Local Area Banks (LABs) are non-scheduled banks established with the aim of promoting rural and semi-urban savings and providing credit for viable economic activities in local areas. Here are the key features and regulations pertaining to LABs:
Objectives:
- Promote savings in rural and semi-urban areas.
- Provide credit for viable economic activities in these regions.
Establishment:
- LABs are set up as Public Limited Companies in the private sector.
- They can be promoted by individuals, corporates, trusts, or societies.
Capital Requirements:
- The minimum paid-up capital for LABs is ₹50 million.
- The promoter’s contribution must be at least ₹20 million.
Operational Scope:
- LABs can operate and open branches in a maximum of three geographically contiguous districts.
Regulatory Framework:
- Governed by the Reserve Bank of India Act, 1934.
- Subject to the Banking Regulation Act, 1949.
- Must be registered as Public Limited Companies under the Companies Act, 1956.
Borrowing Restrictions:
- As non-scheduled banks, LABs cannot borrow funds from the Reserve Bank of India, unlike scheduled commercial banks.
LABs play a crucial role in enhancing financial inclusion and economic development in rural and semi-urban areas, despite their limited operational scope and borrowing restrictions.