The financial architecture of India’s banking system has undergone a series of systemic shocks and regulatory shifts that leave a lingering, deep-seated sense of injustice for the ordinary citizen. While the state and the Reserve Bank of India (RBI) promote a narrative of “cleaning up balance sheets” through a disciplined process of asset quality reviews, a closer look at the actual numbers reveals a stark, almost predatory contrast between the treatment of small borrowers and the resolution of massive corporate debts. This disparity is not merely a matter of accounting nuances or varying credit risk profiles; it is a fundamental failure of systemic fairness where the risks of the elite are socialized while the failures of the poor are ruthlessly privatized.
For the common man, the experience of borrowing from a bank is one of absolute, uncompromising liability. A small business owner, a teacher, or a middle-class professional who defaults on a loan of a few lakhs due to an unforeseen tragedy or a market dip often faces the swift and brutal application of the SARFAESI Act. Under this regime, banks can seize and auction a family home with alarming speed, leaving the borrower with no roof over their head. While there are legal mechanisms to challenge these actions in Debt Recovery Tribunals (DRTs), the average citizen lacks the legal firepower and the financial resources to fight a protracted battle against a multi-billion-dollar institution, creating a reality where the “cost of failure” for the common person is total ruin.
In stark contrast, the resolution of large corporate loans has often resembled a different universe of rules entirely. The “4R” strategy—Recognition, Resolution, Recapitalisation, and Reform—was presented as a master plan to fix the NPA crisis, but the “Recapitalisation” pillar was essentially a massive transfer of wealth from the general tax base to the banking sector. Between 2016 and 2021, the government infused roughly ₹3.1 lakh crore of public money into public sector banks (PSBs). This infusion was ostensibly to prevent a systemic collapse and maintain credit flow to the economy, but in practice, it served as a buffer that allowed banks to absorb the losses of massive corporate defaults without facing the full consequences of their own poor lending decisions.
The “Resolution” phase has been even more scandalous, characterized by the phenomenon of the “haircut”—the portion of the debt that creditors agree to write off. Under the Insolvency and Bankruptcy Code (IBC), corporate debtors have seen haircuts that defy logic. In the case of Reliance Big Private Limited, financial creditors saw their admitted claims of ₹999 crore dwindle to a recovery of just ₹3.5 crore for secured lenders and zero for unsecured ones. This represents a shortfall of nearly 99.65% of the total admitted claims. When the state approves such a plan, it is essentially sanctioning the erasure of nearly a thousand crores in liabilities while the promoters often remain untouched in their lifestyles.
The injustice becomes even more acute when examining the personal insolvency cases of high-profile promoters, which are supposed to act as a deterrent against reckless borrowing. The recent NCLT approval for the personal insolvency of Subhash Chandra is a prime example of systemic failure. Against admitted claims of ₹22,006.57 crore, the resolution plan offered a recovery of a mere ₹6.5 crore—a nominal haircut of 99.97%. Despite objections from major creditors like HDFC Bank and LIC Housing Finance, and calls for a comprehensive forensic audit of assets, the tribunal accepted the plan. This suggests that for the ultra-wealthy, a personal guarantee is a formality rather than a binding commitment.
This trend suggests a systemic pattern where “government buddies”—the highly connected corporate elite—are served and protected at the direct cost of the public. While the middle-class family is squeezed for every penny and the small merchant is threatened with bankruptcy, promoters of failing empires are permitted to walk away from their liabilities through legal maneuvers and “approved” resolution plans. The public bears the ultimate loss twice: first through the dilution of public funds used for bank recapitalisation, and second through the psychological and economic trauma of seeing a two-tier justice system in the financial sector.
The danger is that the current stability of the banking sector may be a fragile facade, a “digital mirage” held together by hope and accounting tricks. There are grave warnings that the fragile architecture of modern banking rests on an inflated sense of confidence rather than actual liquid cash. If equity valuations, which have been driven up by speculative fervor and over-leveraged corporate bets, face a sharp and sudden correction, it could trigger a violent chain reaction of margin calls and forced liquidations that the banks are unprepared to handle.
If a portion of the depositor base—even a mere 10%—begins to fear for the safety of their money due to the perception of insolvency among the giants, they will attempt to withdraw their deposits simultaneously. In a fractional reserve system, banks do not hold all deposits in cash; they have lent the money to the very corporate entities that are now seeing 99% haircuts. This creates a catastrophic mismatch. A sudden surge in withdrawals forces banks into “fire sales” of their remaining assets, often at steep losses, which further degrades their capital position and accelerates the collapse.
Some analysts predict that this convergence of risks—over-leveraged corporates, socialized losses, and eroding public trust—could lead to a systemic breaking point as early as January 2027. A bank run in the digital age happens at the speed of a click, and if the public perceives that the “safety net” is only for the rich, there will be no incentive to keep money in the system. This would not be a gradual decline, but a sudden, violent evaporation of liquidity that could freeze the entire Indian economy.
Adding to this risk is the eroding independence of the Reserve Bank of India (RBI). The repeated transfer of the RBI’s surplus to the central government reduces the central bank’s own financial cushion and raises profound questions about its institutional autonomy. When the regulator is perceived not as an independent guardian of the currency, but as a tool of the government’s fiscal needs, its ability to calm a panicking market during a crisis is severely diminished. The public no longer trusts the regulator to stand against the interests of the political elite.
The psychological shift is already manifesting in the real world. There is a growing perception that the digital convenience of modern banking is a trap, and that the only truly secure asset is physical cash. This is leading to a quiet but significant retreat to cash among merchants and savers. This retreat is a profound signal of distress; it is a vote of no confidence in the institutions that manage the nation’s wealth. When the merchant prefers a cash drawer to a bank account, the foundation of the financial system has already crumbled. In fact, banks of India may crash in January 2027 itself.
As the trust in the safety of deposits erodes, the “digital mirage” vanishes. The transition back to cash is a survival instinct. People are realizing that while the government claims the banks are “safe,” that safety only applies to the recovery of the system, not to the protection of the individual’s savings. The common man is waking up to the fact that he is the ultimate insurer for the failures of the corporate elite.
The government may continue to report “healthy” capital ratios and declining NPAs, but these metrics are meaningless if they are based on assets that cannot be realized or debts that have been written off via 99% haircuts. When the gap between official accounting and the actual value of the loans becomes a chasm, the entire banking sector becomes a house of cards, waiting for one strong wind of panic to blow it down.
The common citizen is now acutely aware that the “safety net” provided by the state is a selective tool. It is a net that catches the billionaire promoter and the politically connected corporate house, while letting the small depositor and the honest borrower fall through the gaps. The public is no longer blind to the fact that their hard-earned deposits are being used as a cushion for those who failed most spectacularly.
Ultimately, a banking system is built on one thing: trust. When that trust is systematically destroyed by the sight of 99.97% haircuts for the elite and home foreclosures for the poor, the system becomes unsustainable. Public money is not safe in Indian banks because the system has been designed to prioritize the survival of the “government buddies” over the security of the common man. The inevitable collapse is not a technical failure, but a moral one, and the public is now choosing cash over a system that has betrayed them.