How Does The Rescue of Weak Banks Through Mergers Impact Loan Performance? Evidence From India

58 Pages Posted: 1 Aug 2022

See all articles by Nishant Kashyap

Nishant Kashyap

Indian School of Business

Sriniwas Mahapatro

Indian School of Business (ISB), Hyderabad

Prasanna L. Tantri

Indian School of Business

Date Written: July 12, 2022

Abstract

We study the impact of a government-mediated takeover of weak small banks by stronger large banks in India during the recent banking crisis on loan performance. Our within borrower-time and between banks tests show a 25% reduction in delinquency. Evidence on mechanisms suggests that borrowers strategically default on weak banks anticipating denial of credit in the future, and such defaults reverse after the merger. The borrowers of weak merged banks receive a higher level of credit from the merged entity; hence, their incentive to default reduces. Consequently, we find an increase in investments in regions dominated by merged weak banks.

Keywords: Borrower run, Bank mergers, Strategic default, Banking regulation

JEL Classification: M41, M48, G21, G28, E58

Suggested Citation

Kashyap, Nishant and Mahapatro, Sriniwas and Tantri, Prasanna L., How Does The Rescue of Weak Banks Through Mergers Impact Loan Performance? Evidence From India (July 12, 2022). Available at SSRN: https://ssrn.com/abstract=4160936 or http://dx.doi.org/10.2139/ssrn.4160936

Nishant Kashyap

Indian School of Business ( email )

Hyderabad, Gachibowli 500 019
India

Sriniwas Mahapatro (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
18
Abstract Views
91
PlumX Metrics