Page 37 - Banking Finance June 2022

ARTICLE

to liquidity requirements and interest rates, they are Performance review:
governed by the provisions applicable to RRBs under
Out of the 10 LABS, only two LABs have survived as of 2020.
Regional Rural Bank Act,1976.
It is obvious that LABs have not made any impact on the
local communities, amongst whom they are functioning ,in
The 10 LABs that were given in principle sanction by RBI in
terms of, depositmobilisation, credit deployment, customer
1996 were as follows, but a couple of them surrendered their
acquisition etc.
licenses and did not take off. :
Name of the bank Head Quarters State RBI constituted a Review Group in July 2002 to study and
recommend measures to strengthen LABs under the
The Capital Local Phagwara Punjab
chairmanship of Shri. G.Ramachandran ( Former Finance
Area Bank Ltd
Secretary ,Govt of India) and the expert group
Central Gujarat- Vadodara Gujarat
recommended ,inter alia, that there should be no new
Dabhoi
licensing of LABs and the existing ones should reach a share
The Coastal Area Vijaywada Andhra Pradesh
capital of Rs.25 cr from Rs.5 cr over a period of five to seven
Bank Ltd Pradesh
years and the capital adequacy ratio should be raised to
The South Gujarat Navsari Gujarat 15% and LABs need to be treated like any other commercial
Local Area bank Ltd banks.
Krishna Bhima Mahabubnagar Andhrapradesh
Despite the fact that LABs are in existence for more than
Samrudhi Local
24 years, LABS have not grown in size and scale over the
Area Bank Ltd
years and currently enjoy a market share of less than one
Vinayak Local Area Sikar Rajasthan
percent in deposits.
Bank Ltd
Priyadharashni LAB Jalgaon, Jalna, Maharashtra
Market Share of Banks as on 31/3/2019
Aurangabad
Category of Banks Deposits (in Rs. Cr) % Share
Manipal LAB Dk,UK,Shimoga Karnataka
Public sector Banks 84,86,215 63.29
Kongunadu Salem Salem Tamilnadu
Private sector Banks 37,70,013 28.29
Subhadra LAB Sangli,Kolhapur Maharashtra
and Belgaum Foreign Banks 5,81,857 4.36
Regional Rural Banks 4,34,445 3.26
Source: RBI data on banking outlets 2002
Small Finance Banks 49,178 0.36
Payment Banks 883 0 .0066
Local Area Banks 747 0.0056
Source: Trends and Progress Report of RBI

It was felt that the LABs would have a restricted area of
operation and a bad harvest in the area of operation would
adversely impact loan recovery of the branches and savings
of the locals and their growth was dependent on deepening
of financial services and meet the credit gaps in the districts
they operated. Most of the LABs were set up in districts
which was adequately banked and they had to compete
with the stronger players with limited resources at their
disposal.

LABs were conceived as low-cost structures with a 15%
capital adequacy ratio and their business model was found

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