Amid reports of some state government directing lower bodies to transfer their deposited money from private banks to public sector banks, the Reserve Bank of India (RBI) has requested state governments against any steps as it would create unnecessary panic among other depositors.

"We strongly believe that such a move can have banking and financial sector stability implications," the RBI underlined. The central bank also observed that apprehensions about the safety of deposits in private lenders are highly misplaced. The request letter was sent by NS Vishwanathan, Deputy Governor of RBI to the Chief Secretaries of all the states.

Yes bank crisis, the triggering factor

Interestingly, the letter from RBI's deputy governor was dispatched after some reports indicated that some state government has advised government bodies and other entities operating under their jurisdiction to transfer their deposited money from private sector lender to state-owned banks. The trigger of such withdrawal is believed to be the Yes Bank crisis that was superseded by the RBI placed restrictions on withdrawals.

Reserve Bank of IndiaReuters

"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,'' the letter read. It has also requested the state governments to reconsider such a decision they might have taken or under the process of taking any decision.

The Bank further assured that money held with private-sector lenders is completely safe and over time RBI is regulating the same. The letter added, "The Reserve Bank 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."

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A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai, India,Reuters file

Moreover, it also said that the resolution of weak private-sector lenders in the past has been carried out in a manner that the depositors do not lose their money. The letter highlighted, "It is precise 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 finalization of the scheme."