Taxation

Lakshmi Vilas Bank Moratorium: Central Government Order

06 Sep, 2022

With a view of reducing the amount of withdrawals in the private sector, the Central Government has placed the private sector lender Lakshmi Vilas Bank under the scheme of the moratorium. This scheme of the moratorium would be operative from 17 November 2020 for a period of one month till 16 December 2020.

What are the main objectives of placing Lakshmi Vilas Bank (LVB) in Moratorium?

After consultation with the Reserve Bank of India (RBI) the Central Government has taken major steps to place this bank under the scheme of moratorium.

The following are the main objectives of placing LVB in Moratorium:

To ensure that the interests of depositors is protected;
To increase the amount of liquidity in the financial services sector; and
To ensure that an amount more than Rs 25,000 /- cannot be withdrawn without the consent of the Central Bank (RBI).

What was the order on?

The Central Government issued the order in consultation with the RBI to place all the accounts operating under Lakshmi Vilas Bank^[1] under the scheme of moratorium.

The following order was considered under this scheme:

Under no circumstance will the bank without the prior consent of the RBI make any form of aggregate payments to any depositor;
If the payments are made to the depositor, then the sum must not exceed Rs 25,000/-;
This payment would be applicable for any form of account such as the savings account or current account or the deposit account;
Such directions related to the Moratorium order was made under section 45 of the Banking Regulation Act, 1949; and
The scheme of Moratorium on this private sector lender would be operative for a period of one month beginning 17 November 2020 to 16 December 2020.

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Are there any forms of exclusions related to the Moratorium placed on Lakshmi Vilas Bank?

Yes there are few exemptions available for depositors if they consider taking consent from the Reserve Bank of India (RBI) to meet some form of emergency or extraordinary expenses such as:

Medical Treatments;
Payments for any Higher Studies; and
Marriage Expenses.

What is the reaction caused to public due to this Moratorium?

As a result of this order on Lakshmi Vilas Bank, public depositors would be affected drastically. They would not be allowed to take out any deposits for any sum more than Rs.25, 000/-.

There is no plan for financial stability related to this private sector lender. Hence the government has placed this bank under moratorium.

The Central Government has also considered discussions between Lakshmi Vilas Bank (LVB) and DBS Bank India Ltd (DBIS) a banking company which is incorporated under the provisions of the Companies Act, 2013^[2]. Such scheme of amalgamation is placed between both parties for any comments and objections.

Conclusion

The government brought out a moratorium order to protect the private sector major Lakshmi Vilas Bank as it is facing liquidity crisis. With a view to protect the interest of depositors the government brought out this decision in consultation with the RBI. Some of the reasons for doing this are to protect the depositor’s interest. Under this order, depositors are not allowed to withdraw an amount more than Rs 25,000/- from any account. This order would be for a period of one month. With such order the government has also placed this bank in discussions with DBIS for amalgamation. This order will improve the financial position of this lender.

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