A bank with concentrated uninsured deposits and underwater held-to-maturity bonds faces a social-media-driven run. Compute the funding hole, the loss realised selling bonds to fill it, and what the bank should have measured beforehand.

The run takes Rs 4,500 crore against Rs 3,600 crore of liquid assets, a Rs 900 crore hole; selling bonds to fill it realises about Rs 78 crore of loss. If the other half of uninsured deposits follows, the bank must sell about Rs 4,891 crore more and realises nearly all of the Rs 480 crore hidden loss. Deposit concentration, uninsured run-off speed and the unrealised bond loss were all measurable in advance, and none needed hindsight.

A village moneylender who keeps some cash in the box and the rest lent out is fine until everyone who heard the same rumour arrives on the same morning. Half of Rs 9,000 crore of uninsured deposits, Rs 4,500 crore, leaves in two days, against Rs 3,600 crore of liquid assets, leaving a Rs 900 crore hole. The speed matters as much as the size: liquidity stress measures usually assume outflows over a month, and this one took two days.

The bonds are worth 92% of book, so each Rs 100 of cash needs Rs 108.7 of book value. Raising Rs 900 crore means selling Rs 978 crore at book and realising a loss of Rs 78 crore. The larger problem is what the sale reveals: the whole book carries a hidden loss of Rs 480 crore, and selling part of a held-to-maturity book can, under many accounting rules, force the rest to be marked to market. Confirm the rule that applies. Either way, the market now knows the loss is real, which is what the depositors feared.

Runs rarely stop at half. If the remaining Rs 4,500 crore of uninsured deposits leaves, the bank has no liquid assets left and must sell about Rs 4,891 crore of bonds at book, realising another Rs 391 crore. Realised losses reach about Rs 470 crore, almost the whole hidden Rs 480 crore, and only about Rs 130 crore of bonds are left. At that point insured depositors start to worry too. This is the mechanism to describe: a run converts an accounting loss into a realised one, and the realised loss feeds the run.

Four things, all available before the run. First, deposit concentration: 45% uninsured and in one networked industry is a single risk, not thousands of small ones. Second, a run-off assumption for uninsured deposits that matched their behaviour, days rather than a month. Third, the unrealised loss on held-to-maturity bonds against capital, reported to the board as if the bonds had to be sold. Fourth, contingent funding: bonds pre-positioned as collateral with the central bank or repo counterparties can be borrowed against, roughly Rs 5,244 crore at an illustrative 5% haircut on market value, without selling them and without realising the loss. The liquidity coverage ratioA regulatory measure comparing high-quality liquid assets with net cash outflows over a 30-day stress; its outflow rates for each deposit type are assumptions set by the regulator. would not have caught all of this, because its standard outflow rates assume a month, not two days.