Factors of default in Small and Medium Enterprise: An Application of Cluster Analysis

Lending activity is an integral part of the banking business. Howsoever good a bank may be in its credit management it cannot escape the natural laws operating within the dynamics of advance and recovery. To put in more manageable sense the strategic homogeneity of the factors of default are also affected by the category of default and the type of facility. Grouping and regrouping of the factors of default is a natural phenomenon based on certain rules. Thus this kind of an understanding calls for deliberation to find out the factors of default and also look for natural tendency of the factors for formation of clusters. Marketing as a process always looks for clusters based on certain homogeneity of variables so as to design techniques and means thus maximizing reach and minimizing cost. The formation of clusters and the affinity of certain units to cling to the same clusters can always provide with the much needed vital tip. The formulation of recovery plan is more strategic in nature when it comes to banks, with operational part playing a necessary role of execution. The dynamics of the factors of default and the formation of clusters according to major category of defaulter can open up new avenues to find out the synergistic agglomeration of units.