A Study on Disbursement of Personal Loans by Scheduled Commercial Banks in India: An Empirical Analysis

 Dr. Abhijit Sinha, Assistant Professor, Department of Commerce, Vidyasagar University, West Bengal, India  Mr. Dipak Kundu, Assistant Professor, Department of Commerce, Kazi Nazrul Islam Mahavidyalaya, Paschim Burdwan, Asansol, West Bengal, India The focus of the paper is to analyze the position of personal loans disbursed by the scheduled commercial banks in India for the period of 2004-05 to 2015-16 (latest data available from the RBI report on personal loan details). RBI data show that the maximum share of total personal loan goes mostly to the Southern region which is distantly followed by the Western region and a very small percentage remains for the North-Eastern region. With regard to the regional concentration of the personal loan portfolio of banks, the Herfindahl-Hirschman index (HHI) value lies in the range of 2379 to 2604. In terms of inequality in distribution across the regions, disparity is quite high with Gini coefficient value ranging between 35 and 40 during the period. In terms of growth rate of personal loan per capita, the Southern and Western regions come at number two and three respectively. The growth in this loan category in the North-East is surprisingly more than the other states and this is mainly due to the sudden rise in flow of this loan during the past few years. With regard to the inter-regional difference, the statistical tests show a significant difference among the regions. Abstract

evident in an increasing ratio of bank credit to the country's GDP. In RBI report, data on ratio have shown an increase from 35% in 2004 to 52% in 2014. Similarly, the credit-deposit ratio (another very important banking parameter) also shows a positive trend rising from 65% in 2004 to 78% in 2014. This increasing trend of demand for loans is a good sign at the macro level. The movement pattern is evident in the Chart 1.

Chart 1: Growth of banking in India in Appendix
The present investigation looks into a very important area of bank credit, i.e. personal loans and its disbursement pattern in the country during the study period. This is an important area as research supports that a concentration of credit flows among regions leads to regional imbalance and distracts national cohesiveness (Peng et al., 2008). Hence, there is a need to look at the pattern of credit flows among regions of India over the years.
According to RBI, there are eight sub-categories of personal loans advanced by commercial banks as follows: Consumer durables, Housing loans, Advances against fixed deposits, Advances against shares, bonds etc. Credit card outstanding, Educational loans and Vehicle loans. These loans are unsecured and asset created through these loans are guarantee for repayments. An analysis of RBI data show that, the share of personal loans as a percentage of the total non-food credit has been declining from 24% in 2007-08 to 19% in 2014-15. A similar declining trend is also visible in the case of ratio of personal loans to the total bank credit (see table 1 in Appendix).

Literature Review and Research gap
In this section, literature relating to banking and bank credit are reviewed.
Several studies in India in the area of agricultural credit have been carried out such as academic contributions of Satyasai (2008); Giri (2015), Mohan (2004); Singh and Singh (2013), Godara et al. (2014); Kumar et al. (2010); Dar (2015); Vallaserri (2015), Garhwal and Joshi (2017). Some of these look into the area of disparity in flow or regional imbalance as evident in the research papers of Raut et al. (2018), Pal andGhosh (2007), Swamy (2001); whereas a few others look upon the issue of trend, status or determinants (Devaraja, 2011;Ramakumar, 2014;Shukla et al., 2012;Ramakumar and Chavan, 2014;Vallaserri 2015;Dar 2015;Kumar et al. 2010;Mohan, 2010;Biradar and Ali , 2000;Garhwal and Joshi , 2017). A limited number of papers focus on the impact side of credit 2009;Kumar et al., 2017). Problems in credit flow have been studied using the quantitative analysis by Satyasai (2008). Chowdhury (2014) looks at the regional disparity in India for the period 1980-81 to 2009-10. The paper mentions the negative effect of regional imbalance on the growth of the economy. Mohanty's study(2013) identifies significant variables influencing loandisbursement decision. His research on a few local commercial banks reveals that key factors such as character, capacity, capital, collateral and conditions are determinants of decision-making of loan disbursement. Shabbir (2013) looks into the region-wise assessment of performance with respect to priority sector advances during 1996 to 2012. Gupta and Jain (2012) discuss about the lending practices of co-operative banks in India and point out certain constraints of cooperative banks such as limited ability to mobilize resources, low level of recovery and high transaction cost etc. Research of Banerjee et al. (2004) investigate how the banking sector reforms have unfolded in the country and find that though bank credit is important for all sectors of the country, the share of personal loan is quite low in the total credit. Mohan (2004) in a Memorial Lecture mentions the importance of finance for creating impulse of growth and suggests the changing modes of financing for development. Rodriguez's (1998) study shows the capability of banks to bring about disparity in development by bringing about disparity in regional distribution of loans.

Research gap
While banking sector of India has been of research interests, the exclusive study on personal loans has not been done in Indian context. The present study aims to plug the gap that exists in this area of research . Also, this research aims to use a new approach of investigations i.e. the concept of concentration risk and disparity with respect to loan disbursement by scheduled commercial banks .

