements. The questionnaire
shall be circulated to the respondents as per the research design
4.3 Research Instrument
Questionnaire was prepared with the objective of collecting all relevant information
required for achieving the research objectives. Wide discussions with experts in the
field of Business loans were conducted before selecting the questions and included it
in the questionnaire. The prepared questionnaire was pre-tested before using the
study.
4.4 The Population
The population was defined as all registered SME in Ernakulum District.
4.5 Sample Size
Sample size was estimated from the list of registered SME in The Confederation of
Indian Industry at Ernakulum District.
4.6 Sampling Procedure
The sample size was selected by using simple random lottery method, from the list
of SME registered in The Confederation of Indian Industry at Ernakulum District.
4.7 Scope
This study can be very useful for the Banks to understand how a SMEs responds for
an Unsecured Business Loans and also to find out the respondents requirements
while preferring an Unsecured Business Loans.
4.8 Limitations
All respondents may not be willing to answer and also difficulty in contacting
respondents

44

CHAPTER-5
DATA ANALYSIS

This study was executed in all registered SME in Ernakulum District. Sample size
was estimated from the list of registered SME in The Confederation of Indian
Industry at Ernakulum District. Finally the sampling procedure was selected by using
simple random lottery method, from the list of SME registered in The Confederation
of Indian Industry at Ernakulum District.

Availed Loans for Business Purpose

45

Table-5.1 Availed loans for Business Purpose

Frequency

Percent

Valid Percent

Cumulative Percent

Yes

68

68.0

68.0

68.0

No

32

32.0

32.0

100.0

Total

100

100.0

100.0

Source: Survey Data

From the table it can be concluded that, 68% of the people who are doing Business in
SME opted for Business loans and 32% of the people did not opt for Business loans.

Figure 5.1

First Preference for Business Loan

46

Table-5.2 First Preference for Business Loan

Frequency

Percent

Valid Percent

Cumulative Percent

Secured

80

80.0

80.0

80.0

Unsecured

20

20.0

20.0

100.0

Total

100

100.0

100.0

Source: Survey Data

From the table it can be seen that, 80% of the people preferred Secured loans over
unsecured loans. This can be because the term for secured loan is longer than that of
unsecured loan and the interest rate is lower for secured loan.

Figure -5.2

Cross Tabulation for Availed loans for Business Purpose and first
Preference for Business Loans

47

5.2.1 Availed loans for Business Purpose * First Preference for Business Loans Cross
tabulation
First Preference for
Business Loans
Secured
Unsecured Total
Availed loans for
Yes
Count
50
18
68
Business Purpose
Expected Count
54.4
13.6
68.0
% within Availed
73.5%
26.5%
100.0%
loans for Business
Purpose
% within First
62.5%
90.0%
68.0%
Preference for
Business Loans
No
Count
30
2
32
Expected Count
25.6
6.4
32.0
% within Availed
93.8%
6.3%
100.0%
loans for Business
Purpose
% within First
37.5%
10.0%
32.0%
Preference for
Business Loans
Total
Count
80
20
100
Expected Count
80.0
20.0
100.0
% within Availed
80.0%
20.0%
100.0%
loans for Business
Purpose
% within First
100.0%
100.0% 100.0%
Preference for
Business Loans
Source: Survey Data

It was observe that out of 68 who took business loan, 73.5% took secured loan and
26.5% took unsecured loans and out of 32 people, who took loan for other than
business purpose, 93.7% took secured loans and only 6.3% took unsecured loan

Hypothesis
H0: There is no relationship between availed business loan and type of loan taken
48

H1: There is relationship between availed business loans and type of loan taken

Table 5.2.2 Chi-Square Test

Value

df

Asymp. Sig.
(2-sided)

Pearson Chi-Square

5.561a

.018

Continuity Correction

4.369

.037

Likelihood Ratio

6.520

.011

Fisher's Exact Test

Exact Sig. Exact Sig. (1(2-sided)

sided)

.018

Linear-by-Linear
Association

5.505

N of Valid Cases

100

.014

.019

Source: Survey Data

From table 5.2.2 we can interpret that Chi-square test was found to be significant
with is 5.561, df=1, P<0.05.
Hence we reject the Hypothesis and can conclude that there is relation between the
availed business loans and type of business loan taken
Hence we conclude that the people who have taken business loan prefer to take
secured loan.

