One of India’s most popular banks, Punjab & Maharashtra Co-operative Bank, with deposits of nearly $1.5 billion, lent most of its money to a Mumbai real estate company now in bankruptcy. As a result, the Reserve Bank of India had to step in and take control of PMC Bank.
The central bank also announced depositor withdrawal restrictions of 40,000 rupees ($561), which allows 77 percent of the bank’s customers to withdraw their entire account balance.
Aware of previous problems in India’s banking system, when Infrastructure Leasing and Financial Services Limited (IL&FS), which had been Triple-A rated, collapsed last year, these actions have spread fear of a larger weakness among depositors in India’s banks.
There is a fear among depositors that banks will fail, the government will call a bank holiday, and their deposits will be lost.