MUMBAI: The Reserve Bank of India has written to chief secretaries of state governments advising them against transferring funds from private sector banks. Apprehension on the safety of deposits in private sector banks is highly misplaced, the letter says asking chief secretaries to reconsider their decision.

“We strongly believe that such a move can have banking and financial sector implications. We would like to point out that the Reserve Bank had adequate powers to regulate and supervise the private sector banks and by using these powers it has assured that the depositors’ money is entirely safe,” RBI said in the letter sent on Thursday which ET has reviewed.

The RBI letter is in response to a ET news report earlier this week that the Maharashtra government had issued an order asking all of its departments and civic bodies in the state to not park money in private banks.

In its letter RBI said that a few other state governments are also contemplating similar action. “We…feel that apprehension on safety of deposits in private sector banks is highly misplaced…we therefore request you to reconsider any decision you might have already taken or are in the process of taking to withdraw/transfer funds deposited by the state government and its entities under your jurisdiction in private sector banks,” RBI said.

Maharashtra chief secretary Ajoy Mehta had told ET that the government had already issued an order asking for all departments and civic bodies to not have deposits in private banks but in nationalized banks.

The Maharashtra government’s move came in response to the collapse of private sector Yes Bank which used to manage some part of government payments and direct benefit funds also in rural areas of the state. More than 100 small banks and cooperatives in the state have deposits in Yes Bank and are now struggling to withdraw it. This has also impacted the state government’s loan waiver for farmers in the state.