Consumer Perceptions of Non-Banking Financial Institutions

Consumer Perceptions of Non-Banking Financial InstitutionsNon-Banking Financial Institutions (NBFI) v/s Banks in India Why NBFI ar doing much business than Banks? A study of New Delhi based Upper and Middle Class Consumers. consider of Business AdministrationABSTRACTIn the era of globalization and repose the develop custodyt of pecuniary arna has played and important section in the economy of India. With the serve offered by argots and non- fixing companying pecuniary institutions (NBFI) the life of consumer in India has alone diversityd. Borrowing is one of the important aspects that nourish turnd the whole scenario of Indian society. smorgasbord in the trend of stopping point of upper marrow signifier consumers, change in the behaviour of consumer regarding borrowing and change in the norms of intrusts and NBFI regarding borrowing has confine life of Indian consumer very comfortable.This look shows how non-banking pecuniary institutions be fulfilling the occupy of upper mediate class consumers and how they ar doing more(prenominal) than business than banks and why consumers rely more on NBFI or else than banks in India.This explore uses questionnaires, interviews of consumers and ask sales constituent of NBFI to try come in the consumer borrowing and usance of pecuniary institutions.The research concludes that consumers atomic number 18 relying much more on NBFI and it is not risky demanding to borrow impart because of policies norms regarding loans and availability of flexible monetary options.CHAPTER 1INTRODUCTON1.1 laggardThis chapter is introduction ab turn out the research topic. It mellowlights the aims and objectives of the research. It in like manner tells about the structure of the oratory and the summary of this chapter.1.2 BACKGROUND INFORMATIONEach and every country has its experience monetary frame. Financial remains usu altogethery consists of financial foodstuff, financial intermediaries and financial intersection or service. Finance in unsubdivided haggle heart and soul notes but finance is a source which provides funds to a particular dressivity. A financial firmament/ schema bites as an agent to make sure that funds flow from the beas of sur positivistic to the deficit atomic number 18a. A financial grocery is a place which creates financial assets and exchange of notes for goods and services. Financial trade consists of foreign exchange market, capital market, credit market and money market. (Web 8)Money is a fascinating thing which attracts humankind to a great extent. over thousands of years the process of creating money and using money is making human enthusiastic. Financial intermediaries play an important place in building economy of a country. Financial Intermediaries includes banks, financial institutions, non-banking financial institutions (NBFI), coro solid ground companies, pension and uncouth funds. (Web 9)Financial orbit plays an im portant role in organizing and properly distributing sharing the savings. Financial field act as a passage or tube which transfers the financial resources from net savers to net borrowers .ie. from the soul who dangle less as footvasd to their earning to those who earn less and spend more then their earning. (Web 10)Indian financial transcription consists of grand vane of banks and financial institutions (including non-banking financial institutions) and range of financial instruments. From the last two decades in that respect have been great improvements in Indian Financial radiation diagramation and thither is a huge supply of banking and other financial facilities provided to large population of India. (Web 10)A safe and sound financial heavens is required to maintain the ripening of an economy. With the serve of globalization and change in technology the operating purlieu of banks and other financial institutions has changed signifi offertly. Due to disputation a nd change in client demand there is increase in product innovation and change in strategy of banks and financial institutions. In order to face the competition and meet ch entirelyenges entertain Bank of India (RBI) has in any case changed its ordinations and provided a new mannikin. Reserve Bank of India (RBI) is trying to develop a strong, competitive, stable and powerful banking dust so that it can overhaul in development and development of the economy. (Web 11) jibe to Sarkar (n.d.) a strong, diverse, efficient and flexible financial transcription plays an important role in the economy of a country. A developed financial system maintains high up aim of investment and promotes growth in the economy. The financial system in India consists of financial institutions, financial market, financial instruments and services. Indian financial system is divided into two segments- organized sector and traditional sector which is excessively called as informal credit market. In orga nized sector financial services be provided to the community by large number of financial institutions which be mainly business organizations. And financial institutions that atomic number 18 providing specialized or provide some extra services are called as banking or non-banking units. Reserve Bank of India (RBI) is the apex institution and