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About Local Area Banks :
Local Area Banks (LABS) as an idea was conceived in 1996. The then Finance Minister delivering the budget
speech on the 22nd July 1996 said that “it has been agreed with RBI to promote the setting up of new private local area banks
with jurisdiction over two or three contiguous districts. This would enable the mobilisation of rural savings by local institutions and,
at the same time, make them available for investments in the local areas.”
Following the announcement of the Finance Minister the Reserve Bank of India (RBI) released a set of guidelines for setting up local area banks in the private sector in August 1996.
Key Features of the Local Area Banks
Each local Area bank is registered as a public limited company under the Companies Act, 1956. However, they are licensed under the Banking Regulation Act, 1949.
The Local Area Banks are the only type of Non-scheduled Banks of India.
However, they are eligible to be included in the Second Schedule of the RBI Act 1934 subject to eligibility criteria of RBI.
Local Area Banks have jurisdiction over a maximum of three contiguous districts, and their basic function is to mobilise funds in rural and semi-urban areas. The minimum start-up capital of a LAB was fixed at Rs.5 crore and the promoters were asked to bring entire minimum share capital up-front. The promoters could be individuals, firms or societies. The family of the individual promoters was not allowed to keep more than 40% of the equity capital of the banks. The NRI promoters could not exceed more than 20% of total number of promoters.
An LAB should maintain a minimum capital adequacy ratio of 15%. The SLR of Local Area Banks are reduced from 25% to 23% effective from August 2012
The Local Area banks are subject to prudential norms, accounting policies and other policies as stipulated by the RBI. Such a bank has to maintain capital adequacy at 8% of risk weighted assets and comply with the norms of income recognition, asset classification and provisioning since inception.
These LABs are categorized under private sector and included in the second schedule of RBI Act, 1934.
LABs irrespective of their limited scope of operation are allowed to conduct all the functions of a scheduled commercial bank.
The Raghuram Rajan Committee, in 2009 decided to promote more local area banks in order to spur the financial inclusion drive by Central government and Ministry of Finance.
By the performance of Capital Local Area Bank – the most successful Local Area Bank was chosen for a detailed analysis. The objective was to examine how it performed on the stringent requirements of ownership 14 structure, governance and professional management. Capital LAB was chosen because it stood out as a significantly different bank amidst the other three LABs.
List of Local Area Banks in India
1. Coastal Local Area Bank Ltd – Vijayawada ( Andhra Pradesh)
( Established in Dec, 1999 )
Coastal Bank is the first Local Area Bank approved by the Reserve Bank of India in 1999. The Bank is a private bank established under the Companies Act and is directly regulated by RBI.
2. Capital Local Area Bank Ltd – Jalandhar (Punjab)
CLAB established in Jan 2000 in Nakodar, Punjab.
Capital Local Area Bank Limited, the largest Local Area Bank in the country.
The # 1 Local Area Bank in India.
Ranked #1 in Banking sector amongst India’s Best Companies to work for 2015 by 'Great Place To Work'
The Bank has been operating in the three contiguous Districts of Jalandhar, Kapurthala and Hoshiarpur in Punjab. In January 2013, the Reserve Bank of India accorded the approval for expansion in the area of operation of the Bank to two more Districts of Ludhiana and Amritsar in Punjab.
Total number of branches: 39 branches (18 rural, 15 semi urban, 4 urban and 2 metropolitan) All its branches are fully computerized.
Upcoming branches: 10
3. Krishna Bhima Samruddhi Local Area Bank Ltd, Mahbubnagar (Andhra Pradesh)
( Established in 2001)
At present, the bank operates in six districts in three states viz. Telangana, Andhra Pradesh and Karnataka. Although the regulation currently allows a LAB to operate in 5 districts, the 6th district is an outcome of administrative split of the erstwhile district of Gulbarga into Yadgir and Gulbarga. It is promoted by BASIX Group
Total number of branches: 19 and 40 Business Correspondent Outlets spread across the districts.
4. Subhadra Local Area Bank Ltd., Kolhapur (Maharashtra)
( Established in 2003 )
At present Total number of Branches : 10
Out of 6 Local Area Banks only 4 mentioned above are operational
In 2004, South Gujarat LAB was merged with Bank of Baroda.
RBI has cancelled the license of Vinayak Local Area Bank.
