The government on Tuesday placed Lakshmi Vilas Bank under one-month moratorium, superseded its board and capped withdrawals at Rs 25,000 per depositor.
The step was taken by the government, on the advice of the Reserve Bank, in view of the declining financial health of the private sector lender.
In a statement, the RBI said in the absence of a credible revival plan, with a view to protect depositors' interest and in the interest of financial and banking stability, there was no alternative but to apply to the central government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949.
"Accordingly, after considering the Reserve Bank's request, the central government has imposed moratorium for thirty days effective from today," it said.
As per the moratorium order, Lakshmi Vilas Bank will not, without RBI's permission, "make, in the aggregate, payment to a depositor of a sum exceeding twenty-five thousand rupees lying to his credit, in any savings, current or any other deposit account, by whatever name called."
T N Manoharan, former non-executive chairman of Canara Bank, has been appointed as the administrator of the bank.
Meanwhile, the RBI has also placed in public domain a draft scheme of amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank.
