icpp-logo
icpp-logo
Home
ResearchWorking Paper
Deposit and Credit Reallocation in a Banking Panic: The Role of State-Owned Banks
Macro & Public Finance
18 February, 2025

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

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.

icpp-logo
As the policy wing of Ashoka University, ICPP stands at the intersection of rigour and relevance, building pathways for knowledge to converge, travel, inform, and transform.

Subscribe to our newsletter

©2024-25 Isaac Centre for Public Policy