The Effect of Conflict on Lending: Evidence from Indian Border Areas

61 Pages Posted: 29 Jun 2020

See all articles by Mrinal Mishra

Mrinal Mishra

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

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Date Written: June 2020

Abstract

We study the effect of armed conflict on loan officers and their actual lending decisions. Following mortar shelling of Indian border areas in the state of Jammu & Kashmir, we document that after repeated incidences of shelling the loan rates set by the loan officers exponentially increase. While the immediate effect may be driven by a rational response due to altering beliefs, the later rate hikes suggest an "overreaction". Our study reveals that the real costs of armed conflict through loan pricing are not trivial, and what we document is informative about liquidity shortfalls or credit spirals arising from non-conflictuous political, economic or pandemic shocks.

Keywords: bank lending, interest rate, war

Suggested Citation

Mishra, Mrinal and Ongena, Steven R. G., The Effect of Conflict on Lending: Evidence from Indian Border Areas (June 2020). CEPR Discussion Paper No. DP14925, Available at SSRN: https://ssrn.com/abstract=3638029

Mrinal Mishra (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse
14
ZURICH, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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