In a flip-flop, Odisha govt. retracts advisory on deposits

Move comes after RBI advises it against giving such direction

October 25, 2019 10:07 pm | Updated 10:29 pm IST - Mumbai

HYDERABAD, 16/06/2010: The logo of Reserve Bank of India in Hyderabad.
Photo: P.V. Sivakumar 16-06-2010

HYDERABAD, 16/06/2010: The logo of Reserve Bank of India in Hyderabad. Photo: P.V. Sivakumar 16-06-2010

The Odisha State government retracted its advisory to various departments, cautioning them about depositing funds in banks, after the Reserve Bank of India (RBI), in a strongly worded letter, advised it against giving such directions.

The finance department of the Odisha government, in a communication to various departments on October 21, had cautioned them about depositing government funds in empanelled banks.

Citing media reports about the ‘health’ of banks and reminding that deposits are insured only up to ₹1 lakh, the State government said, “government departments, PSUs, or agencies have to be very careful while keeping deposits in any banks and proper enquiry about the financial health of the concerned bank for making any deposit must be made. It shall be the personal responsibility of the concerned authority for such deposit.” The advisory had not gone down well with the RBI, which had given assurance about the safety of the Indian banking system many a time in the recent past, particularly in the aftermath of the restrictions on deposit withdrawal imposed on Punjab and Maharashtra Cooperative Bank

In a strongly worded note, the RBI warned that such advisories coming from public authority may create unnecessary misgivings among public and could have unintended consequences for the financial system stability.

This prompted the State government to issue a clarification saying it does not have any view on the health of any particular bank. “That comes under the domain of RBI. There is no reason for anyone to get apprehensive about the financial health of banks in general,” it said.

However, the latter also said the October 21 advisory was only meant to avoid opening of new accounts and shifting of government funds meant for welfare and developmental activities of government without any reason from one bank to another.

“Further, it may be noted that drawal of government funds from state treasury and parking the same in banks for a long period without adequate justification causes loss to the state exchequer, which should be avoided,” it said.

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