Investigating the Impact of the Announcement of Loan Moratorium on Stock Prices: Evidence from Indian Public Sector Banks

Animesh Bhattacharjee, Madhu Kumari and Joy Das

Jindal Journal of Business Research, 2020, vol. 9, issue 2, 106-116

Abstract: The present article applies event study methodology in an attempt to investigate the impact of the announcement of 3-month moratorium by Reserve Bank of India on Indian public sector bank equity returns. For the present study, the estimation period is considered to be 120 trading days while the event window is considered to be 21 trading days. To compute the expected returns, the study uses a single-index model or the market model proposed by Fama [Fama, E., 1976. Foundations of finance . Basic Books]. The findings of the study suggest that the market responded to the news relating to the liquidity infusion by the Reserve Bank of India, falling global indices, development of potential coronavirus vaccine, and the announcement of 3 weeks period lockdown. The study further concluded that the market anticipated that the government may announce loan moratorium since industry bodies like The Associated Chambers of Commerce and Industry of India and The Federation of Indian Chambers of Commerce and Industry have recommended loan moratorium in order to safeguard the business enterprises especially the micro-, small- and medium-enterprise sector. Thus, the adjustment in the bank stock prices occurred before the announcement of the 3-month loan moratorium and as a consequence the average annual return on day ED-0 is found to be insignificant.

Keywords: Loan moratorium; event study methodology; single-index model; coronavirus pandemic (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jjlobr:v:9:y:2020:i:2:p:106-116

DOI: 10.1177/2278682120969014

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