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

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  • Prachi Mishra
  • Nagpurnanand Prabhala
  • Raghuram G Rajan

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). Soon after the technology is introduced, NPBs start checking the credit scores of most borrowers before lending. 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 rates is the stickiness of past bank structures and managerial practices. Past practices inhibit better practices today.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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  • Prachi Mishra & Nagpurnanand Prabhala & Raghuram G Rajan, 2022. "The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?," The Review of Financial Studies, Society for Financial Studies, vol. 35(7), pages 3418-3466.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:7:p:3418-3466.
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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