Role of Trust in bank lending

Banks in India operate in a very different lending environment as compared to western banks. The government owns many banks in India and state intervention in bank lending is considerable in India. Conventional instrument based methods of risk evaluation have limited use for banks in India. This book uses a social risk evaluation process based on the notion of social capital and trust to examine the structure and working of Indian bank branches. The role of trust in the relationship between branch managers and loan officers is critically studied. A framework of trust between branch managers and loan officers is developed. According to this framework, a branch manager and a loan officer develop a trusting relationship because both branch manager and loan officer have incentive to trust each other due to risk in lending. Trust between branch managers and loan officers of bank branches depends on seven characteristics of trust. Trust contributes significantly to the improvement of lending performance of bank branches in India. The conclusions arrived in this study have important implications for the management of banks.