Money & Banking

YES Bank effect: RBI tells States not to transfer cash from private banks

Our Bureau Mumbai | Updated on March 12, 2020

Central bank says withdrawal of big-ticket deposits can have implications for the stability of the banking and financial sector

In the wake of the YES Bank crisis, the Reserve Bank of India and the government are understood to have impressed upon State governments that private sector banks continue to be safe avenues to park money.

Concerned that many State government agencies are transferring deposits to public sector banks after the moratorium on YES Bank, sources said the RBI has written to the States to assuage worries about private sector lenders.

The move comes after some State governments, such as Maharashtra, issuing instructions to their departments and civic bodies to not transact with private banks after the YES Bank crisis. Some other States and civic bodies are also discussing such a move. The funds of many civic bodies in Maharashtra as well as those of temple administration bodies, such as the Puri Jagannath Temple, are also lying with YES Bank.

The RBI moratorium on the bank and the cap of ₹50,000 on withdrawals per depositor are affecting these depositors.

In a letter to the Chief Secretaries of States, the RBI is understood to have asked them to also reconsider any move to transfer or withdraw funds deposited by them or their entities in private banks.

According to sources, the RBI has pointed out that withdrawal of such big-ticket deposits can also have implications for the stability of the banking and financial sector.

The RBI has assured them that it has adequate powers to regulate and supervise private banks and that depositors’ money is safe.

In the past, too, the RBI has undertaken resolution of private sector banks without endangering depositors’ money.

The central bank is also understood to have stressed that it is working on the reconstruction plan for YES Bank to retain the confidence of depositors and mitigate their hardships.

Published on March 12, 2020

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