Three main factors influenced in selecting Unsecured Business

Loans

49

Table-5.3 Factors influenced in Selecting Unsecured Business Loans

Factors

Frequency

Interest Rate

89

Loan Ceiling

26

Loan Tenure

42

Time Duration for Loan Processing

85

Processing and Documentation Charges

21

Tax Benefits

Liberal Loan amount sanctioning Process

33

Source: Survey Data

From the table we can observe that the three main factors influencing in the selection
of Unsecured Business Loans are interest rate, time duration for loan processing and
loan tenure.

Figure 5.3

Identify those institutions which provide maximum amount of

Unsecured Loans

50

Table-5.4 Institutions provide maximum amount of Unsecured Business Loans

Frequency

Percent

Valid Percent

Cumulative Percent

HDFC Bank

28

28.0

28.0

28.0

Kotak Mahindra Bank

17

17.0

17.0

45.0

Dhanalakshmi Bank

5.0

5.0

50.0

Tata Finance

1.0

1.0

51.0

Bajaj Finance

3.0

3.0

54.0

Others

46

46.0

46.0

100.0

Total

100

100.0

100.0

Source: Survey Data

From the table we can observe that 46% of the respondents chose other institutions
like SBI, ICICI, Canara Bank etc whereas 28% of the respondents chose HDFC Bank
and 17% of the respondents chose Kotak Mahindra Bank Ltd.
Figure 5.4

The Preference of kind of Loan availed for Business

Table-5.5 Preference of Kind of Loan availed for Business

Preference

Score

Overdraft

28

Unsecured Term Loans

Secured Term Loans

22

Gold Loans

21

Agri Loans

7.4

Asset Finance

0.6

Friends and Family

15

51

Source: Survey Data

From the table we can observe that respondents prefer Overdraft as a business loan.
This may be due to easy and quick disbursement of loan amount and also the
customer has to pay interest only on the amount overdrawn. As a second option
respondents prefer secured term loans. This may be due to long tenure and low rate
of interest. As a third preference respondents would rather go for Gold loan, as even
if they have a bad credit history and low income level they can avail it.

Figure 5.5
Looking for Unsecured Business Loan

Table-5.6 Looking for Unsecured Business Loans

Cumulative
Frequency Percent Valid Percent
Percent
Yes

3.0

3.0

3.0

No

88

88.0

88.0

91.0

May be after 3
months

9.0

9.0

100.0

Total

100

100.0

100.0

Source: Survey Data

52

From the table it can be observed that, 88% of respondents are not interested in
taking Unsecured Business Loans. This may be due to higher interest rate and long
tenure

Figure 5.6

Perception of Unsecured Business Loans among Small Medium

Enterprises A Factor Analysis
Factor analysis attempts to identify underlying variables, or factors, that explain the
pattern of correlations within a set of observed variables. Factor analysis is often
used in data reduction to identify a small number of factors that explain most of the
variance that is observed in a much larger number of manifest variables. Factor
analysis is primarily used for data reduction or structure detection. The purpose
of data reduction is to remove redundant (highly correlated) variables from the data
file, perhaps replacing the entire data file with a smaller number of uncorrelated
variables.
Therefore we are able to identify the perception of unsecured business loans among
Small Medium Enterprise so as to group them into specific segment to enable the
designing of the appropriate marketing strategy; Factor Analysis was done using
Principal Component Analysis

