M'rashtra orders closure of all accounts in Pvt banks by Mar 31

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SME Times News Bureau | 13 Mar, 2020
Cracking the whip, the Maharashtra government on Friday ordered closing of all accounts in private and cooperative banks and shifting them to public sector banks (PSBs).

A notification to this effect was issued here asking all government departments, state public sector undertakings and autonomous bodies to comply by the month-end.

The move came two days after one government department -- National Cyclone Risk Mitigation Project -- was ordered to close its accounts with Axis Bank and shift it to the State Bank of India.

The move came a week after the Yes Bank crisis erupted and it came to light that Rs 1,125 crore of three civic bodies was stuck in the bank.

The government has directed shifting of all salary, pension and other accounts to one of the 11 nationalised banks by April 1, as part of the efforts to ensure safety and security of public funds.

Interestingly, the move came a day after the Reserve Bank of India had sent an appeal to all state governments to reconsider any moves to close their accounts with private banks and shifting them to PSBs.

Justifying the move, the state has cited two reasons, one being that all Central government schemes would be processed through nationalised banks.

Ironically, the order also refers to the RBI's directive on October 31, 2019 to switch accounts to nationalised bank.

Banking sources revealed that there was a virtual flood of deposits coming into government banks, particularly the SBI, after the RBI moratorium was slapped on Yes Bank.

The RBI'S letter to states said that such a move (to shift accounts from private banks to PSBs) could have implications on banking and financial stability.

"We would like to point out that the RBI has adequate powers to regulate and supervise the private banks and by using these powers it has ensured that the depositor's money is entirely safe," the RBI had said.

It further sought to allay states' apprehensions by pointing out that the regulation works in a way to ensure that depositors money is entirely safe.

"It is precisely to retain depositors' confidence in private sector banks and mitigate their hardship that after the imposition of a moratorium on Yes Bank, the RBI has drawn up a draft scheme without delay and we are making every effort to the finalisation of the scheme," the central bank said.

It is expected that all state departments, public corporations, civic bodies and autonomous bodies will shift their accounts from private banks to PSBs over the next couple of weeks.