regulates the credit. Financial institutions include common and under(a)cover commercial banks, cooperative banks, development banks, regional rural banks. Where as finance leasing companies, LIC (Life Insurance Corporation), GIC (General Insurance Companies), provident funds, mutual funds, post do banks .etc. are non-banking financial institutions in India. (Sarkar, n.d., pp. 1)RBI is the interchange bank of India and was ceremonious in April, 1935. RBI acts as Government banker, agent, adviser and also acts as bankers bank. RBI is the bookler of the credit which agency that RBI has power to change the volume of credit created by banks. (Web 12)The advantageousness of banking sector is improved because of reforms set by banking system which pass ons in high operating and net profit. With the entry of private banks there is a huge competition for public sector banks for loaning of funds. With the entry of non-banking financial institutions (NBFI) and phylogenesis financial institutions (DFI) the competition in sourcing the funds is also increased. (Chanda, 2005, pp. 31)NBFI act as an intermediary between lender and borrower and provide divulge, distinguishable services than natural banks. NBFI includes investment companies, finance corporations, chit funds, hire-purchase finance companies, loan companies, leasing companies, mutual benefit funds. All of these NBFI have the ability to provide large count of financial services to wide range of customers from small borrowers to established companies. (Chanda, 2005, pp. 36)Indian consumers are changing their habits at a fast rate and they are borrowing mon ey to buy the product they wanted. Because of easy financing options they assumet have to think if they can afford a product or not. Consumer finance is a win-win situation for every one and immediately they dont have to wait for years to save their money and upgrade their living standards. (Agarwal and Mittal, 2004, pp. 6)The Buy now Pay later(prenominal) market-gardening is very much common in India now a days. Consumers are loosing their fear of borrowing. Even if a consumer wants to buy a home, home loan financing is easily obtainable. Falling interest rates, increase loan length and reduced monthly installments are making all these things mathematical for consumers. (Agarwal and Mittal, pp. 6-8)The banking sector is one of the most important sectors in Indian financial sector. Over 80 percent of funds which flow in the financial sector are because of banking sector. (Sarkar, n.d., pp. 1). NBFI are entering in the financial sector because of rigidness of banks and their less competition amongst them. Kotak Mahindra, Citi Financial, Ashok Leyland Finance, Sundaram Finance .etc. are the big p directs in this playing field and are growing rapidly at faster rate and are pickings good position in financial sector. In wonder to all these things, the break up of this study is to find why these institutions are doing better business than public and private banks in India.1.3 AIMS AND OBJECTIVESThis research is planned to run into and examine the trend of upper class and middle class Indian consumers in taking loans and their reliance on banks and non-banking financial institutions, particularly in todays competitive environment. This research is done to achieve the future(a) defined objectivesTo compare and contrast the role of banks and non-banking financial institutions (NBFI) in India economy.To rate the role of both banks and NBFI for borrowing in Indian developing economy.To actualise and examine the banking and financial sector regularizati ons in India in post loosening period.To evaluate and analyze the emerging consumer stopping point in India.To understand and examine the trend of upper and middle class Indian consumers in taking loans.To examine the policies of banks /non-banking financial institutions regarding offering loans to consumers.To identify how NBFI are fulfilling the aspirations of upper and middle class in India.1.4 STRUCTURE OF DISSERTATION there are 5 chapters in this dissertation.Chapter 1 IntroductionThis chapter introduces the research topic. It outlines the aims and objectives of dissertation, overview, structure of dissertation and ultimately summary of the chapter.Chapter 2 Literature ReviewThis chapter talks about the lit review. Discussion of available literary works cogitate to the topic is done. The aim of this chapter is sketch about motley concepts on which this dissertation is based. The literature is available from various books, online journal articles and websites.Chapter 3 Re search MethodologyThis chapter discusses about various research methods and data collection methods. It discuss about research design, quantitative research, qualitative research, advantages disadvantages of various methods, limitations, validity reliability.Chapter 4 Findings, Analysis and DiscussionsThis chapter analyses all the data stash a focal point using varied data collection methods. All the data is critically analyzed and discussions are made on the keister of literature which is related to the objectives of research. Data rescueation is done using various methods like tables, graphs, charts and pie charts .etc.Chapter 5 Conclusion and RecommendationsThis chapter concludes the research by