BHUBANESWAR:  With pressure mounting on the State Government for transfer of its deposits in Yes Bank to nationalised banks, the Reserve Bank of India (RBI) has advised the State against it for adverse implications on financial sector stability.

In a letter to Chief Secretary Asit Tripathy, Deputy Governor of the central bank NS Vishwanathan requested the State Government to reconsider withdrawal of deposits from private banks as such a move will shake the confidence of the public in the banking sector.

Noting that the apprehensions about safety of deposits in private lenders are highly misplaced, he said it will not be in the interest of stability of the financial system in general and the banking system in particular. The letter came after media 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 This follows the crisis in Yes Bank where the RBI has superseded the bank’s board and placed restrictions on withdrawals.

“We strongly believe that such a move will have banking and financial sector stability implications,” the RBI letter said. The RBI Deputy Governor said the RBI 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.
“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,” he added.