India's financial sector is in trouble, and the contagion is starting to bite in the real economy.

So what is going wrong with India's lenders, and just how deep do the problems go?

India's economy has long depended on state-run banks.

But poor governance and cosy relationships with powerful tycoons helped to contribute to a credit crunch, meaning borrowers had to find new sources of money.

So-called shadow banks sprung up, but these less-regulated lenders gave out yet more risky loans, especially to the real estate sector.

Last month, the previously obscure Punjab and Maharashtra Co-operative Bank was taken over by authorities, its top executives arrested after they engaged in heavy lending to a single property company.

About 1.5 million account holders had access to their savings restricted.

Panic ensued, with customers demanding their money back.

Rumours of further closures spread like wildfire, and the country's central bank took to Twitter to reassure the public.

The run on PMC happened almost exactly a year after the collapse of IL&FS, a huge shadow lender.

That was portrayed at the time as a one-off event, but economic growth has since slowed to a six-year low,

And investors fear more lenders will go bust.

Loans are now much harder to come by, businesses find it hard to expand, and consumers are struggling to get loans for houses or even motorcycles.

Big shadow banks have seen their share prices plummet, while traditional banks are still struggling to recover a year's worth of unpaid loans.

If more lenders go bust, it could create a domino effect and spread like a virus through the wider economy.

Economists say they see echoes of the chain of events that led to the US financial crisis, as once high-flying lenders succumbed to the pressure of bad debt.

And they're worried India's economy could now face a reckoning of its own.