Objectives of the study
The present research has manifold objectives as given below: i. To understand the regional pattern of the personal loan portfolio of banks.
ii. To determine the concentration risk for the banks. iii. To identify the disparity level across different regions. iv. To understand the growth pattern of personal loans across regions. v. To test for regional difference in pattern of l the personal loan portfolio of banks.

Research Design
The study is based on secondary data collected from the website of Reserve Bank bulletin available in its The other measure of diversification is by using entropy measures, one of which is the Entropy Diversification Index (EDI) which is given by: EDI t = ∑ mit ln (1/mit), where m is the share of region 'i' in personal loan and t for time .
Similarly, for the disparity measure, the researchers in this paper compute the Gini coefficient which is a very popular measure for computing inequality. It uses the concept of Lorenz curve. Higher is the value (maximum is one hundred), more is the disparity and closer is the value towards zero means less inequality.
Furthermore, for estimating the growth rate over the study period, the semi-log method is applied. The equation is given as ln (Yt) = a + b.t, where Yt is the standardized value of personal loan measured per lakh of the population. Furthermore, the test for normality is done using the Kolmogorov-Smirnov and Shapiro-Wilk tests. Since, data are found to be non-normal, Kruskal-Wallis test which is the nonparametric counterpart of ANOVA is applied.

Analysis and findings
Descriptive statistics of personal loan This is the first part of the analysis where the researchers look into the characteristics of the variable (standardized personal loan) under study. The table 2 shows that the southern and central regions respectively have taken the maximum and minimum personal loan per capita from the scheduled commercial banks. The average loan for the southern region stands at Rs. 9733 in contrast to a paltry Rs. 3001 for the north-eastern region. The values of skewness for all the regions show that they are all slightly skewed to the right and in most cases they are moderately skewed. With regard to the kurtosis measure, it is seen that for all the regions, a platykurtic distribution is observed. Similarly, by looking at the standard deviation scores, it can be inferred that the deviation around the mean is maximum and minimum for the southern and eastern regions.

Region-wise share
This part of the analysis shows the share of different regions in the personal loan portfolio. For the study period, the maximum portion of personal loans goes to the southern region with an average share of 37.65% which is distantly followed by the western region (22.93%). The northern region is closely behind with a mean share of 18.13%. The central and eastern regions have a share of around 10% each. The minimum share of loans goes to the north-east. This section of the analysis looks into the extent of concentration of loan on the basis of regions by computing the values of HHI and EDI for different years. The calculation shows that till 2011, the portfolio shows a moderately concentrated market with a score of less than 2500 for HHI after which the movement shows a tilt towards increasing concentrated market which is evident from the increasing share of the southern and western regions. The trend of EDI shows a similar pattern.

Growth rate across different regions
This section of the study looks at the growth rate of the personal loan portfolio of banks using the semilog trend equation.

Test for inter-regional difference
In this section, the researchers test for difference among the six regions. The hypothesis is: H0: There is no difference among the regions.
H1: There is a difference among the regions.
For this, first the test for data normality is done using the Kolmogorov-Smirnov and Shapiro-Wilk tests. The p-value is found to be 0.000 which thereby rejects the null hypothesis.

Table 7: Test for Normality in Appendix
Owing to the rejection of the null hypothesis, Kruskal-Wallis test, a non-parametric test is used that rejects the null hypothesis at 1% level with a p-value of 0.000 and chi-square test statistic value of 55.511. Hence, there is a significant difference among the regions.

Conclusion
Performance parameters with regard to the credit disbursement by the scheduled commercial banks are showing a healthy sign. The credit-deposit ratio in the country is at a healthy level of close to 80%. This study aims to analyze in detail the pattern of disbursement of the personal loans across different regions of the country. The stress points of the empirical study are to identify the level of concentration risk, disparity across regions, trend across regions and difference among the six regions of the country. The portfolio of banks shows that of the total industry credit, the personal loans category holds almost one-seventh portion and as a percentage of the non-food credit it stands at around one-fifth. The analysis of data across regions shows a wide range of variability of personal credit disbursement though results also point consistent rise in the credit flow of all regions. With regard to the share of regions, the southern states enjoy close to forty percent distantly followed by the western and northern regions. The regional bias is also reflected in the concentration measure and inequality index. Though the share of some regions is comparatively more than others, the growth rate does not follow that order in toto. The regions with the maximum growth include the north-eastern, southern and western regions. Though the name of the NER comes as a surprise, the main reason is the sudden jump in the personal loans in the recent years which has increased the overall growth rate. Results of statistical test for the inter-regional difference show that there is a significant difference among the regions. Hence, these are very important findings.

Recommendations and Scope for further research
On the basis of findings of this research the Government of India and RBI need to bring about strict norms that will help to reduce the disparity level of personal loans across the regions of the country. It will not only help in the balanced development of the country but will also bring equality and opportunities for all.
In the future endeavor, researchers can aim at identifying the main reasons behind the demand for personal loans and can also focus on the recovery aspect in this category of loan. The contribution of such loans to the NPA of public and private sector banks would be an important academic exercise.