providing a conclusion on the basis of findings, analysis and discussions. This chapter also discusses the limitations confront during research and recommendations for future research.1.5 SUMMARYThis chapter was an canonical chapter aimed to give reader a brief idea of what this re search is all about. It highlights introduction, aims, objectives and finally structure of the dissertation.CHAPTER 2LITERATURE REVIEW2.1 PREVIEW rent of this chapter is to discuss the literature related to the research topic. This chapter discusses about financial institutions regulations in India, finis of upper middle class consumers in India and worldwide, what makes consumer to borrow and strategies policies of financial institutions regarding credit.2.2 FINANCIAL INSTITUTION REGULATIONS2.2.1 Financial Institution Regulations GloballyThe Changing scenario of banking sector around the world, in the light of globalization has significantly drawn the guardianship of researchers and practitioners. They have raised important issues regarding merged authorities regulation and banking institutions as corporate governance is related to banking regulations. In this context the research of horse parsley (2004) titled Corporate Governance and Banking Regulations requires worth men tioning here.The research of Alexander (2004) addresses the issues of corporate governance and banking institutions. Alexander (2004) begins by analyzing the upcoming inter bailiwick rule of bank corporate governance. Alexander (2004) provides a framework for how bank supervisor and bank management should act together in relation to the management of banking institutions and its wedge on financial constancy. Further, Alexander (2004) has analyzed corporate governance and banking regulation in UK and ground forces. Alexander (2004) concludes Financial Services and Market Act 2000 has received FSA (Financial Services Authority) to fill in the gaps to enhance corporate governance because traditionally UK corporate governance was not focused on special role of banks and financial institutions. (Alexander, 2004, pp. 1-2)In USA, the federal and express statute regulations regulates the corporate governance for banking institutions. In order to manage the responsibilities of senior m anagement and directors a framework is provided by federal regulation. There is governance line of work in banks and financial companies in US. In order to provide financial stability institutions and banks, the bank regulator must establish governance standard in regards to national banking law. (Alexander, 2004, pp. 1-2, 37)In this era of globalization, banking and financial industry is greatly affected by major changes and it results in increased competition, less profit margin, pressure to justify the price, products having short life cycle. (Alexander, 2004, pp. 1-2, 37) except, when it comes to comparison of financial regulations in UK and USA, it is revealed that regulation of financial system in UK is not exact as it is in USA. evidently in USA the Securities and Exchange Commission has wide ranging regulations, and is differentiated as too much. Further, it is also stated that formal and strict USA rules procedures do not allow desired flexibility and pace. However, in terestingly so farthest new system in UK provides settlement between the self regulation and statutory regulation to make sure that financial market flora in proficient and systematic way. (Web 1)Apart from UK and USA, the regulations of financial market are changing constantly all around the world. For .eg. In Europe the complaisant rank of EU changed the main concerns of government while facing the problem of changing or executing the regulation of financial system and it is revealed that issue was the service from the jurisdiction. Quinn (1992) says that harmonisation of banking rules in the EU, the co-ordination of countries own regulatory standards and centralisation of an EU merged financial market are needed to enable swift reply to any future market failure. (Web 1)2.2.2 Financial Institution Regulations in IndiaFinancial system in India consists of specialized and non specialized financial institutions which pass on involves organized and unorganized financial marke t and deals in financial instruments services and it helps in transferring funds. In finance money is exchanged with a covenant to generate back in future. Narayanan (2005) says that in product market a buyer can easily find if a product purchased by him is defective but it is difficult to find the defects when a loan is taken. (Narayanan, 2005, pp. 1-2)If we compare Banks and Non-banking Financial Institutions (NBFI) with non financial industries, both banks and NBFI can change or reach the risk factor of their assets more quickly than non financial industries and also banks can easily give loans to clients without taking into consideration the previous debt problems. Financial market easily allocates the resources efficiently and effectively. The financial market face the problem that it is controlled by others because some persons have some study that other does not have. In order to solve this problem there is requirement of corporate governance so that it can be assured t hat supplier of finance get their return on investment. (Narayanan, 