The central government on Tuesday placed the Tamil Nadu-based private sector lender Lakshmi Vilas Bank under a moratorium, capping withdrawals from its customers' accounts at Rs 25,000 a month, the Ministry of Finance said in a statement. However, depositors will be allowed to withdraw more than Rs 25,000 with permission from the Reserve Bank of India for purposes such as medical treatment, payment of higher education and marriage expenses, the ministry said.
The government took the step on the Reserve Bank of India's advice in view of the bank's deteriorating financial health.
In a separate statement, the RBI said that in the absence of a credible revival plan, there was no alternative but to apply to the central government for imposing a moratorium under Section 45 of the Banking Regulation Act, 1949, in order to protect the interest of its depositors and to ensure financial and banking stability.
Lakshmi Vilas Bank shares ended 1 per cent lower at Rs 15.50 apiece on the BSE earlier on Tuesday.
Lakshmi Vilas Bank, which needed capital urgently due to its worsening asset quality, has been scrambling to find a buyer for the past one year. It was reportedly in talks with Clix Capital for capital infusion and a possible merger.
The troubles for the bank started in 2019 when the RBI rejected a proposal for its merger with shadow lender Indiabulls Housing Finance.
Last month, Laksmi Vilas Bank founder, KR Pradeep, told news agency Bloomberg that there was no liquidity problem. He said they had a liquidity coverage ratio of 260 per cent as against the required 80 per cent.
In September, the central bank had appointed a three-member committee under banker Meeta Makhan to run the cash-strapped private sector lender, after its shareholders voted out seven of its directors.