Banking Financial Institutions | Business Dissertation

Non-Banking Financial Institutions (NBFI) v/s Banks in India – Why NBFI are doing much business than Banks? A study of New Delhi based Upper and Middle Class Consumers.

Master of Business Administration



In the era of globalization and liberalization the development of financial sector has played and important role in the economy of India. With the services offered by banks and non-banking financial institutions (NBFI) the life of consumer in India has completely changed. Borrowing is one of the important aspects that have changed the whole scenario of Indian society.

Change in the trend of culture of upper & middle class consumers, change in the behaviour of consumer regarding borrowing and change in the norms of banks and NBFI regarding borrowing has made life of Indian consumer very comfortable.

This research shows how non-banking financial institutions are fulfilling the demand of upper & middle class consumers and how they are doing more business than banks and why consumers rely more on NBFI rather than banks in India.

This research uses questionnaires, interviews of consumers and direct sales agent of NBFI to examine the consumer borrowing and role of financial institutions.

The research concludes that consumers are relying much more on NBFI and it is not risky & difficult to borrow loan because of policies & norms regarding loans and availability of flexible financial options.




This chapter is introduction about the research topic. It highlights the aims and objectives of the research. It also tells about the structure of the dissertation and the summary of this chapter.


Each and every country has its own financial system. Financial system usually consists of financial market, financial intermediaries and financial product or service. Finance in simple words means ‘money’ but finance is a source which provides funds to a particular activity. A financial sector/system acts as an agent to make sure that funds flow from the areas of surplus to the deficit area. A financial market is a place which creates financial assets and exchange of money for goods and services. Financial market consists of foreign exchange market, capital market, credit market and money market. (Web 8)

Money is a fascinating thing which attracts human 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 role in building economy of a country. Financial Intermediaries includes banks, financial institutions, non-banking financial institutions (NBFI), investment companies, pension and mutual funds. (Web 9)

Financial sector plays an important role in organizing and properly distributing & sharing the savings. Financial sector act as a passage or tube which transfers the financial resources from net savers to net borrowers .ie. from the person who spend less as compared to their earning to those who earn less and spend more then their earning. (Web 10)

Indian financial system consists of huge network of banks and financial institutions (including non-banking financial institutions) and range of financial instruments. From the last two decades there have been great improvements in Indian Financial system and there is a huge supply of banking and other financial facilities provided to large population of India. (Web 10)

A safe and sound financial sector is required to maintain the growth of an economy. With the help of globalization and change in technology the operating environment of banks and other financial institutions has changed significantly. Due to competition and change in customer demand there is increase in product innovation and change in strategy of banks and financial institutions. In order to face the competition and meet challenges Reserve Bank of India (RBI) has also changed its regulations and provided a new framework. Reserve Bank of India (RBI) is trying to develop a strong, competitive, stable and powerful banking system so that it can help in growth and development of the economy. (Web 11)

According to Sarkar (n.d.) a strong, diverse, efficient and flexible financial system plays an important role in the economy of a country. A developed financial system maintains high level 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 also called as informal credit market. In organized sector financial services are provided to the community by large number of financial institutions which are mainly business organizations. And financial institutions that are 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 public and private 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 office banks .etc. are non-banking financial institutions in India. (Sarkar, n.d., pp. 1)

RBI is the central bank of India and was established in April, 1935. RBI acts as Government banker, agent, adviser and also act’s as banker’s bank. RBI is the controller of the credit which means that RBI has power to change the volume of credit created by banks. (Web 12)

The profitability of banking sector is improved because of reforms set by banking system which results 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 Development 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 better, different services than normal 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 amount 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 money to buy the product they wanted. Because of easy financing options they don’t have to think if they can afford a product or not. Consumer finance is a win-win situation for every one and now they don’t 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 culture 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 available. Falling interest rates, increasing loan duration and reduced monthly installments are making all these things possible 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 inflexibility of banks and their less competition amongst them. Kotak Mahindra, Citi Financial, Ashok Leyland Finance, Sundaram Finance .etc. are the big players in this field and are growing rapidly at faster rate and are taking good position in financial sector. In respect to all these things, the purpose of this study is to find why these institutions are doing better business than public and private banks in India.


This research is planned to understand 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 today’s competitive environment. This research is done to achieve the following defined objectives:

  • To compare and contrast the role of banks and non-banking financial institutions (NBFI) in India economy.
  • To evaluate the role of both banks and NBFI for borrowing in Indian developing economy.
  • To understand and examine the banking and financial sector regulations in India in post liberalization period.
  • To evaluate and analyze the emerging consumer culture 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.


There are 5 chapters in this dissertation.

Chapter 1: Introduction

This chapter introduces the research topic. It outlines the aims and objectives of dissertation, overview, structure of dissertation and finally summary of the chapter.

Chapter 2: Literature Review

This chapter talks about the literature review. Discussion of available literature related to the topic is done. The aim of this chapter is brief about various concepts on which this dissertation is based. The literature is available from various books, online journal articles and websites.

Chapter 3: Research Methodology

This 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 Discussions

This chapter analyses all the data collected using different data collection methods. All the data is critically analyzed and discussions are made on the basis of literature which is related to the objectives of research. Data presentation is done using various methods like tables, graphs, charts and pie charts .etc.

Chapter 5: Conclusion and Recommendations

This chapter concludes the research by providing a conclusion on the basis of findings, analysis and discussions. This chapter also discusses the limitations faced during research and recommendations for future research.


This chapter was an introductory chapter aimed to give reader a brief idea of what this research is all about. It highlights introduction, aims, objectives and finally structure of the dissertation.




Aim of this chapter is to discuss the literature related to the research topic. This chapter discusses about financial institutions regulations in India, culture of upper & middle class consumers in India and worldwide, what makes consumer to borrow and strategies & policies of financial institutions regarding credit.


2.2.1 Financial Institution Regulations Globally

The Changing scenario of banking sector around the world, in the light of globalization has significantly drawn the attention of researchers and practitioners. They have raised important issues regarding corporate governance regulation and banking institutions as corporate governance is related to banking regulations. In this context the research of Alexander (2004) titled Corporate Governance and Banking Regulations requires worth mentioning here.

The research of Alexander (2004) addresses the issues of corporate governance and banking institutions. Alexander (2004) begins by analyzing the upcoming international 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 impact on financial stability. Further, Alexander (2004) has analyzed corporate governance and banking regulation in UK and USA. Alexander (2004) concludes Financial Services and Market Act 2000 has authorized 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 state statute & regulations regulates the corporate governance for banking institutions. In order to manage the responsibilities of senior management and directors a framework is provided by federal regulation. There is governance problem 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 cut the price, products having short life cycle. (Alexander, 2004, pp. 1-2, 37)

However, 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 stated as too much. Further, it is also stated that formal and strict USA rules & procedures do not allow desired flexibility and pace. However, interestingly so far new system in UK provides settlement between the self regulation and statutory regulation to make sure that financial market works 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 membership 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 assistance 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 integrated financial market are needed to enable swift reaction to any future market failure”. (Web 1)

2.2.2 Financial Institution Regulations in India

Financial system in India consists of specialized and non specialized financial institutions which further involves organized and unorganized financial market and deals in financial instruments & services and it helps in transferring funds. In finance money is exchanged with a promise to pay 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 remove 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 information that other does not have. In order to solve this problem there is requirement of corporate governance so that it can be assured that 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 1980’s India tried to expand the role of privatization and reduced the direct tax but it didn’t 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 bank facilities were introduced and the pattern of lending was changed. The feature 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 either domestic or foreign, owned 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 organization’s, ownership model, 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 institutions 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)

Finally Reddy (2002) says that the aim of financial sector reforms in India to set formal & semi formal measures which aim to strength the banking system as well as providing safety and reliability with the means 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 feature of economic activity and therefore it is too large to justify the presence on the basis of involving systematic risk. Patel (2004) further puts that during early years of India’s development there might have been some good reasons for ownership 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 combination of directing resources of intermediaries in fulfilling a quasi-fiscal role for government, extra-commercial accountability structures and regulatory forbearance (arising out of an implicit overarching guarantee umbrella) has mitigated the essential corrective effect of market discipline in both lending and deposit decisions. Coupled with persisting government involvement in intermediation and an implicit support 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 reducing 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 matching 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 fair behavior 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 after and regulated all the issue related to administration where as Central Bank of India (CBI) supervises and regulates the banking operations. As a result there is some conflict in taking legal 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 according to Ramesha (2003) central bank has power under Banking Regulation Act to keep money for specific purpose and to handle vital aspects related to the performance of commercial banks. There is need of Registrar of Cooperative Societies to get involved 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 (2003) finds that beneath 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 India’s legal & judicial system it seems that excellent protection is provided to the investor’s 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 satisfactory 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 loads 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 dealing with these problems will provide information processing system, reducing the fiscal problem, increasing the flow of risk capital in the system. (Rajan and Shah, 2005, pp. 46)


