Bandhan Bank - Case

Siddharth, the Chief Manager at Bandhan Bank, wants to start a credit card division. Bandhan
Bank was set up in 2016 and for two years was involved only in core banking functions. The
Managing Director, Ruchika cautioned Siddharth on Non-Performing Assets. As the Bank was a
new entrant in the market, Siddharth knew that both profitability and risk need to be balanced.
Siddharth was a B.Tech and an MBA from a reputed institution. He wanted to first give credit
cards on his judgment but use the information to make it a more systematic process as they move
forward. In fact, he wanted to develop a system whereby he could predict an applicant on the
chances of default and act accordingly. The banks usually classified customers as either ‘low
risk’ or ‘high risk’ (risk of default on credit card bill payments).

The pilot project gave Siddharth some data on the credit card holders who turned out to be ‘low
risk’ (no default) and ‘high risk’ (defaulting on payments) customers. These data is provided in
Table.1.

Siddharth needs to present within two days, a plan for nationwide launching of credit card
division. He knew that Ruchika would be keen to know the method to screen potential good
customers (low risk) from bad customers (high risk). In particular, he expected her to ask

1. The accuracy with which Siddharth can predict and classify customers as high and low
risk correctly.
2. Which variables (age, income, or years of marriage) are relatively better in identifying
between ‘low’ and ‘high’ risk applicants?
3. How to classify a new credit card applicant into one of the two groups – ‘low risk’ or
‘high risk’.

Input Data

Data is given in attached table.1. The code for low risk customers is 1 and the code for high risk
customers is 2 in the RISKLOHI column in the Table.1.
 Practice Case

Data were obtained from a pretest sample of 42 households. Of these, 30 households shown in
Table 2 are a part of the analysis sample and the remaining 12 shown in Table.3 are part of the
validation sample. The households that visited a resort during the last two years are coded as 1;
those that did not, as 2 (VISIT). Both the analysis and validation sample are balanced in terms of
VIST. Data were also obtained on annual family income (INCOME), attitude towards travel
(TRAVEL, measured on a 9-point scale), importance attached to family vacation (VACATION,
measured on a 9-point scale), household size (HSIZE), and age of household (AGE).

Question: Determine the salient characteristics of families that have visited a vacation resort
during the last two years using discriminant analysis. Estimate the discriminant function
coefficients using SPSS and interpret the results.