Moratorium demystified

GTB CRISIS

In a moratorium, the Reserve Bank of India (RBI) imposes a freeze on a bank's liabilities. There is a restriction on all banking activities.

Depositors, too, are restricted from withdrawing all their money. In the case of GTB, the RBI has allowed depositors to withdraw only up to Rs 10,000.

This, however, is not the first case of its kind.

The RBI had earlier frozen the operations of banks and merged sick banks with healthy banks to protect depositors' interests.

In 2002 the Centre had imposed a moratorium on the depositors of Nedungadi Bank, which was later merged with Punjab National Bank (PNB). In this merger, the value of the shares of Nedungadi Bank was put at zero.

A moratorium was imposed on the depositors of Benares Bank in Uttar Pradesh in 2000. The bank was later merged with Bank of Baroda.

In 1993, the government had imposed a moratorium on the depositors of New Bank of India. The bank was later merged with PNB.

In early 1990s, Lakshmi Commercial Bank also faced a moratorium because of its bad financial condition. The bank was later merged with Canara Bank.

Similarly, the Hindustan Commercial Bank faced a moratorium in 1988 and it, too, was merged with PNB.

Before the nationalisation of banks in 1969, the Indo Commercial Bank met the same fate in early 1960s. The bank was merged with PNB.

The Bank of Thanjavur in Tamil Nadu faced a similar fate in late 1980s.

The bank was later merged with Indian Bank.

In the 1990s, Karur Central Bank of Kerala also defaulted in meeting its liabilities and the government put it under moratorium. Later it was merged with Bank of India.