The word culture has several meanings, in Latin it means “tilling of the soil” whereas in most western language culture 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 people to live together. It’s only the culture which defines a human community, its individuals and social organizations. (Mooij, 2004, pp. 26)

Where as according to Kluckhhohn “Culture consist in patterned way of thinking, feeling 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 especially their attached values” (1951, pg 86 in Hofstede, 2001, pp. 9)

Each and every individual is a product of its culture and its social group therefore they have to act in certain manner to live in their social cultural 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 local 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. (1983b:90 in Baldwin et al, 1999, pp. 4-7)

Culture includes shared beliefs, attitudes, norms, roles and values. These elements are basically transferred from generation to generation. Culture includes values, rituals, heroes, symbols. Values are basically feeling of a person having 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 usually involve paying respect to other & ways of greetings. Heroes are persons alive or dead, real or imaginary whose characteristics are highly appreciated 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 flag or any particular dress or hair style .etc. (Hofstede and Hofstede, 2005, pp. 6-8) (Hofstede, 2001, pp. 9-11)

The culture of people around the world is demonstrated in wealth & 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 expensive 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 assumptions 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, gender 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 individual’s profession and education because education and profession are the powerful sources of cultural learning. Regional level is based on person’s region 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 esteem 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. Prestige possession for consumer is luxury car, big house, frequent travel abroad/holidays abroad. Clothes 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 cheap watches show low income of person. (Mooij, 2004, pp. 136-140)

2.3.1 Culture of Consumers Globally

Schor (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 consuming 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 & celebration 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 lower 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. Some 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 wear, 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 President goes for jogging in shorts and baseball caps. All this is because of cultural difference. (Mooij, 2004, pp. 170)

Consumer attitude towards Financial Services has changed and this is because of change in Life Style. Demand of own home, TV, washing machine, air conditioner, car, holiday abroad in UK/US/Europe is increasing. Because of inflation consumers are borrow and buy now rather than save to buy things later. Expectations of consumers have increased. Better living standard, improved life style, better quality life, rising income all these have had an effect on the services provided by financial institutions. (Crosbie, 1990, pp. 4-6)

2.3.2 Culture of Consumers in India

The changing socio-economic structure of India in the light of globalization and liberalization is highlighted by Breyer (1998). According to Breyer (1998) earlier most of the banks, airlines, utilities, TV & radio channels were owned by government. And more importantly high tariffs, rupee inconvertibility, corruption, high taxes which kept multinationals & foreign investors away from India. But now the whole scenario is been changed, there are privately owned airlines, phone companies, private TV & radio channels, multinational companies are coming to India & investing their money in India. Today, there are more choices, more jobs, more facilities, and more money flowing into the country & into the pockets of skilled and educated upper & middle class consumers. And such people are identified as Engineers, S/W Developers, Chartered Accountants, Airline Cabin crew, and Stockbrokers .etc. (Web 15)

Commenting on the changing culture of Indian upper and middle class Breyer (1998) says that earlier it was difficult to find Nike, Armani, Calvin Klein, McDonalds, iPod, Playstation but today all these big brands are having their outlet in major cities of India. Upper and middle class can shop at malls, supermarket, watch cable TV and even children play with imported toys, computer and video games. Finally Breyer (1998) concludes that India appears to be becoming more western so far as upper and middle class people in country are concerned. (Web 15)

Fernandes (2000) says that what ever is the fundamental social structure of the country but the fact cannot be denied that in post globalization and liberalization period Indian social and economic structure has experienced and extremely important change. As in words of Fernandes (2000) “The policies of economic liberalization, started in the 1990s and have been accompanied by a set of public discourses that have increasingly begun to debate the character of the Indian middle class”. However the supporters of economic liberalization represent the middle class as a market which should attract multinational companies. More importantly the perfect image of urban middle class in media is of rich and wealthy people, who have achieved the ability to determine the choice through consumption. Finally it comes out the contrasting views and on other hand sometimes the critics of liberalization point out the effect of consumerism and punish the middle class and criticizes the excess of consumerism. Finally, it comes out that both the views are opposite to each other and public writing in India produces the image of urban middle class as beneficiary of economic reform. (Web 16)

According to Vajpeyi (2001) Indian has taken long steps in development of economy. Middle class of India is known to be the largest market in the world and with the entry of global players into the consumer market has completely changed the whole scenario of Indian consumers. With the increasing disposable income, over consumption and lack of respect for environment has affected the society. Middle class consumers have become gadget savvy, car sales are very much high. Attitude of consumers towards consumption and spending has changed. (Vajpeyi, 2001, pp. 8, 9)

Deshpande (2005) states that in India the social status always had a strong component. A person’s absolute position counts little, and it is only the social distance that separates people from others. Deshpande (2005) concludes that all these issues are occurring in a fundamentally changed social, economic and political situation. The theory or principles which served to reduce the nationalism, development or socialism conflict are not proficient to execute their soothing and peaceful role. However at the same time Deshpande (2005) also finds that the opponents themselves are new groups which are produced by unknown globalized procedures. (Deshpande, 2005, pp. 1-2)

As lower middle class is concerned the view of world & experience of low middle class at one instance they dislike globalization & liberalization and at other instance they want India to move forward and compete in a globalized world. Sridharan has written “The post-1991 liberalisation, however, has been sustained, even if the pace of change has been slower than many advocates of reform might have liked. Indeed, unlike many other countries that have undertaken programs of economic liberalisation, India has introduced reform very. This has had the contradictory effect of leading to a support base for liberalisation while at the same the sheer weight of public employees and publicly subsidized agriculturists in this economic category have served to constrain the progress of certain types of economic reforms” (2004, pp 424-5 in Scrase, 2006, pp. 15-16)

Finally, Scrase (2006) concludes that the tendency to participate in the global development, the upper and middle class people in India are enthusiastically supporting globalisation and liberalization initiatives taken by the government. As a result, like other part of the world, the culture of consumerism is also establishing its feet in India and the rich/wealthy people in the country (upper and middle class) are taking the shelter of borrowing in order to feed their increasing hunger of consumerism. (Scrase, 2006, pp. 16)


In the previous section, it can easily be understood that a new kind of culture has developed all around the world (including India) in the light of globalization and liberalization. This culture can be called as culture of consumerism, where people in centre are upper and middle class who believe in wealth creation and celebration. This culture of consumerism has forced people to rely on credit which results in various issues of concern. As based on observation and study Holt and Rupcic (2005) argues that now a days consumers are very much dependent on credit and most of consumers misunderstand various terms like zero interest loan, interest only credit product, flexible financing options which results in mismanaging their finance. (Holt and Rupcic, 2005, pp. 1, 5)

Previously there were a lot of problems associated with financing options but with the development of reforms more innovative options are available. Because of these developments household also are expecting the same flexible options which was previously available to corporate and government. Such development are identified by Holt and Rupcic (2005) as “an overall decline in inflation expectations that changes how people borrow by extending their planning horizons; increased financial innovation by the financial sector leading to a host of new products for increasingly sophisticated consumers; and fundamental changes in the nature of the workforce that require more payments flexibility”. (Holt and Rupcic, 2005, pp. 1, 5)

While studying consumer behavior regarding credit Malbon (1999) finds that the behavior of majority of consumer when making decision about purchasing on credit is same, taking into consideration their income, gender or the area/city they live in. However, Malbon (1999) finds that there are some differences in the behavior of consumers with different income groups. Some time low income consumers take what is been offered to them without any question because they believe that they will not be getting any other offer. Finally, Malbon (1999) finds that low income consumers are mainly concerned with the interest rates where as middle or high income are concerned with ease or difficulties in getting loan. (Malbon, 1999, pp. 10-11)

In the above context Park and Rodrigues (2000) uses the US data from 1959-1994 and examined the compatibility of Permanent Income/Life cycle hypothesis (PI/LCH) and future power of consumer borrowing. “The PI/LCH implies that consumer borrowing should be an increasing function of the gap between permanent and current income. In addition, if consumers accurately estimate permanent income, large borrowing should be associated with rapid income growth in the future. Our empirical results support the PI/LCH; consumer borrowing increases with the estimate of permanent income and decreases with current income”. Apart from this Park and Rodrigues (2000) finds that consumer borrowing has marginal predictive power. (Web 3)

In a more significant research Martins and Villanueva (2006) studied the impact of reform on consumer borrowing. The main parameter which determines household borrowing is interest rate and it also helps in promoting savings. It determines if a low or middle income consumer is provided subsidized rate on mortgage the how it will affect the household borrowing. There assumptions were based on financing a house with the program. Firstly they determined the borrowing behavior of high class consumer should be affected by reform and estimate the elasticity of probability of getting the loan at that rate lie between -2.8 and -1.3. Secondly, they “document that after the reform, the distribution of loan sizes became more concentrated at the discontinuity point of the budget constraint of eligible individuals”. As a result both of their findings agree that increase interest rate results in negative response with respect to household borrowing. (Web 4)

