Working Paper: NBER ID: w25694
Authors: Prachi Mishra; Nagpurnanand R. Prabhala; Raghuram G. Rajan
Abstract: India introduced credit scoring technology in 2007. We study its adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.
Keywords: credit scoring; banking technology; India; adoption rates
JEL Codes: G21; O32; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| NPBs (L31) | technology adoption speed (O33) |
| PSBs (L32) | technology adoption speed (O33) |
| legacy practices (B15) | current behavior (D19) |
| stickiness of past practices (C54) | credit decisions (G21) |