Application of Factor and Cluster Analysis for an Evaluation of Business Practices Models of Foreign Banks Post RBI Road MAP 2005 and During the Period 2003 to 2013 with Reference to India's Foreign Trade

Abstract

The aim of this paper is to assess business practices models of 24 foreign banks operating in India post RBI Road Map 2005 and during the period 2003 to 2013 through the use of publicly available information. Business practices models have been evaluated by the application of factor analysis followed by cluster analysis. 23 variables related to working of foreign banks supported with 5 variables related to India’s foreign trade were reduced into 8 factors by using factor analysis. Using these 8 factors cluster analysis was carried out to group 24 foreign banks into 3 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 for foreign banks. The foreign banks’ sample consists of consistently operating 24 number foreign banks out of the universe consisting of 43 FBs 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).