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, thecentral bank said moving deposits out of private sector banks could haveimplications for banking and financial sector stability.
The letter came after reports suggested that some stategovernments have advised government bodies and other entities under theirjurisdiction to transfer their funds held with private sector banks to publicsector lenders. This follows the crisis at Yes Bank where the RBI hassuperseded the bank’s board and placed restrictions on withdrawals.
“We strongly believe that such a move can have bankingand financial sector stability implications,” the RBI wrote. “We feelthat apprehension on the safety of deposits in private sector banks is highlymisplaced and will not be in the interest of stability of the financial systemin general and the banking system in particular.”