DOI: 10.14260/jadbm/2015/18 EMPIRICAL ARTICLE J of Advances in Business Management /eISSN-2395-7441/pISSN-2395-7328/ Vol. 1/ Issue 3/ July-Sept. 2015 Page 155 FACTORS INFLUENCING CREDIT RATIONING: A STUDY CONDUCTED IN PONDICHERRY CO-OPERATIVE URBAN BANK LIMITED V. Subramanian 1 , A. Ananda Kumar 2 HOW TO CITE THIS ARTICLE: V. Subramanian, A. Ananda Kumar. DzFactors )nfluencing Credit Rationing: A Study Conducted in Pondicherry Co- Operative Urban Bank Limiteddz. Journal of Advances in Business Management; Vol. ͳ, )ssue ͵, July-September ʹͲͳͷ; Page: ͳͷͷ-ͳ͸ͺ, DO): ͳͲ.ͳͶʹ͸Ͳ/jadbm/ʹͲͳͷ/ͳͺ ABSTRACT: This paper addresses credit rationing by credit officers in the banking industry the objective of this study was to examine the factors influence credit rationing by Pondicherry Urban co- operative banks in Pondicherry. The descriptive research design was used in the study. The target population from which the sample was drawn is Pondicherry co-operative urban banks within the Pondicherry region. A representative sample was drawn using the Proportionate Stratified random sampling. Both primary and secondary data were used in the study. The data collected was validated, edited and coded then analyzed using descriptive statistics with the aid of Statistical Package for Social Sciences (SPSS). Data presentation methods used were tables, charts and diagrams. The study established that the key factors that influenced credit rationing by Pondicherry co-operative urban banks in Pondicherry are loan characteristics, firm characteristics and observable characteristics. Some of the recommendations that the study made were that that it is beneficial for banks to ration credit, but it should be done with professionalism and with no business, the factors that influence rationing of credit should be evaluated thoroughly by the person in charge and given priority before issuing credit. And the Banks should find out more about credit rationing and how it can contribute to their business growth. KEYWORDS: Banks, Business, Credit officers, Credit rationing. INTRODUCTION: Credit rationing refer to the situation where lender limit the supply the addition credit who demand for fund, even if borrowers are ready to pay higher rate of interest. A measure employed by lending institutions to limit the availability of capital based on determinations they make about the credit-worthiness of borrowers as well as the lending environment in general. Raising interest rates above current market rates, regardless of the supply and demand equilibrium, are seen as a form of credit rationing. Competition between lenders and high effort by borrowers ensure positive outcomes for the society, so investment should take place. If lenders collect such information from the potential borrowers themselves, borrowers are likely to give an exaggerated view of their creditworthiness. This raises the need to validate such information from other sources. Furthermore, if lenders try to collect such information from other community members, there is a tendency to withhold information if the one soliciting such information is a stranger. Should lenders increase the lending rate to compensate for the higher cost of information gathering or the level of reliability of the information, this may result in adverse selection and moral hazard, both forms of behaviour of borrowers which may negatively affect the lenders’ returns on loans. The informal lender’s assessment of the borrowers’ debt service capacity will also influence the probability of their being credit rationed. However, the composition of the borrowers’ outstanding debt is of significance to the informal lenders’ credit rationing behaviour. )f the outstanding debt is mainly from the formal financial sector, the informal lender may not be threatened, as he may expect