RBI asked state government to not move deposits from Private banks

The Reserve Bank of India (RBI) has requested the state government to not move the funds out of the private banks. It said that apprehension about the safety of deposits in private lenders are highly misplaced.

RBI said in a letter written to chief secretaries of all states, that it wouldn’t be good for the stability of the banking sector to move the funds out of the private sector banks.

The letter came when there were reports that some state governments have gave advise to the government bodies and other entities under their jurisdiction to move their deposits from the private sector banks to public sector lenders. This follows the crisis at Yes Bank after which RBI has superseded the bank’s board and placed restrictions on withdrawals.

“We strongly believe that such a move can have banking and financial sector stability implications,” the RBI wrote. “We feel that apprehension on the safety of deposits in private sector banks is highly misplaced and will not be in the interest of stability of the financial system in general and the banking system in particular.”

RBI requested to rethink on the decision they have taken.

“The Reserve Bank has adequate powers to regulate and supervise the private sector banks and by using these powers, it has ensured that the depositors’ money is entirely safe,” the letter said.

The RBI said the resolution of weak private sector banks in the past has been done in a manner that the depositors are not put to loss.

“It is precisely with a view to retaining depositors’ confidence in private sector banks and mitigating their hardship that, after the imposition of a moratorium on Yes Bank Ltd, the RBI has drawn up a draft scheme without any delay and we are making every effort to expedite the finalisation of the scheme,” it added.