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Andy Mukherjee

This Tiny Bank Is a Canary in India’s Coalmine

The PMC scandal risks dragging other institutions into the vortex of a messy real estate shakeout.

India’s real estate market is a mess.

India’s real estate market is a mess.

Photographer: MONEY SHARMA/AFP/Getty Images

Just when you think banks in India can’t possibly deliver any more bad news, a near $1 billion scandal drops without warning.

The alleged wrongdoing at Punjab & Maharashtra Co-operative Bank differs from previous Indian banking scams in that savers are on the hook this time around, a situation that can’t be allowed to continue without chilling consequences for an already-stressed financial system.

The problem at PMC Bank only became apparent when the Reserve Bank of India last week banned depositors from taking out more than 1,000 rupees ($14) for six months without offering any explanation. That was a mistake.