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Knowing Me Knowing You, as seen in Indian bank lending

Ah, I see we share many of the same social characteristics?So yeah, my subconscious is giving you a fast track to validation. Or, perhaps more charitably, I am simply better able to gauge your creditworthiness via “soft” private information? Either way, you can have a loan.That’s a crude summary of a recent paper by Raymond Fisman, Daniel Paravisini, and Vikrant Vig which looked at a large state-owned bank in India where they had access to caste and religious affiliation data, and where, crucially, an “explicit officer rotation policy among branches provides variation in the matching between lenders and borrowers”.With our emphasis:We find strong evidence of preferential in-group treatment. In the baseline results we define two individuals as belonging to the same group when both are members of the same minority religion (Christian, Muslim, Sikh, Parsi, or Buddhist) or, conditional on belonging to the majority religion (Hindu), when both belong to the same official caste (General Class, Scheduled Caste, Scheduled Tribe, or Other Backward Classes). In our preferred (and most conservative) specifications, we find that on average, the total amount of new loans to borrowers in a group increases by 6.5 percent when the officer assigned to the branch belongs to the same group. Having an in-group officer also increases the number of new loan recipients by 5.

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Ah, I see we share many of the same social characteristics?

So yeah, my...

David Keohane
(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.) David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012. In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.

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