53

Table-5.7 Communalities
Unsecured Business Loans do not require collateral to
assure the Business Credit Loan
Good credit rating is needed on the part of Borrower
while preferring Unsecured Business Loans
Unsecured Business Loans maintains easy and rapid way
to get cash for your business needs
Unsecured Business Loans are turning out to be a key
viable alternative for small business
Unsecured Business Loans can be acquirable within 10
days
Unsecured Business Loans provides flexibility to
borrowers
Interest Rate for Unsecured loans is high
Risk involved on part of borrower is very high
The paper work involved during the processing of
Unsecured business loans is less
Many lenders will approve or deny Unsecured Loans in a
matter of a week or less
Unsecured Business Loans are taken for comparatively
smaller Period
Unsecured Business loans are best suited for companies
that have been operational for long period of time and
have built good reputation for themselves
The Maximum amount of loan that can be borrowed
depends on the credit score of the applicant
The more you owe on the Unsecured Business
Loan(including interest)the more will be the money
which you have to repay
If there is delay in repayment, late fee is charged

Initial
1.000

Extraction
.496

1.000

.609

1.000

.654

1.000

.695

1.000

.712

1.000

.459

1.000
1.000
1.000

.501
.711
.645

1.000

.763

1.000

.668

1.000

.633

1.000

.646

1.000

.564

1.000

.673

Extraction Method: Principal Component Analysis.

15 Likert scales statements were considered for executing the Factor analysis. The
extraction method used was Principle Component Analysis. From table 5.7 it was
found that the extraction values for all the Likert statements were having adequate
loadings.

54

It is observed that the communalities show sufficiently large values suggesting that
the statements are equally important for the contemplated problem. The factors
extracted and the related results are given below

Table 5.8 Total Variance Explained

Extraction Sums of
Rotation Sums of
Initial Eigenvalues
Squared Loadings
Squared Loadings
Comp
% of
% of
% of
onent
Cumulat
Cumulat
Cumulati
Total Varianc
Total Varianc
Total Varianc
ive %
ive %
ve %
e
e
e
1
4.216 28.108 28.108 4.216 28.108 28.108 2.447 16.313 16.313
2
1.661 11.075 39.183 1.661 11.075 39.183 1.999 13.324 29.637
3
1.487 9.914 49.097 1.487 9.914 49.097 1.711 11.410 41.047
4
1.051 7.006 56.103 1.051 7.006 56.103 1.676 11.172 52.218
5
1.013 6.751 62.854 1.013 6.751 62.854 1.595 10.635 62.854
6
.924 6.157 69.011
7
.827 5.514 74.525
8
.675 4.498 79.022
9
.637 4.247 83.270
10
.585 3.902 87.172
11
.494 3.291 90.463
12
.443 2.954 93.417
13
.381 2.537 95.954
14
.332 2.211 98.165
15
.275 1.835 100.000
Extraction Method: Principal Component Analysis .

Table 5.8 explains about the total variance reported. It can be found out that the five
components extracted from principle component analysis is capable of explaining
62.8% of the variations and the first component alone could explain about 16.3% of
the variations. The variations explained by the five variations are quite large.

55

Table-5.9 Rotated Component Matrix

Unsecured Business Loans do not

require collateral to assure the Business
Credit Loan
Good credit rating is needed on the part
of Borrower while preferring
Unsecured Business Loans
Unsecured Business Loans maintains
easy and rapid way to get cash for your
business needs
Unsecured Business Loans are turning
out to be a key viable alternative for
small business
Unsecured Business Loans can be
acquirable within 10 days
Unsecured Business Loans provides
flexibility to borrowers
Interest Rate for Unsecured loans is
high
Risk involved on part of borrower is
very high
The paper work involved during the
processing of Unsecured business loans
is less
Many lenders will approve or deny
Unsecured Loans in a matter of a week
or less
Unsecured Business Loans are taken
for comparatively smaller Period
Unsecured Business loans are best
suited for companies that have been
operational for long period of time and
have built good reputation for
themselves
The Maxium amount of loan that can
be borrowed depends on the credit
score of the applicant
The more you owe on the Unsecured
Business Loan(including interest)the
more will be the money which you
have to repay