Dutta and Magableh (2004) examine the socio-economic factors that influence the behavior of borrowers and lenders. They determined the four stages of borrowing process. The people in first stage apply for very small loan from microfinance provider and this includes people who are single owner of small business, head of family, who knows large number of micro finance providers, those in age group 18-24 or 35-44. People who less likely apply to micro credit includes male owner of small business, person doing full time job, who is having large savings, those who don’t want to pay high application cost, having strong religious belief, who are in age group 45-54. Person having large amount of assets, who already have big amount of loan, who operates in agriculture sector, higher formal educated person, head of family are those who take large amount of micro credit. And those who have their own place of residence will demand small micro credit. Person likely to apply for micro credit and demand large loan involves single applicants, head of family, having more collateral, who have social responsibilities. (Dutta and Magableh, 2004, pp. 9, 12)

Noticeably, the result of research of Dutta and Magableh (2004) says that non-economic factors like religious beliefs, social events and social responsibilities plays an important role in borrowing especially from the demand side. (Dutta and Magableh, 2004, pp. 2)

Further Doms et al (2007) says that there is very little access of credit to the poor. The reason behind this is the banks are not sure which borrower can pay the credit back. Also no body knows about credit bureaus and if consumers know what is credit bureau then most likely they don’t want their report to be affected otherwise there will be problem in future borrowing. They also find that the borrowers who are educated and know about credit bureaus are most likely to pay their loan back as compared to less educated borrower. (Web 5)

Worthington (2006) determines what contributes to the financial stress in Australia. In Australian household demographic, socio-economic and debt portfolio contributes financial stress. Financial stress here is related to financial reasons where consumer is not able to have a holiday, not able to involve in leisure activities or not able to have dinner out with friends and relatives. Worthington (2006) examined various characteristics like age, gender, household income, debt repayment, marital status, ethnic background and Worthington (2006) has used Binary logit model to determine the factors which are associated with financial stress. Worthington (2006) concludes that families with more children, from ethnic background and who rely on government benefits have high financial stress whereas families having high disposable income and high housing value have less financial stress. (Web 6)

In another important research Atieno (2001) finds that if a consumer is having higher wealth it does not means that they don’t need credit, there might be reason that the type of loan they require does not exist. It might be because the credit gap which is there is too big for informal market and not served by formal market. There is limited allocation of loan in informal market where as in formal market there is huge availability, but it depends on terms and conditions provided. Informal credit sources are easily accessible for small borrowers and the main reason behind this is lending terms and conditions. However, different borrowers have different needs and it also depends on the availability of credit. (Atieno, 2001, pp. 37-38)

Choudhury (2005) says that the financial maturity and confidence of Indian consumer is increasing. According to RBI, in 2002 consumer borrowing in India was 2 percent of their total household income. Where as in Singapore it was 176 percent of household wealth, 75 percent in Malaysia and 39 percent in Thailand. (Choudhury, 2005, pp. 18)

Commenting on the recent development in India, Jairaj (n.d.) says that in last 10-15 years the consumer credit in India has reached new heights and structure is changed completely. He also adds “From a demand-oriented and taboo-ridden sector to a large supply-driven corporate set up, there has been a paradigm shift in this sector, rooted largely in the new economic policy of liberalization, globalization and privatization adopted by India in the early 1990’s”. And with the entry of new players the whole industry has been changed in regards to consumer protection and regulatory norms. (Jairaj, n.d., pp. 1)

So far as consumer borrowing trend is concerned, Indians tend to buy two or four wheelers, mobile phones and consumer durables with confidence and style. With the rise in consumerism, attractive marketing by banks, increasing acceptance and use of plastic money has changed the whole scenario. Buying goods by borrowing is common now days. The credit card movement is year 2006 increased from 16 million to 20 million. (Web 7)

Nayak (2005) says that people in rural India are borrowing faster than their savings and according to the latest figures loans given by the banks in rural India are exceeding the amount of deposits in those areas. Percentage of home loan and personal loan is increasing where as agri-loan is declining. (Web 13)

According to Nayak (2005) bankers believe that most of the loans are taken to meet expenses like wedding in family, education loan, purchase of asset or to pay off earlier loan taken from local money lenders. In rural areas most of the times it is difficult for the banks to determine whether to issue loans or not because earning of rural borrowers is dependent on agriculture & other dependent activities where as in case of urban area borrowers, it is basically dependent on income of salaried people or businessman. (Web 13)


The continuing transformation in the banking industry has fetched a new notice in regards to the role that bank plays in the monetary transmission process. To a degree borrower rely on bank credit and bank lending is bounded by monetary policy and few limitation might affect the economy with the help of a bank credit channel. In the environment of restrictive monetary policy banks managed to issue liabilities and maintain their business of lending. (Morris and Sellon, 1995, pp. 59-61)

Since a direct bank channel does not emerge to be a part of monetary transmission process so the changes in the banking system may affect the transmission process. Furthermore because of changes in bank lending the economy of country may get effected and could force borrowers to change their spending decisions. (Morris and Sellon, pp. 63, 71-73)

Today, to weigh up the loan application banks are making more and more use of credit scoring models. The purpose of credit scoring models is to reduce the default rate and to minimize the wrongly organized loan and to minimize the number of loans that are classified as defaulted or not defaulted. Thus they fall short to take into account that loans are contract for a specific period for which it is vital for banks to know if but also when a loan will failure to pay. (Roszbach, 2003, pp. 1, 5, 22)

In order to evaluate the return on a loan, a Tobit model is used. This model predicts the expected survival time on a loan to any kind of applicant. It estimates the decision to provide a loan or not and also determines survival time on a loan to any capable applicant. The purpose of this model is to separate short survival time applicants and long survival time applicants. The bank loan providing procedure is revealed to be incompetent because the loans they are getting conflicts with the risk minimization and survival time maximization. So, there is no compromise between high default risk and high return in lending policy. (Roszbach, 2003, pp. 1, 5, 22)

Banks are not allowed to fix the terms of loan offered but it is believed that banks tie their credit terms to use underwriting services. In order to gain market share in underwriting debt, the banks are offering some concession and discounted rates to their customers. Banks provide credit service to a business, with the term that business will use banks underwriting and if customer fails to provide sufficient investment then the banks may not renew credit or change the terms. But there is no evidence that the loan terms are better for borrower who have used it or who will be using it in future. (Fraser et al, 2003 pp. 1-3, 19)

Where as Miriam et al (2006) states that in order to make decision for current credit policy the bank uses their past experience and backward looking technique to determine the effect of financial fragility in the period that were headed by the boom in the economy. Further they put that backward looking process can bring a bias into the credit policy of banks. As a result during the period of economic growth banks promote over investment issue, easy terms to extend credit. And when the economy is down banks lend money only to high quality borrowers as it is difficult for the entrepreneurs to obtain credit. Therefore “This pro-cyclical credit-policy therefore serves as another sub-channel of the credit-channel in accentuating business cycles fluctuations”. (Miriam, 2006, et al pp. 1-2, 14, 23)

Bernanke (2007) states that Banks are playing vital role in providing credit to the consumer and business with in comparison with other financial players. Bernanke (2007) says “Banks do continue to play a central role in credit markets; in particular, because of the burgeoning market for loan sales, banks originate considerably more loans than they keep on their books”. He further adds that “Nevertheless, non-bank lenders have become increasingly important in many credit markets, and relatively few borrowers are restricted to banks as sources of credit” Bernanke (2007) concludes that increasing number of credit providers and their impact on monetary policy requires further research because the increase of non banks lenders are effecting the strategy of banks. (Web 2)


This chapter dealt with the important literature which is required for this research. It talked about regulations of financial institutions in India, how culture affects society, why consumer borrow & what makes them borrow and lastly it discusses the policies & strategies adapted by banks and non-banking financial institutions in regards to issuing loans and providing finance to the consumers.





This chapter describes the methodologies involved in research project. It tells about research design and data collection methods including quantitative method & qualitative method, advantages & disadvantages of research methods, validity & reliability of research methods.


Methodology is a combination of various tools and techniques which are used in the research. These tools and techniques involve research method, data collection method and data analysis. There are a lot of research methods provided by different researchers, but in this research the researcher has used data collection and data analysis methods to collect and analyze the data. There are two types of research methods: – Quantitative method and Qualitative method. This chapter tells about how these methods are used, importance of each method, Research Design, Research Method, Reliability & Validity and Limitations.


