Local Area Banks in India

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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:


    • Promote savings in rural and semi-urban areas.
    • Provide credit for viable economic activities in these regions.


      • 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.