RBI denies rumours of bank closures after curbs on local lender spark fear

Authorities are scrambling to suppress speculation about bank closures a day after the regulator imposed restrictions on a local lender, the latest indication of how jittery savers are amid a slowing economy and scandals in the financial system.

“Reports appearing in some sections of social media about RBI closing down certain commercial banks are false,” the Reserve Bank of India said in a terse Twitter message on Wednesday.

The nation’s top banking sector bureaucrat elaborated in another tweet.

This is the second time in less than two years that policy makers have had to publicly come out in support of banks, which are grappling with the world’s worst stressed loan ratio and allegations of impropriety. The latest trigger was the imposition of regulatory curbs on regional lender Punjab & Maharashtra Co-operative Bank Ltd., which pushed depositors to swarm branches to withdraw their savings.

While PMC is far smaller than top tier lenders known as ‘commercial banks,’ it is one of the biggest lenders in the second tier known as cooperative banks. At 0.2% of the sector’s total loans, PMC doesn’t immediately pose a systemic risk.

Authorities however seem concerned about an erosion of confidence after the Reserve Bank of India on Tuesday capped withdrawals from PMC at 1,000 rupees ($14) -- just about enough to buy a quarterly train pass in Mumbai -- and barred the lender from fresh lending for six months.

It didn’t offer any reasons for the move but PMC’s Managing Director Joy Thomas told BloombergQuint on Wednesday that the regulator is investigating the bank’s books for bad loans and the bank has enough cash to repay all deposits and other obligations without any support from the government.