“ A Research design is a logical plan for getting from here to there, where here may be defined as the initial set of questions to be answered and there is some set of conclusions or answers about these questions” (Yin, 2003, pp. 21). Research design is a frame work or master plan that helps in determining the methods and procedures for collecting and analyzing the information. The purpose of research design is to determine the information collected is appropriate for solving the problem and study is done according to the procedures. It links the data to be collected and conclusions to be drawn. (Zikmund, 2000, pp. 65). According to Philliber, Schwab and Samsloss a good research involves what is the question that needs to be studied, which data is useful and how to analyze the data and find results. (1980 in Yin, 2003, pp. 21). Basically research design is a plan or strategy which helps in determining what to do, how to do and when to do. The purpose of this research is to understand and examining the trend of upper and middle class Indian consumers regarding taking loans and their reliance on banks and non-banking financial institutions.


Quantitative method provides useful data that can be analyzed and interpreted to aid a decision making process, to reach measured conclusions and predict future outcomes. (Saunders et al, 2003, pp. 327). Quantitative method is used when we need some figures to strengthen our arguments made of qualitative grounds. (Morris, 2003). As all research involves some type of numerical data that can be used to answer the research question & meet the objectives and that data is called qualitative data. Qualitative data is used to analyze & interpret the things which are in numbers (Saunders et al, 2003, pp. 327). Quantitative method usually involves statistical analysis and it is based on numerical evidence to find conclusion or to test hypotheses. If we want to be sure about the reliability of the results, then it is always necessary to study a large number of people in that research area and the data can be derived from questionnaire survey, observations or from secondary sources (Ticehurst and Veal, 2000, pp. 20).

Yin explains “numerical data provides quantitative information, while non numerical data furnishes information that is clearly of qualitative nature” (1989:88 in Thietart et al, 2001, pp. 78)

Quantitative research not only involves questionnaire, survey, results of questionnaire but if it is a company it can also involves annual financial returns or absenteeism rate that can be used in collaboration with survey data. It always involves numerical analysis of data and this can be as simple as producing histograms. Quantitative, descriptive & comparative and prescriptive are three main type of Quantitative research. In descriptive research there is no comparison between groups as it is a simple description of some phenomena facilitated by using numbers. Descriptive research can be as simple and straight as histograms, pie charts, bar graphs or reports. Where as comparative research involves the comparison of data between two or more groups statistically. There is an independent variable – that we compare and independent variable – what is measured. And similarly prescriptive research is related to some predictions like what are causes & what will be the effect. Prescriptive research can be simple or complex. (Partington, 2002, pp. 101).

This research is basically based on Quantitative analysis because the main focus group is customers and to find about their behavior regarding borrowing, why they borrow, what makes them borrow and why they rely much on Non-banking Financial Institutions rather than Banks.

3.4.1 Questionnaire

The purpose of questionnaire method is to find the variable & range of possible answers, where every question or part of that question represents a variable. (Clark et al, 1998, pp. 98). Questionnaire method is usually used to collect primary data. The data which is collected by a person who will use it or he/she is responsible for supervising and organizing the collection is called as Primary data. Primary data is collected only for the purpose for which it is to be used. (Wisniewski and Stead, 1996, pp. 7). Primary data is collected and used specifically for the project in hand. The method used is survey that is defines as the technique where the researcher collects data from a sample of individuals using a questionnaire method and important feature is that each respondent answers the same set of questions prepared in advance. (Saunders et al, 2003, pp. 280-283). There are basically two types of questions. One is open ended & other is close ended. Close ended questions always restricts the answers to a small set of response and the questionnaire designer must have a good knowledge of the options available in that particular subject area and however generates exact answers. Whereas open ended questions does not impose any restrictions but it is hard to aggregate the final outcome. It has the advantage of offering wide and rich responses. (Clark et al, 1998, pp. 94)

In open ended question there is no limit of an answer to either yes or no, or to a specific range of options. The advantage of open ended is “it does not threaten to bias the findings by imposing a frame of reference, effectively limiting the way the participant may answer”. And disadvantage is that it will be difficult for researcher to analyze the details in end. Where as close ended questions impose the answer to a respondent & forces to choose from the alternatives given. And it can be of multiple choices. (Marshall, 1997, pp. 39)

As this research required straight forward information therefore the questionnaire designed was structured with multiple options and close ended questions. Close ended questions are easy to respond and analyze as well. Questionnaire contained 12 questions which were totally based on the theme of this research.

According to Partington (2002) quantitative research gives the answer to the questions that are asked and if any important question is omitted from the survey then it is difficult to know effects it would have had. It requires that researcher asks the right questions and must know what the right questions are. (Partington, 2002, pp. 102).

Quantitative data can be divided into two different groups: categorical and quantifiable. When the values of data cannot be measured numerically but can be classified into categories or placed in rank order is called categorical whereas if the values are measured numerically as quantities then it is called as quantifiable data. (Saunders et al, 2003, pp. 329)

According to Dey (1993) and Healey & Rawlinson (1994) Quantitative data is based on meanings derived from numbers, it results in numerical and standardized data & helps in doing analysis with the help of diagrams, charts, graphs & statistics. (Saunders et al, 2003, pp. 378).

Primary data for this research was basically collected by distribution of questionnaires to the customer’s visiting the bank (Punjab National Bank, UCO bank) and non-banking financial institutions (Citi Financial, Tata Finance).


According to Dey (1993) and Rawlinson (1994) Qualitative data is based on meanings which are expressed through words and it results in collection of non standardized data which requires classifications and the analysis is conducted by using the conceptualization. (Saunders et al, 2003, pp. 378)

According to Miles and Huberman “qualitative data corresponds to words rather than figures” (1984b in Thietart et al, 2001, pp. 78)

The research that provides findings which are not arrived by any statistical procedure or by any other means of quantification. This research refers to a person’s life, experiences behavior, emotions, feelings and also tells about structure & function of an organization, social and cultural movements & interactions. (Strauss and Corbin, 1998, pp. 11)

According to Stern (1980) “Quantitative methods are used to find important and real facts about which very little is known or about which more facts is required to gain more understanding”. (Strauss and Corbin, 1998, pp. 11)

Qualitative research involves all the processes & meanings which are not measured or examined in terms of quantity, numbers & volume. It stresses on reality, tells about relationship between researcher & what is studied, situational restrictions and limitations. (Denzin and Lincoln, 1998, pp. 8)

According to Robson qualitative data is associated with concepts and characteristics which are based on a person’s own goal’s to search a subject in a real manner. There is no standardized way to collect data in qualitative research. The data collected is classified into categories and then it can be analyzed in a meaningful manner. (2002 in Saunders et al, 2003, pp. 378)

Data, procedures and written & oral reports are 3 main components of qualitative research. Data comes from interviews, observations, documents. Where as procedures includes organizing & explaining the data, and written & oral includes articles in journals/books & talks in conferences. (Strauss and Corbin, 1998, pp. 12)

Saunders (2003) says that “qualitative analysis involves the following activities:-

  • Categorisation
  • Utilising Data
  • Recognizing relationships & developing the categories you are using to facilitate this
  • Developing & testing hypotheses to reach conclusions.” (Saunders, 2003, pp. 380-381)

According to Nelson et al “Qualitative research use semiotics, narrative, content, discourse, archival and phenomenology, hermeneutics, feminism, rhizomatica, deconstructionism, ethnographies, interviews, psychoanalysis, cultural studies, survey research, & participant observations and these research practices can provide important insights & knowledge”. (1992, pp. 2 in Denzin and Lincoln, 1998, pp. 5)

Qualitative research involves the usage of secondary data. Secondary data is that which has been collected, arranged and studied by others and it involves articles in journals, literature, formal/informal documents, letters .etc. (Clark, 2003, pp. 109). Secondary data include both raw data and published summaries. Most organizations collect and store a large number of data like Balance sheet, profit & loss summary, sale & purchase summary, minutes of meetings which is a part of secondary data. Secondary data is primarily used in Literature review and is easily available from books, journal articles, published reports .etc. (Saunders et al, 2003, pp. 188-195)

3.5.1 Interviewing

Qualitative research involves an important process which is called as Interviewing. Interviewing is a technique used to collect data which is analyzed later, helps in proceeding to a conclusion & tells views of individual interviewees. Researcher can either conduct structured & systematic, semi structured, unstructured interviews. In structured & systematic interview there is a standardized set of questions in which the researcher asks the questions & respondent gives answer to that particular question. Where as in semi structured interview the researcher has a list of questions but may omit some questions in particular interview & order of questions also varies depending on the conversation. Unstructured interviews are informal and it involves in-depth discussion about the topic & interviewee has the opportunity to talk freely about events, behavior & beliefs. (Thietart et al, 2001, pp. 180) (Saunders et al, 2003, pp. 246).

This research involved 5 semi structured telephonic interviews which were basic talks and discussion about the research topic.

3.5.2 Observation

Observation is also an important method of collection data in qualitative research where researcher directly observes processes or behavior in an organization over a specific period of time. It helps the researcher in analyzing the facts. (Thietart et al, 2001, pp. 183).

