Citing risks, Odisha babu asks govt depts to not keep money in

A bureaucratic missive cautioning government departments in Odisha against parking money in banks because of potential risks has irked the Reserve Bank forcing it to flag the problem of spreading messages that create panic among the public. The Reserve Bank's response led AKK Meena, the principal secretary to the government of Odisha, to issue a clarification on Friday, making it clear that the state government does not have any view on the fiscal health of any banks in the state.

The episode, which began with Meena's letter dated Monday to all government departments, comes within weeks of the Mumbai-based cooperative lender PMC Bank being put under restrictions by RBI, and also speculation about the frail health of many other financial institutions. On Monday, Meena had written to government departments, drawing attention to adverse newspaper reports about fiscal health of banks and asked them to be careful while keeping deposits in any bank.

He also warned that it "shall be the personal responsibility of the authority concerned" making deposits, and advised all the departments to circumvent the banking system while paying for government expenditure by directly utilising funds in the treasury. An RBI official responded to the same on Friday, saying, "you will agree that such advisories on the financial health of banks 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." Banks play an important role in a state's development by supporting government schemes and it is "ironic" that while the banks are expected to deploy resources in the state, "communication by the principal secretary exhorts departments to be circumspect about placing government funds in banks", the letter said.

"We are deeply concerned that such a communication has indeed been issued by the Odisah government," the letter concluded, seeking appropriate corrective action. In a swift response, principal secretary Meena clarified on Friday, saying, "there is no reason for anyone to get apprehensive about the financial health of the banks in general", conceding that it is the RBI's remit and not theirs.

He said the circular issued this Monday was aimed at avoiding opening of new accounts by officials and shifting of government funds without any reason from one bank to another. PTI AA BEN BEN.