Transaction Costs And Efficiency In Intermediation | Dinabandhu Bag

The transaction cost of intermediation between the lenders and borrowers is a crucial challenge for the lender and borrower. With the expansion in consumer lending and competition among banks, the necessity of reducing transaction costs to improve the quality of lending is critical for Banks. Further, transaction costs due to information asymmetry between bankers and borrowers can impact lending decisions of the bank and so also the quality of lending. Transaction costs play an important role in reducing information asymmetry and improving the efficiency in monetary transmission and credit access for the borrowers. In this paper, we model the use of borrower transaction information to test its impact on the portfolio delinquency and the lending relationship. This concludes that transaction information can help reduce transaction costs and increase the sphere of lending since banks can assign higher loan limits. This study is an extension of previous empirical studies for other countries of the Indian credit market. It also reviews the empirical studies on transaction costs and attempts to demonstrate the benefits of transaction costs usage on the reduced delinquency rates of a banks? retail portfolio.