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

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  • Ongena, Steven
  • Mishra, Mrinal

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.

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  • Ongena, Steven & Mishra, Mrinal, 2020. "The Effect of Conflict on Lending: Evidence from Indian Border Areas," CEPR Discussion Papers 14925, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14925
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    References listed on IDEAS

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    Cited by:

    1. Claudia Custodio & Bernardo Mendes & Diogo Mendes, 2021. "Firm responses to violent conflicts," NOVAFRICA Working Paper Series wp2106, Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA.

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    Keywords

    Bank lending; War; Interest rate;
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