The Reserve Bank of India (RBI) has asked all State governments to refrain from shifting their deposits from private sector banks to government banks.
The move came after the Maharashtra government directed all its departments, civic bodies and semi-government corporations not to transact with private banks after private sector lender Yes Bank was put on moratorium last week.
Observing that some other State governments were also contemplating such a move, the RBI, in a strongly-worded letter to all chief secretaries of the States, said apprehension regarding safety of deposits in private sector banks was highly misplaced and such reactions would not be in the interest of the financial stability of the banking system. “We strongly believe that such a move can have banking and financial sector stability implications,” the letter said.
“We would like to point out that the Reserve Bank has adequate powers to regulate and supervise private sector banks and by using these powers it has ensured depositors’ money is entirely safe. It is pertinent to mention that the resolution of weak private sector banks in the past has been done in a manner that the depositors are not put at a loss.
“It is precisely with the view to retaining depositors’ confidence in private banks and their mitigating their hardship that, after the imposition of moratorium on Yes Bank Ltd., the RBI has drawn up the draft scheme without any delay, and we are making every effort for the finalisation of the scheme,” RBI said.