1
.177

Component
2
3
4
.277
.012
.119

5
.611

.684

.106

.035

.332

.137

.042

.210

.091

.593

.498

.231

.082

-.023

.780

-.160

.093

.800

-.018

-.089

.235

.031

.103

.132

-.165

.634

.548

.042

-.135

-.079

.417

.395

-.252

.571

-.363

.183

.444

.587

-.037

.267

.175

.095

.800

.256

.203

.086

.055

-.076

.613

.241

.475

.563

-.056

.288

.480

.014

.756

.194

.153

.110

.019

.569

.220

.436

-.042

-.003

56

The researcher attempted identifying those variables by using a Rotated Component

Matrix. The rotation method used was Varimax method with Kaiser Normalization.
In the above Table 5.9 the variables having high loadings are indicated. These
variables are collected and organized based on their loadings. In this, components are
identified based on the statements which are having high loadings. The researcher
has named each and every component factor with a suitable name identified from the
common behaviour shown by the statements.
Sl. No
1
2

Factor One Eligibility - Supporting factors

The Maximum amount of loan that can be borrowed depends on the credit
score of the applicant
Good credit rating is needed on the part of Borrower while preferring
Unsecured Business Loans

The first factor was identified and named to be Eligibility because the extracted
statements says about credit score and credit rating of the Borrower

Sl. No

Factor Two Time Duration - Supporting factors

Unsecured Business Loans can be acquirable within 10 days

Many lenders will approve or deny Unsecured Loans in a matter of a week or
less

The second factor was identified and named to be Time Duration because the
extracted statements says about time duration for processing of Unsecured Business
Loans
Sl. No

Factor Three Risk - Supporting factors

If there is delay in repayment, late fee is charged

Unsecured Business Loans are taken for comparatively smaller Period

The third factor was identified and named to be Risk because the extracted
statements says about risk for repaying the Loan
Sl. No
1

Factor Four Need - Supporting factors

Unsecured Business Loans are turning out to be a key viable alternative for

57

small business
2

Unsecured Business Loans maintains easy and rapid way to get cash for
your business needs

The fourth factor was identified and named to be Need because the extracted
statements says about Key viable alternative and rapid way to get cash for business
Needs.
Sl. No

Factor Five Flexibility to borrowers- Supporting factors

Unsecured Business Loans provides flexibility to borrowers

Unsecured Business Loans do not require collateral to assure the Business

Credit Loan

The fifth factor was identified and named to be Flexibility because the extracted
statement says about Flexibility to Borrowers.

Table 5.10

58

Correlations

Eligibility

Time
Eligibility Duration Risk
1
.300** .269**

Need
.371**

Pearson
Correlation
Sig. (2-tailed)
.002
.007
.000
N
100
100
100
100
**
**
Time Duration
Pearson
.300
1
.288
.316**
Correlation
Sig. (2-tailed)
.002
.004
.001
N
100
100
100
100
**
**
Risk
Pearson
.269
.288
1
.264**
Correlation
Sig. (2-tailed)
.007
.004
.008
N
100
100
100
100
**
**
**
Need
Pearson
.371
.316
.264
1
Correlation
Sig. (2-tailed)
.000
.001
.008
N
100
100
100
100
**
**
**
Flexibility to
Pearson
.260
.314
.275
.226*
Borrowers
Correlation
Sig. (2-tailed)
.009
.001
.006
.024
N
100
100
100
100
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

Flexibility
to
Borrowers
.260**
.009
100
.314**
.001
100
.275**
.006
100
.226*
.024
100
1

100

From the table 5.10 it can be observed that, all the extracted components are
positively correlated.

