Page 36 - Banking Finance June 2022

ARTICLE

LOCAL AREA

BANKS - IS SMALL

NOT BEAUTIFUL?

n 24th December 2020, RBI cancelled the This would enable the mobilisation of rural savings by local
O licence of Subhadra Local Area Bank Ltd, institutions and at the same time, make them available in
Kolhapur as the affairs of the bank was
the rural areas".
conducted in a manner detrimental to the
interests of its present and future depositors and the bank Initially ten banks were licensed under Section 22 of the
had breached the minimum net worth requirements. RBI Banking Regulation Act ,1949 and currently only two banks
has also initiated winding up proceedings before the High are functioning. The minimum start-up capital was fixed at
Court of Maharashtra. With the exit of one more Local Area Rs.5 crores which was later raised to Rs.25 crores. The
Bank(LAB) , currently only two LABs are operating in the promoters of a LAB could be individuals, corporate entities
banking firmament in India. and societies and share of NRI promoters was not to exceed
20% of the total number of promoters.
The Local Area Bank Scheme was introduced in August
1996.The then finance minister Shri P. Chidambaram in his
Scope of activities
budget speech in 1996 said that "it has been agreed with
The area of operation of a LAB was initially restricted to 3
RBI to promote the setting up of new private local area
geographically contiguous districts which was later raised
banks with jurisdiction over two or three contiguous districts.
to 5 districts with focus predominantly on rural and semi -
urban areas to bridge the credit gap in agriculture and allied
About the author activities,SMEs, agro-industrial activities,trading activities
and non-farm sector.
Manickam Ravindran
Director, Bankers Lyceum
The LABs would be governed by the provisions of RBI
The author is a retired banker from
Act,1934 and Banking Regulation Act ,1949 but in regard
Indian Overseas Bank
36 | 2022 | JUNE | BANKING FINANCE