Case study on Bank: Suppose a bank bhumanashwar wants to start credit division.

They want to use discriminant analysis ahd set up a system to screen & classify than an either low risk to high risk based on information from their application for credit card. Suppose SBB has a managed to get them from SBI some data on SBIs credit card holders who trusted out to be low risk (no default) and high risk (by defaulting on payments) customers. These are 18 customers given in the following table. Build a discriminant function model and find out. 1. The %of customer that is able to classify correctly. 2. Statistical significance of the discriminate function. 3. Which independent variables are relatively better in discriminating between low & high risk applications? 4. How to classify a new credit applicant in to one of the group s-low risk or high risk by building a decision rule & a cut off score?

Dependent variable: Y=risk two categories low & high Independent variable X1= Age in year X2= Income in Rs. X3= Year demand in year Y= a+bx1+b2x2+b3x3+.bnxn Discriminate function SPSs for discriminant analysis After the input data been typed along with variable lables and value lables in SPSS file to get the output for a discriminant analysis Click analysis Click classify followed by discriminant. On the dialog box which appears select the grouping variable (dependent categorical variable) & click on the arrow. Define the rang of the grouping variable by clicking on define rang just below the grouping variable box fill in the minimum and maximum values in the codes i.e. liz etc.

Select all independent variable from the variables list and click on arrow to transfer to independent box. Just below the independent box select enter independent together to consider all the independent variable together. Click on statistics in the lower part of the ling box this open up a smaller dialogs box On this under this title function Coefficent choose understandised to obtain the unstandardise coefficient of the discriminant analysis these are used to classify the new obtain in D analysis now click on continue to return to main dialog box. Click on classify on the lower part of the main dialog box select summary table under the appears this you the classification containable (also called the confusion matrix) that judgeo the accuracy of the discriminant model which applies to the input data points. Click on continue to return to the main dialog box. Click ok to get the discriminants analysis is output.