Impact of job instability among bank customers on loan sanctioning by Indian Banks

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George, Maria
Issue Date
MA of Business Administration
Dublin Business School
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Commercial banking sector is considered to be the driving engine of India’s economy (Datta and Gupta, 2009). Indian banking industry is the biggest employer (Vairagkar, 2014) and employs nearly 1.2 million people according to the latest statistical reports of the Reserve Bank of India (RBI database, 2016). The banking and financial services sector has also witnessed many downturns since the global crisis in 2007. As banks undergo these transformations, it encounters new risks that demand the need for more advanced and flexible instruments for risk evaluation, checking and controlling risky exposures. When a customer with a history of job hopping every year or alternate year applies for loans, banks place the customer in a ‘high-risk category’. This means that the chances of employer change or unemployment in the future are high, which leads to loan defaults. Hence, job stability is clearly an important aspect as far as loan approval is considered. A major drawback associated with changing jobs frequently is financial insecurity (Meister, 2012). Banks therefore need to focus on credit risk management that will focus on the financial instability of customers due to job hopping. This study analyses the various aspects related to job hopping and aims to identify if job hopping has any impact on loan sanctioning procedures. Author keywords: Credit risk management, loan default, non-performing asset, employee turnover, job instability, job hopping