2005, pp. 1-2)India has a strong financial system. After India got freedom it inherited a diverse setup in regards to institution and market. The purpose was to mobilize savings and to increase investment rate. (RBI, 2003, pp. 3)Financial reforms were introduced in 1991 because India faced the crisis of balance of payment in 1991 so several reforms were introduced to come out of the crisis. India faced this problem because it was heavily dependent on the public sector and industrialization strategy and both of them were not able to deliver the growth in competitive environment. Later in 1980s India tried to lucubrate the role of privatization and reduced the direct tax but it didnt helped. Later the reforms were introduced in June 1991 to recover from the crisis of balance of payment. (RBI, 2003, pp. 9)After the end of crisis Indian banking system made a considerable progress functionally and geographically. New b ank facilities were introduced and the pattern of lending was changed. The give birth of reform was gradualism because it enhanced micro stability and the same time encouraged micro economic linkages. (RBI, 2003, pp. 5-8)Currently the institutional composition of financial system in India is illustrated as three constituents banks every domestic or foreign, have by RBI, government or private and regulated by RBI Financial refinancing institutions set up under a separate law or under companies act and owned by RBI Non-banking financial companies/institutions owned privately and regulated by RBI. (Reddy, 2002, pp. 4)On the development of banking and financial sector reforms in India Reddy (2002) comments that reforms have changed the form of organizations, self-control illustration, domain of financial institution operations in terms of assets and liabilities. Less availability of low cost fund has resulted in increasing competition for resources for both banks and financial inst itutions and further with the entry of banks in field of lending and financial institutions are making an attempt to pay out the short term funds has resulted in increased competition. (Reddy, 2002, pp. 4-5) at last Reddy (2002) says that the aim of financial sector reforms in India to set formal carriage formal measures which aim to strength the banking system as well as providing safety and reliability with the instrument of superior transparency, responsibility, answerability and public trustworthiness. (Reddy, 2002, pp. 6-7)However on the other end Patel (2004) argues that in spite of the establishment of market reforms in India since early nineties the government concerns in the financial sector is not lessened in correspondence to its exit from other take in of economic activity and therefore it is too large to justify the mien on the basis of involving systematic risk. Patel (2004) further puts that during early years of Indias development there might have been some good reasons for proprietorship of government in intermediaries but now it is causing some damages. (Patel, 2004, pp. 5-6, 28-29)Now India has proper intermediaries and very well commercially oriented. According to Patel (2004) A conclave of directing resources of intermediaries in fulfilling a quasi-fiscal role for government, extra-commercial accountability structures and regulatory patience (arising out of an implicit overarching guarantee umbrella) has mitigated the essential corrective effect of market discipline in both lending and deposit decisions. conjugated with persisting government involvement in intermediation and an implicit second scaffold, this has resulted in an aggravation of the problems of moral hazard that is a normal feature of financial systems. (Patel, 2004, pp. 29)Commenting on the government role in liberalized economy Echeverri-Gent (2001) says that lessen state economic interference does not lessen the importance of state in economic development. And in addition to its role of maintaining stability in economy the state continue to play small but more important role to design and modify the activities of economy by creating incentives. There are different ways that are used by state in order to create the incentives it involves authorization of property right, market microstructure which involves twinned the investors demand with the price and volume in effective and efficient manner. (Echeverri-Gent, 2001, pp.1) (Giridhar, n.d., pp. 1-3)Echeverri-Gent (2001) also states that incentives created and recreated by state using political process are present in part of economic result. And politics explain efficiency and modal(a) manner in market are promoted by which state institution. (Echeverri-Gent, 2001, pp. 1)In relation to the above fact Ramesha (2003) finds that currently in India there is a dual control for credit cooperative and banks. The state government looks aft(prenominal) and regulated all the issue related to administ ration where as aboriginal Bank of India (CBI) supervises and regulates the banking operations. As a result there is some contravention in taking legitimate decisions between state government and central banks of India. Ramesha (2003) argues that it is not possible to separate the financial administrative areas for regulations and even if it is possible it acts as an obstacle in the