Evaluating Market Competitiveness and Volatility in Loan Pricing via Nash Equilibrium and ARIMA Models

Abstract

The study deals with the dynamics of loan pricing within the Indian financial system, using Nash Equilibrium and ARIMA models, on two-wheeler loans. The objective is to assess market competitiveness among public sector banks (PSBs), private sector banks (PvtSBs), foreign banks and non-banking financial companies (NBFCs) through interest rates, processing fees, and loan tenures. It shows how Nash Equilibrium can help in the strategic decisions of competitive environments and ARIMA as a predictive trend of loan pricing. Secondary data spanning from 2012-2024 will be utilized for the study and weighted average lending rates, comparative and descriptive statistics, and the application of forecasting models to predict the future. The findings show significant differences in the loan pricing strategies employed by financial institutions, and high market competition and imperfect economic conditions significantly impact pricing stability. This study thus contributes to the understanding of the optimal pricing strategy and its implications for borrower affordability and lender profitability.