Odisha Revises Order Of ‘Caution’ On Banks After RBI Expresses Concern
The RBI expressed concern at the advisory by Odisha government that asked its units to be cautious about where they park deposits.
The Odisha government has revised an earlier advisory asking its departments to exercise caution in parking deposits with banks, in light of “apprehensions” raised in some quarters about the safety of deposits.
The first advisory, dated Oct. 21, was intended to ask government departments to avoid shifting of deposits from one bank to another unless necessary. The preamble to the order, however, stated that the advisory was partly in light of questions and concerns raised by some media reports on the fiscal health of banks.
The wording of the government, coming from a government department, raised eyebrows.
According to a person familiar with the matter, the Reserve Bank of India expressed concern over the advisory. Such advisories coming from a responsible public authority may create unnecessary misgivings among the general public and may have unintended consequences for the stability of the financial system, the central bank communicated to the Odisha government, the person quoted above told BloomberQuint on condition of anonymity.
This prompted the Odisha government to issue a revised order dated Oct. 25.
The revised order said that the state government doesn’t have any view on the fiscal health of any particular bank—which is the domain of the Reserve Bank of India. “There’s no reason for anyone to get apprehensive about the financial health of banks in general.”
The Indian banking sector has faced a series of challenges, which has dented confidence. Both public and private sector banks have faced a surge in bad loans over the last few years due to large corporate loans. Instances such as the Nirav Modi-fraud have also come to light. Most recently, an alleged scandal at Punjab and Maharashtra Co-operative Bank Ltd emerges, where its former managing director admitted that loan amounts worth up to Rs 6,500 crore was granted to Housing Development & Infrastructure Ltd. in violation of norms.
In order to quell concerns about the safety of the Indian banking system, the RBI issued a rare statement assuring stakeholder of the safety and stability in the Indian banking system. “There are rumours in some locations about certain banks including cooperative banks, resulting in anxiety among the depositors. RBI would like to assure the general public that Indian banking system is safe and stable and there is no need to panic on the basis of such rumours,” the central bank said.