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Deposit and Credit Reallocation in a Banking Panic: The Role of State- Owned Banks

Author

Listed:
  • Viral V. Acharya

    (New York University, Stern School of Business.)

  • Abhiman Das

    (Indian Institute of Management Ahmedabad, India.)

  • Nirupama Kulkarni

    (CAFRAL, Reserve Bank of India, Mumbai, India.)

  • Prachi Mishra

    (Department of Economics and Isaac Center for Public Policy, Ashoka University)

  • Nagpurnanand Prabhala

    (The Johns Hopkins University Carey Business School, Washington, DC.)

Abstract

We study a bank run in India in which private bank branches experience sudden and considerable loss of deposits, which migrate to state-owned public sector banks (PSBs) that serve as safe havens. We trace the consequences of the deposit reallocation using bank branch-level balance sheet and firm-bank lending data. The flight to safety is not a flight to quality. Lending shrinks and credit quality improves in run banks, but worsens in PSBs receiving the flight-to-safety flows. The reallocation of resources is not efficient in the aggregate.

Suggested Citation

  • Viral V. Acharya & Abhiman Das & Nirupama Kulkarni & Prachi Mishra & Nagpurnanand Prabhala, 2025. "Deposit and Credit Reallocation in a Banking Panic: The Role of State- Owned Banks," Working Papers 140, Ashoka University, Department of Economics.
    • Handle: RePEc:ash:wpaper:140
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    File URL: https://dp.ashoka.edu.in/ash/wpaper/paper140_0.pdf
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