• The RBI, the regulatory body overseeing the country’s financial system, 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• Usually, there is a ceiling that limits the amount of money that can be withdrawn by the bank’s customers
• The regulator allows for funds of a larger quantum to be withdrawn in case of an urgent requirement, such as medical emergencies, but only after the depositor         provides the required proof.
• Often, the moratorium is lifted even before the originally stipulated deadline is reached.
• A moratorium primarily helps prevent what is known as a ‘run’ on a bank, by clamping down on rapid outflow of funds by wary depositors, who seek to take their money out in fear of the bank’s imminent collapse.
• Temporarily, it does affect depositors who may have placed, for example, their retirement with the bank, or creditors who are owed funds by the bank but are           struggling with the collection.
• A moratorium gives both the regulator and the acquirer time to first take stock of the actual financial situation at the troubled bank.
• It allows for a realistic estimation of assets and liabilities, and for the regulator to facilitate capital infusion
• A key objective of a moratorium is to protect the interests of depositors.
• The safety of funds depends on whether the struggling bank or the regulator is able to find acquirers or investors to save the day.
• In the case of Yes Bank, the RBI was able to bring in investors who infused adequate funds. With Lakshmi Vilas Bank, the regulator had a ready acquirer with a sound capital base in DBS Bank India. In the case of Punjab and Maharashtra        Co-operative Bank, which is headquartered in Mumbai, the moratorium — despite being gradually relaxed for depositors — is still in force, over a year after it was      imposed, and there is still no sign of a buyer.

(THE HINDU)