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RBI says ‘nothing to fear’ following alarming run on deposits

RBI says ‘nothing to fear’ following alarming run on deposits

(8 March 2020 – India) The Reserve Bank of India (RBI) dispelled fears of bank customers by assuring the safety of their deposits.

Speculation has been rising regarding the poor fiscal health of Indian banks on the basis of deposit versus market capitalisation ratios while concern has been raised about the safety of deposits of certain banks. The RBI placed Yes Bank under moratorium and capped withdrawals in the wake of the collapse of Punjab and Maharashtra Co-operative Bank. Many depositors are yet to access their funds.

A restructuring plan has been launched at short notice by the RBI for Yes Bank that would entail a minimum equity investment by the State Bank of India. The plan is intended to clearly demarcate the entities independently, leaving scope for the state-run lender to extract itself from the investment when it becomes profitable. The banking regulator stressed that the correct way to measure a lenders solvency was its capital to risk weighted assets (RWA) - not the market capitalisation.

Congress leader and former Union finance minister P Chidambaram on Saturday said the Yes Bank situation was caused by ‘mismanagement’ of financial institutions under the BJP government and demanded that the RBI conduct a thorough probe and fix accountability in the matter.

“Concern has been raised in certain sections of media about safety of deposits of certain banks. This concern is based on analysis which is flawed. Solvency of banks is internationally based on Capital to Risk Weighted Assets (CRAR) and not on market cap. RBI closely monitors all the banks and hereby assures all depositors that there is no such concern of safety of their deposits in any bank” the RBI confirmed in a statement.

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