The Reserve Bank of India (RBI) has asked state governments not to transfer their deposits out of private sector banks saying apprehensions about the safety of deposits in private lenders are highly misplaced.
In a letter written to chief secretaries of all states, the central bank said moving deposits out of private sector banks could have implications for banking and financial sector stability.
The letter came after reports suggested that some state governments have advised government bodies and other entities under their jurisdiction to transfer their funds held with private sector banks to public sector lenders. This follows the crisis at Yes Bank where the RBI has superseded the bank’s board and placed restrictions on withdrawals.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.”