effective supervision and control. (Ramesha, 2003, pp. 10-11)Further fit to Ramesha (2003) central bank has power under Banking Regulation Act to abide by money for specific purpose and to handle vital aspects related to the surgical process of commercial banks. There is need of Registrar of Cooperative Societies to get mingled in the function and difficulties of cooperative banks. The central bank is not in a position to supervise credit cooperatives and banks. Therefore dual control affects the function of urban cooperative banking sector, supervision regulation quality. Therefore Ramesha (200 3) finds that under this rule of duality of control the urban cooperative banks might result in neither cooperative nor commercial bank. (Ramesha, 2003, pp. 10-11)According to Chakrabarti (2006) the fundamental role of legal reforms in maintaining the growth of economy and financial progress is strongly voted and accepted in India. Where as it is difficult to find what basics of legal system have an effect on financial system and how. Reviewing the literature on law finance and evaluating the Indias legal judicial system it seems that excellent protection is provided to the investors right. (Chakrabarti, 2006, pp. 12, 15-20)According to Porta et al there is best protection provided to the creditor in India by Indian legal system in contrast to creditor rights. (1998 in Chakrabarti, 2006, pp. 13)But execution of these laws is below to the ok level. Further it is found that law which deals with public enforcement of securities is weak and courts in India are very slow and has loa ds of ongoing cases. India is still fighting with the problem of red-tapism and bureaucracy which are obstacles for business and foreign investment in India. Chakrabarti (2006) says that Indian small medium sector rely on informal network and institution on the basis of trust and reputation for financing rather than counting on legal system to issue contracts and settle disputes. (Chakrabarti, 2006, pp. 23)Finally, Rajan and Shah (2003) says that there is problem in the regulations of banks, insurance companies and non financial institutions. There are a lot of problems related to the government guarantees, public sector ownership, processing of information risk taking. Therefore according to Rajan and Shah (2003) there is requirement to solve all these problems by obtaining good regulatory system, and obtaining world class regulations. Thus Rajan and Shah (2003) suggests that relations with these problems will provide information processing system, reducing the fiscal problem, i ncreasing the flow of risk capital in the system. (Rajan and Shah, 2005, pp. 46)2.3 CULTURE OF UPPER AND essence CLASS CONSUMERSThe word nuance has several meanings, in Latin it means tilling of the soil whereas in most Hesperian language floriculture means civilization or refinement of mind. In simple words culture means way of life, art, behavior and beliefs. (Hofstede and Hofstede, 2005, pp. 2-4).According to Mooij (2004) culture is glue which joins groups together, without culture design it will be difficult for tribe to live together. Its only the culture which defines a human community, its individuals and affable organizations. (Mooij, 2004, pp. 26)Where as according to Kluckhhohn kitchen-gardening consist in patterned way of thinking, flavouring and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievement of human groups, including their embodiments in artifacts the essential core of culture consists of traditional ideas and espe cially their accustomed value (1951, pg 86 in Hofstede, 2001, pp. 9)Each and every individual is a product of its culture and its tender group therefore they have to act in certain manner to live in their social heathenish environment. Culture cannot be separated from an individual neither culture can be separated from historical events/situations. (Mooij, 2004, pp. 26)Culture is found in topical anesthetic street, in your city, state, and country. Small children, youngsters, adults, older people have their own culture and most of the times share the culture as well. According to Williams culture is a way of life, people, group or humanity. Culture is not something we absorb- it is something that is learned. (1983b90 in Baldwin et al, 1999, pp. 4-7)Culture includes shared beliefs, attitudes, norms, roles and values. These elements are basically transferred from times to generation. Culture includes values, rituals, heroes, symbols. Values are basically feeling of a person havi ng plus and minus side. It deals with evil v/s good, dirty v/s clean, ugly v/s beautiful .etc. values are acquired by a person at very early age in their lives. Values are visible until they become evident in behavior. In contrast to values, rituals are related to social acts, ceremony or something related to religion. Rituals are carried out by an individual for their own sake and ordinarily involve paying respect to other ways of greetings. Heroes are persons springy or dead, real or imaginary whose characteristics are highly comprehended in culture and most of the times serves as a model for behaviors. For eg. Mahatma Gandhi in India or Bill Gates in USA. Symbols are words, gestures, pictures or objects that carry a particular meaning and are recognized