Research

Research Interests

Banking and Financial Intermediation, Household Finance

Publications


Does Transparency about Banks' Lending Costs Lower Firms' Borrowing Costs? Evidence from India 

- co-authored with Prasanna Tantri. 

- Forthcoming, Journal of Accounting and Economics 

 

We study the impact of transparency about banks' costs on loan interest rates. The Indian Central Bank required banks to disclose a cost-based benchmark interest rate instead of the prime rate. The banks could price loans using any spread to the cost-based benchmark. We find that this change, which made banks' cost structures more transparent, lowers the interest rates charged and leads to increases in debtor firms' total borrowings and investments. We hypothesize that increased cost transparency reveals relationship rents to competitor banks and makes it difficult for incumbent banks to maintain high relationship rents because of increased threat of entry.



Does Social Capital Positively Influence Loan Performance Even During a Crisis?

- co-authored with Sumit Agarwal and Prasanna Tantri

- Forthcoming, Journal of Development Economics

 

Theoretically, it is unclear whether group loans outperform individual loans in terms of delinquency, especially during a crisis. It is difficult to test the hypothesis due to differences in the types of borrowers of the group and individual loans and likely differences in their behavior between crises and normal times. We overcome the challenge by comparing simultaneous group and individual loans of the same individual before and during the Covid-19 crisis in India. We find that the delinquency rate of group loans is significantly lower. Further tests suggestively indicate that the outperformance is due to the “peer pressure” channel.


Working Papers

 

Do Firms Have A Preference Order While Repaying Lenders? Relationship vs Transaction Banking 

– Nitin Vishen

 

Do firms prefer repaying a relationship lender over a transaction lender, or vice versa? It is unclear whether a firm that finds itself in a position to repay only one out of its two lenders will repay the relationship lender or the transaction lender? A within-firm across-lenders analysis shows that firms are more likely to default on relationship lenders compared to transaction lenders. I find that firms face a lower threat of prosecution upon default from relationship lenders. The findings are robust to alternate definitions of relationship banking, controlling for several loan terms, and endogenous firm-bank matching. Firms show a higher repayment preference towards transaction lenders, irrespective of whether the government owns the lenders or not.


Conference Presentations



Research Grants