New Delhi: In a reminder of stressed banks like the Yes Bank and Punjab and Maharashtra Cooperative Bank (PMC Bank), the Government Tuesday imposed a cap of Rs 25,000 on withdrawal from Lakshmi Vilas Bank for a period of one month.
The Tamil Nadu based bank has been struggling for quite some time and was placed under prompt corrective action by the Reserve Bank of India in September last year due to increase in the bad loans or non-performing assets (NPAs).
In a gazette notification issued by the banking division of the department of financial services under the ministry of finance, the government said the ‘moratorium in respect of the Lakshmi Vilas Bank Limited, Karur, Tamil Nadu will come into effect from 6:00 pm Tuesday (November 17, 2020) and will be in force till December 16, 2020’.
The government said that during the moratorium period, the Lakshmi Vilas Bank, without the written permission from the Reserve Bank of India, shall not pay more than Rs 25,000 to any depositor from current, saving or any other account.
The government also clarified that if an account holder maintains more than one account even then he will not be able to withdraw more than Rs 25,000.
In September this year, a group of shareholders of the bank voted out 7 directors, including the MD & CEO and statutory auditors, from the bank in a virtual annual general meeting.
The development sent shock waves through the banking circle. Later, the group of shareholders appointed a three-member committee of directors (CoD) to run the day-to-day affairs of the bank.
Also read: Loan moratorium: RBI urges SC to lift interim order banning declaration of NPAs
Reserve Bank of India later approved the committee of directors comprising a retired IAS officer Shakti Sinha, Meeta Makhan and Satish Kumar Kalra, a former executive director of Andhra Bank. Meeta Makhan was appointed the head of the committee of directors.
What moratorium means for LVB customers?
A moratorium simply means that the depositors will not be able to withdraw money beyond a certain limit as the authorities fear large scale withdrawal from the concerned bank that will destabilise its integrity and operations.
In this case, the ceiling of Rs 25,000 is applicable during the entire period of one month and it’s not a daily limit imposed on the withdrawals from the bank.
The government, however, allowed withdrawal of more than Rs 25,000 from the bank in special cases such as medical expenses, education and marriage related expenses of depositors and their dependents. In such cases, depositors will be able to withdraw only up to Rs 5 lakh to meet such expenses with the prior approval of the Reserve Bank of India which can authorise the bank through a general or special order.
The government also clarified that if a bank draft of a higher value has already been issued by the bank but remained unpaid, then the ceiling of Rs 25,000 on the said draft will not be applicable.
Through the gazette notification, the government also stayed the commencement or continuation of any proceeding against the Lakshmi Vilas Bank for one month.
Yes Bank, PMC Bank crisis
Lakshmi Vilas Bank is not the only bank which has faced such a serious crisis in recent times. In March this year, the Reserve Bank of India imposed a moratorium on withdrawal from the Yes Bank, founded by high profile Rana Kapur.
The RBI also superseded the board of Yes Bank but decided not to merge the beleaguered bank with a public sector lender. The RBI, however, allowed an SBI led consortium to take over and manage the Yes Bank.
In September last year, the Reserve Bank had imposed a daily withdrawal limit of Rs 1,000 on the customers of Mumbai based Punjab and Maharashtra Cooperative Bank (PMC Bank) for six months, which was later raised to Rs 25,000.
The Enforcement Directorate also registered a money laundering case against the bank.