by only those people who share a particular culture. It involves national personal identification number or any particular dress or hair vogue .etc. (Hofstede and Hofstede, 2005, pp. 6-8) (Hofstede, 2001, pp. 9-11)The cultur e of people around the world is demonstrated in riches celebrity and this is particularly true about people in western countries. According to Schor (1998) Instead of emulating folks with a similar income, people are taking their consumption cues from television characters, relatives, friends and co-workers whose income often far exceeds their own. Commenting on this trend Schor (1998) states that this can get costly because it seems that their culture worship wealth and celebrity. (Web 14)There are 3 layers of culture. The outer layer consists of explicit culture and it involves language, food, houses, monuments, market, fashion and art. These are the symbol of deeper level of culture. Middle layer consists of norms and values. Norms is basically sense of what is right and what is wrong. Norms can be written laws or social control where as values determine what is good and what is bad. Values help in making choice from existing alternatives. And the third core layer is assumptio ns about existence which is related to the ways that deal with the environment with the available resources. (Trompenaars and Hampden-Turner, 2005, pp. 20-24)Hofstede and Hofstede (2005) has divided cultural layer as national level, sexual practice level, generation level, social class level and regional/ethical level. National level is related to ones country or the country where a person belongs and with nation they have their culture, community. Gender difference is basically based on gender .ie. male or female. In some societies the culture of male is different from female. For eg. Women are not suitable for some particular jobs which are meant for men only. Generation level is separating grandparents, parents and children. For eg. Younger generation has no respect for the values of elders. Social class level is associated with individuals profession and rearing because education and profession are the powerful sources of cultural learning. Regional level is based on persons r egion and religion. (Hofstede and Hofstede, 2005, pp. 11-12)Today consumers are very much concerned with their identity, ego or superego which totally depends on their culture and most of the times related to the luxuries of life. Human needs are totally related to the culture. Needs like Psychological, safety, self actualization and see needs are very much important for consumers of each class. Consumers feel more powerful if they have symbols of power or prestige possessions. For e.g. prestigiousness possession for consumer is luxury car, big house, frequent travel abroad/holidays abroad. costume satisfy functional need but fashion satisfies social need. The behavior of consumer is not only determined by their needs but also by their surroundings. Consumers in same culture can do different things for different reasons. Ownership of luxury items shows the status symbol where ownership of chintzy watches show low income of person. (Mooij, 2004, pp. 136-140)2.3.1 Culture of Consu mers GloballySchor (1998) also comments that how you save and spend totally depends on the reference that you choose and it rules the culture of upper and middle class, particularly in western culture of world. In order to make his observation solid Schor (1998) presents example of Americans, where he shows his concerns regarding consumerism. Schor (1998) states that Americans are spending and consume as if there is no tomorrow, and the worst part is that they are not paying cash for it. Consequently, Schor (1998) cites that debt of personal credit card has doubled in last four years. The bankruptcy has reached on to the highest point and people are trading financial security for short term satisfaction. (Web 14)Schor (1998) also points out that the assets of an American family is $10000 and savings have fall down very quickly in last 10 years. In other words the western culture today commanded by influencing consumers, which forces the people to believe in wealth creation celebra tion and in result it leads to the tendency of high borrowing. (Web 14)Consumer research has given some evidence that within each social class, there are some specific lifestyle factors which involves beliefs, attitudes, activities and behavior. And all these factors help in distinguishing between the members of one class from other class. There are usually three main classes upper class, middle class and trim down class. (Schiffman and Kanuk, 2000, pp. 307)A product can also express the value of consumer. For e.g. A house is not only to live but it tells something about the owner as well. Different towards food is also a part of the culture. almost people buy food from small shops where as some buys from expensive supermarket. Product usage and ownership also determines cultural values. (Mooij, 2004, pp. 233-236)In India the position of consumer in society is defined by the clothes they die, the shoes, the accessories .etc. and all these things determines the class and power of a particular person. People do not wear in public what they wear in private, but in USA even Pr