But in this research it is not possible for the researcher to use the observation method because of the time constraint and distance barrier the researcher is not able to go personally to Banks and Non-banking Financial institutions in India to the observations in real environment.

3.5.3 Advantages and Disadvantages of Secondary Data

There are few advantages and disadvantages of Secondary data. It is less expensive to use secondary data rather than collecting yourself. Higher quality data can be obtained and sometimes quickly. It helps in making comparison and also helps in discovering something new. It provides data that is permanent & can be checked easily by others. Secondary data has some disadvantages as well. Data available or collected may vary from the research and may not be quite so suitable for the research. Access may be difficult or costly if data is vital. Sometimes it is difficult fro the researcher to present data according to the requirements. (Saunders et al, 2003, pp. 200-202)

Qualitative method is also used in this research. Secondary data for this research was collected through Books, Journal Articles, Various Banks websites, and Internet sources. Good literature review was obtained from the University’s Library in Cardiff. This research involves 5 semi structured interviews of customers and employees of non-banking financial institutions. Interviews done were telephonic because of distance constraint and it was basically general talk to discuss about the research topic. General instructions were given to the interviewees on the type of information required and questions asked were related to the topic and it covered all the questions included in the questionnaire. Both customer and employees were given maximum freedom to respond within the boundary of the topic. The guidelines were given to the interviewee and additional comments given by the interviewee were noted.


Sampling is concerned with identifying the ‘research population’ so that information necessary for research or answers required can be easily obtained from them. Properly taken samples help in getting accurate results and also avoid cost of surveying everyone. (Gill and Johnson, 2002, pp. 101). When ever a research is done it requires a group of people to answer the questions related to the research. If data is collected and analyzed from each possible group it is called as census. But due to time, money, distance constraint it is not possible to collect or analyze all the data. There is no use to survey the entire population and results can be obtained quickly. So with the help of Sampling, data can be collected from a particular group rather than all the possible cases. (Saunders et al, 2003, pp. 150-151). Data in sampling should be complete and it should cover all the areas of the population to be examined. If the data does not cover all the areas of the population to be examined then the sample will be biased. (Fletcher and Coakes, 1993, pp. 26)

In this research Probability sampling is used because sample selected is the representative of the population and each case selected was known and usually supposed to be equal for all. The respondents were customers visiting banks (Punjab National Bank, UCO Bank) and non-banking financial institutions (Citi Financial, Tata Finance). The total number of respondents was 100 and all were based in New Delhi.


The time needed for the completion of a research is very important. It is not possible for a researcher to get accurate result if the research is done quickly and in a fast manner. The researcher took three months to complete this research. The schedule was very tight and busy because the researcher was supposed to finish several tasks in very short span of time.


The main problem faced by the researcher is to collect the secondary data and to write literature review. Because of least availability of books related to research topic (Financial and Non Financial Institutions in India, culture of people in India and behavior of consumers in India) in University’s library. So in order to obtain this entire information researcher was partially dependent on his brother in India to send the articles from his University’s Library. Researcher also relied on Internet sources, online journal articles. But the books related to general Banking, Consumer behavior, Cross cultural environment were easily in researcher’s University’s library. Also, because of time constraint, distance barrier and financial/money constraint it is not possible for the researcher to go to India do research there and do personal face to face interview and to do the observation in banks and non-banking financial institutions. In New Delhi each and every person is very busy and tight schedule and don’t have time to fill in the questionnaires, so it was very difficult for the researcher’s brother to get the questionnaire filled up from the customers. It was little difficult for researcher as well to find the right person who agrees to give interview and make some discussions related to the topic on the phone.


Data Analysis involves wide variety of activities & process and helps to summarize the large quantity of raw data so that results can be found. (Zikmund, 2000, pp. 580). This research involves both Quantitative and Qualitative analysis. Various parameters were analyzed in regards to research topic. The data is collected with the methods discussed earlier and it is analyzed systematically. It is done by writing all the things in proper manner and all the replies were studied according to the requirements of research. As analysis is complex and involves percentages so end result is shown in the form of tables, graphs, and pie charts. Statistical methods such as mean, deviation .etc were used in order to analyze the data.


According to Hammersley, reliability refers to “the degree of consistency with which instances are assigned to the same category by different observers or by the same observer on different occasions” (1992a:67 in Silverman, 2001, pp. 225). Where as Easterby-Smith et al concludes that reliability can be judged putting three questions- will the measures produce the same result during different time or not, can others establish the same observation, and the results which are obtained from raw data is transparent or not. (2002:53 in Saunders et al 2003, pp. 101). Reliability can be addressed by using standard methods to write field notes and prepare transcripts. And in case of interview reliability can be improved by comparing the analysis of same data by several researchers. (Silverman, 2001, pp. 231)

Hammersley states that Validity is “truth: interpreted as the extent to which an account accurately represents the social phenomena to which it refers”. (1990:57 in Silverman, 2001, pp. 232). The purpose of validity is to check if the findings that we have got are really what they seem to be. (Saunders et al, pp. 101). Validity can be checked by comparing different kinds of data and different methods. Quantitative & qualitative data can be compared and different method involves observations & interviews. Validity can also be checked by verifying one’s findings by other people. (Silverman, 2001, pp. 233)

To ensure the validity and reliability all the questionnaire were checked and tested before the distribution. The formal language, words, proper sequence was kept in mind. And all the field notes of the interviews were written in the notepad.


This chapter focused on the methodologies involved in research. It described research design, quantitative & qualitative method of research, primary & secondary data, questionnaire & interviews, time limits, validity & reliability of data.




This chapter critically analyzes all the data which is collected using questionnaire & interviews and the discussions are made on the basis of findings and literature. Data is presented using various methods like tables, graphs, and charts .etc.


A statistical analysis has been performed on the basis of the questionnaire. For this purpose a sample of about 100 questionnaires were made available. The questionnaire used for this purpose is available in appendix section of this research. The sample includes the consumers of Punjab National Bank, UCO Bank, Citi Financial, Tata Finance.

To begin the interview the researcher briefly explained the topic and the objectives of the research to the interviewees. The interviewees were asked to answer the same questions which were prepared by the researcher for the questionnaire. The interviewees were encouraged to express their opinion freely on each question. The researcher conducted 5 semi-structured telephonic interviews which was basically general talk regarding the research topic for the purpose of this dissertation. The interviewees involved were 3 consumers and 2 Direct Sales Agent of Citi Financial and Kotak Mahindra. In order maintain the confidentiality, their identity have been coded and consumers will be referred as A, B, C where as direct sales agents will be referred as X, Y for the whole duration of this dissertation.

Following the responses received from the questionnaires and the responses of the interviewees, discussion and the analysis of the findings is been done by the researcher at the same time. The data obtained is presented by using graphs, bars, pie chart to give the clear picture of the data collected.

4.2.1 Demography of Respondent in Research Gender




Response in percentage







Table 4.1

The data displayed in the table (see table 4.1) shows following aspects:

  • 74% (74) out of total 100 respondents are ‘Male’; and
  • 26% (26) remaining respondents are ‘Female’.

From the above figures this can easily be concluded that majority of respondents were male and only 26% respondents were female. According to respondents X and Y the reason behind this is, as India is a male dominant country and all the financial & monetary decisions and handling are mainly done by male or head of the family (most of the times is always a male). In very few cases decision regarding finance is taken by female. In India, people believe that women are careless in handling finance and also it is difficult for them to understand all the calculations, interest rates .etc. The female respondents here mainly were those who were accompanied by any male member of their family and very few were there who were independent of taking their own decisions regarding borrowing and credit. Income Group

Income Group



Response in percentage

High (Above 5 Lac annually



Middle (Between 2 to 5 Lac annually



Low (Below 2 Lac annually)



Table 4.2 * 1 Lac = 100, 000

* 1 Pound = 80 Rupee

The data shown in the above table (see table 4.2) demonstrated the following key facts:

  • 44% (44) out of 100 respondent belong to ‘Middle income group’;
  • 32% (32) out of 100 respondent belong to ‘High income group’; and
  • 24% (24) remaining respondents belong to ‘Low income group’.

The above data shows that majority of consumers belong to middle income group. This shows that the consumers who were present in the banks and non-banking financial institution were mainly middle income group and very few were low income group. Respondents X & Y aggress with the above facts and concludes that most of the consumers who visit their financial institution for borrowing are middle income group. And most of the middle income group consumers are salaried and high income group are high skilled professionals & business man, where as the low income group consumers belong to small job works, working in stores, workshops .etc. This can easily be concluded that more population of middle income group goes to banks and NBFI regularly.

4.2.2 Responses from Questionnaire Cultural Characteristics of People Life 



Response in percentage

Wealth Creation & Celebration



Savings & Social Status






Table 4.3

Data presented in the table (see table 4.3) shows following theme:

  • 58% (58) out of total 100 respondents comes to the conclusion that ‘savings and social status’ is the motto that dictates their life;
  • 39% (39) respondents of them concludes the ‘wealth creation & celebration’ is the motto that dictates their life; and
  • 3% (3) of the remaining respondents gave different reasons.

