The run on the Punjab and Maharashtra Co-operative Bank (PMC), a small Indian lender, is now in its third week. At a branch in Mumbai near the Reserve Bank of India (RBI), the central bank, depositors wait in line, scanning their mobile phones. But the calm is deceptive. A single bankrupt borrower, Housing Development and Infrastructure Limited (HDIL), accounted for 73% of PMC’s loan book. As part of the elaborate deception it created 21,000 fake customer accounts.
Posted outside PMC branches is a letter from the RBI dated September 23rd. A passage is highlighted in pink: withdrawals are to be limited to 1,000 rupees ($14) over six months. That fired the starting pistol for the bank run. Protesters showed up at the gates of the RBI. The withdrawal limit was raised in response, first to 10,000 and then to 25,000 rupees. That was high enough to cover the balances of 73% of customers but represents just 7.75% of the bank’s $1.7bn of deposits. Government-backed deposit insurance covers just 100,000 rupees per account.
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