The Economic Effects of a Borrower Bailout : Evidence from an Emerging Market

This paper studies the credit market implications and real effects of one the largest borrower bailout programs in history, enacted by the government of India against the backdrop of the 2008-2009 financial crisis. The study finds that the stimulus program had no effect on productivity, wages, or consumption, but led to significant changes in credit allocation and an increase in defaults. Post-program loan performance declines faster in districts with greater exposure to the program, an effect that is not driven by greater risk-taking of banks. Loan defaults become significantly more sensitive to the electoral cycle after the program, suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified.

Bibliographic Details

Main Authors:	Kanz, Martin, Gine, Xavier
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-11
Subjects:	ACCESS TO CREDIT, ACCESS TO EXTERNAL FINANCE, ACCOUNTING, ADMINISTRATIVE BODY, AFFORDABILITY, AGRICULTURAL CREDIT, AGRICULTURAL DEBT, AGRICULTURAL LOANS, AGRICULTURAL SECTOR, AGRICULTURE, ALLOCATION OF CREDIT, AMOUNT OF CREDIT, AMOUNT OF DEBT, ASSETS, AUDITS, BAD DEBTS, BAILOUT, BAILOUTS, BALANCE SHEET, BALANCE SHEETS, BANK BAILOUTS, BANK BRANCH, BANK BRANCHES, BANK CREDIT, BANK LENDING, BANK LIQUIDITY, BANK POLICY, BANKING REGULATIONS, BASE YEAR, BENCHMARK, BENEFICIARIES, BENEFICIARY, BORROWER, BORROWER BEHAVIOR, BORROWING, BRANCH BANKING, BUDGET DEFICITS, BUSINESS CYCLES, CD, CENTRAL BANK, CHECKS, COLLATERAL, COMMERCIAL BANKS, COMMODITY PRICES, CONDITIONAL DEBT, CONSUMER CREDIT, CONSUMER CREDIT CARD, CONSUMERS, CONSUMPTION EXPENDITURE, CORRUPTION, COST OF DEBT, COSTS OF CREDIT, CREDIT ALLOCATION, CREDIT CONTRACTS, CREDIT CULTURE, CREDIT DISCIPLINE, CREDIT LOSSES, CREDIT MARKET, CREDIT MARKETS, CREDIT OUTSTANDING, CREDIT RATIONING, CREDIT SPREADS, CREDITS, DEBT, DEBT CONTRACTS, DEBT LEVELS, DEBT OVERHANG, DEBT RELIEF, DEBT RESTRUCTURING, DEBTS, DEFAULT RATES, DEFAULTERS, DEFAULTS, DEPENDENT, DEVELOPMENT POLICY, DISTRIBUTION OF CREDIT, DUMMY VARIABLE, DUMMY VARIABLES, DURABLE, ECONOMIC ACTIVITY, ECONOMIC CRISIS, ECONOMIC HISTORY, ECONOMIC OUTCOMES, ECONOMIC PERFORMANCE, ECONOMIC POLICY, ECONOMIC SHOCKS, ECONOMIC TRENDS, EFFECT OF DEBT, ELASTICITY, ELIGIBILITY CRITERIA, ELIGIBLE BORROWERS, EMERGING MARKET, EMERGING MARKETS, EMPLOYMENT, EVERGREENING, EXCLUSION, EXISTING CREDIT, EXTERNAL FINANCE, EXTERNAL FINANCING, FARM LOANS, FARMERS, FINANCIAL ASSISTANCE, FINANCIAL CONSTRAINTS, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL INTERMEDIARIES, FINANCIAL INTERMEDIATION, FINANCIAL SECTOR, FINANCIAL SHOCKS, FORECLOSURE, FORECLOSURES, FUTURE CREDIT, GDP, GOVERNMENT INTERVENTION, GOVERNMENT SPENDING, HOME EQUITY, HOUSEHOLD DEBT, HOUSEHOLD DEBTS, HOUSEHOLDS, HOUSING, IMPACT OF DEBT, INDEBTED, INDEBTEDNESS, INSTITUTIONAL CREDIT, INSTITUTIONAL ENVIRONMENT, INSTITUTIONAL ENVIRONMENTS, INSTRUMENT, INTERNATIONAL BANK, KEY CHALLENGE, LABOR MARKET, LAND HOLDINGS, LAND REFORMS, LAND TENURE, LEGISLATION, LENDERS, LENDING POLICIES, LEVERAGE, LOAN, LOAN DEFAULTS, LOAN DELINQUENCIES, LOAN PAYMENTS, LOAN PERFORMANCE, LOAN REPAYMENT, LOAN SIZE, LOAN SIZES, LOCAL BANK, LOCAL BUSINESS, MACROECONOMICS, MANDATE, MARKET CONDITIONS, MARKET DATA, MARKET FAILURES, METROPOLITAN AREAS, MICRO-DATA, MICRODATA, MONETARY VALUES, MORAL HAZARD, MORTGAGE, MORTGAGE DEBT, MORTGAGE HOLDERS, MORTGAGE MARKET, MORTGAGES, NEW CREDIT, NON-PERFORMING LOAN, NON-PERFORMING LOANS, NPL, PENALTIES, POLICY RESPONSE, POLITICAL ECONOMY, POSITIVE EFFECTS, PRODUCTIVE INVESTMENT, PRODUCTIVE INVESTMENTS, PRODUCTIVITY, RECAPITALIZATION, RECAPITALIZATIONS, RECESSIONS, REGIONAL RURAL BANKS, REINVESTMENT, RENEGOTIATION, REPAYMENT CAPACITY, RESERVE, RESERVE BANK, RESERVE BANK OF INDIA, RESTRUCTURING PROGRAM, RESTRUCTURING PROGRAMS, RETURNS, RURAL BANKS, RURAL CREDIT, SETTLEMENT, SETTLEMENTS, SHARE OF CREDIT, SHARE OF DEBT, SHORT MATURITY, SOCIAL BANKING, SOURCE OF CREDIT, SOURCE OF INFORMATION, STATE BANKS, SUPPLY OF CREDIT, TAX, TAX CODE, TOTAL REVENUE, TRANSPARENCY, UNION, VOTERS, WAGES,
Online Access:	http://documents.worldbank.org/curated/en/2014/11/20378033/economic-effects-borrower-bailout-evidence-emerging-market https://hdl.handle.net/10986/20656
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