Strategic Flexibility for Reconfiguring Loan Portfolios in Indian Banks

• Date: 01 September 2016
• DOI: http://doi.org/10.1002/jsc.2078
• Published date: 01 September 2016

RESEARCH ARTICLE

Strat. Change 25: 525–536 (2016)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2078

Copyright © 2016 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2078

Strategic Flexibility for Reconguring Loan Portfolios

in Indian Banks1

Anjan Roy

National Institute of Bank Management, India

Bank organizations must have the strategic exibility to make changes in their

business mix.

Firms often face organizational and market rigidities that prevent them changing

their business portfolio at will (Matthyssens et al., 2005). ese rigidities may be

due to organizational inertia arising from the stability of its products, processes,

and policies (Hannan and Freeman, 1984), or due to ossication of capabilities

that have become deeply ingrained over time (Leonard‐Barton, 1992; Zhou and

Wu, 2010). e academic literature suggests that rms need to have strategic ex-

ibility (Aaker and Mascarenhas, 1984) or the ability to make desired and timely

shifts in resources, products, markets, etc. in order to respond to changes in busi-

ness environment and hypercompetitive markets, and thus remain relevant for

their stakeholders. Strategic exibility enables rms to address discontinuities in

the business environment (Eisenhardt and Martin, 2000) and enhance perfor-

mance (Arief et al., 2013).

Such ability depends on management cognition (Combe and Greenley, 2004;

Nadkarni and Narayanan, 2007), availability of resources (Sanchez, 1993; Grewal

and Tansuhaj, 2001) and strategic options (Evans, 1991; Combe et al., 2012).

Cognitive capabilities as mental models are based on prior knowledge and strongly

held beliefs, which determine how managers view and interpret new information

and recognize the need for change. ey are found to play a moderating role in

determining the ways in which market information is used by rms to create new

product outcomes (Citrin et al., 2002). e nature of resources and resource com-

mitments made by rms can constrain their capacity to halt or reverse their actions

(Shimizu and Hitt, 2004). Kapasuwan et al. (2007) have argued that rms must

not only have the requisite technological resources, but also be capable of using

them to generate strategic options, or a variety of alternate strategic choices, for

maintaining competitiveness in the long run.

1 JEL classication codes: D22, G21, L25.

Banks often have sticky loan

portfolios, which can lead to

slower growth in advances and

imperil their asset quality.

However, some banks are able to

make changes in their loan

exposures, more so than others.

The ndings suggest that banks’

ability to recongure their loan

portfolio is determined by factors

such as their sectoral

specialization and lending

orientation.