contracts with the lender in the event of financial distress, or that the lender’s debt collection practices will be lenient going forward. This could lead to the selection of borrowers with higher credit risk into repeated interactions and longer term relationships with the lender and would therefore have negative implications for the profitability of the surviving lending relationships. On the other hand, it is possible that borrowers who are granted repayment flexibility have higher demand for the lender’s products independently of beliefs about the lenders’ collection and renegotiation practices. If this mechanism is at play, it could foster the establishment of more profitable banking relationships.

We design a product adoption experiment to test these competing mechanisms. In the experiment, borrowers who had received one of the debt forbearance offer treatments in the main experiment received a marketing call in which they were offered a financial product. The marketing calls took place after the moratorium period had ended and between three months and a year after participants had received the forbearance offer treatment. Borrowers were randomly assigned to receive either a marketing call that invited them to apply for a personal loan whose terms can—at least in principle—be renegotiated ex post, or a marketing call that offered the opportunity to purchase an “enhanced credit report”, a non-credit product that involves only a one-shot interaction with the lender and whose terms cannot be modified ex post.

The treatments of the product adoption experiment vary whether the offers are _branded_ and prominently mention the name of the lender, or _non-branded_ and do not mention the name of the lender. This real stakes design allows us to test whether borrowers that had been offered debt forbearance by their lender have causally higher demand for future interactions with the lender. If borrowers select into continued banking relationships for moral hazard reasons, one would expect this to lead to an immediate increase in demand for personal loans, but not for the non-credit product which merely signals a continued commitment to the lender that preserves the option of obtaining a loan in the future but has no immediate payoff to the borrower.

We find evidence that forbearance offers granted by one’s lender strengthen demand for future engagement with the lender. While there are no meaningful differences in demand for personal loans between treatment conditions, borrowers who received a moratorium offer from the lender in the main experiment have 10 percentage points (27 percent) higher demand for the branded non-credit product than borrowers who received debt forbearance offers framed as an initiative of the regulator. Because there is no scope for ex post renegotiation in the case of the non-credit product, the results suggest that borrowers wish to deepen their relationship with the lender that granted forbearance for reasons other than making the inference that it is easy to renegotiate financial contracts with the lender. These findings from a fully incentivized product adoption experiment indicate that, in our setting, forbearance offers appear to create neither moral hazard in short-term loan repayment nor moral hazard in the longer-term selection into banking relationships.

Our results have several implications for the design of debt relief policies. Regulators and private financial institutions have often been reluctant to grant temporary repayment deferrals because of the widespread assumption that such policies can damage credit discipline. Indeed, in a survey representative of the Indian population, conducted as part of our study supports this assumption —66 percent of respondents state that they expect debt moratoria to have a negative effect on timely 4