Local Area Banks (LABs) in India are a type of scheduled commercial banks that were established with the aim of promoting financial inclusion in rural areas. LABs were introduced in 1996. Here are some key features and details about Local Area Banks in India:
- Purpose: The main objective of Local Area Banks is to promote banking facilities in rural and semi-urban areas and to provide credit and other financial services to small businesses and farmers.
- Area of operation: LABs operate in a limited geographic area of about three to four contiguous districts. They are intended to serve the banking needs of local people, especially those in rural and semi-urban areas.
- Ownership: LABs are owned by individuals or groups, including non-resident Indians (NRIs), charitable trusts, cooperatives, and other entities. They must be registered as public limited companies under the Companies Act, 1956.
- Capital requirement: LABs must have a minimum capital requirement of Rs. 5 crores, with a maximum capital limit of Rs. 200 crores.
- Functions: LABs perform all the functions of a scheduled commercial bank, including accepting deposits, providing loans, issuing credit cards, and providing investment and foreign exchange services. However, their operations are limited to their area of operation.
- Supervision and regulation: LABs are supervised and regulated by the Reserve Bank of India (RBI) like other scheduled commercial banks. They have to comply with the RBI’s rules and regulations, including capital adequacy norms, priority sector lending targets, and other prudential norms.
- Performance: The performance of LABs has been mixed since their introduction. Some LABs have been successful in serving the local population, especially in areas where banking facilities were previously unavailable. However, some LABs have faced difficulties due to poor management, low profitability, and non-performing assets (NPAs).
In conclusion, Local Area Banks in India are an important part of the country’s financial system, aimed at promoting financial inclusion and providing banking facilities to rural and semi-urban areas. While their performance has been mixed, LABs remain an important tool for promoting financial inclusion and supporting the development of local economies.