Application of Factor and Cluster Analysis for an evaluation of Business Practices Models of Foreign Banks

This paper attempts to assess business practices models of twenty four foreign banks. During the period 2003 to 2013, these foreign banks were operating in India. Data and information related to these foreign banks were obtained through the use of publicly available information. Business practices models of these foreign banks, are evaluated by the application of factor analysis followed by cluster analysis. Twenty three variables related to working of foreign banks supported with five variables related to India’s foreign trade are reduced into eight factors by using factor analysis. Using these eight factors, cluster analysis was carried out to group twenty four foreign banks into three clusters leading to three distinct business practices models. The dataset for analysis was for the period for financial years 2003-04 to 2012-13 and the focus is on post RBI Road Map-2005. The foreign banks’ sample consists of consistently operating twenty four foreign banks out of the universe consisting of forty three foreign banks operating in India between 2003-04 and 2012-13(ten years observation period).This study broadly covers foreign banks having legal entity and financial roots primarily in home country and entered in India for tapping Indian financial market in the form of term loans, cash credit, bridge loans, investments and funding for business activities (business financing operations) .