Overall above figures shows that different respondent have different motto of life. Some are very much concerned with ‘savings and social status’ where as some are concerned with wealth ‘creation & celebration’. All these responses are totally based on the culture of consumer. When asked the same question from the consumers A, B and C. All of them agreed with the result of questionnaire and they also believe in savings and social status. Respondent concludes that this is their culture and this is what they have learned to save for the future and to have some good status in the society.

As the discussions made in literature the thinking of each and every person is developed on the basis of culture where he/she is living. Each and every person has its own culture like kids, youngsters, adults most of time they share their culture. Today, consumers in India are very much concerned with their ego, identity, personality, prestige, surrounding, social class, and lifestyle. They are more concerned with what other feel/think about them if they are involved in any particular things or of they are related to some special tasks or things. In country like India, people care much about their status in the society and how much wealthy they are. Wealthier the person or more rich the person, the more high social status he will be having in the society. In this era of globalization people are much more concerned with their future and savings so that they can enjoy their life at later stage but most of the young people are not much concerned about savings & future. Their main motive is to earn, spend, and enjoy, and they very less care about saving. They want to spend so that they can enjoy luxuries of life in present. As literature tells that in America consumer are much more concerned with ‘wealth creation and celebration’ whereas consumers of India are totally different. Social status is always a strong component in the life of people of India. The data collected in this context reveals that currently both savings & social status and wealth creation & celebration ate the motto’s which dictates life of respondents, but much more people are concerned with savings & social status. Emerging Consumerism 



Response in percentage







Table 4.4

Data displayed in above table (see table 4.4) determines following key aspects:

  • 62% (62) out of total 100 respondents openly accepted they support excess of consumerism derived from change in social & economic structure; and
  • 38% (38) remaining respondents deny supporting excess of consumerism derived from changed social & economic structure.

Respondent B, C accepted that they support consumerism where as respondent A says no to consumerism. Respondents B, C concluded that they agree to the use of goods and services because they can afford to buy luxuries using the credit card facility and pay the price in installments where as respondent A said that they use goods and services only if there is requirement and they don’t buy goods just because the financing facility is easily available and don’t want to buy each and every thing in market even if they have the borrowing facilities.

As seen in literature this can be realized that in post globalization and liberalization period the social and economic structure in India is changed completely. With the entry of multinational companies and brands the whole scenario is been changed. Consumers are so much excited about the products & facilities that they cannot stop themselves to buy all these products. Even if consumer don’t want to use the product immediately and wants to use it sometime in future then also they are buying those products. Brands like Gucci, Versace, YSL, and Apple have already opened their stores in India and Indian consumers are very fascinated about all these products. With the increase in disposable income, the attitude of consumers towards consumption and spending is changed. However on the other end few consumers say that consumerism is affecting the economy & society. According to their view it is effecting the environment and excess use of goods and services is simply wasting the resources and which is not good. Also in America, the consumers are spending and consuming things at very fast rate as if they think there is no tomorrow. Increasing use of credit cards, plastic money has changed the consumer behavior regarding consumption & spending. Consumers don’t have to think twice if they want to buy any product because they know they are not paying at the same time & they have to pay after a month or two months. Recent Household Borrowing



Response in percentage







Remained constant



Table 4.5

The data shown in the above table (see table 4.5) demonstrates following result:

  • 52% (52) out of 100 respondents disclosed that in recent times their household borrowing has increased;
  • 39% (39) respondents of them disclosed that their household has remained constant; and
  • 9% (9) remaining respondents disclosed that their household borrowing has decreased.

The data clearly shows that in majority of cases in recent times, the household borrowing has increased where as in many cases the household borrowing has remained constant.

Respondent A said that their household borrowing is neither increased nor decreased and it is constant, the reason behind this is that his family is not buying anything expensive on credit. Where as respondent B, C aggress that their household borrowing is increased, the reason behind this is the purchase of air conditioner, home theatre system, two wheeler and four wheeler.

When asked the same question from interviewee X and Y, they also agreed with the responses received from the questionnaire. According to them the reason behind the increase in borrowing is high availability of loan due to change in interest rates. Interest rates are declining at fast rate and the size of loan which the institutions are providing is been increased. Banks and NBFI are providing subsidized rates on home loans and on mortgages. Even they are inspiring people to buy property. In order to test the validity of this supposition the data collected goes in the favor of the above supposition that in majority of cases the recent house hold borrowing has increased. Another reason behind this change in life style of consumer. Indian consume tend to buy two & four wheelers, mobile phones, laptops and consumer durable goods .etc. Discussion made in literature and findings shows that borrowing of consumers has increased. This can easily be concluded that discussion made in literature review aggress with above the responses received from the respondents. People Reliance on Credit



Response in percentage

Interest in credit products



Availability of zero interest loans



Flexible financing options



Table 4.6

Data portrayed in the above table (see table 4.6) shows the following themes:

  • 49% (49) out of total 100 respondents tells that their reliance on credit is mainly due to ‘flexible financing options’;
  • 34% (34) respondents of them tells that their reliance on credit is mainly due to ‘availability of zero interest loan’; and
  • 17% (17) remaining respondents tell their reliance on credit is mainly due to ‘interest in credit products’.

Respondent A and B rely on credit because of flexible financing options available in the market and respondent C rely on credit mainly because of availability of zero interest on loans. Respondent X and Y concludes that there are a lot of reasons behind the reliance of consumers on credit but mainly they all are attracted toward credit because banks and NBFI are providing flexible financing options and they are also providing schemes like zero interest on loan to the consumers and various other schemes which comes from time to time.

Overall the above response concludes that consumers generally rely on credit mainly due to flexible financing options and availability of zero interest loans. With the discussion made in literature, it is revealed that the culture of consumerism has made consumers dependent on credit which has raised various issues of concerns. When asked from the respondents they said that they generally are attracted by interest rates they are getting from financial institutions. Literature agrees with the fact that consumers usually tend to those financial institutions which provide them flexible financing, which means the loan amount, installments, duration are flexible according to the requirements of consumers, where as few of the consumers are concerned with Interest only products. Consumers are attracted by the fancy advertising and promotions done by financial institutions. Where as few consumers argued that there are a lot of things which are hidden behind these advertising like hidden charges, processing fees, file charges, service charges .etc. But majority of people are happy with the availability of various schemes in the credit market. The Case of Over-indebtedness of People 



Response in percentage







Table 4.7

The data shown in above table (see table 4.7) manifests the following key facts:

  • 54% (54) out of 100 respondents share that they face problem of Over-indebtedness; and
  • 46% (46) remaining share that they do not face the problem of Over-indebtedness.

Respondent A and B deny that they face the problem of over-indebtedness, the reason they revealed is that they never take too much loan and they spend wisely. Where as respondent C agrees to the fact that some times he faces the problem of

Over-indebtedness, and this is because if too much loan is been taken from the financial institutions and from other sources and if he don’t have the funds to repay all the debt. Respondent X concludes that majority of people face the problem of over-indebtedness because debt becomes the burden for them and the reason behind this is most of the consumers have no access to the credit market. Respondent Y conflict with the views of respondent X and tell that there might be reasons like poverty, social exclusion (not supported by society or sometimes connected to a person’s social class, educational status, and racial minorities .etc.). Discussions made in the literature agrees with most of the people response that because of government policy & government is not working to tackle the problems of poverty, reducing barriers to work and not encouraging appropriate savings and investments. Financial liberalization in India has also raised its working and trying to benefit households and young households. People face the problem of Over-indebtedness because they are unable to pay their current credit repayment, house hold bills, utility bills and other commitments without reducing other expenditure below normal minimum level. It is usually linked to social & financial exclusion, poverty and over borrowing also comes under indebtedness. Borrowing Loans from Banks and NBFI



Response in percentage

Always (1-2 times in a year)



Sometimes (1-2 times in 5 years)






Table 4.8

Data presented in above table (see table 4.8) illustrates following facts:

  • 51% (51) out of 100 respondents disclose that they borrow loan 1-2 times in 5 years from Banks and NBFI;
  • 41% (41) out of 100 respondents disclose that they borrow loan 1-2 times in a year from Banks and NBFI; and
  • 8% (8) remaining discloses that they never borrow loan from banks and non-banking financial institutions.

