Costs and Benefits of Debt Moratoria : Evidence from a Natural Experiment in India

Working Papers
Mukherjee, Saptarshi., Subramanian, Krishnamurthy., Tantri, Prasanna. "Costs and Benefits of Debt Moratoria : Evidence from a Natural Experiment in India ", USA
Abstract:
Using loan account level data for more than 12,000 agricultural borrowers of a large public sector bank in India, we compare the effect of the loan waiver for distressed and non- distressed borrowers. First, we find significant improvements in loan repayment by distressed borrowers post the waiver. However, we observe no such improvement for non-distressed borrowers. Second, post the waiver, loans provided to distressed borrowers increase signif- icantly while the loans provided to non-distressed borrowers decrease significantly. Thus, while the credit worthiness of distressed borrowers that utilize the waiver increases while the credit worthiness of non-distressed borrowers that exploit the waiver decreases. Ours is the first study to provide empirical evidence on the costs and benefits of debt moratoria.