59

CHAPTER- 6
SUMMARY
&
CONCLUSIONS

6.1 FINDINGS
60

6.1.1 Introduction
This study was executed in all registered SMEs in Ernakulum District. The
objective of the study was to have a basic understanding about Unsecured Business
loan requirements. An attempt was made by the researcher to find out the preference
level of respondents in going for Unsecured Business Loans and to study about the
factors influencing respondents while choosing Unsecured Business Loans.
Sample size was estimated from the list of registered SME in The
Confederation of Indian Industry at Ernakulum District. Questionnaires were
circulated and data was collected and analysed by using by appropriate statistical
tools and the findings are furnished under.
6.1.2 Availed Loans for Business Purpose
It was found out that, 68% of the people who are doing Business in SME
opted for Business loans and 32% of the people did not opt for Business loans.
6.1.3 First Preference for Business Loan
It was found that 80% of the people preferred Secured loans over unsecured
loans. This could be because the term for secured loan is longer than that of
unsecured loan and the interest rate is lower for secured loan.
6.1.4 Main factors influenced in selecting Unsecured Business Loans
It was found that the three main factors influencing in the selection of
Unsecured Business Loans are interest rate, time duration for loan processing and
loan tenure.
6.1.5 Institutions which provide maximum amount of Unsecured Loans
It was found that 46% of the respondents chose other institutions like SBI,
ICICI, Canara Bank etc whereas 28% of the respondents chose HDFC Bank and 17%
of the respondents chose Kotak Mahindra Bank.
6.1.6 The Preference of kind of Loan availed for Business

61

It was found that respondents mostly prefer the business loan in the form of
Overdraft. This may be due to easy and quick disbursement of loan amount and also
the customer has to pay interest only on the amount overdrawn. As a second option,
respondents prefer secured term loans. This may be due to long tenure and low rate
of interest. As a third preference, respondents would rather go for Gold loan, as even
if they have a bad credit history and low income level they can avail it.
6.1.7 Looking for Unsecured Business Loan
It was found that 88% of respondents are not interested in taking Unsecured
Business Loans. This may be due to higher interest rate and long tenure.
6.1.8 Factor Analysis: Perception of Unsecured Business Loans among Small
Medium Enterprises
15 Likert scale statements were considered for executing the factor analysis.
The extraction method was used and it was found that the extraction values for all the
Likert statements were having adequate loadings (above.5). Thus it was found that
that the five components extracted from principle component analysis is capable of
explaining 62.8% of the variations and the first component alone could explain about
16.3% of the variations. The variations explained by the five variations are quite
large. Statements are identified based on the statements which are having high
loadings. Thus the findings are;
The Maximum amount of loan that can be borrowed depends on the credit
score of the applicant
Unsecured Business Loans can be acquired within 10 days
If there is delay in repayment, late fee is charged
Unsecured Business Loans are turning out to be a key viable alternative for
small business
Unsecured Business Loans provides flexibility to borrowers
Thus the new identified factors are named as Eligibility, Time Duration, Risk,
Need and Flexibility to Borrowers. In order to find out the interrelationship between
satisfaction score and other variables, a correlation analysis was attempted. It was
found that all the extracted components are positively correlated.
62

6.2 SUGGESTION
The respondents are not aware about those institutions which provides maximum
amount of Unsecured Business Loans. For this purpose, banks have to increase the
awareness level among SMEs about the different scheme offered to them.

6.3 CONCLUSION

63

We can conclude by saying that generally people prefer to take secured

loans compared to unsecured loans, due to difference in interest rate and tenure of the
loan
Some of the limitations of the study which could be the subject of the further
research include:
a. The sample includes 100 SMEs of Ernakulum District only
b. Only the broad classification of Secured and Unsecured loans have
been studied and
c. Only loan taken for business purpose have been studied.
This study will be very useful for the Banks to find out the respondents requirements
while taking a Business Loan.

