The Indian banking system was initially thought to be insulated from the global financial crisisowing to heavy public ownership and cautious management. It was thus a surprise when somebanks experienced a deposit flight, as depositors shifted their money toward government-ownedbanks and specifically toward the State Bank of India, the largest public bank. While there wassome tendency for depositors to favour healthier banks and the banks with more stable funding, thereallocation of deposits toward the State Bank of India in particular cannot be explained by thesefactors alone. Nor can it be explained by the impact of explicit capital injections by the governmentinto some public-sector banks. Rather it appears that the implicit guarantee of the liabilities of thecountry’s largest public bank dominated other considerations.
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