RESEARCH PROPOSAL

Topic: Loan delinquency: Causes, effects and exemption

schemes

SUBMITTED BY:
Nandini Alyani (B.A hons Economics: II year)
Ritik Goel (B.A hons Economics: II year)
RESEARCH HYPOTHESIS

Title of the research:

“Loan delinquency: Causes, effects and exemption schemes”

Nature of the research:

While it will be mainly a primary survey-based research, some secondary data

may also be used for understanding purposes.

Hypothesis
 Loan default affecting the banking system and losses they go through
 Strict and avid proposals for a necessity of security during the procedure of
certain loans affecting the accessibility of loans to varied masses and their
substitutes to overcome this problem.
 Causes of loan default include; lack of willingness to pay loans coupled with
diversion of funds by borrowers, wilful negligence and improper appraisal
by credit officers.
 the findings of this study will serve as a tool to guide credit staff about the
implications of their credit decisions in creating quality loan portfolio for
their banks.
The outcome of the study will enable us to
 examine the causes, impacts of loan defaults on banks and their effects on
financial performance.
 that some of the impacts associated with default include: the inability to
recycle funds to other borrowers; unwillingness of other financial
intermediaries to serve the needs of small borrowers; and the creation of
distrust.
The findings of this study will serve as a tool to guide credit staff about the
implications of their credit decisions in creating quality loan portfolio for banks
and understanding behaviour of borrowers towards non-payment of loans.
We can also observe the exemption of loans and their impact on banks and
defaulters.
IMPORTANCE OF THE TOPIC
Credit is the most important part of the economy. Credit leads to an increase in
spending, thus increasing income levels in the economy. This, in turn, leads to
higher GDP (gross domestic product) and thereby faster productivity growth. If
credit is used to purchase productive resources, it helps in economic growth
and adds to income. Credit further leads to the creation of debt cycles. Loan
repayment determines the bank’s ability to grant further loans, the profitability,
and the suitability of depositors. Loan default can be defined as the inability of a
borrower to fulfill his or her loan obligation as at when due. The loan portfolio
constitutes the largest operating assets and source of revenue of most
commercial banks. However, some of the loan given out become non-
performing or end up in default and adversely affect the financial performance
of banks and financial institutions. As many as 1,762 willful defaulters owed Rs
25,104 crore to State Bank of India as on March 31 this year, straining its
balance sheet and limiting its capacity to extend loans to genuine investors.
Indian banks are now saddled with some of the highest levels of bad debts in
the emerging markets according to the International Monetary Fund. These
loan defaults also affect the borrowers in a way that they lose trust in the
financial institutions and might even withdraw their deposits and eventually
lead to the downfall of the bank and that could badly impact the economy.
Loan delinquency can happen due to a variety of reasons such as high-interest
rate, insufficient loan sizes, improper client selection, poor appraisal, etc.
Therefore, continuous monitoring of loan quality and formulation of clear and
effective credit policies are covert for maintaining a sound financial system and
prevent a crisis.
Therefore, this topic holds a great deal of significance from economic point of
view.
Research methodology and survey design

 Visit to a local bank and discuss

1. The major and potential reason behind the non – repayment of loans from
the point of view of banks
2. How they manage to recover them?
3. How these losses are affecting them?
4. Are government exemptions helpful to recover them? And under what
circumstances they exempt and how often?
5. What is their opinion over misuse of these exemptions by the unworthy
people?
 Visit to local residents of the city and discuss the assumed reasons why
they would not be able to repay the loan. Among which a varied category
of people can be surveyed, they can be classified on the basis of
1. Sectors they work i.e.; primary, secondary, territory
2. Students who take loans for education
 We can also include how the fear of non-repayment has affected banks
and customers
1. For example, how this has hindered customers to take up loans and resort
to informal sources.
2. For the banks, this has made provisions strict during the procedure to take
up loans and how these strict rules mandated customers to avoid taking loans
from banks.
 AREAS OF FOCUS
1. Ascertain the determinants of loan default in Bank.
2. Examine the type of Bank clients’ who normally default.
3. Examine the causes of loan default from the perspective of defaulted
clients.
4. Assess the impact of loan default on the profitability of the Bank.
5. Assess the Bank rate of loan default in relation to the key sectors of the
economy.