Chaos and confusion prevailed in many branches of Lakshmi Vilas Bank (LVB) as depositors and customers thronged to bank branches and ATMs.

In Karur, which is the registered headquarters of LVB, the bank staff received police protection after depositors went unruly. The bank has 563 branches and 974 ATMs.

Another worry for depositors is about the interest earnings on their deposits. The bank has about Rs 14,000 crore of term deposits, who may lose out on their interest dues as they shift to DBS with lower rates of interest. LVB has fixed deposit rates of around 7%, while DBS term deposit rates range around 4% for the one-year deposits.

On Tuesday, the Reserve Bank of India (RBI) had imposed a one-month moratorium on LVB and proposed merging it with DBS Bank India as the troubled bank was found to have no credible revival plan. Depositors were allowed to withdraw up to a maximum of Rs 25,000. For special purposes the withdrawal cap was Rs 5 lakh but customers had to submit proof at the bank branch.

The bank's RBI-appointed administrator TN Manoharan said at an earlier press conference, "I have been appointed to see to it that all the interests of the employees and depositors are taken care of." On interest rates he said that it is the call of the acquiring bank which will be looked into later.

Karur has a business community and a withdrawal limit of Rs 25,000 for a month is too low, many depositors said. Many cheques issued by current account holders are getting returned. Worse, this is the marriage season and families have the requirement to withdraw cash for meeting expenses.

"I know a friend who has a current account with the bank. Four of his post-dated cheques were not honoured. I have Rs 7 lakh, which is maturing in 2021, but I haven't gone to the bank to withdraw. I am a retired person. The sudden decision of the central bank has taken everyone by surprise," a depositor told Indianbankingnews.com on condition of anonymity.

"We have given police protection to two branches in our jurisdiction after depositors turned unruly. We are not blaming anyone, but the business community cannot survive with Rs 25,000 a month," said a policewoman attached to the Karur police station.

Confusion also prevailed at certain bank branches on the outskirts of Chennai as depositors wanted a larger sum of money. "Technically I can withdraw Rs 5 lakh, but an application has to be submitted to the branch with a proof of an impending marriage, education purpose, or medical need. Then it gets whetted by the RBI, after which I may get my money," said a senior citizen.

On the first day of the moratorium Rs 10 crore deposits were withdrawn.

LVB was put under moratorium as its "financial condition was rapidly deteriorating. "In the absence of any viable strategic plan, declining advances and mounting non-performing assets (NPAs), the losses are expected to continue. The bank has not been able to raise adequate capital to address issues around its negative net-worth and continuing losses," the RBI has said, citing severe governance issues at LVB.

The RBI has requested LVB and DBS Bank India to send in their suggestions and queries over the amalgamation by 5 pm on Friday. The central bank will take a final view on the situation after taking into consideration the feedback.

DBS Bank has been present in India for 26 years, having opened its first office in Mumbai in 1994. DBS Bank India Limited was one of the first foreign banks in India to start operating as a wholly owned, locally incorporated subsidiary of a global bank. It has 34 branches in 24 cities.