In respect to the same question respondent A said that they take loan sometimes, maybe 1-2 times in 5-7 years, respondent B suggests that they take loan 2-3 times in 5-6 years and sometime it depends for what they want to take loan and is it necessary at that time, whereas respondent C borrow loan 1-2 times in 2-3 years and depending on the requirement. Respondent X and Y suggested that consumers come to their financial institutions only when they want to take loan for two wheelers, four wheelers and housing loan and the funds involved in these borrowing is quiet high. So, they don’t think of taking loans for other commodities at regular intervals. They conclude that majority of consumers take loan for 1-2 times in 5 year span. Overall, the above responses shows that most of the consumer sometimes borrow loan may be 1-2 times in 5 years and considerable amount takes loan 1-2 times in a year where as very few say that they don’t take loan from banks and NBFI. As discussed in literature review the entire consumer borrowing in India is 2% of total household income. Indian consumer borrow loan but their frequency of taking loan is not as faster as consumers in western countries. Indian consumers usually take loan for two or four wheeler, housing loan, loan for consumer durable goods, funding education abroad. Few consumers said that they never take loan; reason behind this is they are very rich or due to culture and religious belief. They don’t want to take loan because of prestige issue or the type of loan they require is not available. It is revealed that Indian consumer go for the loan only when there is no other option left otherwise they try to get the funding done with the family of from relatives and friends. People’s choice of Credit Sources



Response in percentage

Formal credit sources



Informal credit sources



Table 4.9

Data displayed in the above table (see table 4.9) determines the following facts:

  • 59% (59) out of 100 respondents accepted that they rely on formal credit sources; and
  • 41% (41) remaining respondents accepted that they rely on informal credit sources.

Respondent A, B and C agrees to take loan only from Formal credit sources because of their trust on Formal credit sources, proper documentation is there and formal credit sources works under the government rules and regulations. Respondent X and Y aggress to the fact that majority of Indian consumers rely on Formal credit sources because of trust, they work under regulations and proper documentation is there. Respondent X and Y reveals that only those consumers rely on informal credit sources who are not able to get the borrowing from banks and non-banking financial institutions. From literature it is realized there can be a lot of reasons a borrowers are not getting the amount of funds that they are looking for, the possible reason can be that they don’t fall in the category in regards to their source of income so that they can avail borrowing, or those consumers who don’t have the necessary documents required by banks and financial institutions. The decision of respondents mentioned above collectively manifests that more than half of the respondents rely on formal credit sources whereas little less than half of the respondents rely on informal credit sources. So, this concludes for a situation of nearly fifty-fifty. When discussed the respondents said that getting loan from informal market is very easy and flexible where as if they rely on formal credit sources there is proper procedure that needs to be followed for getting loan from formal credit source.

Discussion made with the respondents completely agreed with the literature that informal credit source provides much more facilities with flexible payment terms. But informal credit sources charges high interest rate and sometimes requires some kind of collateral security. It is risky in getting loan from informal credit source. Where as in case of formal credit source there are proper guidelines, terms and regulations, work according to law. But in case of informal credit sources there are no guidelines and terms & conditions are determined by the individual company. Formal credit source is an organized market/sector of financial services. Informal credit source is easily accessible for small borrower and usually people living in rural areas go to the informal sources because of no fix source of income. Formal credit sources are tie up with consumer protection and regulatory norms. Loan from Banks and NBFI 



Response in percentage




Non-banking financial institutions



Table 4.10

The data displayed in above table (see table 4.10) demonstrates following key aspects:

  • 53% (53) out of 100 respondents agrees that they prefer taking loan from banks; and
  • 47% (47) remaining respondents share that they prefer taking loans from NBFI

Respondent A prefers taking loan from Banks only because of the reliability of banks and proper procedures and documentation banks follows. Respondent B and C prefer taking loan from NBFI. Respondent states the interest rate is competitive, easy availability of loan, better deal provided by non-banking financial institution and who requires reasonable documentation, best service and customer care in comparison to the banks. Respondents B and C also concludes that in government banks there is problem of red-tapism, slow processing, always requires unnecessary documents, no professionalism, less educated staff, no complaint channel, the staff of banks neglects customers. Where as respondents B and C agrees to the fact that non-banking financial institution provides fast loan processing, easy documentation, loan facilities at your doorstep, can give feedback for the services received, proper customer care, support, written documentation, professionalism, fast service, free delivery of printed statements, discounts and offers, proper channel, online facilities, well educated staff, flexible hours, complaint office. Respondent X and Y also aggress with the above responses given by the consumers and conclude that non-banking financial institutions are providing better and extra facilities to the consumers.

Above data clearly answers that there is not much difference in the percentage of consumers who rely on banks and NBFI. But consumer who says that they rely on banks, because of their traditional mindset people still want to stick with government banks. Some of the people hesitate to enter big buildings of NBFI. But with the response received from the questionnaire concludes that approximately equal number of people prefer taking loans from Non-banking financial institutions because of the high quality services they are getting from non-banking financial institutions. Policy regarding offering loan 



Response in percentage




Non-banking financial institutions



Table 4.11

The data displayed in the above table (see table 4.11) shows following facts:

  • 53% (53) out of total 100 respondents says that banks have less strict policy regarding offering loans; and
  • 47% (47) remaining respondents said that NBFI have less strict policy regarding offering loans.

Respondent A suggests that policy of banks regarding offering loan is not much strict where as respondent B and C suggests that policy of NBFI is very flexible regarding offering loan, they just need few formalities to be completed and less documentation is required in order to get the loan sanctioned. Respondents X and Y aggress with the response of respondents that policy of non-banking financial institutions is not very strict as compared to banks. But they lend money to high quality borrowers and the borrowers with good credit history. Discussions made in the literature also agree with the fact that banks and non-banking financial institutions lend money to high quality borrowers and those with good credit history. The policies of NBFI are not rigid and are very flexible which suits consumers of all types and this agrees with the literature. Overall, the above figures shows that the mix responses of respondents regarding strict policy in offering loans. There is not much difference which conflicts the response. Banks/NBFI loan and Consumer risk



Response in percentage







Table 4.12

The data shown in the above table (see table 4.12) concludes the following facts:

  • 61% (61) out of 100 respondents come to the conclusion that in this current liberalized environment it is not risky and difficult to get loan from banks and NBFI; and
  • 29% (29) remaining respondents say that it is risky and difficult to get loan from banks and NBFI.

The respondents A, B and C aggress to the fact that in this current environment, it is not risky to obtain loan from banks and financial institutions. With the interference of government in the policy of all the banks and non-banking financial institutions the risk is minimized. Even respondents X and Y agree to the response of above consumers. They concludes that all the financial institutions work under the guidelines of Reserve bank of India and all the institutions have to follow a set of procedures to work in the financial market and this was discussed in literature as well. So, there is no chance of involvement of risk in obtaining loan from banks and NBFI. But, some times it is difficult for some borrowers to obtain the loan because of their credit history or some problem in the documentation, otherwise it is not risk and simple to obtain loan from banks and non-banking financial institution. Literature agrees with the majority of people involved in questionnaire survey and says that in the current liberalized economy taking loan from banks and NBFI is not risky and difficult.


This chapter critically analyzed all the findings obtained from data which comes from questionnaire and interviews. Discussions were made on the basis of literature, findings and responses. All the data obtained was presented in form of tables, graphs, pie charts.


Conclusions and Recommendations


The final chapter of this research is Conclusion and recommendations. It outlines the conclusions and relevant recommendations drawn on the basis of the research conducted. In addition, limitations of this research and avenues for the future research have been suggested.


Keeping in mind the primary aim of the research which is to analyze the trend of upper and middle class Indian consumers in taking loan and why they rely on the banks and non-banking financial institutions this research is been conducted and the following objectives were achieved:

  • To understand banking and non-banking financial institution regulations.
  • To understand the culture of upper and middle class consumers.
  • To understand the trend of consumers in taking loans.
  • To analyze the policies of banks and non-banking financial institutions regarding offering loans.
  • To determine the preference of upper and middle class consumers regarding taking loan from banks and non-banking financial institutions.

The whole research is divided into 5 parts. The first part is the introduction part which introduces the research topic and also describes the aim and objectives of the research. Second part is the literature review which reviews the whole literature related to the research topic. The literature review involves the literature related to the regulations of financial institutions in India, the culture of upper and middle class consumers in India, consumer borrowing and policies and strategies that banks and non-banking financial institutions follow in order to give credit to the consumers. It also covers the reasons behind how culture of consumers promotes and effect different consumers while taking loans, why consumer think to borrow and what makes them borrow from banks and non-banking financial institutions, and what are the guidelines that banks and non-banking follow before issuing loans to the consumers. Third part describes the methods and techniques that can be used in collecting the data and also tells about the techniques which are used in this research. It involves questionnaire method, interview method, quantitative analysis, qualitative analysis, research design and advantages & disadvantages of data collection methods. Fourth part is findings, analysis and discussions where all the data collected from questionnaire and interviews is present in forms of tables, graphs and pie chats. This part also analyses the data in a critical manner and all the discussions are made by taking into consideration findings and literature. Where as last part is the conclusion part which reveals the conclusion of the whole research and limitations faced by the researcher. It also gives some recommendation and few key points that need’s to be kept in mind if further research is to be done.

