The government on Tuesday placed Lakshmi Vilas Bank under a one-month moratorium and capped withdrawals at Rs 25,000 per depositor. In view of the declining financial health of private-sector lenders, the government, on the advice of the Reserve Bank, has taken this decision.

In a statement, the RBI said in the absence of a credible revival plan, with a view to protecting 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.

It said that, "Accordingly, after considering the Reserve Bank's request, the Central Government has imposed moratorium for thirty days effective from today."

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, Canara Bank's former non-executive chairman, was appointed as the bank's administrator. Meanwhile, the RBI has also put a draft scheme for the amalgamation of Lakshmi Vilas Bank (LVB) with DBS Bank of India and aims to complete the merger process before the moratorium period ends.

RBI said that "The financial position of Lakshmi Vilas Bank Ltd has undergone a steady decline with the bank incurring continuous losses over the last three years, eroding its net worth. In absence of any viable strategic plan, declining advances and mounting non-performing assets (NPA), the losses are expected to continue."