A video explainer on moratoriums which can be imposed on banks’ operations by the government
On November 17, the Centre, acting on the recommendation of the Reserve Bank of India, imposed a moratorium on Lakshmi Vilas Bank for a period of 30 days.
The 94-year-old bank has been struggling with losses for three years.
What is a moratorium?
The RBI has the power to ask the government to have a moratorium placed on a bank’s operations for a specified period of time. Under such a moratorium, depositors will not be able to withdraw funds at will.
Usually, there is a ceiling that limits the amount of money that can be withdrawn by the bank’s customers.
In the case of Lakshmi Vilas Bank, depositors cannot withdraw more than ₹25,000 during the one-month moratorium period.
In most cases, the regulator allows for funds of a larger quantum to be withdrawn in case of an urgent requirement but only after the depositor provides the required proof.
Often, the moratorium is lifted even before the originally stipulated deadline is reached.