Lakshmi Vilas Bank Moratorium: Should Customers Be Worried Over The Restrictions? Know What To Expect

Lakshmi Vilas Bank Moratorium: The central bank has assured the depositors of LVB that their interest will be fully protected and there is no need to panic.

Image: ANI

Lakshmi Vilas Bank Moratorium: In yet another banking fiasco, customers of the old generation private sector lender Lakshmi Vilas Bank are in for a surprise as the central government has placed the bank on a one-month moratorium period until December 16, 2020. In a span of two years the country has witnessed several banks including IL&FS, DHFL, Yes Bank, PMC Bank, and now Lakshmi Vilas Bank go under. The What does the moratorium order means? It will be the third bank to get rescued by the Reserve Bank of India (RBI) in a period of one year. According to the current order, Lakshmi Vilas Bank will not be allowed to make payments exceeding Rs 25,000 to any creditor without prior approval from the central bank during the time it is under moratorium. Which in this case, is for a month. Why was the moratorium imposed? According to the RBI, the decision to supersede the board was made because of serious deterioration in the financial position of the bank. What does RBI’s decision to supersede the board mean? It means the central bank is aiming to conduct a thorough investigation on the bank’s operations, and an administrator will be appointed. In case of LVB, TN Manoharan, former non-executive chairman of Canara Bank has been appointed as the administrator. This is in lines to what happened on March 5, when RBI has superceded the board of troubled private sector lender YES Bank with immediate effect. In case of Yes Bank, former State Bank of India CFO Prashant Kumar has been appointed as the administrator. Has any other bank customers face the similar issue? On March 5, 2020, a similar moratorium had been imposed on Yes Bank which was later rescued by an SBI-led consortium. What it means for LVB customers? It means that customers cannot withdraw more than Rs 25,000 without the bank getting the written permission from the RBI during the period of moratorium.  In case a person has more than one account, then total withdrawal from all accounts is also limited to the same amount. However, the central bank has assured "the depositors of LVB that their interest will be fully protected and there is no need to panic". It has also mentioned about implementing a scheme for LVB's merger with another bank and stressed that a quick merger would help depositors to claim their money back faster. DBS India will pay depositors of Lakshmi Vilas Bank fully if they do chose not to continue with the lender post merger. What is expected now? Shortly after announcing a moratorium on Lakshmi Vilas Bank, the RBI also unveiled a draft scheme to merge LVB with DBS Bank India Ltd. (DBIL). Announcing this scheme of amalgamation, the RBI said DBIL will bring in additional capital of Rs2,500 crore upfront, to support credit growth of the merged entity.