Moratorium slapped on Lakshmi Vilas Bank, Rs 25,000 cap imposed: What it means for customers

The government on Tuesday imposed moratorium on Lakshmi Vilas Bank (LVB) and capped cash withdrawal at Rs 25,000 in a month. The step was taken on the advice of the Reserve Bank in view of the private sector bank's deteriorating financial health. The Central bank has suspended the board of Lakshmi Vilas Bank (LVB) and appointed T N Manoharan, former non-executive chairman of Canara Bank, as its administrator for 30 days.  

The RBI placed in the public domain a draft scheme of amalgamation of LVB with DBS Bank India Ltd (DBIL).  DBS Bank India, in a statement, said the proposed amalgamation will provide stability and better prospects to LVB's depositors, customers and employees.  

"To support the amalgamation, DBS will inject Rs 2,500 crore (SGD 463 million) into DBIL if the scheme is approved. This will be fully funded from DBS' existing resources," it said.  

LVB is the second private sector bank after Yes Bank which has run into rough weather during this year. The recent developments are likely to have depositors concerned. However, no depositors are likely to lose their money in this case. The RBI has announced that no depositor will lose their money and it will be available for withdrawal post the moratorium. 

It has also clarified that customers’ fixed deposits will be safe but interest rates on these deposits may vary a little bit as its new owner DBS will decide on rates.  

In terms of the provisions of the Banking Regulation Act, the Reserve Bank has drawn up a scheme for the bank's amalgamation with DBIL. 

With the approval of the central government, the RBI will "endeavour to put the Scheme in place well before the expiry of the moratorium" and thereby ensure that the depositors are not put to undue hardship or inconvenience for a period of time longer than what is absolutely necessary, it said.