The Reserve Bank of India (RBI) is asking the state governments that they shall not transfer their deposits from the Private Sector Banks on accounts of worry over the safety of their deposits as it is being highly misplaced.
The central bank, in a written letter, has said that moving money out of the private banks may result in more damage to the stability of the entire banking and financial sector of the country. The letter was sent to the Chief Secretaries of all of the state in India.
The letter was sent after reports surfaced suggesting that some of the Indian state governments have advised the government bodies and several other entities which comes under their jurisdiction to transfer their money to the Public Sector Banks from the Private Sector Banks.
This came after the Yes Bank crisis where the central bank superseded the Board of Yes Bank and also restricted the withdrawls from a bank account.
RBI wrote, “We strongly believe that such a move can have banking and financial sector stability implications,”. It added that the central bank feels “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.”
Through the letter, the RBI is requesting the state governments to reconsider any decision they may have already taken in this regard or are planning to decide on the near future.
The letter said that “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 central bank said that, in the past, the resolution of the weak private sector banks was done in a manner where the depositors are not at loss.
The RBI added, “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,”.