The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?

95 Pages Posted: 28 Mar 2019 Last revised: 12 Aug 2021

See all articles by Prachi Mishra

Prachi Mishra

Research Department, International Monetary Fund

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Date Written: August 2021

Abstract

India introduced credit scoring technology in 2007. We study its adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.

Keywords: credit bureaus, credit scoring, banking, bank relationships, state-owned banks, adoption of new management practices, technology adoption, organizational culture

JEL Classification: G21, L3, O3

Suggested Citation

Mishra, Prachi and Prabhala, Nagpurnanand and Rajan, Raghuram G., The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology? (August 2021). Johns Hopkins Carey Business School Research Paper No. 19-03, Fama-Miller Working Paper , Chicago Booth Research Paper No. 21-21, Available at SSRN: https://ssrn.com/abstract=3347299 or http://dx.doi.org/10.2139/ssrn.3347299

Prachi Mishra

Research Department, International Monetary Fund ( email )

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The Johns Hopkins Carey Business School ( email )

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Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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