The RBI had barred SIFCL, which has about 4.5 crore account holders, from taking fresh deposits.
State Chief Secretary Atul Kumar Gupta, in a fresh communication to the RBI dated June 6, said that the matter was reconsidered and Uttar Pradesh was of the view that RBI is the competent authority to take a final decision on the matter.
"In view of the above, my earlier letter... Be treated as withdrawn," he said, adding that "the bank may take all further necessary actions as it may deem fit and proper."
Gupta had, in his first letter, said, "Depositors will have serious apprehensions about the possible alienation of assets, jeopardising the security of their deposits. It appears, therefore, that even though the RBI order has been passed to protect the interests of depositors, it is not doing enough."
The state government had also feared a possible law and order problem arising from the ban.
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"If the depositors panic, which appears almost a certainty, it is certain to create a law and order situation," Gupta had written to RBI Executive Director G Gopal Krishnan on June 4.