The Centre on Tuesday imposed a withdrawal cap for depositors of Lakshmi Vilas Bank at Rs 25,000 per person, after placing the institution under a one-month moratorium and suspending its board.

In view of the plummeting financial health of the financial lender, the Reserve Bank of India had advised the government to take the decision.

The RBI in a statement said in the unavailability of a substantial revival plan, with a view to protect depositors’ interest and keeping in mind the financial stability of banking, there was no other way but to urge the government to introduce a moratorium under Section 45 of the Banking Regulation Act, 1949.

"Accordingly, after considering the Reserve Bank's request, the Central Government has imposed a moratorium for thirty days effective from today," the statement read.

As per the directions in the moratorium, Lakshmi Vilas Bank will not "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," without the RBI’s permission.

Former non-executive chairman of Canara Bank TN Manoharan has been appointed as the administrator of Lakshmi Vilas Bank.

The RBI has also publicly introduced a draft scheme proposing the merging of Lakshmi Vilas Vilas Bank (LVB) with DBS Bank.