The literature review is collected from the sources like books, journals, websites, and online articles .etc. Literature included detailed examination of financial institutions regulations in Indian context and worldwide, culture of Indian upper and middle consumers, consumer borrowing and strategies & policies that banks and NBFI follow regarding issuing loans to the consumers.

Data collection method involved questionnaire and semi-structured telephonic interviews. An average of around 100 questionnaires was filled by the consumers of banks and non-banking financial institutions. Where as interviews involve responses from 3 consumers and 2 direct sales agents of non-banking financial institutions (NBFI). Keeping in view the results obtained from the questionnaire and views of respondent from interviews the data is been analyzed and discussion are been done. And the data represented using various forms of presentations and includes tables, graphs, pie charts .etc.

From the literature of the research and data analyzed it can easily be revealed that the trend of Indian upper and middle class consumers is changing now a days. Change in life style, need, demand of society consumers are attracted towards high standard of living, luxuries, wealth, fashion and this is because of globalization in India. In order to satisfy all their needs and demands consumers are buying and borrowing goods & services which are available in the market. Today consumers are very much concerned to know how other think about them. With the easily availability of loan in the consumer market consumers are willing to buy expensive goods & services using the loan facilities. Culture has played an important role in changing the mind of Indian consumers. Earlier consumers used to live in culture of shared beliefs, attitudes, norms and values but now the culture of people is demonstrated by their wealth & the standard of living. Consumers are very much concerned with their identity, prestige, possession, status symbol. And with the change in financial market regarding borrowing and loans has attracted the upper and middle class consumers. With the easy availability of loan and finance, the lifestyle of Indian upper and middle class consumer has changed. Consumers are borrowing two & four wheelers, consumer durable goods, mobile phones at very fast rate and they don’t have to think twice because of easy borrowing from financial institutions. Now banks and non-banking financial institutions have changed their policies and strategies so that large number of consumers can avail the facilities of loan and borrowing.

From the result obtained from findings, analysis and discussions made it can be concluded that cultural trend of people’s life is characterized by savings and social status. Consumers are much more concerned with their social status & savings where as a large number of people also agree with wealth creation & celebration. But social status is always a strong component in the life of consumers in India. In this globalization period India has turned out to be victim of excess of consumerism. Majority of consumers agrees with the excess of consumerism because of easily availability of loans, borrowing and availability of goods and services. People’s reliance on credit has increased to a great extent because of the availability of various options in the form of zero interest loans, flexible financing option .etc. Consumers also agree to the fact that sometimes they are not able to pay their utility bills, credit card payment and other commitments then they feel the problem over-indebtedness. Majority of people tend to take loans from banks and NBFI 1-2 times in 5 year span also majority of consumers agrees that NBFI has less strict policy in offering loans. NBFI provides flexibility, requires less documentation, and only few formalities. India consumers also agree that it is not risky to take loan from banks and NBFI because all the financial institutions have to follow the guidelines of RBI and also set of procedures to work in financial market. A very good percentage of consumers reveal that they prefer taking loan from NBFI rather than banks because of the facilities that they are getting from NBFI. Consumers says that they are getting fast service, fast processing of loan, quality customer care, loan facilities at the door step, written documentation, professionalism, well educated & knowledgeable staff, flexible hours, proper complaint channel, free delivery of statements, online facilities, chance to give feedback regarding services offered & received. Where as according to them Banks lack behind in providing all these facilities and services and there are problems they face in banks like red-tapism, slow processing, no professionalism, less educated staff, always require unnecessary documents, neglects customers and there is no complaint channel.

With all these findings and results it can easily be seen that upper and middle class consumers in India are relying much more on non-banking financial institutions (NBFI) rather than banks in terms of borrowing.

In conclusion, all the objectives of the research were achieved. On the personal level the author learned a lot about the credit industry & financial institutions in India and also the behavior of upper and middle class consumers regarding borrowing.

A research is never absolute and carried with few limitations. However it is necessary to discuss the problems faced by the researcher during the research so that the future research can expand the findings of the research leading to more understanding and in-depth knowledge about the topic.


  • Due to financial and time constraint it was not possible for the researcher to travel India and complete the research there.
  • Due to non availability of books related to Indian financial institutions regulations, culture & behavior of consumers and policy of credit in India in researchers university’s library, the researcher struggled a lot in collecting literature and had to depend a lot on online journal articles and websites.
  • Research mainly focused on quantitative approach and the sample chosen is limited due to non availability of various resources.
  • Only a small sample of interviewees was considered due to limited resources available to researcher.
  • The assessment of questionnaire and interviews was a challenge for the researcher.
  • A broader perspective and wider result would have been possible if large interviews were conducted and sample size of questionnaire was high.


This dissertation primarily focuses on upper and middle class consumers of India; any future research must cover the consumers of all the classes in India.

This study was conducted among a small number of people & small scale data collection was done. In order to obtain much wider result the number of questionnaire responses should be around 250 and at least 7-8 interviews of consumers & 4-5 interviews of employees of banks & non-banking financial institutions. This research was done basically by sitting in UK itself, much more knowledge & data can be obtained if this research can be done in India by using the books from libraries in India and by doing face to face interviews of consumers and employees so that broader information can be obtained. Observation method seems to be a very important data collection method for this type of research because it provides in depth knowledge about the research area & a lot can be learned by seeing the real life situation, practicality and observing the behavior & culture of employees and consumers.


This chapter dealt with the conclusion of the research which reveals that majority of upper and middle class consumers of India relies on non-banking financial institutions (NBFI) for the borrowing. This chapter also concludes the limitations that researcher faced during the whole research process and the recommendations that should be taken into consideration if the future research is done on this topic.



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  • Web 5 = Financial Innovations and the Real Economy: Conference Summary (2006-03, 3/2/2007). (online) (Accessed on 23 June 2007) Available from <URL:>
  • Web 6 = Blackwell Synergy – Int J Cons Stud, Volume 30 Issue 1 Page 2-15, January 2006 (online) (Accessed on 18 Jul 2007). Available from <URL:>
  • Web 7 = The young consumer (online) (Accessed on 17 Jul 2007). Available from <URL: (online) (Accessed on 17 Jul 2007)
  • Web 8 = An Overview of Indian Financial System (online) (Accessed on 16 Aug 2007). Available from <URL:>
  • Web 9 = Financial Intermediation – Basic Issues, Banking books from Icfai University Press (online) (Accessed on 15 Aug 2007). Available from <URL:>
  • Web 10 = Reserve Bank of India (online) (Accessed on 17 Aug 2007). Available from <URL:>
  • Web 11 = Reserve Bank of India (online) (Accessed on 17 Aug 2007). Available from <URL:>
  • Web 12 = Reserve Bank Of India, Central Bank Of India, Functions of RBI & Indian Banking System Maintain (online) (Accessed on 17 Aug 2007). Available from <URL:>
  • Web 13 = Economic Times – India Times (online) (Accessed on 16 Jun 2007). Available from <URL:>
  • Web 14 = The Overspent American (online) (Accessed on 19 Jun 2007). Available from <URL:>
  • Web 15 = IndiaMakeOver (online) (Accessed on 11 Jul 2007). Available from <URL: >
  • Web 16 = Project MUSE (online) (Accessed on 15 Jul 2007). Available from <URL:>


  • Your gender:
  • Male
  • Female
  • You belong to which income group:
  • High (Above 5 Lac annually)
  • Middle (Between 2 to 5 Lac annually)
  • Low (Below 2 Lac annually)
  • Currently which motto dictates your life?
  • Wealth Creation and Celebration
  • Saving and Social Status
  • Other (Please Specify)….……………
  • Do you support excesses of consumerism (excess use of goods & services) derived from changed social and economic structure?
  • Yes
  • No
  • In recent time, your household borrowing has:
  • Increased
  • Decreased
  • Remained constant
  • You trust/rely on credit because of:
  • Your interest in credit products
  • Availability of zero interest rate loans
  • Flexible financing options
  • Do you face the problem of over-indebtedness (heavily owing money)?
  • Yes
  • No
  • How often you borrow loans from banking and non-banking financial institutions:
  • Always (1-2 times in a year)
  • Sometimes (1-2 times in 5 years)
  • Never
  • Your choice of credit source:
  • Formal credit source
  • Informal credit source
  • You prefer to taking loans from:
  • Banks
  • Non-banking financial institutions
  • In your opinion, who is having less strict policy regarding offering loan:
  • Banks
  • Non-banking Financial Institutions
  • In this current liberalized (lawful & systematic) environment, do you think taking loans from banks and financial institutions has become risky and difficult?
  • Yes
  • No

Appendix 2 List of Abbreviations

CBI – Central Bank of India

DFI – Development Financial Institutions

FSA – Financial Service Authority

GIC – General Insurance Companies

LIC – Life Insurance Corporation

NBFI – Non-banking Financial Institutions

RBI – Reserve Bank of India

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