Local Area Banks (LABS) as an idea was conceived in 1996. The then Finance Minister delivering the budget
speech on the 22nd July 1996 said that “it has been agreed with RBI to promote the setting up of new private local area banks
with jurisdiction over two or three contiguous districts. This would enable the mobilisation of rural savings by local institutions and,
at the same time, make them available for investments in the local areas.”Following the announcement of the Finance Minister the Reserve Bank of India (RBI) released a set of guidelines for setting up local area banks in the private sector in August 1996.
Key Features of the Local Area Banks
Each local Area bank is registered as a public limited company under the Companies Act, 1956. However, they are licensed under the Banking Regulation Act, 1949.
The Local Area Banks are the only type of Non-scheduled Banks of India.
However, they are eligible to be included in the Second Schedule of the RBI Act 1934 subject to eligibility criteria of RBI.
Local Area Banks have jurisdiction over a maximum of three contiguous districts, and their basic function is to mobilise funds in rural and semi-urban areas. The minimum start-up capital of a LAB was fixed at Rs.5 crore and the promoters were asked to bring entire minimum share capital up-front. The promoters could be individuals, firms or societies. The family of the individual promoters was not allowed to keep more than 40% of the equity capital of the banks. The NRI promoters could not exceed more than 20% of total number of promoters.
An LAB should maintain a minimum capital adequacy ratio of 15%. The SLR of Local Area Banks are reduced from 25% to 23% effective from August 2012
The Local Area banks are subject to prudential norms, accounting policies and other policies as stipulated by the RBI. Such a bank has to maintain capital adequacy at 8% of risk weighted assets and comply with the norms of income recognition, asset classification and provisioning since inception.
These LABs are categorized under private sector and included in the second schedule of RBI Act, 1934.
LABs irrespective of their limited scope of operation are allowed to conduct all the functions of a scheduled commercial bank.
The Raghuram Rajan Committee, in 2009 decided to promote more local area banks in order to spur the financial inclusion drive by Central government and Ministry of Finance.
By the performance of Capital Local Area Bank – the most successful Local Area Bank was chosen for a detailed analysis. The objective was to examine how it performed on the stringent requirements of ownership 14 structure, governance and professional management. Capital LAB was chosen because it stood out as a significantly different bank amidst the other three LABs.
List of Local Area Banks in India
1. Coastal Local Area Bank Ltd – Vijayawada ( Andhra Pradesh)
( Established in Dec, 1999 )
Coastal Bank is the first Local Area Bank approved by the Reserve Bank of India in 1999. The Bank is a private bank established under the Companies Act and is directly regulated by RBI.
2. Capital Local Area Bank Ltd – Jalandhar (Punjab)
CLAB established in Jan 2000 in Nakodar, Punjab.
Capital Local Area Bank Limited, the largest Local Area Bank in the country.
The # 1 Local Area Bank in India.
Ranked #1 in Banking sector amongst India’s Best Companies to work for 2015 by 'Great Place To Work'
The Bank has been operating in the three contiguous Districts of Jalandhar, Kapurthala and Hoshiarpur in Punjab. In January 2013, the Reserve Bank of India accorded the approval for expansion in the area of operation of the Bank to two more Districts of Ludhiana and Amritsar in Punjab.
Total number of branches: 39 branches (18 rural, 15 semi urban, 4 urban and 2 metropolitan) All its branches are fully computerized.
Upcoming branches: 10
3. Krishna Bhima Samruddhi Local Area Bank Ltd, Mahbubnagar (Andhra Pradesh)
( Established in 2001)
At present, the bank operates in six districts in three states viz. Telangana, Andhra Pradesh and Karnataka. Although the regulation currently allows a LAB to operate in 5 districts, the 6th district is an outcome of administrative split of the erstwhile district of Gulbarga into Yadgir and Gulbarga. It is promoted by BASIX Group
Total number of branches: 19 and 40 Business Correspondent Outlets spread across the districts.
4. Subhadra Local Area Bank Ltd., Kolhapur (Maharashtra)
( Established in 2003 )
At present Total number of Branches : 10
Out of 6 Local Area Banks only 4 mentioned above are operational
In 2004, South Gujarat LAB was merged with Bank of Baroda.
RBI has cancelled the license of Vinayak Local Area Bank.
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