BIBLIOGRAPHY

64

 Books
1. Kothari, C.R.,2004, Research Methodology- Methods and Techniques,
(Second Revised Edition) New Age International Publisher, New
Delhi.
2. James C. Vanhorne, 2007, Financial Management Policy (12thEdition)
Hall of India Private Limited, New Delhi

Journals
1. Gabriel Jimnez, Jess Saurina, Collateral, type of lender and
relationship banking as determinants of credit risk, Journal of Banking
& Finance, Volume 28, Issue 9, September 2004, Pages 2191-2212
2. John D. Leeth and Jonathan A. Scott, The Incidence of Secured Debt:
Evidence from the Small Business Community, Journal of Financial
and Quantitative Analysis (1989), 24 : pp 379-394
3. Gregory F. Udell, Collateral, loan quality and bank risk, Journal of
Monetary Economics Volume 25, Issue 1, January 1990, Pages 2142

Articles from newspapers

1. Somasroy Chakraborty, Foreign banks shift focus to unsecured
loans , Mumbai Mar 09, 2011, Business Standard, Friday, May
18, 2012
http://www.business-standard.com/india/news/foreign-banks-shift-focusto-unsecured-loans/427793/

Websites
1. www.kotak.com
2. www.prlog.org
3. www.zimbio.com
4. www.kazor.com

APPENDIX
This questionnaire is intended to find out the preference level of respondents in going
for Unsecured Business Loans and to study about respondents Perceptions and
variations while choosing Unsecured Business Loans. Kindly cooperate by filling
this questionnaire and your responses will be used only for academic purposes.

65

Nature of Business

No of years in the Business

Turnover of your Company

1.

Name & Address of the Respondents

Have you availed loans for Business Purpose

Yes

2.

No

What will be your first preference, when you think of Business Loan?
Secured

Unsecured

3. Mark any 3 factors influenced you in selecting Unsecured Business Loans

Factors

Rank

Interest Rate
Loan Ceiling
Loan Tenure
Time duration for loan Processing
Processing and Documentation charges
Tax Benefits
Liberal Loan amount Sanctioning Process

4. Identify any of those institutions which provides maximum amount of Unsecured

Loans

Institutions
HDFC Bank
Kotak Mahindra Bank
Dhanalakshmi Bank
Tata Finance

66

Bajaj Finance
Others

5. Mark the Preference of kind of loan availed for Business (Please rate 1 to 5
where 1 is significant increase and 5 is significant decrease.)
Preferences
Overdrafts
Unsecured Bank Loans
Secured Bank Loans
Gold Loans
Agri Loans
Asset Finance(Leasing and Hire Purchase)

Ranks

Friends and Family

6. Are you looking for a Unsecured Business Loan for next 3 months
Yes

No

May be after 3 months

7. Please select your degree of agreement with the following statements. SA stands for
strongly agree, A for agree, NA/ND neither agree nor disagree, DA Disagree and
SDA strongly disagree

STATEMENT
1.

SA

NA/
ND

DA

SDA

Unsecured business loans do not

require collateral to assure the
business credit loan.

2. Unsecured Business Loans prefer to

take a high-scoring, business credit
report to ensure that you can pay off
the credit loan in due course.(Good
Credit Rating is needed)

67

3.

Unsecured business loans maintain an

easy and rapid way to get cash for
your business needs.

4. For small businesses and the business

services industry, unsecured business
loans are turning out to be a key viable
alternative
5. Unsecured business loans can be
acquirable within 10 days
6. One can use the fund availed from
Unsecured Business Loans for any
business reason to grow your business.
(Flexibility to Borrowers)
7. Interest Rate for Unsecured loans is
high
8. The Risk involved on the part of
borrower while selecting unsecured
Loans is very high
9. The paper work which is involved
during the processing of an unsecured
loan is less
10. Many lenders will approve or deny
Unsecured Loans in a matter of a
week or less
11. Unsecured Business Loans are taken
for a comparatively smaller period.
12. Unsecured Business loans are best
suited for companies that have been
operational for a long period of time
and have built-up quite a reputation
for themselves.
13. The maximum amount of loan that can
be borrowed depends on the credit
score of the applicant
14. The more you owe on the Unsecured
Business loan (including interest), the
more will be the money which you
have to repay.

68

15. If there is a delay in repayment, late

fee is charged

THANK YOU

69